Mendo’s Biggest Wine Country Corporations
by Will Parrish, September 10, 2010
“We have chosen as our first topic of discussion the reality of the business — cash. Everything we do eventually finds its way back to this common denominator. That is, cash in and cash out. … At Duckhorn Vineyards, we earn approximately 24% cash profit. … Our bank, Bank of America, is more willing to support our growth because of our relatively high cash profit levels, our confirmed reinvestment of earnings and our shareholder support.” — newsletter to shareholders, Duckhorn Vineyards, 1998 (now owned by CB Richard Ellis, the world's largest real estate conglomerate)
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“The Problem Now: What To Do With All That Cash,” a 1995 Business Week headline intoned. It could well have been describing the impetus for the California North Coast's premium wine-grape bubble. Throughout the 1990s and up to the present, the battalions of bankers, lawyers, and business magnates who presided over the boom-time economy in the San Francisco Bay Area (and elsewhere) have plunged a huge portion of their surplus wealth into upscale wine culture — pricey tasting room tours, $50,000 collections of high-end vintages in home cellars, and $230 bottles of, for instance, '93 Opus One.
Many of these regional economic elites went a step further by purchasing their own North Coast wine-grape plantations, those monocrop slices of the “bucolic” wine country lifestyle running from the Russian River Valley to Napa Valley to the Anderson Valley.
Silicon Valley tycoons landscaped their vacation homes with cabernet and chardonnay vines. The most ambitious among them cleared the trees and vegetation from vast parcels in the region's countless American Viticultural Areas, which sprawl across even some of the most rugged terrain and out-of-the-way climes in Sonoma, Napa, and Mendocino counties. Enormous corporations bought their way in as part of the “grape rush,” most of them investing in premium wine acreage for the first time — often on a bold scale.
If both the regional and national bourgeoisie faced the would-be dilemma of how to invest their previously untold levels of wealth, one of the main answers is now written on the landscape of the North Coast, in the form of so many feeder streams and creeks diverted, forests clear-cut, and mountainside recontoured. The premium wine industry's ultimate source of well-being, large pools of disposable income wielded by the very wealthiest segment of America's economic hierarchy, has caused irrevocable changes to the regional economy and ecology.
In the wake of the Silicon Valley's bubble bursting in the early-2000s, the “grape rush” began to subside. Ostentatious consumption of high-end wine greatly diminished. Since the great unraveling of the world economic system began in earnest a few years ago, the decline has accelerated. Faced with an increasing market glut, wine-grape growers every year face greater difficulty moving their product at a profitable rate. Vineyard development has slowed, and many of the existing smaller schools of fish are being gobbled up by the wine industry's resident mega-firms.
An industry “shakeout” is in full swing.
The corporations that have invested in the North Coast wine industry at various points along the way have included some of the biggest of all globe-spanning juggernauts: Coca-Cola, Shell Oil, Chevron, K-Mart, Seagrams (which owns Universal Studios, the Home Shopping Network, MCA, and Polygram Records), Prudential Insurance, US Tobacco (owner of Phillip Morris), and Allied-Domecq (parent company of the Baskin-Robbins and Dunkin' Donuts chains) — to name but a handful. A select group of “vineyard royalty,” meanwhile, have been busy consolidating their control of the domestic wine market. Merely seven companies — E & J Gallo Winery, The Wine Group (formerly a division of Coca-Cola), Constellation Wines, Foster’s Wine Estates, Bronco Wine Co., Trinchero Family Estates, and Jackson Family Wines — collectively account for the overwhelming majority of US wine sales.
Not surprisingly, all of these companies own large tracts of land in Napa, Sonoma, and/or Mendocino counties. Here in Mendo, two of these seven major wine industry firms run major vineyard tracts. A handful of other billion dollar conglomerates have also bought a piece of the local action. The largest of all these companies, which figured prominently in some front-page articles the AVA published earlier this year, that owns Mendo vineyard land cultivates wine-grapes here — and nowhere else.
