European, Asian Buyers Take a Liking to California Vineyards : A Foreign Flair for Wine
The first winery that visitors encounter on approaching Sonoma and Napa valleys on Highway 121 from San Francisco flies four flags at its entrance. The flags represent the United States, California, Catalonia and Spain.
The buildings with their graceful arches and generous balcony overlooking the Carneros wine district are the $11-million home of Gloria Ferrer, a premium sparkling wine produced by a Spanish family firm, Freixenet, the world’s leading producer of French-styled bubbly.
A mile or two farther along Highway 121, Taittinger, the French Champagne maker, is building Domaine Carneros, joining half a dozen compatriot firms that have developed sparkling wine facilities in Sonoma, Napa and even Mendocino County in the 15 years since Moet Hennessy created Domaine Chandon in Napa Valley.
Heading north onto Highway 29, which runs along the valley’s west side, the motorist can seek out Swiss-owned Hess Collection, which is renovating an 85-year-old winery on Mt. La Salle, once the home of Christian Brothers.
Most wine country tourists may not realize it, but a growing number of California’s premium wineries are now foreign owned. By The Times’ count, more than 35 wineries, most of them prestigious producers, are today owned, all or in part, by interests based in France, West Germany, Spain, Britain, Switzerland--even Japan and Thailand.
More deals are in the works.
For California, historically driven by production, the new owners bring with them an emphasis on sales and skills in market development and product distribution. Many observers consider those skills to be essential for growth in the potentially huge market in the United States, where wine consumption remains modest for a wine-producing nation. The upshot, they say, is likely to be a strengthened industry with stronger sales and distribution programs at home and abroad.
The most recent investments may be aided by favorable exchange rates, but acquisitions have also taken place--as in the 1984 purchase of Sonoma Valley’s Chateau St. Jean by Japan’s Suntory--in times of a strong dollar. In short, foreign investors are moved more by global marketing strategies, their vision more long term than opportunistic.
“We didn’t come to the U.S. wine market just to get our feet wet,” said Hiro Yamamoto of Suntory, who helped the beverage firm acquire Chateau St. Jean and who next month will become the winery’s chief financial officer. “We wanted to do business here.”
Daniel J. Parks, a Sonoma lawyer specializing in wine country investments, said Suntory’s perspective is typical of the foreign interests he has dealt with. “They view the United States as the ultimate in a stable, long-term market,” Parks explained. “They look at investment in a very different way--to invest in something here that is going to mean something in maybe 20 years. The idea of investing and selling out in three years just doesn’t occur to them.”
The attraction is “more fundamental than exchange rates,” agreed Jean-Michel Valette, who follows the industry for Hambrecht & Quist, an active matchmaker in some of the deals.
“Now that the industry has proven that the highest-quality wine can be made consistently in America, the critical element becomes marketing ,” Valette said. “And it so happens that a large number of the corporations in this world that have significant marketing experience are foreign. I think you’ll see most of the major beverage makers with a foothold in the U.S. wine industry. After all, it’s a major beverage industry.”
He estimated that U.S. wine sales topped $2.8 billion last year.
Foreign-owned wineries range from the tiny to the substantial and from start-up operations to the venerable Beringer Vineyards, which was founded by one of Napa’s original half a dozen wine families and owned since the early 1970s by Nestle, the Swiss food and beverage giant.
Although foreign interests are involved in only a small fraction of California’s more than 700 wineries, the current soft dollar only quickens the pace of investment. Sapporo, the giant Japanese brewer, last summer bought tiny but classy St. Clement Vineyards and its landmark Victorian mansion near St. Helena, in Napa Valley, as a way to learn the California wine business from inside. At about the same time, Sanraku, a Japanese soft-drink firm, bought Markham Vineyard, just across Highway 29.
Industry consultant Jon Fredrikson predicted that Japanese interests will add “two or three” more wineries this year. “There’s enough of them looking.”
According to Napa Valley land broker Ren Harris, “Activity is at a fever pitch. There is something cooking--offers or active interest--on virtually everything we have listed, which represents about $27-million worth of property.”
Something less than half the shoppers are foreign, Harris said.
John DeLucca, executive director of the San Francisco-based Wine Institute, said the growing foreign interest demonstrates how much California wines have developed over just the past two decades of proliferating wineries. “California now is to wine what Japan has become to automobiles--in the forefront of quality production,” he said. Moreover, he added, foreign involvement contributes new resources and much needed marketing know-how.
