Why Big Wine will keep getting bigger

Big WineThink this year’s wave of Big Wine buyouts was impressive? Just wait. Big Wine is only getting started.

The wine industry is going through unprecedented consolidation, and even I’m surprised — and I’m the one who predicted it. That’s because three things have made this the perfect time for companies like E&J Gallo, Constellation, and The Wine Group to snap up smaller producers the same way a small child attacks Chicken McNuggets. This is a mixed blessing for the consumer, who will get increased access to well-made wine, but at the cost of much of the wine tasting the same regardless of where it’s from and who made it:

? Cheap money. Interest rates are not just at historical lows, but have been there for almost 10 years. That makes the cost of borrowing to buy a winery so low that even those of us who aren’t M&A geniuses understand how much sense it makes. Plus, rumors of an interest rate hike this fall may have spurred this summer’s wave of buying, so that Big Wine could lock in all that cheap money.

? The biggest wine companies are preparing for a world where we buy most of our wine at grocery stores, warehouse stores like Costco, and large chains like Total Wine. This will happen sooner rather than later (if it hasn’t already), and anyone who doesn’t understand how important this is is missing the biggest change in the wine business since the end of Prohibition. Big Wine wants product to fill all those store shelves, and the easiest way to do that is to buy another winery. Could the local wine shop, with someone who waits on you, become as quaint as the corner drug store and gas stations with attendants who clean your windshield?

? The end of the family winery era in California, which started in the 1980s and did much to make California wine some of the best in the world. But wine is not immune to the laws of family business, which say that any family business that lasts past the first generation is the exception. And most of the family wineries that have been sold in the past couple of years are first- and second-generation companies. As one banker told me, there are more wineries that want to sell than anyone can imagine.

The other thing about all these buyouts? That wine, despite what so many think, is no different from any other industry, and the same kind of consolidation that has transformed U.S. business since the beginning of the century — Heinz buying Kraft, for example — will transform wine. This is a change many don’t like and even more don’t understand, but it seems inevitable.

4 thoughts on “Why Big Wine will keep getting bigger

  • By Tom Wark - Reply

    Jeff:

    When you consider there are upwards of 8,000 wineries in the U.S., the sale of J and Benzinger and even a few others really makes no difference to the consumer. There are hundreds of other smaller wineries making great wine that the consumer can easily access. Also, I’m not sure the rate of consolidation is unprecedented.

    • By Wine Curmudgeon - Reply

      Check out the chart in the link, which shows just how much Gallo and Constellation dominate wine sales. They have half the brands in the top 20 in off-premise sales, which means they are well on their way to dominating wine like the two big beer companies dominate beer. Given that most wine drinkers, and not just the smart, savvy wine drinkers like you and I, buy wine at your independent retailers that sell the small brands you mention, it means even more dominance for Big Wine.

      And most wine drinkers wouldn’t know a small family-owned brand if they saw one? How could they, given how every label is designed to make it look like it comes from a small, family-owned winery? Or at least that’s the conclusion of Phil Howard, the leading authority on this subject.

      In addition, if you talk to smaller producers, one of their biggest complaints is that they can’t get distributors to carry them because they don’t make enough wine to sell to Costco and Kroger.

      Unprecedented? Certainly, at least since Coke and Seagrams dipped their toes in wine 40 years ago.

  • Pingback: No Need to Care About Wine Industry Consolidation - Fermentation

  • By Callie Marie - Reply

    I had no idea that there were big wine companies buying out smaller producers. It will be interesting to see how this trend affects the available brands in the liquor stores! With any luck, we will see low prices big bottle of wine. I love trying a wide variety of brands, but nothing beats a good deal.

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