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09.22.2009

How to Kill a Wine Brand

broken_egg.jpgIn my other life, the one I lead in the business world, I've been involved with or close to the acquisition of several services companies by a larger one. And I have to say, they have always been a bit of a train wreck. Such mergers, acquisitions, or significant ownership stakes always look great on paper, but invariably, when it comes to the real world, rubber meets the road stuff of integration, more often than not, it's a disaster.

These disasters seem to arise from one of two main areas: cultural conflicts between the two companies, and/or differing priorities on how to run the business between the old ownership and the new. Quite often it's both.

Three pieces of recent news in the wine world have got me wondering if the same is true in the wine world sometimes.

The first two bits of news were the acquisition of Kosta Browne winery for what seems like staggeringly high figure of $40 million, and the separate acquisition of the Betts and Scholl wine brand for $3 million. Both events, of course, are wonderful validations of the hard work that the owners put into their brands, and their talents as producers. But they also prompt the question, what happens now?

For some owners, the answer to that question might be academic. If the sale is an exit strategy that pays off a lot of hard work, the event might be accompanied by a sigh of relief and an extended vacation. But there are lots of reasons for the sale of a business, and not all of them involve an easy exit (physically or mentally) for the founders or current owners.

In some cases, the terms of the sale involve the owners staying on for a while, or even permanently. Which brings me to the third bit of news. Havens Winery was purchased in 2006 and at first its owner and founder Michael Havens was slated to stay on and continue doing what he had always done. But 18 months later Havens made his exit citing what might be charitably described as "differences of opinion" with the new ownership.

And then earlier this week, the owners, Billington Imports, "all but pulled the plug" on Havens winery according to a story in Wine Industry Insight. This announcement comes after the financially troubled firm purportedly missed lease payments and permit payments earlier in the summer.

This is all quite a shame. Havens was a unique, solid producer of good wines. Billington owns several other wine brands, most notably Chasseur. Certainly the current state of the economy has played a role in the unfortunate end of this wine brand, but something else is at work here too, which I suspect resembles the phenomena that I've observed outside the wine industry.

It's a serious bummer to see what has happened to Havens, and I hope that things go much better for Betts and Scholl and Kosta Browne. Certainly there must be examples of winery acquisitions that produce triumphs rather than tragedies. But like the nightly news, we tend to hear more about, and dwell on the unfortunates.

I'd like to know what you think, especially you readers who are in the business. A note, however, before you post comments. I gather that there are probably a lot of bad feelings associated with the Havens shutdown, so if you're an interested (or even just opinionated) party, please no mudslinging.

Comments (33)

09.22.09 at 11:50 PM

A necessary and overdue post in the wine world for sure Alder. As someone whose seen the good bad and the ugly of the merger & acquisition business in wine over 25 years, the only time I've seen it really work is when the acquiring party not only has the business acumen to make the deal work for all parties, but also gets the "soul" part of the winery, its people be it ownership, winemaker, team. It's rare to have those two qualities in the acquisition world. One of the deals that seemed to be pretty successful was the Williams Seylem purchase which although it lost two great partners that were the soul of it in the purchase (I believe it was $9 million), the agreement kept the grape contracts for three years and brought on Bob Cabral as winemaker. It gave at least the three year time period to see if the new ownership could make it work. It was a different winery for sure, but it managed to weather the change it seemed. I really regret what happened with Havens, as a long time fan of Michael's and the finesse of his wines, it's a true tragedy to see it come to an end. My hope is we'll see Michael's work elsewhere in a new endeavor.

Dylan wrote:
09.23.09 at 8:06 AM

It's as you said, Alder. Businesses, especially the entrepreneurial ones which are prone to mergers/acquisitions, usually resemble the make-up of a family. All people involved know each other well, share equal passion for their goals, and worked hard to create their vision. When a merger takes place, often times, it can feel like the equivalent of forced relationship. All of a sudden the dynamic of friends working toward the dream can become thrown-off by the new blood with even slightly different priorities. When it comes down to it--the only safe merger is where it fits the company culturally. These happy mergers can happen, unfortunately, I'm just not aware of the examples within the wine industry.

