Napa, Calif. -- The 16th Annual Wine Industry Financial Symposium began yesterday with a series of workshops, held at the Marriott Hotel in Napa. The annual two-day symposium focuses on financial strategies for wineries, grapegrowers and industry investors.


Nicholson pointed out that distribution, branding and marketing have become more important than the vineyard and winery assets in determining the value of a brand.

In addition to an increase in luxury estate transactions, such as the recent Duckhorn and Stag's Leap sales, Nicholson predicted "a big increase in brand-only transactions" as wineries realize that it's easier to buy an existing brand than to create a new one. "I think there are a lot of deals going on right now," he said, an increasing number of which involve buyers from outside the wine industry.

With more than 100,000 wine SKUs in the marketplace, differentiating a brand from its competitors is crucial in determining its value, Nicholson said. A successful brand is characterized by several factors, he said, including innovative packaging, contemporary wine style, lack of pretentiousness and a clear, simple brand message.

Determining brand value

In determining a brand's value, Nicholson considers its suppliers, distributors, inventory levels, profit margins and overhead. Other important considerations include employment and consulting contracts; third-party grape contracts; the retention of library wines; and trademarks/intellectual properties.

Pacific Rim's Nicolas Quille, who was involved in the recent sales of Bonny Doon's Big House and Cardinal Zin brands, pointed out that brand valuation is useful not only in acquisitions, but for estate planning and IPOs.

Quille defined a brand as "an emotional relationship between a consumer and a product" that takes the product beyond the commodity level.

More tangible brand assets, he said, include things like packaging design and art; logos and taglines; real estate; and famous figureheads who are associated with the brand. Production protocols, retention of key contracts or individuals, and logistic contracts for things like warehousing can also add to a brand's value. "Don't invest in any asset that's not critical to the brand," he advised.

There are several factors that can reduce a brand's value. If, for example, the transaction does not include a valuable asset (such as a famous figurehead), or includes hard assets (such as a facility or unrelated business) that are not vital to the brand, it can have a negative effect on value. Weak financials, non-strategic contracts and a lack of press acknowledgement can also hurt a brand.

"You need to have a clear idea of what your brand stands for," Quille said.

Pat DeLong, of Leucadia Cellars, provided insights from both the acquirer's and the target's point-of-view. A perfect target, he said, features a unique marketing positioning, top-line growth, profitability, high cash flow conversion, an efficient asset base and strategic benefits.

Winery owners shouldn't make the mistake of thinking that there are dozens of potential buyers for their brands. "There are only a few natural buyers out there for each brand," DeLong said.

When negotiating with a buyer or seller, he added, confidentiality and speed are important. It's also important to keep the big picture in mind. "Focus on the big stuff and let the little stuff go," he said.

Organic vs. synthetic branding

Michael Havens, who sold Havens Wine Cellars to Billington Imports last August, offered tips for people who--like himself--prefer to avoid overt marketing strategies.

Havens built a valuable brand by focusing on what he calls "organic" marketing, rather than "synthetic." Synthetic marketing emphasizes the brand's concept, label and price, followed by the wine; organic marketing focuses on the wine and the region first, followed by concept, label, etc.

Organic branding creates an emotional connection to consumers by telling them "the human story of the producer," Havens said. "A story of a guy in a place with a grape." Havens emphasized this with his own brand by "being as local as possible," he said.

When Havens decided to sell his winery due to a weakening market, he was surprised to find that the brand was more desirable than the real estate. "We had created a brand without intending to," he said. "I no longer think that brand is a dirty word."

In order to facilitate the sale, Havens' broker advised him to separate the brand and real estate aspects of the winery. Though he was originally against the idea, Havens said he now sees the wisdom of breaking them up to in order to attract the right buyer.

As Pat DeLong pointed out during the Q&A session, the "right buyer" isn't always the one with the highest bid. "It isn't just about dollars," he said. "It depends how important brand integrity is to the seller."

DeLong advised winery owners to do some research to determine who the appropriate buyers are, and how they would handle the brand.

Whether you're on the buying or selling end of a deal, it's important to be sensitive to the human element of the transaction. Distributors and employees may not be thrilled with the change. "This is a very painful process, from beginning to end," Quille said. "Getting along with everyone to get the deal done is tough."

Perhaps the best strategy, he added, is to "surround yourself with great advisors and make a plan for it."