Tag Archives: wine business

Big Wine strikes again

Big Wine

“Who do we want to buy next?”

That E&J Gallo bought J Vineyards, the highly-regarded California sparkling wine producer, last month was shocking, but it did make business sense. Gallo, for all its vastness, doesn’t make high-end bubbly and doesn’t have many successful restaurant wine brands, and J does and is. Plus, J owned 90 acres of prime Sonoma vineyards, making the deal even sweeter for Gallo.

So how to explain this week’s news that The Wine Group, second-biggest to Gallo among U.S. producers and with even less of a critical reputation, bought the fiercely independent and much beloved Benzinger Family Winery? The Wine Group has never shown any desire to make wine not sold in grocery stores, and its two biggest brands are Franzia and Almaden, the five-liter box cash cows.

Call it one more step in the Big Wine-ing of America:

The increasing consolidation in the U.S. wine business, something I wrote about at the beginning of the year. It is getting harder and harder for wineries that make less than one-half million cases to find distributors and space on store shelves. Benziger makes less than 200,000 cases a year, which wouldn’t even make it the biggest producer in Texas, and J sells only about one-third of that. Said the owner of a leading California independent: “My guess is that a winery really needs to be above 200,000 cases to really get the attention of a distributor. But maybe 500,000 is the new 200,000?” A distributor told me: “There are too many labels fighting for too few spots on the shelf or wine list. It’s crazy.”

• Family and independence, two hallmarks of the California wine business since the 1980s, aren’t enough anymore. These are just the latest sales involving long-time family wineries, which saw an opportunity to cash out to avoid succession problems, solve family disputes over winery operations, or to take advantage of Big Wine’s deep pockets. Sale prices weren’t disclosed, but one report said the J deal may have been worth as much as $90 million, which would make the Benziger price well into the hundreds of millions of dollars. Even of the sale price was half of that for each, which is probably more accurate, that’s a winning payout.

• It’s all about the land. Benziger, with sales of less than $10 million, is so small compared to the multi-billion dollar Wine Group that there is almost no way it could affect the parent’s financial performance. This makes the deal even more baffling, unless it was for the 200 or so acres of quality Sonoma vineyards that were part of the sale.

Will Big Wine run their new companies successfully? Certainly, if success is defined by profit. Otherwise, expect the new owners to do what new owners always do, despite best intentions and protests to the contrary — cut costs, eliminate unnecessary products (so say good bye to J’s lovely pinot gris), and “rationalize” operations. Gallo and The Wine Group won’t ruin J and Benziger the way Sears destroyed mail-order clothing retailer Lands’ End, but they won’t be the same wineries they were before the sale. That’s something we’ll have to learn to live with, because consolidation is going to be with us for a very long time.

More about Big Wine:
How to buy wine at the grocery store
Downton Abbey claret — wine merchandising for dummies
Big wine tightened its grip on the U.S. wine market in 2013

Private label wine: The future of the wine business?


private label winePrivate label wine, always a small but important part of the wine business, is going to get much, much bigger. In this, wine drinkers will see more wines on store shelves they’ve never heard of and can only buy in one store — all of which is good for retailers, but not necessarily good for us.

More, after the jump:

Wine trends in 2015


wine trends in 2015Wine trends in 2015 will be similar to wine trends in 2014 — wine drinkers will see more wines they’ve never heard of and we’ll be able to buy those wines at more places than ever before, including and especially grocery stores. Along the way, Big Wine will continue to get bigger, and even wine writing could see significant changes, as those of us who don’t have money behind us will stop doing it.

More private labels. Retailers love private labels, like Trader Joe’s Two-buck Chuck or Costco’s Kirkland, because it gives them a product no one else has and because they make more money than with national brands. Case in point: The Total Wine chain sells many national brands at its cost, and makes its money on its Winery Direct private labels. We’ll see more private labels because retailers are desperate to boost margins at a time when they can’t, for whatever reason, raise prices. Nielsen reports (and I’m going to write more about this later this month) that private label wine sales were up 11 percent last year, compared to 3.5 percent for all wine.

More chains. There has never been a national wine retailer, which has made perfect sense given three-tier and that there are 50 booze laws for 50 states, including some that don’t allow chains. But these companies are expanding despite the legal obstacles. Total Wine expects to double its sales to $3 billion by 2019, opening 12 to 15 stores a year, and Canadian retailer Liquor Stores N.A. wants to add to stores and states to the 36 locations it has in Kentucky and Alaska. My guess? That the chains will slowly move into as many states as possible, changing the laws when necessary. Theu’ll offer better prices and force independents to get better, which is what happened in the pet business. Petco and PetSmart didn’t crush the independents when they opened 20 years ago; in fact, independents still account for about 90 percent of all pet stores, though only about one-third of sales.

More grocery stores selling wine. This will change the wine business as we know it, despite repeated failures to get grocery store sales in Pennsylvania and New York. Supermarkets want wine because it’s more expensive than most of what they sell, and it helps them offer one-stop shopping. Plus, they have the financial clout to change laws in states that forbid grocery store sales, most recently in Tennessee. Again, this will pressure independents, who won’t be able to compete on price and will have to redouble efforts to offer quality service.

Consolidation. Big Wine will continue to buy smaller companies and increase its market share, with deals like this. In this, it will solidify its hold on retailer shelves, making it more difficult for smaller wineries with limited distribution to be sold in all but the most progressive independents. I’d guess that as many as three-quarters of the wines in a typical grocery store come from the six biggest wine companies, and that percentage will only get bigger.

Internet wine writing shakeout. Last fall’s news that Vinous bought Stephen Tanzer’s International Wine Cellar is the biggest development in wine writing since the Internet. It means someone has figured out that the only way to make money with wine writing on the Internet is to target the five percent of Americans who buy wine that costs more than $20 and that the only way to target them is to get big to compete with the Wine Spectator and the Wine Advocate. That’s not good news for those of us who don’t target that audience and don’t have the deep pockets to get big. Think of it as the wine writing equivalent of what Big Wine is doing, and wonder how many independents who are on the Wine Web Power Index will be there in five years.

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