This type of transaction does not surprise me at all - and kudos to Gallo for making it happen. My guess is that there were few suitors, and the Krupps probably wanted this done sooner rather than later.
I worked a touch with some Syrah from the vineyard when I worked elsewhere, and I found it to be good, but not remarkable.
As others have said, I do hope theyou continue to honor their existing contracts, but my guess is that these will start to be ‘taken away’ over time as they get to understand the vineyard and where it fits into the ‘Gallo’ brand overall.
I would not be surprised to see other larger vineyards in that area go the same route - the insatiable need for grapes for the growing category of 'red blends ’ requires it.
Even if they keep existing contracts in place, which I doubt and is not the norm in reality just in the press releases following announcements of sales like this. They will cut farming costs and try and raise production to boost ROI and bottom line profit.
After a couple vintages of sub par quality farming folks will be begging to get out of their contract.
Ian I had an very interesting conversation about just this fact this morning. It will be hard almost impossible for family own vineyards and wineries to continue for long. With the “death tax” ownership passing from generation to generation requires 50% of the value to be paid all at once. Many of these family vineyard do not have that cash on hand or have to take out huge loans to pay the tax. the burden makes these unsustainable. So unless the is was set up correctly in the beginning the only available option is to sell or have ownership by corporations. Corporation never die. Family trusts would work but still have implications. So as the founders of CA wine get older and the kids head elsewhere for income or employment it will be the Big boys scooping up these vineyards and wineries. Sad in the long run but just the reality of business these days.
Not methods, spending i.e. man hours and tons/acre goals. I have known a few who worked grower relations and viticulture for them nothing like you find in high end Cab or PN. For large wineries its way cheeper to fix it in the cellar than to grow it right and add next to nothing to it.
Joe, I’m going to estimate this purchase at somewhere between a quarter and a half a BILLION dollars. not sure i agree they bought it to bleed it dry for all it can give for a couple years with subpar farming and increasing yields (which, in that neighborhood, would be a poor strategy in any case). I’m guessing there is a slightly more sophisticated strategy here.
Larry, whoever you were talking to desperately needs to talk to a competent estate planning attorney. Real estate in a corporation is almost always a terrible idea and in no way delays or reduces estate tax. There is currently an exemption of $5.49 million per person, meaning that a married couple can convey about $11 million free of estate and gift tax. And this just scratches the surface. The estate tax can be brutal on family farms, but not nearly as much as it used to be and proper planning can make it much more manageable.
Maybe I was not clear, they will likely cancel contracts to keep the fruit for their own portfolio is what I meant to say. This is definitely not a quick flip type scenario which it seems to be what you think I said.
The largest asset traditional winery business models have is real estate. Is there anywhere in CA where you wont make money on a 30-40+year time frame? They are securing land for future production needs that dont include selling fruit from this property into the extended future. Are they expanding Napa county and Napa Valley boundaries? I think not, dirt/land they aint making it any longer supply is projected to outpace demand in all of our lifetimes. You can grow you own fruit cheaper than you can buy it especially if you lower your standards.
This is not much different from renting (buying fruit) vs. owing (farming/owing vineyard) a house. Rent goes up every to every couple/few years when you own you lock in the payments or lack of increase over time.
I go back to one of my original questions. I wonder how long term the contracts are for. Are they 1 year, 2 year, 5 year? Honoring contracts doesn’t mean renewing them if they are short term contracts.
You were. The point is that they understand the value here is high quality fruit and the ongoing potential to produce it. They take different approaches with different parcels and projects. You really can’t generalize because of what you know they’ve done in one or even several situations. I seriously doubt they’d devalue this land by drastically upping yields and lowering labor costs with a significant detriment to fruit quality (though they might do these things slightly). Think what you will of Gallo, but they know something about the wine business.
I agree with Mike. Larry’s comments about the estate tax are dead wrong, if you will pardon the expression. As Mike said, married couples can pass nearly $11 million to their kids tax-free. Above that is taxed at 40%, not 50%, but it can be paid over 15 years at a very low interest rate. It is almost never a huge burden that requires land to be sold. Let’s get our facts straight.
Phil Jones
I’m following this story from another vantage point as my Step-son, who works for Gallo, was named General Manager of Vineyard Operations and Grower Relations for Stagecoach. I’m looking forward to having the opportunity to visit the site and learn more about it. He told me it produces way more fruit than they can use so there is no intention of changing anything moving forward. I understand that could change in the future but I don’t see any reason for producers to worry at this point.