Allied Domecq's acquisition of Buena Vista Winery was finalized on August 3. Founded by Hungarian wine pioneer Count Agoston Haraszthy in 1857, and situated in the scenic Sonoma Valley, Buena Vista Winery is California's oldest commercial winery. Included in the purchase are 718 acres of prime, planted Carneros vineyard property, straddling both Napa and Sonoma counties.
The crush for the North Coast's $800 million grape crop began last week for Napa Valley's sparkling wine wineries. Sonoma County wineries get into full swing this week. Korbel Champagne Cellars planned to begin its harvest this morning in vineyards near its tasting center outside Guerneville. And at Gloria Ferrer Champagne Caves, south of Sonoma, officials said they have scheduled harvesting to begin before dawn Wednesday. Winemakers said the smaller tonnage per acre was acceptable because of excess wine from last year's bumper harvest and a recent slowdown in demand for premium table wines. "Right now, the state of California does not need another whopper of a crop," said Paul Ahvenainen, senior winemaker at Korbel.
The crush also is expected to provide a seasonal boost for tourism, which recorded a drop this summer from last year, probably a result of the slowing economy. The county's wine visitor center in Rohnert Park had 3,000 visitors in July, compared with 4,200 a year earlier, said Jaimie Douglas, executive director of the Sonoma County Wineries Association. However, the crush remains a significant tourist draw, attracting loyal patrons to their favorite wineries as well as bringing in visitors connected to the wine and hospitality business, Douglas said.
The wineries association will attract groups of wine buyers and media writers from Germany and Japan this season for a firsthand look at harvest in the county's vineyards. "That's our hook, that crush is going on," Douglas said. Wine remains the county's premier agricultural product, accounting for $390 million of the $586 million in gross farm income last year. Sonoma County vineyards produced nearly 191,000 tons of grapes last year, compared with 137,000 tons in Napa County, 58,000 tons in Mendocino County and nearly 20,000 tons in Lake County.
The crush is starting slightly earlier in the county this year. "It's early and that's really good news for the growers," said Nick Frey of the Sonoma County Grape Growers Association. "Because the sooner you start, the less likely you're going to have rain." Frey estimated the county will have 46,000 acres in grape production this year, compared with 42,000 acres in 2000.
Chris Hanna, general manager of Hanna Winery in Santa Rosa and Alexander Valley, toured vineyards Monday and reported that some Zinfandel vineyards may be ready to harvest in the next two to three weeks. "I didn't think we'd be into reds this early in the season," she said. The grapes have "a great complexity of flavor" that bodes well for the vintage of 2001, Hanna said. But first comes the crush, and soon enough "it'll be fast and furious."
To get the crush off on a light-hearted note, winery managers and workers at J Wine took some time to tie-dye shirts and paint their hair green, burgundy and other harvest colors. Lundquist said Monday's festivities also featured the start of catered lunches for the work crew, prepared each day during harvest by the winery's chef and staff. This season, the grapes weathered April frost and warm, sometimes hot, days in May and June. The National Weather Service is predicting mild days of morning fog and warm afternoons to continue through the week. Santa Rosa is expected to have high temperatures in the low 80s. That weather has been nearly constant through July and August, and many growers wouldn't change it now if they could.
"The longer it takes to get this stuff ripe, the more flavors we're going to see," said Mike Crumly, vice president for Gloria Ferrer. The winery will begin its harvest at about 2 a.m. Wednesday, Crumly said, because "we want the juice we press from these grapes to be cold." The first grapes will be red pinot noir used to make white wines, and the night harvest will help keep the sparkling wine free of color, he said.
Steve Smit, vice president and general manager of Clos du Bois winery in Healdsburg, said the grapes this year are "just a smidgen smaller," which he considers a good sign. "The smaller the berry, the more intense the flavor," Smit said.
All of a sudden, Constellation owned one of the largest collections of fine wine brands in the business. Its fine wine division, merged into Franciscan Estates and based in Rutherford, will sell around 1.6 million cases this year at an average wholesale price hovering around $100 a case, said Agustin Francisco Huneeus, president of Franciscan. The flurry of acquisitions made Constellation the sixth-largest wine company in Sonoma County. Its two wineries in Sonoma County rang up $55 million in sales last year, shipped 585,000 cases and employ 200 workers.
