Interview, Part 2: Adam Waglay Of Butterfly and Robert Hanson, Incoming Duckhorn CEO
January 8, 2025In the second part of our interview, Adam Waglay, co-CEO of private equity firm Butterfly, and Robert Hanson, incoming CEO of Butterfly-owned Duckhorn, discuss organic growth opportunities across the portfolio, the DTC market, as well as M&A ambitions moving forward.
SND: What do you see as the first orders of business to drive expansion?
Hanson: The day-one focus is going to be organic growth. I think about it as a portfolio, but two sub-segments of business. We’ve got a fine and luxury wine business with Duckhorn Vineyards and Kosta Browne and others, and then we have a premium business with Decoy and Sonoma-Cutrer and others. We think there’s organic growth to be had on both sides of the coin. The blocking and tackling is going to be around optimizing the new distribution arrangements that have recently been developed. Partnerships with RNDC and Breakthru Beverage Group are really critical.
There is incremental distribution opportunity even in the Decoy brand, which has obviously been a large growth driver for the portfolio over the past several years. It is really just the core varietals that are mostly penetrated from a distribution standpoint. So we’re looking at the sister varietals and then innovations into consumer-friendly spaces such as Featherweight in the better-for-you space. We see distribution expansion domestically as the primary focus. And then we’ll clarify the role of the other brands in the portfolio such as Calera, Goldeneye, and Greenwing. There’s an opportunity to take them to market in a much more precise way and drive organic growth. Day-two is about developing our M&A strategy.
SND: What assets are most attractive from that standpoint?
Hanson: I like to focus on taking a trending varietal and thinking about how to compete vertically across luxury and premium segments. If you look at Kosta Browne, you’ve got a prestige Pinot Noir and Chardonnay brand. With The Duckhorn Portfolio, between Duckhorn Vineyards and Decoy you’ve got fine wine and premium wine covered, particularly on the red side. The acquisition of Sonoma-Cutrer added a beautiful premium-plus Chardonnay, so now you have vertical coverage on both Pinot Noir and Chardonnay. That’s how we think about it.
SND: How do you plan to address the DTC side of the market?
Hanson: We have two direct businesses. There’s the California direct distribution business, where we have direct access to the customer and therefore the consumer. So it will be about using insights we gain from those relationships to outcompete our competitors and be better partners for our distributors. And on the other side, the traditional direct-to-consumer business represents your highest lifetime value consumers. So building out that business is important.
SND: Where do you think the long-term premiumization trend in wine and food stands at this point?
Waglay: You’re seeing premiumization happen in multiple categories of food and beverages, and wine’s no different. People are drinking less but drinking better. And Duckhorn with its 11 brands is positioned perfectly against that.
Hanson: We see this recent slowdown as really a temporary one, not a systemic one. Millennials and Gen Zs are consuming wine. They’re just consuming more consciously. So back to the better, higher-end consumption, less volume, more quality. And that leans right into the ethos of this portfolio.
SND: How do you define success for Duckhorn and Butterfly’s investment looking ahead a few years?
Waglay: This is just the beginning. We’ve got to make this a home run for our investors, our team, and our consumers. It’s hard to give you a specific financial target we have or a specific timeframe that we’re waiting on. One of the major things for us beyond having the best asset, best sector, best team, is also making sure that we have exit optionality. What I love about this business and this platform is there are so many ways that we could monetize this for our investors. There are a lot of ways to maneuver because it’s such a high-quality business team and set of brands.
Hanson: Being able to position this portfolio—both from an investor standpoint, but most importantly from a consumer standpoint—as the most desired premium and luxury wine portfolio in still wine is the strategic goal.
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