West coast wineries selling at record pace30th May, 2014 by Lauren Eads
The pace at which US west coast wineries are changing hands is at the highest the region has ever seen with analysts estimating 10% of winery owners are now “strongly considering” selling up within the next five years.
That means 524 West Coast wineries, based on extrapolated results, could be sold to new owners within the next five years, according to the recently released Silicon Valley Bank’s report Ownership Transitions in the Wine Industry 2014, which examined the number of winery sales and transitions in the region.
Further still the study, based on the responses of 646 winery owners, found that one in three (31%) were “open to a sale under the right circumstances”, with increasing land prices, difficulties with national distribution and an ageing ownership population key factors driving owners to sell up.
Rob McMillan, founder of Silicon Valley Bank’s wine division and author of the report, said: “The results underscore the robust marketplace for small- and mid-sized wineries, with more winery sales and ownership transitions today compared to any other period.
“There will be continuing opportunities for strategic buyers to acquire labels and productive capacity, along with opportunities for high net worth individuals to find their own place in the fine wine business. More than 646 wineries located in California, Oregon and Washington responded to questions about their ownership plans.”
Throughout the 1970s and 1980s, The West Coast wine industry experienced tremendous growth with few sales, the report found, however this changed in 2000, as McMillan explains.
“After the U.S. economy peaked in March 2001, the country went through a shallow recession that lasted through November 2001. When the winery owners emerged from the storm cellar, the winery landscape had changed forever. Large distributors had their own inventory issues during the dot-com recession and coupled with all the new brands created in the 1990s they revisited their thinking about how many wine brands they could effectively support.
“Combined with the growth in large chains and big box stores, we were destined to see a roll up of the distribution companies into much larger national firms, leaving most family wineries too small for national distributors. Consequently many smaller wineries lost their prior distributor relationships”, McMillan said.
The pace of change is expected to open up strategic opportunities not only for larger wineries, but for fledgling businesses keen to find their first footing within the industry, with McMillan upbeat about the churning of ownership across the region.
“Sales of businesses refresh the lifeblood of the industry, and new business leaders enter with new focus, direction and solutions to problems”, he said
Over the next five years sales are expected to be led by smaller wineries, but almost half (48%) will occur in businesses that produce more than 5,000 cases of wine annually.
McMillan concluded: “We expect to see a small slowdown in the near term but predict over the next five years that there will be many opportunities for strategic buyers to acquire labels and productive capacity and for high net worth individuals to find their own place in the fine wine business.”