Focusing on ‘Luxury’ and ‘Masstige’, TWE buys big in Napa, and small in Bordeaux. 

The giant Australien wine company enlarges its portfolio with Frank Family Vineyards in Napa valley and three small Bordeaux chateaux. The acquisitions are part of a larger strategy to focus more on the premium wine sector.

TWE's wine portfolio is growing / Credit: Treasury Wine Estates
TWE's wine portfolio is growing / Credit: Treasury Wine Estates

Treasury Wine Estates, the Australian giant that already owns California gems, Beringer, Beaulieu and Stags’ Leap, has added Frank Family Vineyards in Napa to its portfolio, at a cost of $315m. It has also bought three small Bordeaux chateaux for an undisclosed price, to sit alongside its 2019 acquisition, Chateau Cambon la Pelouse.

One of the largest wine companies in the world, TWE has suffered recently from tariffs of up to 212 percent that have been imposed on its – and other producers’ - Australian wines in China, a key export market. Its 2021 revenues of AU$2.684bn are marginally above those of the previous year, but below the AU$2.883bn of 2019. 

Most significantly, however, its best performance has been in the US with the part of the company it has designated as Treasury Americas. Compared to TWE’s 2020-2021 revenue growth of 4.4%  and EBIT (Earnings Before Interest and Taxes) growth of  3.5%, the US division built net sales by 11.3 percent and, more strikingly, EBIT by 66 percent. US sales of A$876m ($628m) are roughly a third of the global total A$2.6bn ($1.86bn). The most profitable third. 

Echoing the aspirations of its fellow multinational, Constellation, Treasury Americas has the declared aim of becoming the market leader for premium wines in the US. To this end, in March, it sold four lower-end brands to the Wine Group for $100m.

Curiously, for some non-US observers, wine traditionalists and students of marketing, two of these wines bear the Beringer brand and will now be produced and sold by one of TWE’s competitors. The Australian giant retained labels like Beringer‘s Knight’s Valley Reserve and Beringer Steinhauer Cabernet Sauvignon which leading US retailer Total Wines & More retail at $60 and $160 respectively, while The Wine Group took on Beringer Private Founder’s Estate ($6.50) and Beringer Main & Vine White Zin ($3.50). TWG is acknoweledged to be better able to exploit these price points.

 

Good margins

This is the background against which TWE decided to buy Frank Family Vineyards, whose 174,000 cases of wines retail for between $35-225 per bottle, making for annual revenues of $54m with margins of 37.9 percent – over twice the 17.2 percent recorded by Treasury Americas. Forty percent of the wine is sold in restaurants, with 10 percent going directly to consumers, 30,000 of whom visited the tasting room in 2019.

The new acquisition was founded just over 30 years ago by former Walt Disney Studios president Frank Rich and his wife Leslie, whose 25-year career in TV news had included covering the OK Simpson trial, 9/11 and Hurricane Katrina.

 

The wines of Frank Family Vineyards

 

Despite its relative youth, the winery is a local landmark, being sited in the Historic Larkmead Winery which was built in 1884 and is the third oldest in Napa. Over the three decades, the Franks acquired 480 acres (194ha) of prime vineyards in Napa, Carneros, and Rutherford, and a reputation for full-flavoured wines, especially big, buttery Chardonnay which may be out of fashion with many critics, but has high demand in the US. Its top wine is the second biggest seller in this category, after Rombauer with which Frank Family was originally associated.

 

Luxury and masstige 

The same critics may also dislike the terms ‘luxury’ and ‘masstige’ when applied to wine, but both are very much part of TWE’s strategy. Frank Vineyards will join a range of premium and super-premium US brands, including Acacia, Beaulieu, Chateau St Jean, Beringer, Stags’ Leap and Sterling. 

Strikingly, even at $315m, TWE’s purchase does not include all of the vineyards. The family retains m158 acres – nearly a third, with a potential value of at least $30m – and will continue to supply grapes. Winemaker and Managing Director of Frank Family Vineyards, Todd Graff, will also continue to manage the winery. 

One of the professed reasons for the sale were production challenges face by the Franks who had to make their wine in several facilities. TWE will solve this problem and, with other synergies, expects to cut $5m per year from current costs.

 

Buying in Bordeaux

By comparison with the Napa purchase, TWE’s acquisition of three modest estates and 27ha of land in the Médoc will seem like small change. Châteaux Belle-Vue, Gironville and Bolaire had apparently been on the market for five years, since the death of their owner in 2010. No details have been released of the cost of this purchase, but vineyard land in this area currently commands €50-80,000 per hectare.

The fact that the sale includes the brand ‘Petit Verdot by BV’ which was registered by Chateau Belle-Vue, seems very likely have had some bearing on the deal, As owner of Beaulieu Vineyard in Napa - widely known as BV – TWE is unlikely to have wanted to see that name fall into other hands.

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