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A VINE START | by Eric Degerman Ste. Michelle ready for role as NW leader by adding A to Z
Ste. Michelle’s new owners add rather than subtract
Ste. Michelle Wine Estates and its team have experienced turbulent times in recent years, but Sept. 7 sparked some celebrations when the largest wine company in Washington state announced its acquisition of two of Oregon’s largest brands — A to Z Wineworks and Rex Hill.
The move makes Ste. Michelle Wine Estates the largest wine company in Oregon, and the shock and awe generated by the news will reverberate. It also means greater responsibility for Juan Muñoz-Oca, chief winemaker for Ste. Michelle Wine Estates, but he doesn’t seem to mind spending a bit more time on the southern side of the Columbia River.
“The reactions from colleagues in the industry have all been of great excitement, with international and U.S.-based colleagues alike being happy and excited for both A to Z and Ste. Michelle,” Muñoz-Oca said.
A year ago, private equity firm Sycamore Partners reportedly paid $1.2 billion to tobacco conglomerate Altria for Ste. Michelle Wine Estates. It was a deal orchestrated by Bank of the West.
It was no secret in the Oregon wine industry that A to Z Wineworks was on the market. Who provided financing for A to Z for the past 15 years? Bank of the West.
Considering that Adam Beak, managing director of the bank’s beverage division, knows the balance sheets and desires of both companies, the September sale was a natural match. Much of A to Z’s production is dedicated to approachable Pinot Noir in the $20-$25 range — an attractive tier for Ste. Michelle.
Beak also has a sense of the value of the Woodinville real estate Ste. Michelle placed on the market not long before the A to Z sale was announced. Wine is no longer produced on the Woodinville campus, and Ste. Michelle officials acknowledge the possibility that its tasting gallery connected to the iconic château could be leased back to Ste. Michelle as part of a deal.
So in less than a year of formal ownership, Sycamore — with holdings that include Staples, Lane Bryant and Ann Taylor — went big again in the Pacific Northwest wine industry.
Earlier this year, Wine Business Monthly magazine research ranked Ste. Michelle at No. 8 in the U.S. for wine production with 8.2 million cases. Château Ste. Michelle accounted for 3.1 million cases. Next was 14 Hands at 1.3 million cases.
With the Oregon acquisitions — the two brands produce about 400,000 cases — SMWE moves closer to No. 7 Bronco Wine Co., which WBM estimated produces 9 million cases. (Bronco founder Fred Franzia died Sept. 13 at the age of 79.)
E. & J. Gallo Winery, which owns Columbia Winery across the street from Château Ste. Michelle, dominates the U.S. industry with an estimated 100 million cases. The Wine Group is a distant second at 51 million.
Weighing in at No. 11 with 3.2 million cases is Seattle-based Precept, the privately owned company led by Andrew Browne, who grew up in Spokane. A substantial portion of its portfolio is in Oregon and in Pinot Noir.
A to Z Wineworks was created in 2002 and owned by Bill and Deb Hatcher, Sam Tannahill and Cheryl Francis. Each came with a background of helping to lead some of Oregon’s most famous wineries. In 20 years, they grew A to Z Wineworks to 365,000 cases. Rex Hill, a respected winery they purchased in 2006, makes about 30,000 cases.
“We could not have found a better partner than Ste. Michelle to carry on the legacy of both A to Z and Rex Hill,” Deb Hatcher stated in a news release. “They understand the Pacific Northwest better than anyone, and they know what it takes to promote an entire region on the global stage.”
She, Francis and Tannahill become consultants for Ste. Michelle. Bill Hatcher enters retirement. Amy Prosenjak, president and CEO of A to Z, joins SMWE as president of Oregon Brands. That includes Erath Winery, which Ste. Michelle purchased in 2006. When combined, it positions Ste. Michelle as the largest producer of Oregon wine at about 800,000 cases. According to Wine Business Monthly reporting, the state’s largest single vintner is Union Wine Co., at 480,000 cases.
Ed King, CEO and co-founder of King Estate Winery with 300,000 cases to sell each year, shared with me that he doesn’t view the acquisition by Ste. Michelle as the move of a competitor.
“This further establishes the value the wine world places on Oregon wines and is a strong testament to the success of our longtime friends and colleagues, Deb Hatcher, Sam Tannahill, Bill Hatcher and Cheryl Francis,” King said. “They have labored long and hard to get to this point, and I personally doubt that these dynamos will stay on the sidelines for long.
“In the long term, this can only bode well for the Oregon wine industry,” King added. “King Estate is honored to continue working alongside these and so many other outstanding vintners for years to come.”
For decades, critics of Ste. Michelle Wine Estates were quick to point out its links to the tobacco industry. It’s worth noting U.S. Tobacco of Connecticut, which bought Ste. Michelle in 1974, replanted Cold Creek Vineyard after the devastating winter of 1978. At the time, Cold Creek — a warm site west of the Wahluke Slope and recommended to Ste. Michelle by the late Walter Clore — was the state’s largest planting at 500 acres. It’s difficult to imagine anyone other than “Big Tobacco” being willing and able to invest twice in a vineyard that large.
We all know that anything is for sale — if the price is attractive enough. Right now, though, it would seem Ste. Michelle Wine Estates is charting a course as the largest wine company in the Pacific Northwest. And talented winemakers remain in place to do the work that matters most to consumers.
ERIC DEGERMAN
Eric Degerman is the president, CEO and co-founder of Great Northwest Wine LLC. He can be reached at eric@GreatNorthwestWine.com.
