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The Fall of Seven Peaks: California Partnership Dissolves

The Central Coast brand may disappear as Australian giant Southcorp ends its joint venture with Paragon Vineyards.

Tim Fish
Posted: January 28, 2003

Seven Peaks, a well-regarded value brand from California's Central Coast, may not be long for store shelves. The two players behind the label are dissolving their six-year partnership.

It was with considerable fanfare in 1996 that Australian wine giant Southcorp and Paragon Vineyard Co. of Edna Valley joined forces to produce Seven Peaks. While the wines, which are priced in the $12 to $20 range, often received very good ratings (85—89 points on Wine Spectator's 100-point scale), sales never met expectations.

"The joint venture has been earnings and cash-flow negative since its inception," Southcorp conceded in a financial statement.

Sales dropped 20 percent between 2001 and 2002, going from 75,000 cases to 60,000, according to John R. Niven, chief of operations and finance for Paragon. He said attempts to sell the brand were unsuccessful, and the Niven family, which owns Paragon, could not take on Seven Peaks alone.

The two companies are still negotiating the details of ending the partnership, known as Independence Wine Co., but have agreed on several points. Southcorp will buy out Paragon's 50 percent share of the business "for a nominal fee."

Tom Burnet, CEO of Southcorp's American unit, said the company will either sell the brand or quickly phase it out. The existing stock of wine will be sold at a steep discount, Burnet said.

"We looked hard at the brand and fundamentally believe that while we could build this brand in the future, we think it's not the best use of our resources at this time," Burnet said.

Southcorp -- whose portfolio of brands includes Penfolds, Rosemount and Lindemans -- has been buffeted by financial challenges in recent months. Last week, the company said earnings for the 2003 fiscal year could be 15 percent below earlier predictions.

Burnet, however, did not blame lean times for the likely demise of Seven Peaks. "I think it all has to do with the project itself," Burnet said, "and not at all about the economy."

As part of the deal, Southcorp will also forgive the outstanding share of a loan it granted to Paragon for the partnership. When all is said and done, Southcorp estimates that it will write down a loss of $17.3 million on the IWC assets.

Paragon, which owns 1,100 acres of vineyards on the Central Coast and supplied about one-third of the grapes for Seven Peaks, will assume 65 percent of the long-term contracts signed with local growers who supplied grapes for the label. Although Niven said it is unclear what they will do with the grapes, Paragon also owns Baileyana Winery and co-owns Edna Valley Vineyards in a 50-50 partnership with the Chalone Wine Group.

Niven said that after Southcorp and Rosemount merged in 2001, and Rosemount's management took charge, the new company had different priorities.

Currently, Rosemount is concentrating on its trans-Pacific venture with Robert Mondavi Corp.; the first wines from that project are being released in February. Perhaps foreshadowing the demise of Seven Peaks, its winemaker, Ian Shepherd, was appointed last fall to take over winemaking for the new Rosemount-Mondavi brands.

"We certainly went into the relationship in 1996 with very high hopes and expectations," Niven said. "It's just one of those things."

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Check our recent ratings of Seven Peaks wines.

Read more about Seven Peaks:

  • Sept. 15, 1997
    Huge Aussie Winery's California Future
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