The ABC’s of SMWE

The latest maneuver from Ste. Michelle Wine Estates resembles a deke (a hockey move to fake out your opponent). You think the guy’s going to go right but he goes left.

Well, everybody’s watching SMWE: where will they go next? The industry thinks they’re going to sell off pieces of the mothership (vineyards, production facilities, headquarters real estate). Instead, this week, they announced they’re buying. Buying A to Z Wineworks, based in Dundee, Oregon. (That’s a stylized view of their vineyards above, taken from the A to Z website.)

Per the press release, “Amy Prosenjak, President and CEO of A to Z, will join Ste. Michelle as President of Oregon Brands, overseeing the company’s combined operations in the state.”

Those Oregon brands, in addition to the A to Z label, are Erath and Rex Hill. Very solid, old-school wineries.  A to Z and Rex Hill produce about 400,000 cases annually, while Erath is around 300,000 cases annually, so SMWE’s combined Oregon portfolio starts at roughly 700,000 cases annually. (For comparison, SMWE sells ten times that much Washington-grown Riesling alone.)

But that’s not the point. The existing Oregon portfolio should be seen as a seed, which may expand quickly, if indeed that’s the plan. Says Ryan Pennington, SMWE’s vice-president for communications, “We intend to grow from there.”

So perhaps SMWE’s private-equity owners in Manhattan are plotting twin tracks: selling off existing excess and adjusting the sails of the Washington operation while simultaneously exploring some of the more obvious opportunities for expansion. Using its muscle in the industry (it’s the third-biggest wine company in the country), it could easily glide into Oregon, whose (aging) wine industry founders have long been seen as rugged individualists and stubborn artisans.

In France, where the wine business has roots in ancient traditions, Bordeaux is the region of grand estates, while Burgundy is noted for its fragmented vineyards. So far, there’s been no attempt by the aristocratic families of Bordeaux to become owners in Burgundy as well.

But no such tradition exists in the New World. SMWE’s tentative hop across the state line may not be a deke after all but the first step in a whole new order.

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