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California Wine Companies See Opportunity in IPO Boom

Two California wine companies are going public this spring, the first major wineries to do so since the late 1990s. Wine makers explain the lessons of past stock offerings from wineries like Mondavi and Ravenswood and why they think the time is now right to join the IPO fray. Photo: Jake Nicol/The Wall Street Journal

Video Transcript

- Smells delicious.

TERRY WHEATLEY: It really does smell delicious.

- With tasting rooms set to open their doors again at California wineries, it's time to raise a toast. But for the $70 billions US wine industry, this is the clinking of glass that matters most. That's the sound of volume, scale, diversification. If you can hear all that as a wine company, maybe you have what it takes to attempt an IPO. But here's the thing. No California winery has dared to go public in more than two decades. And for good reason.

- Robert Mondavi vowed to make a great wine for every American table.

- Iconic Robert Mondavi Winery went public in 1993, before becoming a cautionary tale for California's wine industry. Famous for their family disputes, the Mondavis sold their company to Constellation Brands in 2004. Some bad investments and a falling stock price had a lot to do with that. But Michael Mondavi said other factors were also at play. The Mondavis would have preferred not to sell. But the family saw it as an opportunity that came just at the right time. Today, no Mondavi family member is involved with the Mondavi wine label.

TERRY WHEATLEY: 20 years ago, the folks that went public at the time were single-focused. And then you swirl it.

- Enter Terry Wheatley, president of Vintage Wine Estates.

TERRY WHEATLEY: I'll let you sip it.

- She's gearing up to take Vintage public, the second California wine company to do so this spring, following Duckhorn's recent IPO. Wheatley says Vintage, which produces 2 million cases a year under 50 different brands, is diverse enough to avoid the bad hangovers of the past.

TERRY WHEATLEY: Almost a third of our business is direct to consumer. 38% over here is that big wholesale, traditional wholesale. And another third is done in B-to-B.

- In truth, it's a great time for many companies to go public. With low interest rates and capital-flushed markets, there's been an IPO surge the last couple of years.

TERRY WHEATLEY: Who's got the Pinot Noir?

- But Wheatley also thinks Vintage is at the right place at the right time because of today's wine drinkers. Although wine consumption stayed relatively flat over the last two years, retail wine sales at stores spiked during the pandemic, as did direct to consumer sales, as more people drank at home. I never bought on Instacart until the pandemic. I now-- I don't go to the grocery store anymore. So imagine that we've now trained all these people to buy wines online. What better time for a company to go IPO that has almost a third of their business in that leg of the stool, direct to consumer?

This property was once owned by Bruce Cohn, he was the manager of the Doobie Brothers for years and years.

- But Wheatley's own story of how she joined the company reveals Vintage's most crucial growth strategy.

TERRY WHEATLEY: This property was acquired in 2015, after my company, Canopy Management, was acquired in 2014.

- Acquiring wineries, Wheatley says, allows Vintage to diversify its brands and appeal to different wine drinkers.

TERRY WHEATLEY: Wines like Bar Dog, that sells for $12 a bottle, and-- and really--

Right now, the sweet spot in the wine market is $10 to $20. We've seen consistent growth over the last several years, about 6%, in that price point.

- There are more than 11,000 wineries in the US. And a recent survey by the Silicon Valley Bank found that nearly half of the responding winery owners are open to selling for a fair price.

TERRY WHEATLEY: With a pandemic going on right now, and continues to have some of the midsize and small wineries struggling, really just gives us the opportunity to take advantage of the acquisitions that we know are in front of us.

- Having these multiple channels for growth is a lesson some California wineries had to learn the hard way.

JOEL PETERSON: Would I have preferred that Ravenswood become a legacy winery? Sure.

- Joel Peterson is known as the godfather of Zin, after helping popularize the California varietal as the founder of Ravenswood Winery. I didn't expect to be a big winery, but as luck would have it, the winery grew and it grew. And Zinfandel became more popular.

- Following the lead of Mondavi, Ravenswood went public in 1999. But Peterson and his board soon realized they couldn't meet the growth expectations of Wall Street. And so Ravenswood was sold just two years later to Constellation.

JOEL PETERSON: This is the 1999 version.

- Gallo, Ravenswood's newest owner since January, said in a statement that it plans to, quote, "reinvigorate the brand."

JOEL PETERSON: So this was the wine that we made the year we went public.

Nobody went public, really, for the last 25 years, in part because of the lessons learned by Ravenswood and Mondavi. There's only a certain amount of quality and growth that go together. And the market's demand sort of endless growth. You have an agricultural product, you're subject to the weather. If you own vineyards, they're very expensive. If you own a winery, it's very expensive. Those things are all drag-downs on the balance sheet.

- I mean, they've been trending, like, in the fours and fives. So that was a nice jump.

TERRY WHEATLEY: We had fires here in the Sonoma Valley. But because of our diversity of sourcing, we were able to go to the Central Coast-- Paso Robles. We can go to Oregon, we can go to Washington. With the amount of estates that we have, we are able to really diversify in everything we do.

- Peterson agrees the wine business has changed in the last 20 years. So Vintage has a shot of succeeding where Ravenswood failed. Peterson says it also helps the industry that wines have changed, too.

JOEL PETERSON: A lot of wines are really built by focus groups. The wines tend to be more uniform, they tend to have a certain amount of sweetness associated with them. But they've also helped popularize wine.

- After he sold his company, he bought himself an old vine vineyard that produces small batches of his current label, called Once and Future.

JOEL PETERSON: Almost identical. What's different about them is, essentially, the vintage.

- He says his newest Zinfandel is the future he's always wanted for himself. But he doesn't regret the past.

JOEL PETERSON: For me, personally, it was a very good thing. There were times along the way when I wasn't feeling that way. But it meant I was able to help finance my son's winery, which means that he'll never have to go public. It's allowed me to become a vineyard owner. So yeah, the growth, the process, the people I've gotten to work with, it's been worth it all.