July 15, 2021

By Lynda Kiernan-Stone, Global AgInvesting Media

Sycamore Partners Management, a New York-based private equity firm focused on retail and consumer investments, has acquired Ste. Michelle Wine Estates (SMWE)  – the largest winery in the Pacific Northwest, and third-largest premium winery in the U.S. – for $1.2 billion in cash, from tobacco company Altria’s subsidiary U.S. Tobacco. 

Altria, which owns some of the most high-profile cigarette brands such as Marlboro through its subsidiaries Philip Morris, John Middleton Co., and U.S. Smokeless Tobacco Company,  decided to sell Ste. Michelle after 40 years as part of its strategic plan through 2030 to “responsibly lead the transition of adult smokers to a non-combustible future”.

Founded in 1967, SMWE was acquired by U.S. Tobacco in 1974, and was folded into Altria, when Altria acquired UST in 2008. And as the Washington wine industry saw meteoric growth from less than 200 wineries in 1999 to more than 1,000, SMWE grew as well, continuing to add brands to its portfolio.

Today, the company dominates the Washington wine industry, contracting the bulk of the region’s wine grape growers to produce 7.3 million cases of wine per year, or about 60 percent of the state’s annual sales. Farming almost 30,000 acres in Oregon, Washington, and California, its flagship brand is Chateau Ste. Michelle, however, the winery also includes a number of other brands such as 14 Hands, Columbia Crest, Erath, Patz & Hall, Red Diamond, Two Vines, Stimson, and Seven Falls, among a host of others. 

Over the four years between 2016-2020 however, this growth flagged a bit, according to Wine Magazine, with annual production volumes for the winery dropping by 1.2 million cases. On top of this, the company announced a $292 million inventory write-off last year, and losses of $100 million connected to non-cancelable grape purchases, amid headwinds due to the global pandemic. 

Although the fallout of the pandemic on the wine industry remains murky, Vintage Economic, a market analysis firm founded by former UW professor Chris Bitter, estimates that total shipments from wineries in Washington State declined by 8 percent last year. 

“Demand was stagnant and yet we kept planting new vineyards — we specifically and the industry as a whole,” Ste. Michelle spokesperson Ryan Pennington told the Daily World. 

Over the course of recent years the winery also saw shifts in its leadership beginning with the retirement of Ted Baseler in 2018, who had been CEO for 17 years. Baseler was replaced in a transitional capacity by Jim Mortensen, a retired Altria executive, who went on in October 2020 to chose Davie Dearie, the former CEO of Treasury Wine Estates, as his successor, who focused on building a long-term plan of rejuvenation for the company, according to Wine Mag.

It was then that the leadership team realized that to execute these plans would take capital, and that the company would be best served moving forward with new owners.

“We believe the transaction is an important step in Altria’s value creation for shareholders and allows our management team greater focus on the pursuit of our Vision to responsibly transition adult smokers to a non-combustible future,” said Billy Gifford, CEO, Altria. “Ste. Michelle and its talented employees have built an outstanding portfolio of premium wine brands, and we wish them future success.”

Moving forward, SMWE’s two key brands of Chateau Ste. Michelle and 14 Hands will be key to its growth trajectory, however, there are no plans to eliminate any of the other portfolio brands, nor to reduce SMWE’s 1,000-strong employee roster. 

David Dearie, CEO, Ste. Michelle, commented, “The Ste. Michelle leadership team and I look forward to working with the team at Sycamore Partners and believe we are well-positioned to drive the next phase of our growth.”

– Lynda Kiernan-Stone is editor with GAI Media, and is managing editor and daily contributor for Global AgInvesting’s AgInvesting Weekly News and  Agtech Intel News, as well as HighQuest Group’s Oilseed & Grain News. She can be reached at lkiernan@globalaginvesting.com.