Don Clemens wrote:
09.23.09 at 8:40 AM

What a timely post. I've lived through a couple of these as a manager or executive. I think that the number of wineries who have suffered during these mergers/acquisitions vastly outnumbers those that have thrived and grown a healthier internal structure. So many of these businesses grew in an almost organic manner that they took on their own life form. When the creators of the business exit, for whatever reason, there is almost always a total disruption of the rhythms that made that business function in the first place. Personality matters; when the heart/brain of a business leaves, the "transplant" rarely functions in a way that makes the rest of the body operate at its optimal capacity. And, it doesn't have to be small winery operations either. I just read the press release announcing that Glazer's and Southern Wine & Spirits have decided to end their merger discussions. It looks like the powerful personalities involved here were having a real problem with the "pre-nuptial" agreement. They must have seen that there would have been a major disaster if these giants had gotten in bed together - some marriages aren't meant to be.

Alder wrote:
09.23.09 at 9:24 AM

Thanks for the thoughtful comments ! I wonder if the Williams-Selyem purchase worked because it was a couple of individuals buying the winery instead of a bigger corporation or holding company. Perhaps that's a better recipe for success.

St. Vini wrote:
09.23.09 at 10:26 AM

Actually, I believe the K-B price was $40m for 51%, making the whole company worth just over $80m. Hard to fathom for just 10,000 cases even if it's all direct sales at $50+. For Havens, I think Billington was just the wrong steward. The wines were great when Michael Havens was involved, but I heard recently that the brand is going to be "liquidated" and shelved. A shame.

09.23.09 at 11:37 AM

Wineries get bought and sold all the time. It's not necessarily a bad thing, even when the buyer is a big corporation. For example, Gary Farrell brand is still producing very good wines (as of the last ones I reviewed) despite being owned by Ascentia (and others before that). In this day and age, anyone who buys a winery and consciously destroys it is an idiot, as the critics will pounce on the wines. Chateau St. Jean has been owned by big companies forever and they're still great. And Jess Jackson has taken over numerous little wineries with no obvious loss in quality. So I wouldn't worry much about Havens or Kosta Browne.

09.23.09 at 11:55 AM

On the Williams Selyem front, a piece about the acquisition and the story in 1999 from Laube...it was John Dyson and his investment group, but he was a farmer by training, invented the Smart Dyson...(I do not represent these folks by the way) here's the piece, think you may need a subscription to read it I can post it as a note on my FB page http://www.winespectator.com/magazine/show/id/8503
Purchase price was reported as $9.5 million, no assets, only contracts. "New York-based vintner John Dyson bought Williams Selyem Winery, which makes California's most sought-after Pinot Noirs, in late January pending formal approval of state and federal permits to run the winery. The purchase price was $9.5 million" We should get Mike Jaeger, formerly of Bacchus Capital Management to give some insights.

Jim Caudill wrote:
09.23.09 at 12:55 PM

I think in most of these situations any change is seen as almost evil, in part, perhaps, because not every exchange is rooted in celebrating success (as with Kosta Browne). But they can turn out just fine. Today's Press Democrat profile of La Crema (http://www.pressdemocrat.com/article/20090922/LIFESTYLE/909219903/1309?Title=Cr-me-de-La-Crema) surely illustrates the good that came when Jess bought La Crema practically from the scrap heap. And there are many more examples, including some where the winery being acquired changes the culture at the acquirer for the better, at least for a while. La Crema also demonstrates, without question, that big doesn't have to mean bad. Deep pockets or commercial courage is sometimes just what's needed.

09.23.09 at 1:43 PM

Mr. Havens is thankfully making wine again. He's just emailed to say the following "I am, btw, fermenting Albarino as we speak, for our new brand: Abrente (Gallego for the first light on a clear day, or progress). We are partnering with Morgan Peterson (Joel’s son) on this, and it will be focused on Galician whites." He says that several folks have asked him to revive the brand, but no decisions at this point. Sometimes a sale can be like marrying the same person the second time around, you learn from the past.

Larry Chandler wrote:
09.23.09 at 3:00 PM

The greatest tragedy of all was when Heublein took over the Inglenook brand and turned what was one of the best and historic California wineries and turned it into Plonk Central.

ned hoey wrote:
09.23.09 at 11:12 PM

Doesn't it really boil down to the inherent conflicts between business as practiced by corporations and what good wine is about? While making, branding and profiting from "wine" has been done successfully by corporations, those wines don't interest me. It's rare that corporate involvement in art or craft results in a soulful, artful, crafted product of singular uniqueness. It's been true in music and movies and other crafts.
I suppose one could point to scale, corporate business always wants to increase the scale, high execution craft just does not scale up like so many other products. The demands required to keep quality high in the eyes of the visionary creator or craftsperson are usually compromised
in order to increase scale of production. So while it sometimes works out, which keeps them trying, it more often doesn't but for some reason many otherwise smart people seem willing to
discount.

