Issue link: http://read.dmtmag.com/i/155925
EDITOR'S DESK Value VARIATIONS For those of us who don't have personal experience buying or selling wineries – and even for some who do – the valuation process can be a little baffling. When you sell a house, it's pretty straightforward. You take into account its location, size and features, then research comparable sales in your neighborhood to determine the appropriate selling price. With wineries, it's a lot more complicated. When Bart and Daphne Araujo sold their eponymous winery to the parent company of Château Latour in late July, one source estimated its value at an astounding $100 million. The sale included the 162-acre Napa Valley estate – and within it the iconic 38-acre Eisele Vineyard – plus the winery complex, brand name and existing inventory. Araujo currently produces 6,000 cases a year, with the Araujo Eisele Vineyard Cabernet Sauvignon accounting for about a third of that amount. Although the winery's cult cab carries the hefty price tag of $300 per bottle and is mainly sold directly to consumers, the numbers don't seem to add up. A call to mergers and acquisitions expert Robert Nicholson, principal at International Wine Associates, made the picture clearer. "The ($100 million) number is high, but it may be financially justified," he told me. Direct-to-consumer sales of the Eisele cabernet, along with Araujo's lower-priced wines, may generate annual revenues of approximately $12 million, Nicholson said. He estimated the winery's annual operating 10 V I N E YARD & WINERY MANAGEMENT | Sept - Oct 2013 cost at $3.5 million, leaving an estimated operating profit of $8.5 million. "That's consistent with the leading classified estates in Bordeaux," he explained, which normally have operating profits in the 50%-75% range. The average annual operating income for profitable California wineries is in the 20%-25% range. "There are not many properties similar to Araujo in California," he said. "There are maybe five or 10 wineries in the Napa Valley that are in a position to command those kinds of valuations." The stellar reputation of the Araujo wines and the Eisele Vineyard certainly played a role in the winery's unusually high (estimated) selling price. A winery's reputation becomes even more important in brand-only sales. As this issue's cover story explains (see page 36), when you remove winemaking facilities, vineyards and property from the equation, factors such as goodwill, distribution networks and growth potential become paramount. As the experts interviewed for our article – including Nicholson – point out, there are steps vintners can take to increase brand value, from limiting the number of SKUs in their portfolio to narrowing varietal focus. Even if you have no immediate plans to sell, keeping value-building at top of mind is a smart thing to do. You never know when Bill Foley (see our Q&A on page 72) might come calling. Salute! Comments? Please e-mail us at feedback@vwmmedia.com. w w w. v w m m e d i a . c o m