Consolidation is nothing new for the wine industry, but the pace of change has accelerated in recent years as interest rates have risen, costs of labor and supplies have jumped, and demand for wine has softened. Those and myriad other factors are contributing to a new wave of acquisitions that is changing the California wine landscape. “We are in challenging times that put many wineries into a stress-test environment,” says Peter Mondavi, Jr., co-proprietor of Napa’s Charles Krug Winery, summing up the feelings of many in the industry. 

The current market conditions have prompted the pace of acquisitions to accelerate, notes Steve Lohr, president and CEO of J. Lohr Vineyards & Wines. “It seems like every week somebody’s being purchased,” he says. While he notes the potential negatives to such transactions, he also sees benefits in some circumstances. “Some of these brands are selling because financially, with margins tightening in the industry, they just don’t have anywhere to go,” Lohr says. “They’re really thankful to [be acquired by] a bigger company with more access to funds. Of course sometimes the brand’s identity can change and the vineyard sourcing may not necessarily stay, but in many cases it absolutely gives a brand a second life.” 

Like many California wine executives, Dave Derby, senior vice president and chief commercial officer for Trinchero Family Estates, anticipates more wineries will change hands due to the current environment. “I think a softening demand for total wine overall means the pie is not growing as fast, and so consolidation will continue,” he says. “In an environment where sustainable growth depends increasingly on securing market share, competition among those top producers will continue to be healthy.” 

Shifting Landscape

California mega-producers like E. & J. Gallo Winery and Constellation Brands are at the forefront on acquisitions. In late August, Gallo announced the purchase of Napa Valley’s Rombauer Vineyards, a move that came just two months after the company acquired Central Coast producer Hahn Family Wines, as well as canned wine and spritzer producer Bev. Those are just three of multiple acquisitions Gallo has made in the past five years, as it continues to purchase not only independent wineries but brands owned by rival companies. In 2021 the company purchased more than 30 wine brands from Constellation Brands. Constellation also offloaded six more brands to The Wine Group in 2022. 

Constellation has been both paring and building its portfolio, shedding some of its lower-end wine brands in favor of super-premium and luxury labels. The portfolio has been augmented with a series of acquisitions, including Clos du Bois and Wild Horse in 2021 and, most recently, buying luxury Napa Valley wine brand Domaine Curry. 

While massive in size and impact, those volume leaders are far from the only players who are changing the wine ownership landscape in California. Other large and mid-sized companies are snapping up smaller brands at a remarkable pace. Foley Family Wines has been one of the industry’s more aggressive companies. “Our acquisition strategy focuses on opportunities that are additive to our portfolio in terms of product assortment, operational benefits, and hospitality venues, while consistent with our legacy portfolio in terms of higher end price points,” says Shawn Schiffer, president of Foley Family Wines. “We used these criteria in our last three wine acquisitions—Ferrari-Carano, Chateau St. Jean, and Silverado—and the results have exceeded our expectations.”

Other notable recent transactions include Moët Hennessy’s acquisition of Napa Valley’s Joseph Phelps Vineyards, Delicato Family Wines’ acquisition of Francis Ford Coppola and Virginia Dare wineries, Duckhorn Portfolio’s purchase of North Coast Winery and Vineyards in Alexander Valley, and the sale of Napa Valley’s Shafer Vineyards to a South Korean corporation, among many more. 

“Over the last ten years, the wine industry has witnessed changes at a pace unparalleled in our previous 90 years, and we anticipate this rapid evolution to continue,” says Chris Indelicato, president and CEO of Delicato Family Wines. He says the “call for efficiency” in the industry is undeniable. “As our distributor and retailer allies hone their operations to eliminate extraneous costs that don’t enrich the consumer experience, it’s imperative for wineries to make parallel investments,” he says. “The trend towards consolidation among wineries brings with it the advantage of amalgamating capital resources. At Delicato, our strategy is collaborative; we unite with fellow wineries to collectively enhance capabilities in areas such as administration, supply chain management, and logistics. By streamlining these aspects, we can divert more resources into elevating wine quality—be it through superior vineyards, choice barrels, or extended aging inventory. This strategy not only strengthens our family’s legacy but also fortifies the heritage of our partners.” 

A “Stress-Test Environment”

Mondavi Jr.’s comment about the stress-test environment in which wineries are operating is validated by the broad range of challenges currently facing wine producers. Joe Wagner, founder of Copper Cane Wines & Provisions, points to the current struggles some winery owners face with regard to financing. “Most small family wineries have an operating line of credit,” he notes. “If all of a sudden they’re paying 8% or 9% interest, it’s really harmful. And I know the banks are getting very skeptical about the smaller people in the wine business. They’re tightening their belts during a time when the wineries really need more help from the banks, more of a collaboration with the banks. 

“I see that as pushing people to consider a possible sale,” Wagner continues, noting that Copper Cane is committed to remaining independent. “I’ve heard stories over and over again [where wineries] may be showing great growth and great cashflow, and they’re just not able to get ahead and be profitable and able to expand.” 