The North Coast “grape rush” is an economic boom entirely of, by, and for the already wealthy. Even so, the Mendocino County wine establishment styles itself as a family-driven, small farm enterprise. As ownership of the industry grows steadily more concentrated, it remains to be seen how long Mendo's regional winery elites will be able to pass off this delusional self-concept. What follows are profiles of many of the largest corporate owners of Mendocino County vineyard land, along with brief descriptions of their local holdings.
CB Richard Ellis Investors ($33.7 billion) — Goldeneye Vineyards & Winery, Philo
Goldeneye is the second largest producer of pinot noir in the Anderson Valley, with nearly 200 acres under cultivation. Since its founding in 1997, the company has distinguished itself as one of the Valley's most purely extractive vineyard operators. To name only some of the grievances mustered against it by local residents (all of them reported in this publication over the years), the company has built several unpermitted holding tanks at the junction of the Rancheria Creek, Anderson Creek, and Indian Creek; stuck a pipe directly in Indian Creek; illegally trucked water from one site to the other; operated some of the noisiest and most disruptive frost-protection machinery in the Valley; and even knowingly built a holding pond atop a known Pomo burial site on the east bank of Rancheria Creek so as to close off the possibility of any survey work being conducted there, which might have somehow cut slightly into the company's vaunted profit margin.
Goldeneye's way of doing business, in other words, is tailor-made for the world's largest real estate conglomerate, CB Richard Ellis, and its majority owner, the insatiable San Francisco merchant banker Richard Blum.
Blum, as readers of the AVA series I wrote with sometimes Navarro resident Darwin Bond-Graham this past spring will recall, is the husband of US Senator Dianne Feinstein. Over the past five decades, and particularly since his 1980 marriage to DiFi, he has built an incredibly expansive multi-billion dollar personal empire, based almost wholly on his uncanny knack for siphoning off public money into his own personal coffers.
Goldeneye is a division of Napa County-based Duckhorn Vineyards, a prestigious vintage founded by Napa venture capitalist Dan Duckhorn in the 1970s. Duckhorn created Goldeneye at the height of the '90s North Coast grape rush, getting in in on the ground floor of the Anderson Valley pinot noir planting surge, which saw cultivated acreage of that particular expensive grape more than triple in the valley from 1994 to 2004.
Duckhorn cashed out of his wine business in 2007. In a deal reportedly worth more than $250 million, he sold the company to a Real Estate Investment Trust (REIT) named GI Partners. Oddly, while GI Partners' filings with the Securities and Exchange Commission make perfectly clear that it is a wholly owned subsidiary of CB Richard Ellis' capital investment arm, it does not acknowledge this link in any of its official literature.
Perhaps GI Partners keeps its distance because of the potential for public scandal inherent to the way CBRE came up with the capital to purchase it. Over the years, Blum and a select handful of other major Democratic Party funders have earned the California Public Employees Retirement System (CALPERS) the label of “the Democratic Party's personal piggybank.” The pension fund has disproportionately staked its enormous investment pool in these funders' pet projects, including CBRE and other among Blum's main financial interests. For its part, the primary investors in CBRE's purchase of Duckhorn Vineyards are CALPERS and the country's second biggest public pension fund, the California State Retirement System (CalSTRS). In fact, it was shortly after Blum purchased a majority stake in CBRE that the company created the GI Partners sub-division — which owns several other real estate and technology companies in addition to Duckhorn Vineyards — for the specific purpose of managing the massive investments it was beginning to receive from CALPERS.
For more on Blum, CBRE, GI Partners, the tangled web of financial interests in which they are enmeshed, and what that has to do with the local wine industry, see part four of the AVA series published earlier this year — available at www.theava.com under the “Special Features” section.
Constellation Brands ($4.7 billion) — Dunnewood Vineyards, Ukiah; Mendocino Vineyards
Headquartered in New York, Constellation is the poster child of the ongoing wine industry shakeout. “In an industry defined by consolidation, Constellation Brands is the consolidator,” the magazine Wine Business Monthly quipped. In the last few y ears, it has been on a buying spree, bringing its portfolio to a whopping 75 separate wine labels and making it the largest wine company in the world in terms of sales by volume. It is also the largest beer importer and marketer in the United States, with the rights to import Corona, St. Pauli Girl, Modelo, Pacifico, and others. It is even the country's second largest grape juice concentrate manufacturer.
