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40 WINES&VINES February 2016 VIEWPOINT decade, wine brands using the Paso Robles appellation have pro- liferated, and at the high end, we have witnessed the ascendancy of a number of cult luxury brands producing Rhône or Bordeaux va- rietals under the Paso Robles appellation. Wine producers are following the consumer to these regions. For example, Jackson Family Wines has become a significant vineyard holder in Oregon over the past sev- eral years, and Gallo now sources a substantial amount of fruit from Washington. Vineyard acreage in the Pacific Northwest is less expen- sive to develop and comes with fewer regulatory constraints than in California, enabling the creation of scalable brands at $15 to $25 per bottle retail price points. In California, North Coast producers are increasingly looking to build a presence in the Central Coast, par- ticularly Paso Robles. As a result, we expect to see increased acquisi- tion activity in the Pacific North- west and California's Central Coast during the next few years. Distribution channel consolidation Channel consolidation continues to occur at both the distributor and retailer levels. Notable recent examples in the distributor tier include the announced merger of Charmer Sunbelt and Wirtz Bev- erage, creating a combined entity with $6 billion in annual sales in 2016 covering 16 U.S. markets. Examples of increased concentra- tion in the retail channel include the announced acquisiton of Rite Aid by Walgreens and the contin- ued growth and market share gains of the Total Wine chain as it expands across the country from its East Coast base. At the same time, the number of wineries and wine brands is growing rapidly, creating a fundamental mismatch with the available distribution channels. As a result, the minimum size at which a wine producer is con- sidered "relevant" to the shrinking number of distributors continues to rise. We believe that channel consolidation will continue to mo- tivate wine producers to achieve increased scale through acquisi- tion in 2016 and beyond. Expectations for 2016 Public companies: Following the economic recession and until mid- 2014, the major publicly traded companies stayed on the sidelines, making few major wine acquisi- tions. This changed with the pur- chase of Kenwood Vineyards by Pernod Ricard, followed by the aforementioned acquisitions of Meiomi by Constellation Brands 2014 WEST COAST VINEYARD PRODUCTION AND PRICING Region 2014 Bearing Acres 2014 Total Tons Average Price/Ton Washington 48,000 227,000 $1,100 Oregon 25,000 78,000 $2,100 California District 1 – Mendocino 16,000 60,000 $1,500 California District 3 – Sonoma 60,000 250,000 $2,300 California District 4 – Napa 45,000 175,000 $4,000 California District 8 – Santa Barbara/San Luis Obispo 45,000 210,000 $1,500 Source: USDA Grape Acreage Reports and Grape Crush Reports; information rounded.