Issue link: http://winesandvines.uberflip.com/i/629061
February 2016 WINES&VINES 39 VIEWPOINT growth brands with significant Pinot Noir sales. In the case of J Vineyards and Talbott, Gallo also acquired significant North Coast and Central Coast vineyards in the transactions, while the Meiomi and Siduri acquisitions gave Con- stellation Brands and Jackson Family Wines access to new sup- plier relationships to support the acquired brands. Portfolio rebalancing The overall growth of the industry can sometimes obscure the reality that wine brands—like other con- sumer product brands—have life cycles, and that once-vital brands can lose their luster and enter a period of stagnation or decline. For example, of the top 100 wine brands in the U.S. market as mea- sured in 2014, 48 of those brands were stagnant or lost volume since 2010. The declining brands' total loss of 21.1 million cases since 2010 was offset by growth in the other 52 brands totaling 37.4 mil- lion cases, for a net gain of 16.6 million cases between 2010 and 2014. As a result of this natural "churning" of brands in the mar- ket, suppliers with multi-brand portfolios inevitably find them- selves with some brands that are no longer performing and are dragging down the overall growth of the portfolio. In addition, these brands may not be positioned in premium price categories. Revital- izing a troubled brand can be a long and unpredictable undertak- ing, as is starting a new brand from scratch. Often it is faster and more practical to ignore or divest the problem brands and acquire new growth brands that have already achieved traction in the market- place. We expect the need for brand portfolio rebalancing to con- tinue to be a strong catalyst for acquisitions in 2016 and beyond. Geographic diversification Premium wine growing regions outside California's North Coast continue to gain awareness and credibility with consumers. Wash- ington and Oregon wines are in- creasingly recognized not only for their high absolute quality, but also for their compelling price to quality ratios. Similarly, San Luis Obispo and Santa Barbara coun- ties are witnessing increased rec- ognition for ultrapremium and luxury wines from specific sub- appellations including Paso Robles and Santa Rita Hills. At one time, the majority of grapes grown in the Paso Robles region were used in California appellation or other regional AVA wines. Over the past M&A ACQUISITIONS: 2005 VS. 2015 Acquirer 2005: Targets $10 and under retail 2015: Targets $18+ retail Constellation Brands Rex-Goliath ($7-$9) Meiomi ($18-$25) E. & J. Gallo Winery Barefoot Wine ($5-$7) J Vineyards ($20 and up) The Wine Group Big House ($10) Benziger Family Winery ($15-$25) CALIFORNIA WINERY REVENUE BY PRICE SEGMENT -3% 0% +22.6% +28% +16.4% 2011 $14+/bottle $7-$14/bottle $3-$7/bottle <$3/bottle $9.7 billion $14+/bottle $7-$14/bottle $3-$7/bottle <$3/bottle $11.3 billion 2014 Source: Gomberg, Fredrikson & Associates Caroline Hoogenboom Napa - Sonoma - East Coast Cell. (707) 364-6334 caroline@ermitageusa.com Amy Lee Oregon - Washington - California Central Coast Cell. (509) 995-2771 amy@ermitageusa.com Offce: 1285 S. Foothill Blvd Cloverdale, CA 95425 Ph: (707) 224-2377 Fax: (707) 224-2390