Canandaigua's premium wine shopping list

Wines & Vines, June, 1999 by Larry Walker

The news that Canandaigua, the publicly-owned New York wine company, was in the process of buying Simi Winery of Sonoma County had barely been absorbed when the startling announcement that Canandaigua had just purchased Franciscan Estates for $220 million was announced.

What was surprising was that although Canandaigua has been a successful competitor in the wine business for decades and has recently flirted with the premium end of the market, it had not previously ventured into the super-premium area.

That is especially true in the case of Franciscan. Agustin Huneeus and his management team have carefully shaped Franciscan into one of the top estate wineries in California, if not the world. Huneeus has long advocated a wine marketing approach based on the integrity of the vineyard, what he calls "wine from a place."

Asked about the deal, Huneeus was frank and direct. "They (Canandaigua) recognize that they do not have a record in fine wine. They know they will have to leave it alone, somewhat like Nestle did for so many years with Beringer. It will be fun to have the challenge of helping guide a corporation into the fine wine business without all the mistakes that have been made by corporations in the past."

He said he believed Canandaigua was attracted by the portfolio of Franciscan vineyards, both in California and, as a joint venture partner, in Chile. "I do believe they are committed to fine wine. After all, we don't add a lot of cases. Our only value is the quality of the wine."

In a formal statement, Huneeus said: "I am very gratified that Franciscan will be part of the Canandaigua family. The vision and resources of this very successful company will help to assure Franciscan's aggressive growth and success. Moreover, Richard Sands (president and chief executive officer of Canandaigua Brands) and I share the philosophy that the greatest wines must come from great vineyards; the Simi acquisition is testimonial to that. With the addition of the Simi estate vineyards and Canandaigua's recently developed vineyards in Monterey, we will have access to almost 5,000 acres of grapes in the best growing regions of the world. These vineyards provide the grape resources needed to grow our vineyard-based wine programs. This, along with our strong sales force and distribution network, makes certain that Franciscan Estates will continue to be one of the most important fine wine companies in the world."

Franciscan's 1998 sales were approximately $50 million on volume of about 600,000 cases. Sales have grown at an annual rate of more than 17% since 1995.

By telephone, I asked Richard Sands how the Simi and Franciscan purchases fit into Canandaigua's overall wine marketing strategy.

"Our strategy is to participate in all segments of the drinks industry," Sands said. "Very simply, we view the fine wine business as a separate and distinct segment of the drinks business. It's different than the popularly priced premium wines, which are part of the Canandaigua Wine Co., and different than the beer and spirits segments. Fine wine, such as Simi and Franciscan, is sold and marketed in an entirely different fashion than popularly priced table wines. The consumer is, for the most part, a different consumer. We really desired to acquire what I call a pure wine company. Some companies are not pure, that is, they are not entirely focused on fine wines. Mondavi is an example of that with its Woodbridge brand.

Beringer is the same because of its white Zinfandel. Franciscan Estates is a pure fine wine company with a portfolio of vineyard-based brands. Franciscan has developed the infrastructure in both the organization and the vineyards to take its fine wine business to the next highest level."

Sands also said that the establishment of Simi and Franciscan in a separate Fine Wine division within Canandaigua was a long term commitment. "The Franciscan management team will continue to run both Franciscan and Simi with Agustin Huneeus as Vintner-Chairman, Jean-Michel Valette as president and chief executive officer and Agustin Francisco Huneeus as vice-president sales and marketing. Valette will report directly to me."

Asked about Canandaigua's main competitors, Sands said, "Our competition in fine wines is different than in popular premium wines. In that segment, we are competing with Gallo and the Wine Group, to name two. In fine wines, we are competing with Mondavi, the Wine Alliance and with Kendall-Jackson's Artisan and Estate properties. I don't think of Kendall-Jackson's main line as competition for our fine wines. It's a good wine but it is a mass market product."

Asked if more purchases might be coming in the future, Sands said, "It completes our fine wine infrastructure in that I don't see buying other brands. But since the fine wine business is vineyard-based, our Fine Wine Division will continue to explore and hopefully consummate vineyard transactions where we believe that the vineyard is an important site. I view that as internal growth. I believe that the vineyard needs to be associated on a quality basis with the brand in order to deliver what the consumer is willing to pay for in fine wine." In looking at the future for the wine business as we go into the next century, Sands repeated that it was important to separate fine wines from other wines.