Take but one company in Constellation's vino portfolio, Robert Mondavi Winery. With annual revenue of slightly greater than $1 billion, Mondavi is a multi-national firm in its own right. It owns eight different wine companies in California ; founded a $30 million institute at the largest applied agricultural research university in the country, UC Davis; and markets its wines in dozens of countries around the world.
As with the next largest US wine company, E&J Gallo, Constellation is notable for its influence peddling. It employs eight full-time lobbyists in Sacramento. Since 2008, it has been the third biggest contributor to the campaign coffers of Wine Industry Congressional Rep. Mike Thompson. Only Gallo and the NorCal real estate firm AKT Development have been more generous in lavishing funds on Congressman Wine Bottle (the AVA's long-time designation of Thompson). Constellation has played a prominent role in lobbying against recent Congressional proposals to increase federal wine taxes.
Dunnewood is the tasting room on the east side of the 2300 block of North State Street in a light-industry area of Ukiah. Constellation also capitalizes on the carefully cultivated earth-friendly mystique of the local terroir by marketing a brand called “Mendocino Vineyards,” which makes a big point of mixing organic grapes purchased from local vineyard estates. The company's SEC filings also refer to ownership of outfits called “Mendocino Canyon Winery,” Mendocino Creek Winery,” “Mendocino Ridge Winery,” and “Ukiah Winery.”
Brown-Forman Corporation ($2.6 billion) — Fetzer & Bonterra Vineyards, Ukiah
Primarily a spirits company, with such brands as Southern Comfort, Canadian Mist, and Early Times, Brown-Forman is a main player in the premium wine industry through its ownership of Fetzer and Bonterra — which, together, comprise over 10 percent of Mendocino County's total vineyard acreage. In their 1994 book Through the Grapevine, Glen Martin (Mondavi Winery) and Jay Stuller (a public relations guru at Chevron Corporation) described the impact of Brown-Forman's 1992 purchase on the wine industry at large.
"The deal was good for the Fetzer family, but it didn't bode well for smaller winery operations,” they wrote. “The message was: 'Get big or get out'."
Brown-Forman's ownership of Fetzer dovetails nicely with its marketing emphasis on sustainability. Fetzer has been the largest producer of organic wine-grapes in California for an impressive 20-year run. "The beauty of our home at Valley Oaks inspires our natural approach to winegrowing, providing you a sense of renewal in every glass," the labels on Fetzer's wine bottles boast. Partly as a result, Newsweek ranked Brown-Forman the third “greenest” beverage company in the US in 2009 — behind only Coca-Cola and Coca-Cola Enterprises.
In the 1980s, Brown-Forman purchased California Cooler Inc., the inventor of wine coolers, at the height of the wine cooler craze. The coolers' previous owner used the capital from the sale to purchase a 6,000 acre estate in Laytonville called Alder Springs Ranch, which has 140 acres of wine-grapes under cultivation.
Kendall-Jackson (approx. $2 billion) — Edmeades Winery and Vineyards, Philo
I will devote greater attention to Kendall-Jackson's particular role in the North Coast vineyard boom in the next installment of this series. For now, suffice it to say that company patriarch Jess Jackson, the wine industry's leading robber baron, has been responsible for converting more hilltops and mountainsides into moonscapes on the North Coast than any other vineyard capitalist.
Jackson was a San Francisco attorney who amassed his initial fortune by hiring himself out to some of the greater Bay Area's largest financial interests. In 1983, he got in on the ground floor of the grape rush as he bought up a Napa County vineyard estate, and then quickly amassed vineyard holdings throughout the greater North Coast region.
In 1990, Jackson owned virtually no Sonoma County wine-grape acreage. By 1996, he was the county's bigger land owner, with more than a quarter-billion of the company's annual revenue generated by its holdings there. All told, he owns 24 vineyards comprising more than 1,000 cultivated acres throughout California, as well as 11 others throughout the world. Because the vast majority of the company's estates are on mountaintops and hillsides that were previously undeveloped, nearly all of them have involved varying degrees of ecological catastrophe.