Expansion has been a fundamental part of Constellation's business strategy. And while Franciscan Estates will continue to look for "jewels" to add to its portfolio, Huneeus said his division is focusing most of its energy on the quality of its wines, not expansion or acquisitions. "Our goal isn't to be the biggest fine wine company. It isn't to be the broadest. It is to be the best fine wine company," Huneeus said. "We are focusing on areas where we know we can make a unique wine, something that stands out in the market."
Most profitable division
Although Franciscan Estates is the smallest of Constellation's four divisions, it is the fastest-growing and most profitable part of the company. Last year, Franciscan Estates generated $93 million in net sales, or just 4 percent of Constellation's total revenues, excluding excise taxes. By comparison, Constellation's jug wine division, Canandaigua Wine Co., rang up $688 million in net sales. However, Franciscan produces operating profit margins of 26 percent -- by far the highest of the company's four divisions. Its traditional jug wine business generates operating profit margins of 7 percent, according to filings with the Securities and Exchange Commission. Constellation's acquisitions in Napa and Sonoma thrust the company into the fastest-growing segment of the wine business. While consumption of jug wine and many distilled spirits is sinking, consumption of premium wine is growing steadily.
Boost in sales growth
Franciscan expects to boost sales 15 to 20 percent annually over the next five years with its current stable of brands. By comparison, Constellation's sales have grown 6 percent annually over the past decade, excluding the impact of acquisitions, Sands said. "Fine wine is the highest growth business that we have," Sands said. Some wine industry executives have been puzzled by Constellation's decision to wait so long to enter the market for fine wines. Sands said he focused on acquisitions in other segments of the beverage industry for most of the 1990s because super-premium wine brands tended to be small, unprofitable and overpriced. "Back in the early '90s, the super-premium segment was not really profitable. It had not grown to the scale it needed to be truly profitable. There was not certainty that it would continually grow and build that scale. And prices were still very high," Sands said. Pursued stable businesses
"On the other hand, the businesses we bought were stable. They were declining in some cases, but when we took them over we could build growth," he said. "And they were priced very well." By the late 1990s, however, the fine wine segment had grown into a sizable business. Sonoma and Napa wineries had built reputations for quality and value, providing a foundation for sustainable growth, Sands said. Although winery prices had jumped since the beginning of the decade, the valuations were "not that bad, given the risk profile," he said. Today, Constellation has assembled a portfolio of seven brands in its fine wine division: Two Sonoma County labels, Simi and Ravenswood; three Napa County labels, Franciscan Oakville Estate, Mount Veeder Winery and Quintessa; a Central Coast brand, Estancia Estates in Monterey County; and a Chilean brand, Veramonte.
Combined for clout
Sands said the business unit operates much like a smaller version of Constellation, which combined brands into one company to get clout with distributors but divided its operations into four subsidiaries to remain agile and focused. "Agustin Francisco is dividing the business into unique estates. There is a lot of individuality, but he is using a common sales force to make sure he has the scale and the position with the distributors to get the product to market. It is a mini Constellation model that works very well with that business," Sands said.
But in many ways, Constellation's fine wine division is unlike any other part of the company. Fine wines are hand sold, not mass marketed like some of Constellation's other products, Sands said. And fine wines are not released immediately, but aged to improve quality, which requires huge investments in storage capacity and inventory. "It is a very capital-intense business," Sands said. "We are on a constant basis investing cash in that business, as opposed to taking out cash."
Vineyards expensive
Vineyards are one of the chief expenses. Franciscan owns or leases more than 4,200 acres of vineyards in California and Chile, including 750 acres in Sonoma County's Alexander and Russian River valleys, Huneeus said. Although Franciscan is the smallest division in the company, its vineyard holdings are equal in size to those controlled by Constellation's giant jug wine division. Franciscan continues to invest in vineyards, part of its strategy to control the grape-growing process and protect the quality of its wines. Constellation understands the importance of investing money in the fine wine business, Huneeus said. "They raise their eyebrows sometimes. But generally speaking, they get it," Huneeus said. "They have really given us the resources to go out and do it."
Now this sounds like fun! Wine Boot Camp in the Bloomberg News!
