Vintage Wine Estates Taking Different Approach to Wine
July 19, 2018
Fast-growing Vintage Wine Estates could double its business over the next few years as mergers and acquisitions continue in the wine industry, CEO Pat Roney said Tuesday in Napa.
A decade ago, Vintage Wine Estates was a $20 million company. Today, it is about a $210 million revenue company – a 31-percent compound annual growth rate, said Roney during a keynote address at the California Association of Winegrape Growers’ annual conference.
“Vintage Wine Estates is a very, very schizophrenic company,” Roney said at the Silverado Resort and Spa.
"That’s a “good thing,” he added. “That means Constellation, Treasury, none of those guys, want to buy us because they don’t understand what we do.”
The company, the 14th biggest wine company in 2017 with 1.75 million cases sold in the United States, according to Wine Business Monthly, continues to expand a diversified portfolio.
It ventured into Washington state this year to purchase Tamarack Cellars in Walla Walla. It is also producing a new wine for its “Game of Thrones” line, the brand named after the HBO series. The company, said Roney, tries to “take a different approach to wine.” The brand, he said, sold 40,000 cases in a 12-week period when it was introduced in 2017, according to Roney, who noted Game of Thrones has 22 million followers on Facebook.
The wine was the number one selling wine on Amazon for 14 weeks in a row, Roney said.
“It wasn’t about the wine,” Roney said. “It was about the story.
It’s also boosting its current portfolio, including building a new $14 million winery for its Girard brand near Calistoga. Girard now operates a tasting room in Yountville. Girard’s permanent home will be across the street from Clos Pegase. Its largest acquisition to date was Jayson Woodbridge’s Layer Cake in December. Layer Cake produces 400,000 cases, Roney said.
In 2007, the top three largest wineries represented 25 percent of total sales. To date in 2018, the top three wine companies had 58.5 percent of all sales, according to Vintage Wine Estates. Vintage Wine Estates’ sales made up 1.2 percent of the total – or the 12th biggest in sales.
Private equity firms like The Carlyle Group in June purchased a majority stake in Codorniu Raventos Group of Spain, according to news reports. In April, the company purchased Australia’s Accolade Wines. On Tuesday, Duckhorn Wine Co., owned by TSG Consumer Partners, announced it had purchased Kosta Browne in Sebastopol.
“There is so much money out there. They’re looking to find returns that are attractive returns and that’s driving a lot of this consolidation,” Roney said. “In the last four years, I’ve probably fielded 300 to 400 calls from people wanting to acquire all of the company or part of the company,” he said. “It’s not just us. It’s other people out there.”
Vintage Wine Estates is not seeking investors, though the company announced in April a $75 million investment from AGR Partners, now a minority partner.
AGR Partners’ association with TIAA/Westchester Group, backed with TIAA’s 27,000 acres of vineyards, made the difference, according to Roney.
Vintage Wine Estates farms about 2,760 acres, all but 610 acres are leased under long-term contracts. The company’s holdings include 472 acres in Napa County; 75 acres in Sonoma County; and 6 acres in Mendocino County, according to the company.
Premium wine sales growth and distributorships consolidation are also factors that drive mergers and acquisition, according to Vintage Wine Estates.
“It used to be that wineries had most of the control. Today, even as fast as we’re growing, we have to no say on the distributors,” Roney stressed.
Ultimately, there will only be two major distribution groups. At the same time, there will be startups of young distributors focused on craft wines and craft spirits, Roney said. “We’re seeing some of that today.”
Acquisitions are also less precarious than new product development, according to Vintage Wine Estates. “New product innovation is very, very risky. You have to spend a lot of money on it,” Roney said.
Unlike other leaders, Roney supports private labels. Butter Bomb, he noted, is the number one selling brand in Kroger.
Retailers look for increased margins, Roney said. They want to make 40 percent to 50 percent profit margins instead of 3 percent, he said. “It’s all about margin enhancement,” Roney said.
Vintage Wine Estates produces nine labels for Kirkland at Costco, Roney said.
“We do a lot of wine for Costco. And if anybody here doesn’t think that people want to buy wines from Costco under the Kirkland brand, I’m here to tell you they’re wrong,” Roney said. “That’s how strong that brand is.”
Direct-to-consumer sales at Vintage Wine Estates represent 37 percent of Vintage Wine Estates’ business is via direct-to-consumer channels, according to the company. “This growth rate is far faster than any of the other trends that we’ve seen out there,” said Roney during his discussion on the trends in the wine industry.
Cameron Hughes Wines sells 100 percent of its wines through its website, a $12 million source of revenue, according to Vintage Wine Estates.
Tasting rooms, again, remain one of the major drivers of new acquisitions, said Roney, who noted Vintage Wine Estates owns the only tasting room on Highway 1 in Bodega Bay.
Wine clubs also are drivers of profits for most major companies, Roney said.
The company still has 40 full-time employees assigned to telephone sales, a business with revenues worth more than $15 million, according to the company. Vintage Wine Estates also sells wine on QVC.
“Every single segment is important,” Roney said.
The company offers free shipping after having increased wine bottle prices by $2, according to the company.
“Others have figured that out,” Roney said.
Vintage Wine Estates’ Wine Sisterhood, an online community, has 400,000 members, Roney said. Co-founder Terry Wheatley recently was promoted president of Vintage Wine Estates.
Vintage Wine Estates places more effort on e-commerce because consumers want convenience. “You have to make it convenient for them,” Roney said. “One click.”