After more than 40 years under tobacco company ownership, Ste. Michelle Wine Estates has been sold to a private equity firm for $1.2 billion, owner Altria announced Friday.
The sale is expected to close in the second half of the year, subject to buyer Sycamore Partners’ obtaining the necessary financing and antitrust clearance.
For Altria, which owns major cigarette brands, such as Marlboro, shedding the winemaker is part of its plan to focus on “moving adult smokers away from cigarettes” and toward alternatives, such as noncombustible nicotine products, said CEO Billy Gifford.
Here in Washington, the sale highlights the mammoth role Ste. Michelle plays in the state’s wine industry and its rocky financial path even before the coronavirus upended business in bars, restaurants and tasting rooms.
The broad reach of Ste. Michelle means its ups and downs can have ripple effects. The company accounts for about 60% of all Washington wine sales, by volume, and describes itself as the nation’s third largest wine company, farming nearly 30,000 acres across Washington, Oregon, and California.
Ste. Michelle wines are sold under labels including Chateau Ste. Michelle, 14 Hands, Columbia Crest, Erath, Intrinsic and Patz & Hall.
Founded in 1967 — though the winery existed in some other forms for years before that — Ste. Michelle undertook several acquisitions in recent years to expand its reach, buying Oregon’s Erath (2006), and both Stag’s Leap (2007) and Patz & Hall (2016) in California.
But the growth had stalled by the time the pandemic hit.
Ste. Michelle’s sales slipped from $691 million in 2018 to $689 million in 2019, with operating income turning from a $50 million profit to a $3 million loss, according to Securities and Exchange Commission filings.
Then, during the pandemic shutdowns of 2020, Ste. Michelle’s sales fell to $614 million and it reported a steep operating loss of $360 million.
Even before stay-home orders, demand for wine had begun to flatline as younger buyers sought out ciders, seltzers and other alternatives.
Starting in 2016, Ste. Michelle’s growth slowed, and Washington’s wine industry experienced an “inventory glut” with more grapes than demand for wine, according to an analysis by Vintage Economics, a wine industry market-analysis firm founded by economist and former UW professor Chris Bitter.
“Demand was stagnant and yet we kept planting new vineyards — we specifically and the industry as a whole,” said Ste. Michelle spokesperson Ryan Pennington.
Then came the coronavirus.
While Ste. Michelle’s largest point of sale — grocery stores and other retail shops — saw a boost as people hunkered down, that wasn’t enough to make up for the shutdowns elsewhere, Pennington said, noting Chateau Ste. Michelle in Woodinville saw 300,000 visitors a year before the pandemic.
In recent SEC filings, Altria noted the “adverse impacts” to its wine business early on in the pandemic.
With sharply reduced sales in restaurants, bars and hotels and on cruise lines, Ste. Michelle took a $392 million write-off related to inventory and “estimated losses on future noncancelable grape purchase commitments” in the first quarter of 2020.
For 2020, Ste. Michelle’s total wine shipment volume was approximately 7.3 million cases, a 12% drop from 2019.
Sales have started to rebound some, with Altria reporting in the first quarter of this year that net wine revenues were up 2.7% compared with the same time in 2020.
The rest of the state’s wine industry is hoping for a rebound, too.
Washington is home to about 1,000 wineries and 60,000 acres of wine grapes with a total economic impact in the state of about $8 billion, according to the Washington State Wine Commission.
The full reopening of tasting rooms has brought wineries “a sense of relief,” said commission president Steve Warner.
The complete scale of coronavirus effects is still unknown. One analysis from last fall found wine shipments from March through June 2020 were down nearly 19% from the prior year. Bitter found total shipments by Washington wineries dropped 8% in 2020, though some wineries reported higher volumes of shipments.
Wineries were harder hit in Walla Walla than in Woodinville, he wrote, suggesting proximity to Seattle buoyed wineries as tourism dried up.
Like in other sectors, wine companies looked to curbside pickup, delivery and online sales during the pandemic.
“Wineries adapted to what the market demanded, and I think you’re going to continue to see that long term,” Warner said.
Ste. Michelle’s new owner, New York-based Sycamore, invests in a variety of consumer and retail brands, ranging from Hot Topic and Staples to Ann Taylor and Coldwater Creek.
In a statement, Ste. Michelle president and CEO David Dearie said the wine company’s managers “believe we are well-positioned to help drive the next phase of growth.”
The sale is not expected to bring immediate changes for the winery’s 1,000-person workforce, about 800 of whom are in Washington, Pennington said.
“Our owners have told us explicitly not to worry about our jobs or our compensation or our benefits,” Pennington said. “I think that is a reflection of the fact that they recognize they are buying into our plan, our people and our culture as much as they are buying the company itself.”
Ste. Michelle plans to lean into its two largest brands, Chateau Ste. Michelle and 14 Hands, with increased marketing, Pennington said. He said there are no current plans to do away with other labels.