Those financing challenges are exacerbated by rising costs of goods and labor, which are putting pressure on margins. “With the costs that have been increasing during and since Covid, margins are really getting squeezed,” says Lohr. “I think there’ll be many more brands [changing hands], including some that are quite surprising.” 

While rising costs hit hard at any level, it’s the lower priced wines—which as a group are in decline in the current super-premium-focused environment—that may be most vulnerable. “Making margins on lower price wines is really difficult to do,” notes Wente Vineyards CEO Tyson Overton. “Just the cost of glass, labor, cardboard, fuel to transport it, all of those things really eat into profit. If you’re going to make profit at that low end and still deliver a product that has some quality to it…the trends are really tough below $11 a bottle. 

Rick Tigner, president and CEO of Jackson Family Wines, also expects more consolidation given those factors, and the reality that the distributor tier is consolidating as well. “With the pressure on costs and consolidation at every level of the distribution process, getting wine to market in the right strategic places has grown more difficult,” he says. “For example, when you look at the small to mid-sized wineries, the capital investment and operating expenses are large in the current economy. Vineyard development, farming sustainably, labor availability, regulatory hurdles, and more all factor into making it difficult to operate successfully.”

Mondavi Jr. also points to changes at the second tier. “As distributors get bigger, the suppliers then need to get proportionally bigger to maintain their relevance in the distributor’s portfolio,” he says. “This trend is just further bifurcating our industry where the big get bigger and rely almost exclusively on the distribution network, the small remain small and rely largely on DTC, and those in the middle have a patch work where they may struggle being in a large house, or rely on a patchwork of small, specialized distributors that have limited reach in a market, and of course DTC.”

Generational Challenges

Along with the ongoing operational issues in the California wine industry, another challenge that could be influencing some of the acquisition activity is succession. To put it plainly, sometimes the next generation has little interest in taking over the helm at a family-run company, or there simply isn’t a next generation to whom the torch can be passed. Mondavi Jr., for example, notes that many wineries are family owned and “generational transition issues abound and make it difficult to keep the winery in the family while struggling with the distribution challenges.” 

In numerous instances, there are “situations where the next generation of family-owned wineries don’t want to follow in their parents or grandparents’ footsteps,” Tigner adds. “All of this leads us to believe that consolidation will continue as smaller sized wineries sell to larger wine companies that have infrastructure and resources to maximize sales channels and build more consumer awareness.” 

Trinchero’s Derby sees the succession challenges as an opportunity. “As a family-owned company that’s proud to partner with other family-owned wineries, we’re also seeing consolidation as some estates are passed down to second and third generations that aren’t interested in the wine business. That gives us a great opportunity to continue the legacy for those families with the support and resources of an organization such as ours.” 

It’s also important to keep perspective. Wente’s Overton notes that with more than 11,000 wineries in the United States, and more than half of those in California, the industry isn’t shrinking down to just a few players. While the biggest players may be getting bigger, there remain tiers of medium and small wineries that are gaining shelf space at retail, wowing sommeliers and wine professionals in the on-premise, and exciting consumers with their taste, quality, and unique stories. 

Wagner says the onus is on the powerful small and medium-sized independent wineries to ensure ongoing vitality. “The incentive is there to sell,” he notes. “I think what we’re going to end up with at the end of the day is just fewer players in the industry, which doesn’t bring a lot of diversity.” Wagner stressed that Copper Cane and others need to maintain what they’re doing to ensure homogenization is kept at bay.

Competitive Strategies

In an environment where the big are getting bigger, repercussions ripple throughout the industry. Tigner of Jackson Family Wines says history suggests that for some brands, attributes will change after acquisition. “Short term, there may not be any significant impact for consumers in terms of pricing or quality,” he says. “But, looking back historically, there is evidence that over time we’ve seen wine producers who acquired premium price category brands shift vineyard sourcing to reduce costs and improve margins. For example, we’ve seen wineries shift their Chardonnay sourcing from the North Coast to California designation or even from Napa Valley to its sub-region Carneros as a way to lower grape costs and improve margin. But time will tell where some of these wineries will end up in the future in terms of their commitment to the premium wine market.”

Consolidation also alters the playing field. “If you’re a bigger winery you have a bit more leverage,” says Wagner. “You can push on the distributors a little harder and use other pull with retailers.” Successful independent brands, he says, “have to come with a great story and great marketing. And the quality needs to be at the highest level, outperforming quality-wise, all your competition, and your pricing needs to be correct.” 

Overton adds that independent wineries need to guard their place in the wine business. “We’ve really got to reach out and make those connections one-to-one with consumers,” he says. “I think if we do that, there’s plenty of room. [Consumers] might buy something from a multinational but they’ll certainly come back and buy something from Wente. 

“We’ve got to make sure that we accentuate our strengths: we’re family owned, sustainable, and we’ve got quality in the bottle at every price point,” Overton continues. “ We’ve been doing this for 140 years. If we relay those messages, that’s the most important thing, and if we’re doing that right, we’re going to do just fine.”