gallo - smitten by the beauty that is washington wine

Tuesday, June 05, 2012

After more than five years of sniffing around Washington state for potential acquisitions, Gallo has purchased – presumably at fire sale prices – the Columbia and Covey Run brands from Ascentia. In an interview Monday morning with Roger Nabedian (Gallo Senior VP/General Manager of the premium wine division), I learned a few of the details. Read the full interview here.

There can be little doubt that the entry of Gallo into this state – the first time in their history that they have ventured out of California domestically – is a game-changer for Washington wines. But exactly how will it play out?

The first big change – Gallo wants to put in their own team to make the wines. “Because the Northwest is a remote location for us, we want to bring our own philosophy of winemaking to the winery” is how Mr. Nabedian explained it to me. OK, but what exactly does this mean? Since the death of David Lake, Columbia has been essentially rudderless. Covey Run has been a not-so-cheap supermarket brand with little distinction for years. One savvy observer suggested that the brand was not salvageable. I agree. I bet Covey Run is gone as soon as the inventory is dumped.

In the course of the interview, it was clear that Columbia was the real target here, and why not? It is a heritage brand, founded as Associated Vintners in 1962 and currently celebrating its 50th anniversary. Longtime Columbia winemaker David Lake was the first Master of Wine to make wine in America, and pioneered many of the grape varieties now considered essential to Washington state.

What Gallo’s “own philosophy of winemaking” will mean for the actual wines to be produced from here on out remains to be seen. A new, three-person winemaking team is being installed, with the official announcement due in a couple of weeks. After some prompting, Mr. Nabedian did indicate that one of the three was from California, and the other two from the Northwest.

I can predict some of the other impacts with a fair amount of confidence. Gallo acquired some grape contracts along with the two wineries, but no vineyard land. As they look to ramp up production over the next few years, to something like a million cases, they will need a lot more grapes – especially merlot and cabernet sauvignon. That’s going to put the squeeze on any existing wineries that don’t have locked-in, long term contracts, and it’s probably going to spark some further investment in new vineyard development.

What will be the impact on the state’s biggest wine enterprise, Ste. Michelle Wine Estates? Quoted in the Puget Sound Business Journal, CEO Ted Baseler was generically upbeat, saying “We welcome everybody to the neighborhood.” How it all will play out should be interesting. Gallo has been the key industry player in the Wine Commission in California for decades. Nabedian was noncommittal when I asked how the company planned to work with the Washington Wine Commission. But it seems more than likely that in a short time Gallo will want a seat on the Board, and will use its marketing muscle to influence Commission initiatives. Along with Ste. Michelle and Precept Wine, it will ultimately be part of a Big Three of Commission influencers.

Washington has clearly come into the cross-hairs of some industry biggies, who know a good deal when they see one. Compared with the cost of land, grapes, labor and just about anything else in California, the Columbia valley is really cheap. Along with homies Ste. Michelle Wine Estates and Precept Wines, Washington now has attracted Gallo, Banfi and William Foley as deep pocket investors from out of state. Surely there are others looking. And if – BIG IF – Gallo keeps the QPR of their new wines consistent with established brands such as Columbia Crest, Pacific Rim and Waterbrook, then it is hard to see how this acquisition cannot but have a very positive impact on the entire Washington wine industry.

“Gallo is extremely purposeful with what they do,” said one well-placed industry veteran; “so I am cautiously optimistic...”

Me too. Stay tuned!


Anonymous said...

On the vineyard front: I think that Gallo will force a surplus and ask certain growers to plant certain varieties (Cabernet, Merlot, etc.) at very good pricing for a planting contract. The average weighted pricing for reds in the state of WA is roughly $1,000.00/ton give or take some and when you look at what Gallo pays in California, that don't work! Gallo will offer good pricing for a few (3-5) years and a lot of them, forcing a surplus in acreages in production which will drive the average weighted pricing down ($500.00 to $600.00/ton). Now if St. Michelle plans on growing 5%-8% annually then they will be demanding acreages to be developed as well. Who will be the lucky growers and will Gallo know who to talk to and where to go when looking for potential contracts??? It will be an interesting summer!

PaulG said...

Anon, I am not sure what you mean by "force a surplus." I do know for a fact that they intend to negotiate new contracts with growers, but as for what and with whom I have no information. California prices, based on crop levels of 12 - 16 tons/acre, are not going to work here. I don't think Gallo is coming in thinking that they will. If SMWE and Precept can make better than CA quality wines in the $6 - $12 range, there's no reason that Gallo can't do the same. But as I wrote, time will tell if they meet the same QPR. The notion that 3-5 years of aggressive planting (by whom? where?) will somehow create a surplus seems a little off to me. But again, time will tell.

Simon Siegl said...

There is no equivalent to the WA Wine Commission in California. Gallo has, for a long time, been a major force the Wine Institute, but that organization focuses on government relations and export programs. As new owners of Columbia and Covey Run, Gallo will be supporting the WA Wine Commission with assessments, like all wineries and growers here. I really hope they will become active with the Commission because of their marketing acumen and their presence in every market on the planet. Interesting times!

Madeline Puckette said...

Ooo Ooo Paul! Pick me!

What do you think Gallo's going to do first? Increase production OR systematically use their connections to increase distribution. (aka, you CAN'T buy WA wine in many stores across US)

Washington currently only produces less than 10% of wines sold in the US.

Gallo does have it's hand in the low-mid market. More intro drinkers, means more people connected with Washington wine.

me personally: I hope this puts a burr in winemaker's butts to increase their production and start getting the good stuff out there.

But what do you think? Having

David Larsen said...

Looking on the bright side, I think Gallo's marketing prowess will accelerate awareness of Washington State wines and ultimately elevate Washington State's status as a premier wine-growing region. In the meantime, I'd like to get those signed contracts with our growers.

Richard Duval said...

I'm a bit concerned about Gallo's statement “Because the Northwest is a remote location for us, we want to bring our own philosophy of winemaking to the winery.” This smacks a bit of the stereotypical thinking of Washington being next door to Alaska. Remote? We're second to CA in wine production -- someone must wander up here now and then to plant, harvest and drink.

Plus, WA terroir is not CA terroir -- Paul, please correct me if I'm in error but doesn't a winemaker have to tailor his or her intent to the vineyard's characteristics? If they intend to put a CA stamp on Columbia wines, why buy it in the first place? I'm befuddled here.

Last, laying off the Columbia staff is not a good first step into the neighborhood. When your initial gesture as a new owner is adding to the unemployment numbers, I question your sense of community.

PaulG said...

Madeline - you can't make more wine without growing more grapes. That takes time, money, and water rights. Not a quick fix. Richard - these are my questions also. Time will tell.

Arzurama said...

I'm w/ Mr Duval on this. Who says we need their philosophy of winemaking? Altho I cut my wine teeth as a SoCal girl on Napa & Sonoma fare, I seldom buy CA wines anymore, I'm a PNW drinker. And it's worrisome to me that they could "force" vineyard owners to bend to the Cab/Merlot blah-blah-blah. We do some damn good Rhone wines here, thank you very much.

Anonymous said...

Views from the Central Valley:

What's the fuss? This is not the sale of Chateau Haut Brion to the Mondavi Family. It's a bulk wine producer expanding its footprint by acquiring another large producer (or what's left of its brand) in a new region. The Gallos know how to make good, affordable, everyday drinking wine. They will do the same in Washington. But having made an investment outside the Gallos' typical Lodi-Modesto-Turlock-Fresno sphere of influence they want to bring in their management team to look after it. This is not an affront Washington or Washington wines.

Courtney (writing from Sacramento)

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