“It’s an international market,” DeLucca said, “and the buzzword today is competitive . And to be competitive requires what is happening to us, which is increasing our knowledge of other countries.”
And it’s something of a two-way street, since California wineries are also trying to sell more wine abroad, said Richard L. Maher, president of Christian Brothers Sales Co. (and former president of Beringer under Nestle). “There’s a lot of interest in California wine overseas,” Maher said. “You’re going to see a lot of brands doing things abroad.”
Ferrer as Expansionist
Robert Mondavi Winery not only is involved with Mouton-Rothschild of France in a joint wine-making venture called Opus One but recently opened a London sales office and is considering opening another in Hong Kong, Maher said. His own company, Christian Brothers, sold 6,000 cases in Japan last year.
Reasons for buying into the industry vary, according to Fredrikson, president of Gomberg, Fredrikson & Associates in San Francisco. The French, for example, have nowhere to expand in the Champagne region, but Moet Hennessy demonstrated that Northern California offers a solution as well as a foothold in the United States--the world’s largest market for sparkling wine, not to mention a base for expanding sales to the Pacific Basin.
On the other hand, the Ferrer family of Spain, owners of Freixenet, has followed an expansionist strategy since 1979, one that included buying up a French Champagne maker, in anticipation of Spain’s 1986 entry into the European Common Market, acquisition of several troubled Spanish competitors, and the founding of new sparkling wine facilities in Mexico (Dona Dolores) and Sonoma (Gloria Ferrer).
The family’s philosophy is to let each wine region develop its own brands and capitalize on its own wine-growing characteristics, said Pedro Ferrer, 30-year-old president of the Sonoma operation (and son of the winery’s namesake). “Each branch has to stand on its own.”
Sapporo Takes Its Time
The Japanese have taken a similarly strategic approach.
Suntory Ltd. decided in 1983 to expand into the wine business on a global basis. It first snapped up Chateau Lagrange, a well-located but financially anemic French winery in St. Emilion, near Bordeaux. Then, in 1984, it paid an undisclosed but assumed to be hefty price for picturesque Chateau St. Jean, a profitable, 10-year-old premium winery that nestles in the shadow of Mt. Hood--a miniature Mt. Fuji at the north end of Sonoma Valley. (Estimates, unconfirmed by Suntory, range up to $40 million, by far the most paid for a California winery.)
“We were looking for one of the best wineries in each of the (world’s wine-producing) areas,” said Yamamoto, who participated in the deal for Suntory. “It was the quality that attracted us. We wanted an outstanding winery in the United States, and we looked into 30 wineries--all in California.”
“Suntory’s interest seems to be in the quality of the wine rather than quantity,” agreed Richard Arrowood, Chateau St. Jean’s wine maker and first employee, hired at its founding in 1974. Arrowood showed off new wine-making equipment and a sprawling warehouse as evidence of Suntory’s commitment. “They expect a return on their investment, but they are not looking for short-term gains.”
Sapporo, the giant brewer, had a different motive for buying tiny St. Clement Vineyards, just over the hill in St. Helena. “We currently operate a 400,000-case winery in Okayama that produces medium-priced wines, but we haven’t had the capability of producing world-class, premium varietal wines until now,” Manekazu Takenishi, president of Sapporo U.S.A., said at the time of the purchase.
“Their approach,” said St. Clement’s wine maker, Dennis Johns, “is to take a small winery and keep it small and learn the business. They’re the Tortoise in ‘The Tortoise and the Hare.’ They take their time, and they go straight forward, building on a strong foundation.”
Donald Hess, whose Swiss enterprises include Valser mineral water and a cattle operation, laid the foundation of his Hess Collection 10 years ago when he bought hilly vineyards on Mt. Veeder, which flanks the mouth of Napa Valley, and sold the premium grapes produced there to wineries (including St. Clement), said Robert E. Craig, the general manager. Hess liked the intense flavor of the grapes that grow on the difficult terrain so reminiscent of his native Switzerland, Craig said. But it was not until last October that Hess released his first premium wine made from them, an estate-bottled Cabernet Sauvignon aimed at the carriage trade.
“You don’t find many producers in this country taking that time” to master the vineyards before getting into wine production, Craig observed. “This isn’t the hobby of a wealthy man. Donald Hess intends it to be profitable. He says losing money is not one of his hobbies.”
