In One Sale, Sixty Percent of Washington’s Wine Industry has Changed Hands

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With climate change, perhaps Washington state will be the next Napa of wine. In the meantime, being the Washington of wine ain’t bad. With almost 1000 wineries and 55,000 acres under cultivation in 11 distinct American Viticultural Areas around the state, the Washington wine industry is worth about $4.8 billion annually.

So news last week that the oldest, biggest and most-established wine operation in the state – Chateau Ste. Michele, based in Woodinville — had been sold for $1.2 billion was big news. If the price seems high, it’s actually not. Washington’s wine industry has been expanding mightily in recent decades but Ste. Michelle has had a string of off-years. Last year it had to write off $292 million worth of unsellable wine, and sales were down 11 percent. The year ended with a $360 million loss. Ste. Michelle produces more than 7 million cases a year and accounts for about 60 percent of all wine sales in Washington, so these are big numbers.

While Ste. Michelle seems like a homegrown institution (which it is), it’s actually been owned by big tobacco companies since 1974. Its most recent owner until this sale, had been Altria, the giant tobacco conglomerate formerly known as Philip Morris, which has owned Ste. Michelle since 2008. Before that, US Tobacco was the owner, which bought it in 1974 and developed the picturesque flagship property in Woodinville on the grounds of the old 1912 Hollywood farm estate owned by lumber baron Frederic Stimson.

But Altria was a motivated seller, having had not only to cover Ste Michelle’s hundreds of millions in losses but also its own, which ran to the billions last year. And there may be signs that Washington’s wine industry, which has enjoyed years of expansion, has recently stagnated, with some wondering if the market is over-saturated.

So who bought the chateau? A private equity firm called Sycamore Partners in New York. The company specializes in buying and turning around distressed retail brands. For an excellent analysis of the deal and Ste. Michelle’s prospects, W. Blake Gray has an interesting take in Wine-Searcher. At Beverage Industry Enthusiast, Sean P. Sullivan writes that it’s not surprising Ste. Michelle was sold, only that it wasn’t sold to another wine group:

As SMWE has struggled in recent years and chatter in the industry about a potential sale grew to a fever pitch, many assumed the company would be sold to another wine group, with the palace intrigue who it would be. Had that happened, personnel changes might have occurred. Instead, the leadership team and SMWE’s employees are expected to remain in place.

That’s perhaps good news for Woodinville, which has quietly remade itself into a wine tourism mecca in recent years, with 130 wineries setting up tasting shops there, along with an explosion of new restaurants. On weekends in the summer, the semi-rural roads are clogged with tourists making the tasting trek. It doesn’t quite have Napa’s gridlock yet. But it’s getting there.

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Doug is a founder and the editor of Post Alley. He's a longtime arts journalist, and the founder and editor of ArtsJournal.com, he's frequent keynoter on arts and digital issues, and works with a number of arts organizations nationally.

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