US Wineries Willing to Sell Out

Nearly half of all US winery owners consider selling their winery “a possibility” in 2021, according to a survey released this week by Silicon Valley Bank.

The self-reported figures in SVB’s annual State of the Wine Industry report stand in gigantic contrast to another request to “describe your winery’s financial strength”. More than half of wineries said it’s either strong, very strong or rock solid, and that number goes up to 79 percent if you include the answer “good.” But that doesn’t mean they wouldn’t sell.

Interest in selling varies by area, and is highest in the Sierra Foothills of California, where most wineries are dependent on tasting-room sales. About 80 percent of wineries there called selling their winery at least a possibility. The Lodi/Clarksburg area had almost as many owners interested in getting out of the business, and Texas, which had a difficult vintage in 2020, was close behind.

In both Napa County and Sonoma County, nearly 50 percent of owners called selling at least a possibility. The most resistant region to selling is Santa Barbara County, which has not suffered from wildfires as much as most of California; fewer than 20 percent of owners consider selling a possibility. Owners in Paso Robles and in New York are also not as interested in selling as owners elsewhere.

Industry expert Rob McMillan said that just because wineries are open to selling doesn’t mean sales will happen. However, he also said that the economy currently is ripe for winery sales: credit rates are low and wealthy people have a lot of cash that they want to invest.

“There definitely are more businesses for sale,” McMillan told Wine-Searcher. “Last year it was really hard to do transactions. I know several European companies that are looking for something. They do take their time, but last year they couldn’t do their diligence. They couldn’t get on a plane and come over. With wineries you want to inspect. You want to get people on the ground and look at it. This year is going to be better. As companies start to recover, and sales start to recover, you’ll see prices that seem to make more sense.”

McMillan is Executive Vice President of Silicon Valley Bank’s Wine Division, so he is accustomed to the valuations that go into winery sales.

“Even in a time like this, you run into buyers who think it’s 1929 and sellers who think it’s 2015,” McMillan said.

That said, winery purchases are often not the clear-eyed investments made in other fields, and many winery owners are aware of the prestige of even struggling wine brands.

“A lot of [winery owners’] retirement plan was that somebody rich and dumb was going to write them a check,” said Erik McLaughlin, CEO of the mergers and acquisition firm Metis.

A solid investment

It’s hard to take an overall measure of the health of wineries in 2021 because the answers are so divergent. Wineries that have their wines in grocery stores are generally doing great. Wineries that were dependent on restaurant and tasting-room sales are not. Also, self-reported financial strength, even if collated and reported anonymously, isn’t the same as an actual look at the books. McMillan said some wineries will try to push their sales upward in 2021 to make the books look better to prepare for possible sales.

“There are more vineyard transactions that are happening right now in the background than winery transactions,” McMillan said.

McMillan complained that the media often call him to ask about wineries going bankrupt, when he said that wineries almost never go bankrupt. Wineries can usually find a buyer even if they don’t like the price, unlike the restaurant industry, where 17 percednt of all restaurants fail in the first year even without a pandemic, according to Berkeley economists Tian Luo and Philip B. Stark.

“There’s not going to be a big blowup that, oh, your favorite winery’s closing,” McLaughlin said. “They’re going to wind down and fade away in a way that you won’t notice. Most of those assets will be repurposed into other businesses and there will be new wineries in the market.”

McMillan said that his favorite restaurant in Napa, Il Posto Trattoria, is in a converted paint store. But that doesn’t happen with winery buildings. Tank Garage put a winery into a gas station in Calistoga, but nobody turns an old winery into a gas station, paint store or restaurant: it just becomes somebody else’s winery.

“You can’t take a winery with its tanks and plumbing and turn it into a restaurant. It’s too expensive,” McMillan said. “We won’t see a decline in the number of wineries.”

That said, “virtual” wineries that operate through custom crush, without a winery or vineyard of their own, are the most vulnerable now because buyers are mostly interested in assets. McMillan said that with few exceptions, there isn’t much brand equity for such small producers.

“If it’s a million-case brand and it’s in the right stores, you’ll find a buyer for it,” McMillan said. “If it’s a 2000-case brand, it’s pretty hard. Those are normally not going through grocery stores; those are normally direct. Trying to find those kind of brands that have been sold at all, there just hasn’t been a great appetite for them.”

Even large turnover of winery ownership in 2021 wouldn’t actually affect the amount of wine made. That is dependent on vineyards: they will produce about the same amount of wine no matter whose name is on the label. California growers pulled out about 30,000 acres of vines in the last year, McMillan said, at the urging of Allied Grape Growers President Jeff Bitter, and the small 2020 crop will bring the wine industry closer into a balance of supply and demand. But if 2021 is a normal-sized crop, there should again be more grapes grown in California than the wine industry can sell.

So don’t worry if you start reading about winery sales this year: we’re not going to run out of wine. (There’s a relief.)