AltaTech Viticulture ($650 million) -- Anderson Creek Vineyards, Boonville; Anahala Vineyards, Philo; Eagle Point Ranch Winery, Philo; Preservation Ranch, Gualala
This expansive vineyard development Real Estate Investment Trust claims to own the largest vineyard portfolio in the country, with 35 wine-grape plantations in Washington and Oregon, and holdings running up California's coastal zones from Santa Barbara to a massive 30-square-mile slice of the Gualala River watershed on the Sonoma-Mendocino border and the Anderson Valley.
In recent years, Alta Tech has also taken up the notorious mantle of trying to ram through a long-running vineyard development scheme in the Gualala River watershed, on the Sonoma-Mendocino border. The idea is to convert 20,000 acres to a large ranch centered on 1,700 acres of wine-grape cultivation. This massive ecological engineering project would also entail erecting more than 80 miles of six-foot high fencing, installing 90 miles of road, a gravel mining operation, and construction of 40 water reservoirs in industrial-scale diversion project worthy of the Bureau of Reclamation.
One of the company's founders, Richard Wollack, is a Democratic Party influence peddler and former CB Richard Ellis executive. It might be fair to say he is the second most influential Richard in Democratic Party circles in the State of California. Notably, $200 million of the company's funding has been provided by CALPERS. Alta Tech was the first agribusiness enterprise ever to receive an investment from the pension, prompting widespread accusations of cronyism at the time.
The company's other founder is long-time Napa vineyard magnate William Hill, who has a long history in Mendocino County that should be familiar, in particular, to residents of the Anderson Valley. In the early-'90s, Hill oversaw development of an enormously destructive vineyard in the Anderson Valley, located on a 1,000-acre estate in Peachland. At the time, Hill's winery operation was owned by the $5 billion international food and spirits conglomerate Allied-Domecq, the parent company of the Baskin-Robbins, Togo's, and Dunkin' Donuts chains.
Beckstoffer Vineyards (approx. $100 million) —Ukiah Ranch Vineyard, Ukiah; Vinifera Vineyard, Ukiah; Sanford Ranch Vineyard, Ukiah; Bescktoffer Vineyard No. III, Ukiah; Beckstoffer Russian River Vineyard, Ukiah; Mendocino 101 Vineyard, Ukiah; Talmage Pond Vineyard, Ukiah
Napa County-based Beckstoffer Vineyards is not a corporate conglomerate, at least in a nominal sense. Rather, it presents itself as “independent” and “family-owned business.” There is, of course, a fine line in the case of most of the companies that comprise the modern wine industry. As one of the most expansionary and aggressive of area vinters, Beckstoffer merits special mention alongside the other corporate monoliths profiled in this article.
Company patriarch Andy Beckstoffer is an Ivy League MBA who got his start in the wine business as the investments manager for Heublein: one of the largest wine, beer, and spirits conglomerates in the US throughout the 20th century. Through a series of mergers and acquisitions, Heublein has since become a part of the Diageo wine empire, one of those seven wine monoliths that dominates the US sales market. Heublein spun off its Mendocino and Napa vineyard holdings to Beckstoffer on very favorable terms in the 1970s. In the case of the former, those holdings comprised over 800 acres.
Throughout the local wine boom, Beckstoffer bought up hundreds of acres in Napa, Lake, and Mendocino Counties. Today, the company owns over 1,100 acres in Mendocino County alone — second only to Brown-Forman in the county. In a marriage of two of the most aggressive and expansionary wineries, as well as the two wine families that have perhaps benefited most from the premium wine grape boom, Beckstoffer even now markets a collaborative wine brand with Jess Jackson. As an illustration of Beckstoffer's premier position in the Napa Valley power structure, the former mayor of St. Helena worked simultaneously as CEO at Beckstoffer's vineyard company as his day job.
Contact Will Parrish at firstname.lastname@example.org.