This is a wine blog, not a trade magazine, so my take of Wine Business Monthly’s ~ Vineyard Economic Symposium ~ is really that of being a fly on the wall, not to get the best investment strategy. The room was full of economists, not my average American wine clients or audience. I had to really shift my thinking gears. Still, I walked away with “the” variety that these investors all seem to crave, and how it will be done over time.
The New Normal in Wine Country Agland
Perspective on Vineyard and Land Acquisitions
My clients have their noses to the grindstone, wanting to make artisan wines, as they gently press the juice from each tiny little grape. Today’s audience is concerned with gently squeezing the profit from each investment of vineyard property. Two big concerns were the focus: how to mechanize and buy affordable land that could convert to Cabernet Sauvignon, so their profit margins would be increasing for investors’ bottom lines. The were mostly specialists all, in their own lives, following their own passions. It was great to see a few colleagues and to get some interesting insights, outside of the realm of “Cabernet all the way!” Because, there are always two sides to every story.
This is the Investors’ Story
For investors, I’d say this event was a complete success, if you love Cabernet and are planning to invest even more into it, most especially in Napa and Sonoma Counties… While Sonoma has arrived to the party, Napa Valley is still the pinnacle of success. With its pencil shaped AVA, Napa is still only 30 miles in length and five miles wide, with 45,000 acres of vineyards planted – at its fullest section, it’s only 789 square miles. Whereas, Sonoma County is nearly doubled in size, with 1,500 square miles. This equals more growth potential; but, a consideration is that you won’t get the same return, if your money wasn’t spent in Napa.
- Advantage of Napa Valley
- It’s already put itself on the map with Cabernet Sauvignon, with most bottles of Cab hitting a $100 price tag; some are up as high as $150. [Screaming eagle is another matter, entirely.]
- There are 17 varieties of wine grapes in Napa Valley; Cabernet Sauvignon makes up 57 percent of those acres.
- This has growth potential, if all all other varieties are pulled out.
- It can still say Napa Valley on the label if it’s 25 percent of the variety or is 15 percent from one single vineyard source.
- Disadvantages
- It’s topped out for plantable acres, unless it goes up the mountain sides.
- The only grapes new to be planted in the valley are the ones being pulled out, to plant vines that have more younger vines that will equal more tonnage.
- Growing it in less suited areas.
- Will it be more quality or quantity?
- Advantages of Sonoma County
- Twice as much room for growth, but has put itself on the map for Pinot Noir.
- Disadvantages
- Cabernet won’t be worth as much as Napa Cab, or even Pinot Noir?
- Areas like Alexander Valley do well with Cabernet, but is the rest of the county too cool? This means experimentation, which equals time lost.
Chardonnay is still the best seller of wine grapes in California, and all seemed to agree, Chardonnay can grow anywhere. It doesn’t matter: here, there, anywhere and everywhere.
So, how do investment bankers continue to grow their portfolios, and where do they look for potential investments?
- Financial considerations, perhaps due to no estate planing.
- Aging partners want out of their investment portfolios.
- Aging children at a winery want out, to have their own lives not in farming.
- Kids want to buy their own houses, so parents make their dreams come true.
There’s now a push for secondary locations in Napa and beyond.
- Oak Knoll district didn’t have the same reputation as the Stag’s Leap or Rutherford AVAs, for instance; but it’s now considered a new place for speculation.
- For Sauvignon Blanc, another hot commodity in Napa, demand is moving toward the Carneros region. This is because in Napa Valley, those Sauvignon Blanc vineyards are being pulled out for Cab. It used to be that just the Sonoma side was worth the investment, but land investors have slid over to the Sonoma County side… Carneros is not the east or west side, very much, anymore. There now is no differentiation of price.
Suisun Valley was brought up.
I had to chuckle to myself. Jose and I were hired to put Suisun Valley on the map. Twelve years ago, if you had said “Suisun Valley,” people wouldn’t have even been able to pronounce it. And yet, if you look at the palm of your hand… take about a dime shape and put it into the lower left hand quadrant… All of the rest of it, except for that dime size, is Napa Valley. And now look at the dime size; that’s where Suisun is. How did I approach getting them on the map? I did it by writing press releases with that explanation. It worked…
Enter Caymus Vineyards. Charles (Charlie) Wagner got fed up with Napa Valley’s restrictions, so he moved southeast for a breath of fresh air. Investors asked how that’s coming along, as they all hold their breath to hear results. Hey guys, do you know that Gallo has also bought into that valley? Remember how Gallo was brought up as the number one investor in the world? Now ask yourself, if Gallo knows about it, what am I missing?
The largest investors are buying more land, then buying wineries. There is a multi-generational focus for these investors. In the last 12 months, guess who’s buying up Napa Valley… Europeans, looking for iconic wine brands. Oregon, too has Burgundian and Champagne investors. Institutional capital investors are the competition. Climate change also has investors contemplating.
- Looking at 20 year investments of marginal areas is a consideration, trying to see what’s happening in the market.
- There’s a list of concerns, with efforts of down water management.
- There are concerns that the 2014 Napa Valley earthquake has impacted ground water, as that supply seems to be running lower that usual, so there might be some restrictions coming.
- Central Coast is high on its water supply and is an emerging supply for grapes.
As they slipped southward in focus, two things became more clear
- Mechanization is the way to make more of a profit, from both pruning the vines and harvesting the fruit.
- The Central Coastal area and Central Valley have the high potential to add to the Cabernet supply, regardless of the Central Valley’s current reputation for marginal quality. “There is high quality in the Central Valley, if you take the time to grow them,” said one expert.
This was one of the takeaway thoughts, from vineyardist Leslie Caccamese. She works with Doug Hill Vineyard Management, tending individual vines all over Napa Valley. Leslie’s given me permission to share. She’s one of the funniest people I’ve met in wine, seriously. She could do stand-up about wine… and she doesn’t gloss anything over.
“I LOVED the bit about growing Cabernet in areas not suited for it. They’re like, “yes, we know it may be shitty, but the next generation of Cab drinkers will think it’s supposed to taste that way.”
Ah… the future. What will it all hold?
Tags: Central Coast, Napa Valley, Oregon, Sonona County, Suisun Valley, The Vineyard Economic Symposium, Wine Business Monthly, Wine Magazine
