The sale of Kosta Browne will be one of the most carefully scrutinized deals this year, and likely for years to come.
The reported sale price of close to $40 million alone raised many eyebrows. Kosta Browne doesn't own any vineyards and rents winemaking space (although owns its winemaking equipment).
What Vincraft, the new owners, bought was a brand that last year sold 11,000 cases of Pinot Noir, with more than half of that wine going for $72 a bottle and the other half for $58 a bottle. Those are high price points, but the wines sold out and virtually all of it is sold direct to consumers at optimal profit margins. It's the model most wineries aspire to—direct sales and maximum profits.
Vincraft bought the winery's 2008 inventory and its revenue, perhaps another 11,000 cases of Pinot, the profit stream of a brand that has been red-hot in the market. It also bought the grape contracts and held onto the team of founders: Dan Kosta, Michael Browne and Chris Costello. All three are eager to stay on, keeping their equity in the company, which for the time being ensures continuity for the brand and its star power.
What team Kosta Browne gets out of the deal is a new partnership with a skilled team of wine pros who know the business and are backed by another powerful financial resource, TPG, the former Texas Pacific Group. Vincraft, owned by Walt Klenz, Pete Scott and Bill Price, has partnered with TPG and intends to build a portfolio of small, upscale California wineries, with Kosta Browne being the first acquisition.
There are no plans to change Kosta Browne's game plan for now. It will continue to focus on Pinot Noir. Its prices are high, and probably can't go higher near term. Its volume, while appealing from a sales standpoint, threatens to move it out of the rare and hard-to-get category (although there has long been a waiting list to buy the vineyard-designated wines).
It would make sense if Kosta Browne added a new varietal, and Chardonnay would be a logical choice given the winery's Burgundian profile. But the market is already saturated with high-end Sonoma Chardonnay, and moving into that market now would be challenging, except on the smallest of scales.
The business acumen of Klenz and Scott, who are former key executives with Beringer and Fosters wine groups, and Bill Price, who owns Durell Vineyard and part-interest in Kistler, should give Kosta Browne the benefit of years of experience building brands and navigating the ups and downs of the market. That's different from bringing on owners from outside the industry with no wine experience, which is often fatal for wineries that take that route
Still, given the current economic climate, no one knows for sure how things will shake out in the coming months and years. Many consumers are reassessing their buying power and wine needs. Pinot has been on a hot streak, but it too may cool a bit in the next year, as the 2008 vintage will be mixed in quality. Long term, Pinot's best days lie ahead. But the market is getting crowded with new brands and a shakeout is imminent.
That's why so many people will be following the Kosta Browne deal as it unfolds, and whether the winery can continue to produce stellar wines, maintain its celebrity standing and sell its wines at optimal prices.
Right now, the founding team members are as energized as ever, and likely relieved that some of the financial strains have been mitigated by the sale of part of their company.
It's clearly one of those cases where the winery will be judged by what it accomplishes next, not what it achieved in the past, which is one of the most remarkable ascents in modern California wine history, a true rags to riches story.
Loren Lingenfelter — Danville, CA — September 21, 2009 5:38pm ET
Chris Haag — vancouver, bc — September 21, 2009 6:36pm ET
Mark Horowitz — Brooklyn, USA — September 21, 2009 10:39pm ET
Andrew J Walter — Sacramento,CA — September 22, 2009 12:36am ET
Sandy Fitzgerald — Centennial, CO — September 22, 2009 10:56am ET
Don Young — Calgary, Alberta — September 22, 2009 7:21pm ET
Anthony Dixon — Atlanta, GA — September 24, 2009 3:20pm ET
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