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Will Prices Rise as Port Houses Consolidate?

Fladgate buys a small house known for aged tawnies at a time when costs are rising and big players are merging

Luis Antunes
Posted: July 12, 2013

Vintage Port, the most prized category of Portugal’s famed fortified wines, promises stellar quality with the recently declared 2011 vintage. It’s welcome news for Port producers, who in recent years have faced higher production costs and declining sales for entry-level wines. These difficulties are shifting the focus to premium Ports and triggering a wave of mergers as large houses buy up smaller competitors.

In June, the Fladgate Partnership, already owners of prime houses like Taylor Fladgate, Fonseca and Croft, purchased Wiese & Krohn, a historic producer known for its aged tawny Ports. A small house, Wiese & Krohn, has shown significant growth in the past two years, reaching annual sales of 140,000 cases. The deal includes stocks of 1.3 million gallons, a vineyard in the Douro Valley and a modern vinification center. Krohn is considered one of the best brands for colheitas—aged tawny Ports from a single vintage—and possesses a great stock of aged wines dating back to 1863.

Colheita translates as "harvest" in Portuguese, and is the top category for tawnies, much the same as Vintage is the top category for rubies. By law, colheitas are made from a single year’s harvest, and age in big wood casks for a minimum of seven years. More often, the wines are aged for several decades.

"Our group is already a leader in the production of tawny Port with age indication, a category that keeps showing a strong worldwide growth," said Adrian Bridge, CEO of the Fladgate Partnership. "The acquisition of this colheita-specialized firm will allow our group to keep up with the increased demand for aged tawny Ports in the future.”

Fladgate executives said the group will develop the Krohn brand, expanding the sales of colheitas throughout the Fladgate commercial network. At the same time, Wiese & Krohn’s high-quality stocks of old tawnies will allow Taylor Fladgate to release its own colheita Port, the 1964, in 2014. The remaining stock of 1 million gallons will be used by Fladgate to supply their brands’ mainstream wines.

Fladgate is one of five major players in a business that has been consolidating for several years. Producers are looking for strength in size. Portugal’s economy is struggling and Port production costs have skyrocketed, largely because of an increase in brandy prices. As grapegrowers have ripped out excess vines across Europe in the past decade, grape-based spirits—which are added to Port to halt fermentation—have grown scarce.

Those higher prices have made entry-level Port a money-losing proposition, even for the biggest houses. Meanwhile, aged Ports are showing the fastest growth. Port shipments to the U.S. rose by 11 percent to $34 million in 2011, according to Impact Databank, a sister publication of Wine Spectator, and were up a further 5 percent last year through August, with the premium tier leading the way.

All major houses made Vintage Port in 2011. But consumers can expect to pay more for the 2011s and colheita Ports. And further consolidation likely lies ahead, according to Bridge, with major players continuing to acquire medium-sized houses.

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