John Skupny wrote:
09.23.09 at 11:55 PM

In thirty years of supply side work I believe it becomes a matter of something with soul and whether after the new régime takes over do the followers believe the soul remains intact. In most cases this does not happen; anyone remember all the fuss about Winery Lake Vineyard? Alder, loved the picture, very subtle!

Mark wrote:
09.24.09 at 2:21 PM

Hard to imagine a situation that works well if a prior owner stays on with new ones. Principally there are going to be greater financial concerns on the new owners whom have just written a sizable check....perhaps they are always going to be more worried about the bottom line then the product?

Chris wrote:
09.24.09 at 4:00 PM

After reading the details on the Betts and Scholl acquisition, it appears to me that there are marked differences from the other references. Betts and Scholl has become a 5k annual case production 'virtual' winery but they have wines in Australia, California, and France so there are complications in being a multinational winery. Then throw in the new mezcal project Sombra and now you have Mexico in the mix. In order to maintain all the travel necessary for managing this business, it seems like they either needed to expand internally or find other alternatives. Coupling with this import company and having Betts head up the newly formed fine wine division, really instantly creates a sales team that can represent Betts and Scholl. The grind of travelling sales calls probably would be too much with all of the other operational travelling involved. Scholl is on the board of directors, so both parties are still involved and now they have a sales team. I think that these details are drastically different from previous mergers/acquisitions and could set themselves up for success, but that all depends on Castle's goals and expectations of this brand.

Jim wrote:
09.24.09 at 8:02 PM

M&A is not the reason for problems in the wine business. There are two types of buyers, strategic and financial. Strategic are those already in the business and looking to add a strategic asset to the company. The other kind are financially based, they are buying for cash flow or other financial reasons. A better article would be discussing what types of buyers they were/are. The K-B acquisition appears to be a strategic buyer.

John Skupny wrote:
09.24.09 at 11:04 PM

to Jim, thanks for your wisdom and clarity.. a better article is 'Have you ever sold a case of wine in your life..' before you acquire anything.. please spare me.. especially teaching our host what a better article or subject would be..

09.25.09 at 6:30 AM

I think it is important NOT to jump to the conclusion that these types of acquistions are imminently bad for the brand being purchased. As others have pointed out, Jess Jackson, for instance, has a history of buying smaller brands and assisting them in growing without killing off the panache of the brand itself.

There are others that it is simply too early to tell WHAT the outcome will be. All are still digesting Bill Foley's recent purchase spree, and it will take a bit of time to determine if the results are better or worse for those being purchased . . .

I think a very good point was made about the nature of the purchaser - why are they purchasing? What are they trying to achieve? What are their long term goals? If this is simply a 'money play', then we all know no good will come of a purchase like this in our industry - we're not in it for the money, are we?!?!?!? (-:

I'm hopeful that the KB purchase will be positive for both sides. Yes, it's a lot of dough for a brand without physical assets - but it's a statement by a new company that seemingly plans on putting together a stable of such companies. And without the infrastructure of a 'bricks and mortar' winery, KB's profit structure is most likely a lot more enticing than others out there - just a little food for thought!

Thanks again for the blog - great piece as usual!

Cheers!

Lewis Perdue wrote:
09.25.09 at 6:49 AM

Billington vacated the premises yesterday. Plug totally pulled.

The sad thing is that Billington's Bank, PNC of Philly, got antsy and hired the liquidators. PNC now owns all the inventory and the intellectual property -- including the brand name. EPR still owns the winery and vineyards including all the winemaking equipment and are shopping it through their partners, Global Wine Bank in St. Helena.

This raises the possibility that the brand and the land may go in different directions, thus orphaning the Havens brand name. And don't forget that a LOT of those orphaned brands have been picked up for a song by Frad Franzia and Bronco.

Thus

09.25.09 at 9:07 AM

..."don't forget that a LOT of those orphaned brands have been picked up for a song by Frad Franzia and Bronco." Ahh yes, the zombie brands, reanimated to haunt the shopping aisles of the living. It would be interesting to know, given the change in pricing and contents for such brands, how much link they retain to the original version among their consumers.

In a completely different category, I'm surprised no one mentioned Ravenswood. Joel Peterson is still with the company, sales are very large but the brand has still retained a good hold on its positioning with consumers.

