But according to a survey published by Silicon Valley Bank and Scion Advisors in 2008, 60 percent of the respondents said they would undergo an ownership or generational transition by 2017.
"This is an enormous change for such a small industry to absorb," the report said. "The large number of retirements will produce a power shift throughout the industry that could have ripple effects."
Private Equity
Bacchus Capital Management LLC, based in San Francisco and New York, is uniquely positioned to ride this wave in a substantial way. Rather than just buying wineries, co-founder and managing partner Peter S. Kaufman says the private equity firm provides "flexible capital" (control equity, first lien or mezzanine/second lien debt) that wineries can use to finance growth, intra-family transitions, or acquisitions of other wineries.
The firm focuses on growing wineries "where we can add value," adds co-founder and managing partner Sam Bronfman (older brother of Edgar Bronfman Jr.), a wine industry veteran. Describing the wholesale/retail system as an "hour glass with a tiny narrow opening that most small owners can't get through," he explains that distributors decide which wines will be sold. He says he can use his own relationships to assist wineries in this matter.
Bacchus has provided debt financing to Cameron Hughes Wine, Andretti Winery, Wine by Joe and Qupe. In October, it invested equity in Sbragia Family Vineyards, whose founder Ed Sbragia is the only winemaker in the world to have received a Wine Spectator #1 wine of the year award for both a red and white wine.
"We're trying to make this a little more mainstream," Bronfman says. "We have a lot of investors who just like the idea of investing in the wine business--investing in wineries as opposed to investing in Bordeaux futures or investing however else people quote invest unquote."
Sour Grapes
Most wineries are small businesses run by owner-operators. Average sales are $3 million. But with millions of dollars often tied up in real estate often worth $225,000 per acre for non-trophy vineyard property in Napa, it's never been an easy business to make money in.
And it has become a heck of a lot harder since the financial crisis. There are 7,000 wine brands in the US. Some are sold direct. But vying for shelf-space against giants like Constellation or Diageo that also sell spirits with higher profit margins for distributors, is no easy task.
"Unless it's a great brand that sells itself, most of these distributors don't want to promote these brands," Freund says.
At least one large institution has learned the hard way just how difficult the wine business can be. Insurance companies and insurer-backed growers have been particularly active in vineyards. And some have been at it for decades. Among the players: Travellers, Mutual of New York and Met Life Vineyards, as well as John Hancock and Prudential, according to Robert Smiley, wine economist and professor emeritus of management at the UC Davis Graduate School of Management.