WineInk: Duckhorn Flies on the NYSE
Luxury winemaker goes public
NAPA. In all caps.
It looks great on a T-shirt or a baseball cap. And the letters, when listed on the label of a bottle of wine, can raise the price all by themselves. But now, for the first time, watchers of wine will get to see what “NAPA” can do for stock.
Last Thursday, the Duckhorn Wine Company rang the bell on Wall Street as the St. Helena, California-based wine entity, using NAPA as their trading symbol, became a publicly traded stock on the New York Stock Exchange. It marked the first time in nearly two decades that a wine company has made the transition to offering shares on a public exchange and represents a bold move for the luxury producer.
The trading day dawned when Duckhorn’s president and CEO Alex Ryan, who has been working at Duckhorn since he spent his high school summers clearing vineyard land, had the honor of ringing the bell. He was flanked by founder Dan Duckhorn, winemaker Renée Ary and a multitude of others who have participated in the growth of the company. The offering was for 20 million shares and the opening price of $15 was quickly exceeded. Shares have risen to $19.57 as of this writing, raising more than $300 million and giving the company a market capitalization of over $2.25 billion.
It has been a 45-year journey since Dan and Margaret Duckhorn founded the eponymous winery in 1976. ITwo years later they released 1,600 cases of wine – half cabernet sauvignon, but perhaps more importantly half merlot – from the Three Palm Vineyard which Duckhorn now owns. The winery became well known for its merlot, an outlier in the cab rich Napa Valley.
In the 1990s, taken by a love of pinot noir Dan Duckhorn commissioned Golden Eye in the Anderson Valley of Mendocino County. As the company grew, the flock came to include the homegrown Paraduxx, Decoy and Migration brands. In 2007, private equity, in the form of GI Partners came calling for the first time and in 2016 TSG Capital Consumer Partners spent a reported $600 million for Duckhorn. Since then, the company has made significant acquisitions of the iconic pinot producers Calera and Kosta Browne and has expanded their Washington State offerings under the Canvasback and Greenwing labels.
While much of the industry has shifted this year during the pandemic to direct-to-consumer (DTC) sales, Duckhorn’s relationship with its customer club base has long been a strength of the company. According to Wine Spectator, 55,000 club members bought Duckhorn wines in 2020. Nearly 40% of their 1.4-million-case production was sold through the profitable (DTC) channel that eschews the retailer and wholesaler mark-ups that are part of wine shop and on-premise (restaurant) sales. They produce slick and effective catalogues for their members and have seven tasting rooms in wine country with an eighth set to debut in the Carneros wine region under the Migration moniker this year The value of Duckhorn has always been a product of that demonstrated commitment to quality and dedication to customer service.
This is not the first time that a wine company has put itself on the public trading markets, but the road has been filled with more potholes than gold.
In 1984 the Chalone Wine Group broke the barrier by selling shares on the public markets, only to later see itself gobbled up by global drinks giant Diagio. It has since been sold to Bill Foley’s Foley Family Wines. The Mondavi Family went public in 1993 and it too was eventually overtaken, this time by Constellation Brands. Today there are no Mondavis at Mondavi. And in 1999 Joel Peterson’s Ravenswood tested the public waters. It also had a Constellation moment before being swallowed by Gallo where it treads water to this day.
There are analogies with small ski areas that have been consolidated under the likes of Vail Resorts and Intrawest in recent years. The challenge is to maintain quality and the identity of the individual brands while capitalizing on the efficiencies and opportunities that the resources can bring.
But the Duckhorn situation feels different from the other wine entities that have made the transition to publically traded companies. There is a longstanding management group at the top of the chain that lives and breathes the company’s ethos and traditions. Quality is a guiding light and their growth, both by innovation and acquisition in the past, has reflected that characteristic.
Rather, Duckhorn is in a position to prosper and grow, with a basket of cash, by doing the things that they have always done. Make great wines and treat their customers well. If they can continue to do that it just might be a stock that draws a new map for other wine companies to follow.
Fly high Duckhorn, fly high.
“2023 predicted to be the Vintage of a Lifetime in Napa Valley,” proclaimed the headline this week in a press release sent out by the Napa Valley Vintners, the trade organization that represents the growers and producers in America’s most famed wine region. If there is anyone more optimistic than winemakers, it is the group that represents them.