Larry wrote:
09.25.09 at 9:35 AM

I am intimately familiar with wine company growth through merger and acquisition and the resulting perceptions in the market place. As Kimberly noted you need more than bricks, mortar and brand image for success after acquisition. I have the great pleasure of representing several well-known wineries that have been acquired over the last 20 years. In every instance most if not all the soul, vineyards, viticultural team, hospitality team, wine-making team, founding proprietor, etc were a part of the acquisition. In every instance I am absolutely positive these producers have not only maintained the style and character that established their image and reputation, I am positive these producers are currently crafting their best wines to date, pre- or post- acquisition. Yet there is an immediate cynical response from the media and gatekeepers alike. The aforementioned simply cannot or will not believe that the wines are the same under a corporate umbrella and that somehow the wines are less good, less distinct and more homogenized. No matter as without this reluctance I would not have such a great job yet I find it fascinating that symbolism has passed for substance over the last ten years. Current economic conditions have greatly impacted the wine industry and definitely pushed consumers and gatekeepers to revisit previously held convictions.

bb wrote:
09.25.09 at 1:06 PM

>> I find it fascinating that symbolism has passed for substance over the last ten years. Current economic conditions have greatly impacted the wine industry and definitely pushed consumers and gatekeepers to revisit previously held convictions.

Larry...

You must have missed all the $100 Cabernets that have appeared in the last ten years. I believe the opposite, I think that current economic conditions are causing consumers to go back and start looking at substance over symbolism.

Which wineries do you represent? Perhaps you can better make your point by example.

Larry wrote:
09.25.09 at 6:54 PM

bb,
We are on the same page. I stated that sybolism was more important than(passed for)substance. Over the last ten years lots of very expensive trophy wines from CA and elsewhere flooded the market. Many of these wines garnered critcal rave reviews and were quickly accepted by the gatekeepers and consumers. The current economic reality has quickly halted the turnover of these emerging superstars with sky high prices. This economic reality also pushes consumers to search for more substantive wines for way less money than they were spending just 12 months ago.

09.27.09 at 7:00 PM

One of the earliest examples of this acquisition trend was Sanford. Everyone thought that Richard had 'hit the jack pot'; some even passed around a rumor that he pocketed $300 million. Truth be told, the guys with the money had a very different philosophy from Richard and he finally moved on without the benefit of the big bucks. Now he's happily making Alma Rosa and it's all organic the way he wanted Sanford to be when he was there so it's possible that even with the original team in place that heads collide over the balance sheet in the long run.
Bill Foley is a brilliant businessman. He realized that he needed to pick up more wineries to benefit from the cost of running operations and to get the shelf space that is so important for brands that size.
You are right. What are they purchasing? In some cases it may not even be about the wine.

Larry Chandler wrote:
09.27.09 at 7:15 PM

The Sanford departure was not amicable. Bill Foley purchased several wineries and so far where there is a difference in the wines it is for the better. So whatever Bill Foley's reasons to purchase a winery, it was good for the winery and good for the public.

09.27.09 at 8:57 PM

Not suggesting Sanford was amicable - suggesting that everyone is so quick to count other people's money - and sometimes the details are far from what they seem.

Yes, Bill is one smart guy and the wineries will benefit from his purchase.

Mike Spratt wrote:
09.28.09 at 8:49 PM

Sorry Alder for such a delay in posting a comment, but I only saw this story today.

The record of successful transitions following a merger or acquisition is pretty dismal in almost any industry. Four of the five reasons that motivate these high stakes gambles relate to growth objectives but the one relating to scale economies of operating expense tends to dominate early action. Efforts invariably fail because reducing operating cost involves redesigning processes and redeploying people. And this is where the culture clash rears its ugly head. Different operating styles emerge and if the deal is foolishly announced as a “merger of equals” it invites everyone to persist in their own practices. The result is delay. There is little wonder that transitions drag on and value is frittered away. More than ten year ago Mark Feldman and I published a book on the subject (Five Frogs on A Log: A CEO’s Field Guide to Accelerating the Transition in Mergers, Acquisitions and Gut Wrenching Change). Despite the passage of time, the problems companies encounter and the options available are as relevant today as they were a decade ago, and the book continues to be a resource for managers in a wide range of industries. Speed, focus and early momentum are fundamental to a successful transition. There is no value in a prolonged transition, yet more often than not delay is the common denominator.

By the way, the linkage with the wine industry is personal. Shortly after Five Frogs on A Log was published I retired from business consulting and moved to New Zealand with my wife to start a small specialized winery called Destiny Bay Wines. The problems you mention in your posting are pretty common and sadly, avoidable.

09.28.09 at 9:03 PM

An aquaintance of mine who is an economist had trouble keeping some M&A clients, because every time they asked him to do an analysis on the value of some merger, he could never find or reasonably quantify these "synergies" they kept hyping.