Meanwhile, French and Japanese interests continue to shop the wine country, especially in sprawling Sonoma County, said John Mattern, who specializes in sales of vineyards and wineries for Keegan & Coppin in Santa Rosa. “The dollar is down, and the value is here,” Mattern said. “And Sonoma County is where Napa County was 10 years ago. We’ve got plenty of room for major wineries, a good freeway system and land prices are reasonable.”
But the purchases continue in far more crowded Napa Valley, too, as Skalli S.A., a family-owned producer of rice, pasta and wine in France, confirmed its plan to establish a major premium winery at Rutherford fueled by additional vineyards in nearby Pope Valley.
All this overseas interest suits deal maker Daniel Parks--and for more reasons than the obvious profit motive.
“I’ve always believed,” he said, “that the more investment another country has in us or that we have in another country, the more we’re going to be trading than fighting.”
Times wine writer Dan Berger contributed to this report.
FOREIGN HOLDINGS IN CALIFORNIA’S WINE INDUSTRY
WINERY LOCATION Almaden Madera Atlas Peak Napa Valley Beaulieu Napa Valley Beringer Napa Valley Buena Vista Sonoma-Carneros Callaway Temecula Chateau Souverain Geyserville Chateau St. Jean Sonoma Valley Cuvaison Napa Valley DeMoor Winery Napa Valley Domaine Carneros Napa-Carneros Domaine Chandon Napa Valley Domaine Michel Healdsburg Domaine St. George Healdsburg Dominus (John Daniel Society) Napa Valley Firestone Los Olivos Franciscan Napa Valley Gloria Ferrer Sonoma-Carneros Hess Collection Napa Valley Inglenook Napa Valley Maison Deutz Arroyo Grande Markham Napa Valley Opus One Napa Valley Parsons Creek Ukiah Piper Sonoma Windsor Quail Ridge Napa Valley Ridge Vineyards Cupertino RMS (brandy) Napa Valley Roederer U.S. Anderson Valley St. Clement Napa Valley San Martin Winery** San Martin Simi Winery Healdsburg Skalli Venture Napa Valley Sonoma Vineyards* Windsor Sterling/Monterey Vineyards Seagram Winery Lake/Domaine Mumm Sugarloaf Knights Valley Tonio Conti Paso Robles Torres (land) Green Valley
WINERY PRIMARY OWNER COUNTRY Almaden Grand Metropolitan U.K. Atlas Peak Whitbread-Antinori-Bollinger U.K., Italy, France Beaulieu Grand Metropolitan U.K. Beringer Wine World (Nestle)* Switzerland Buena Vista A. Racke West Germany Callaway Hiram Walker Canada Chateau Souverain Wine World (Nestle) Switzerland Chateau St. Jean Suntory Japan Cuvaison A.G. Inselhold Switzerland DeMoor Winery DeSchepper-DeMoor Belgium Domaine Carneros Taittinger France Domaine Chandon Moet-Hennessy France Domaine Michel Jean-Jacques Michel Switzerland Domaine St. George Four Seas Investment Thailand Dominus (John Daniel Society) Joint venture France Firestone Firestone (Suntory minority) U.S./Japan Franciscan Peter Eckes/Augustin Huneeus West Germany Gloria Ferrer Freixenet Spain Hess Collection Donald Hess Switzerland Inglenook Grand Metropolitan U.K. Maison Deutz Deutz & Geldermann/Nestle France/Switzerland Markham Sanraku Co. Japan Opus One Rbt. Mondavi/Mouton/Rothschild U.S./France Parsons Creek Cabrela Wines Canadian Piper Sonoma Piper-Heidsieck France Quail Ridge Quail Ridge Canadian Ridge Vineyards Otsuka Pharmaceutical Japan RMS (brandy) Remy Martin France Roederer U.S. Louis Roederer France St. Clement Sapporo Japan San Martin Winery** Guinness U.K. Simi Winery Moet-Hennessy France Skalli Venture Skalli S.A. France Sonoma Vineyards* Guinness U.K. Sterling/Monterey Vineyards U.S.-Canada Winery Lake/Domaine Mumm Sugarloaf Peter Michael U.K. Tonio Conti Chat Botte Switzerland Torres (land) Bodegas Torres Spain
* Wine World has offered $10 million for Estrella River Winer, Paso Robles; Congress Springs, Saratoga, is being sold to U.K.’s Anglo-American Agriculture.
** Being sold to a U.S. group.
Los Angeles Times