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Interview, Part One: Ste. Michelle Wine Estates President and CEO Ted Baseler

August 28, 2012

Ste. Michelle Wine Estates, a subsidiary of the Altria Group (formerly Philip Morris), was one of Washington’s pioneering wineries and remains by far the biggest, with sales of $516 million (+12%) and shipments of 7.32 million cases (+10%) last year. Ste. Michelle’s portfolio is anchored by its two core brands, Chateau Ste. Michelle (+8% to 2.5 million cases in 2011) and Columbia Crest (+0.1% to 2.1 million cases), and has benefited from the recent rise of Impact “Hot Brand” 14 Hands (+92% to 785,000 cases).

The portfolio also includes around a dozen estate wineries like Washington’s Col Solare, Snoqualmie, Northstar and Stimson Estate Cellars; Oregon’s Erath; and California’s Stag’s Leap Wine Cellars, Hawk Crest, Villa Mt. Eden and Conn Creek. Partner brands like Napa’s Antica, Italy’s Antinori and Champagne Nicolas Feuillatte are also part of the mix. Shanken News Daily recently caught up with Ste. Michelle president and CEO Ted Baseler to get an update on brand progress in this first installment of a two-part interview.

SND: How is the business climate as 2012 rolls along?

Baseler: The wine industry is generally healthy. We’re seeing good solid growth in the premium segment in particular and some shifting of consumers from sub-premium to more premium-priced products. We’re also seeing a broadening of demographics across the consumer base. And while the high end probably isn’t back to where it was in 2007, there’s been a return to luxury categories and restaurant consumption. The trend lines are all pointing in the right direction.

SND: Has the return toward premiumization demonstrated itself across Ste. Michelle’s core brands?

Baseler: Yes, certainly within Chateau Ste. Michelle. The Indian Wells tier of Chateau Ste. Michelle (which recently added a red blend) is responsible for a lot of the brand’s growth. Indian Wells is in that $15-$18 range that has been a dynamic segment, and it has also received some critical acclaim that has helped drive it.

SND: How about Columbia Crest?

Baseler: When you look at the reported numbers on Columbia Crest you see a decline, but the lower-priced Two Vines tier is responsible for that. We’ve refocused Columbia Crest on the Grand Estates level ($10-$12 a bottle) and H3 (Horse Heaven Hills) (around $15) to bring it back to its roots as a premium wine. At one point we had a lot of extra wine on-hand and with that we built up Two Vines. But like most of the West Coast, we had a very short vintage in 2011. With the wine we have we want to focus on the premium, ultra-premium and above. I don’t think the brand will slip much more. It’s stabilizing in some of the core markets.

SND: Is 14 Hands keeping up its strong growth from last year?

Baseler: 14 Hands’ ascent has been unbelievable. This is a wine we had primarily in restaurants for many years, and it did well there. But we knew there was a lot of demand for it off-premise as well, so we created the Hot to Trot red and white blends, and those just exploded far beyond our expectations. 14 Hands continues to roll out to wider markets. We’re making it as fast as we can.

SND: But you’ve taken a patient approach in terms of expanding its distribution?

Baseler: We want stable brands that will pass the test of time. Our goal is not to just crank out new products every week but rather to develop something that will be sustainable over many years. We think that, in the end, the trade will become more selective about what they put on the shelf. Although consumers are clearly open to new discoveries, we want to be methodical. That’s why we developed 14 Hands in restaurants first, then slowly began rolling it out at retail and finally last year introduced a varietal series that’s been a huge hit.

SND: Which other labels in the portfolio have been key contributors?

Baseler: We’re seeing great consistency across our luxury estate wineries—what I call our ‘string of pearls.’ They’re all up, in some cases markedly. Stag’s Leap Wine Cellars is having record sales. Northstar in Walla Walla is having record sales. Col Solare, our joint venture with Antinori, is up dramatically. It shows that consumers are willing to pay more than they were in the Great Recession, and while things are not perfect in the economy, they’ll only wait so long before they return to premium wines.

SND: Which areas of the market, geographically, have been the most fruitful this year?

Baseler: We’re showing consistent growth on the West Coast, in the Midwest and in the East. In the last few years the Midwest has become a more sophisticated wine market, and we’re expanding there. The East has been going along nicely as well, particularly the Southeast, where growth has been exceptional.

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