Wein wrote:
09.29.09 at 9:42 AM

The gist of my response was that--Billington sold due to financial necessities. The acquisition by Winebow would probably help the portfolio especially since Winebow people had been selling the brands in several markets. Winebow's sales reps are very knowledgeable and well respected so it will most likely benefit brands such as Catena (Alamos was already purchased by Gallo). The Havens thing is a different story which I probably should not comment on.

I cited the example of Kim Crawford that was acquired by Constellation. Kim and his wife Erica helped create the modern NZ Sauvignon Blanc popularity. The consumer benefited by the acquisition because the price actually went down--$17.99 to $12-99 and dozens of NZ brands sprung up priced from $7.99 to $24.99. Kim and Erica are now financially secure for life and free to start a new boutique wine project (hopefully it won't be a $50 Gewurtz like their countryman tried)!

There will always be small, start-up wine makers (think California Family Wine Maker Tasting) and it is the American Dream to sell your creation for big money. Sometimes it is a positive sale like Betts and Scholl and sometimes it is out of desperation like Billington and Mondavi. Watch what happens in Oregon; which as they say is Napa 20 years ago. Erath to Stimson Lane was the first sale and there will be many more as the economy stays soft and children replace their parents as owners (Billington?).

I have been in the wholesale wine business for 30 years and it amazes me what we have accomplished during that time. Just look at the wine by the glass choices in 1980--jugs of Red, White and Rose costing 6 cents an ounce to today with Vinotech machines selling Opus for $20 an ounce. There will always be consolidation and change but there will also be room for the small independent because wine is not a commodity it is an expression of Art!!!

Zen Rose wrote:
09.29.09 at 11:47 PM

I would say lack of a market. Part of it has to do with wine itself, and part of it has to do with pricing. Between similar wines, I am very sensitive to their prices, and maybe that is true for other consumers, too. For the mass market, I’d think that high prices would kill a brand. By the way, did you hear about that both the City of San Francisco and the state of California would raise taxes on wine? Probably means more expensive wine for everyone. I don’t know how it will affect the quality or the particular brand, but it whittles away the base of any business and makes it hard for a wine maker, especially in a recession economy, to sustain itself.

KGlass wrote:
10.04.09 at 6:07 PM

Wein, Billington did not sell anything: as of May they are insolvent and in receivership. The South American brands jumped to Winebow because Billington was out of business, but they paid Billington nothing.

With regard to Havens, Billington owned the brand and inventory since 2006 (the most valuable thing they actually owned, by far), but PNC Bank has exercised their security interest in those and is now selling off everything--a real shame. Vinreit, the entity that bought the Havens winery and real estate has evicted Billington and is offering the property for sale.

How does a company so completely screw up an opportunity with such a good brand? It must take exceptional incompetence and self-delusion.

billington insider wrote:
10.06.09 at 5:30 AM

The economy played a major role in bringing down Billington as the company did not foresee the amount of capital that would be needed to weather the storm we are currently in. In addition they inherited a brand that had a 2 year surplus of wine and by the time they got caught up to vintage, the economy had collapsed. The sad thing is there was some exciting wine in the cellar that was produced under the new ownership, but unfortunately time ran out for them.

For those not on the trade side, what we are seeing in the wine business is the notion that while everybody has their own notion of what "good" is, the amount of "good" wine is increasing and unless you have "great" wine, you are going to struggle in the next few years. It speaks to Seth Godin's notion of a purple cow and how you have to work diligently at producing a product that stands out in quality and marketing.

KGlass wrote:
10.06.09 at 12:54 PM

Billington was clearly brought down by bungling and over-reaching management: when you lose brands like Catena and Alamos by failing to make goals and pay on time, game over. That was in place in Fall of 2008, well before the current economic woes rolled into the wine industry. Havens (and Chasseur for that matter) are just collateral damage, even though Havens represented the most valuable thing they owned. Oh yeah: and apparently some fine growers are collateral damage as well, abandoned at the last moment by Billington. A shame.

Patty wrote:
10.06.09 at 5:53 PM

I will forever be disappointed and haunted by the manner in which Jackson Family Enterprised handled this past winters layoff of workers due to the ecomony. I felt they were not well thought out, that many longtime contributers whose presence only ehanced and contributed to the success of the small wineries will be felt....perhaps not right away, but the attributes these people had and the talent and knowledge that is so hard to come by and takes years to build....thosesmall wineries, while on the outside may appear the same, but never again will be.

I know I certainly will not be, and, had I had some type of input into the situation, I believe I could have come up with a solution which would be beneficial to all.

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