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California’s Crimson Wine Group Doubles In Size With Seghesio Acquisition

December 7, 2011

Napa-based Crimson Wine Group was founded in 2007 by New York investment firm Leucadia National Corp. At the time, the company’s wine holdings included Napa’s Pine Ridge Vineyards and Archery Summit in Willamette Valley. In 2008, Crimson expanded with the purchase of Edna Valley’s Chamisal Vineyards (formerly Domaine Alfred). This past June, Crimson took another leap with the acquisition of Sonoma-based Seghesio Vineyards, a deal which doubled its scale to roughly 250,000 cases and $50 million in annual revenue. Erle Martin, who previously has served as president of Francis Ford Coppola’s wine business and head of Young’s Market Co.’s California fine wine unit, has led Crimson as CEO since 2007. Shanken News Daily recently caught up with Martin to discuss Crimson’s ongoing expansion.

SND: Why was Seghesio the right purchase, and how has it changed Crimson as a company?

Martin: The Seghesio acquisition has fundamentally reshaped our business. When we bought Chamisal in 2008, we acquired great vineyards, a great winemaker and strong production potential, but a good route-to-market commercial strategy was lacking. Seghesio does everything well. Their turning point came 15-20 years ago, when Pete Seghesio raised the bar and established Zinfandel as a high-quality variety. At the time, they were growing Zinfandel to be made into White Zin for big producers—from the same vineyards where today they source their best wines. But they rebalanced those vines for higher quality and lower yields. That, combined with Ted Seghesio’s blending skills, put them on the map as one of the best brands in the American wine business.

SND: What is Seghesio’s growth potential?

Martin: There’s huge demand for the Sonoma Zinfandel, which represents 75% of Seghesio’s 100,000-case volume. We’ve had a lot of lift from critical acclaim recently, including a 95 from Wine Spectator on the Zinfandel Alexander Valley Home Ranch 2009 ($38). Looking at Seghesio’s size compared with similar brands, I know there’s additional opportunity. It’s highly focused on-premise, but there are exceptions. We want these wines available in the better grocers—Whole Foods, Safeway and Vons in California—because that’s where our consumers shop.

SND: Which other wines across the Crimson portfolio are performing best?

Martin: Our Pine Ridge Chenin Blanc-Viognier ($14) has nearly doubled its volume in the past year, from a sizeable base. It works in the on-premise as well as retail, and it’s attractive to neophytes and wine geeks. Also, our Stainless Chardonnay from Chamisal Vineyards ($18) is doing very well. Unwooded whites are another strong category right now. And Pinot is very hot across the board.

SND: Which wines are having a tougher time?

Martin: The Napa business is under pressure, particularly the middle tier. Pine Ridge is roughly flat. Our Dijon Clone Chardonnay has real brand equity, but it’s another California Chardonnay at the $30 price point, which currently is a tough segment. The recession has given consumers an opportunity to explore outside their comfort zone. If they used to fill the cart with $50 Napa Cabernet, now Argentine Malbecs are looking good, or Garnacha from Spain, or other full-bodied alternatives retailing at $10 or lower. That’s partly the reason we launched Forefront by Pine Ridge (in 2009), which represents an opportunity to catch our own customers down the ladder.

SND: Where is Forefront positioned?

Martin: There are two Forefront reds: a Cabernet blend and a Pinot, both retailing around $20. On the white side, we have a Sauvignon Blanc and a small-quantity Pinot Gris from Oregon, both at $18. That compares with the core Pine Ridge brand that has a Napa Cab at $54, a Stags Leap Cab at $85 and the top of the line Fortis at $140. Forefront is intended to reach a slightly more adventurous consumer. It’s blended with Syrah. The flavor profile is a little juicier, a little more forward and less tannic, and that resonates with the wine drinkers buying a lot of these blended Rhône reds these days.

SND: You’ve also revamped Chamisal recently. How has that been received?

Martin: We’ve pruned Chamisal’s line. There used to be a Pinot Gris, a Syrah, a Grenache—but its strength is in Burgundian varieties, so we’re focusing there. The Estate tier, our middle range where the Chardonnay is in the mid-$20s and the Pinot is in the mid- to high-$30s, has been under pressure. We’ve been successful on a direct-to-consumer basis, but at the wholesale tier that’s a very competitive segment. We don’t have the same notoriety with that brand that, say, Belle Glos from Caymus does. Their Meiomi Pinot goes right up against our Chamisal Estate by price and appellation, and they’ve done really well. So we’re slogging it out in that segment.

SND: What is Crimson’s stance on pricing?

Martin: Our goal is to hold price and stimulate purchasing through other means. In direct-to-consumer sales we look for opportunities to bundle products. That way we don’t get into the issue of saying one of the brands is 50% off. On the wholesale side it’s tougher, because consumers today can walk into any store and scan a UPC with his phone and find out the 50 places nearby where that item is selling and what it’s selling for. One solution is to drive business through the on-premise, where we can protect our pricing better. We’ve gotten more aggressive on pricing on the estate wines out of Chamisal and Pine Ridge for the on-trade. If we can get Pine Ridge by the glass onto the menu for $20 at a steakhouse, everybody through the trade and down to the consumer wins. Ultimately we may lose some margin, but it’s a fair trade-off for generating volume in the right places.

SND: Are you open to more acquisitions?

Martin: We’re still digesting Seghesio, but there will be more opportunities. We own 600 acres of vineyards in Eastern Washington’s Horse Heaven Hills, with about 100 acres planted. We don’t have a facility or brand there at this point, but we believe in Washington. There’s also potentially a pure-play Chardonnay opportunity in our portfolio. If you look at Rhône varieties, even Sauvignon Blanc, there are openings. In five years I expect Crimson to be approximately twice its current size—a half-million cases and about a $100 million business.

 

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