Duckhorn debuts on the New York Stock Exchange


Update: March 18, 3 p.m.

Duckhorn Vineyards of Napa Valley today became a listed company on the New York Stock Exchange when it began offering 20 million common shares at an initial asking price of $ 15 per share. It opened at $ 18.60 this morning. Its trade symbol is NAPA. Duckhorn’s IPO makes it the first major wine company to go public since the late 1990s, a move that potentially marks a new chapter in California wine history, but raises many challenges.

“From somewhat humble beginnings, it’s hard to believe where we are now,” said Duckhorn CEO and Chairman Alex Ryan. He called this morning on the stock exchange floor, joined by founder Dan Duckhorn. Ryan, who first worked part-time in the cellar while in high school, joined Duckhorn full-time in 1988 and took the reins of management in 2005. He saw the company’s ownership. moving from family and friends to private equity and now a public company.

In 2007, private equity firm GI Partners purchased a controlling stake in the company, then valued at over $ 200 million. In 2016, TSG Consumer Partners, another San Francisco-based private equity firm, bought control for an undisclosed price, sources said of around $ 600 million.

“I think our founders paved the way: creating shareholder value has always been in our DNA. We are quite dogmatic in what we do and what we do well and we have had two excellent partners,” said Ryan said.

Under TSG ownership, Duckhorn continued to expand its portfolio and purchased the historic Pinot Noir producer of Central Coast Calera in 2017 and the Sonoma Pinot Noir plant Kosta Browne in 2018. If the initial public offering comes in mid In Duckhorn’s estimate path, the company, now formerly known as The Duckhorn Portfolio, Inc., would have a market value of $ 1.8 billion, according to Renaissance Capital, an IPO research firm. TSG will retain control of 77.7% of the shares from the start. The company expects to receive net proceeds of $ 181 million from the public offering.

IPOs are normally used to finance growth and acquisitions. Ryan was unwilling to speculate on the details but said he would be looking for opportunities.

Explosive growth

Duckhorn’s IPO comes 45 years after the company was founded by Dan and Margaret Duckhorn on a 10-acre site just north of the town of St Helena which today houses its visitor facilities and its main vineyard. Only 1,600 cases of wine were sold in the first 1978 vintage.

They focused on merlot from the start, which appealed to Dan on a trip to Bordeaux in the mid-1970s, and found success when consumers appreciated the milder flavor profile offered by merlot by compared to cabernet sauvignon. Duckhorn had few competitors in producing high quality Merlot, and the grape reached new heights of recognition when Duckhorn’s Three Palms Vineyard Merlot 2014 was named. Wine Spectator 2017 Wine of the Year.

To differentiate itself from the thousands of other wineries, labels and brands that populate the American wine industry, Duckhorn has focused on a strategy to embed its image with wine drinkers as a one-stop-shop for those looking for premium wines. The code word here is “luxury,” which Duckhorn has pursued with laser-like focus for the past decade. To this end, he has grown beyond his original roots with Merlot to encompass Pinot Noir, Cabernet Sauvignon, Sauvignon Blanc and Chardonnay, among the 18 grape varieties he produces.

“Our story is why we resonate with our fans and consumers, and how we have developed an unprecedented luxury product portfolio,” said Carol Reber, Head of Marketing and Direct-to-Consumer Selling ( DTC) from the cellar. “Luxe” is commonly used to describe a wine priced over $ 20. At Duckhorn, the highest price for a 750ml bottle is $ 155 for his Napa Valley cabernet sauvignon blend, The Discussion; most of his best bottlings, such as his single-vineyard Merlots and Pinots Noirs, are priced at $ 100 to $ 200 a bottle, with the bulk of his wines costing between $ 25 and $ 55.

In addition to Duckhorn, the holdings of The Duckhorn Portfolio, Inc. now include the Canvasback, Decoy, Migration, Paraduxx and Postmark brands in California, and Canvasback and Greenwing in Washington State. Including Calera and Kosta Browne, Duckhorn operates a total of eight wineries.

A sign of the growth and evolution of Duckhorn over the years, as well as the changing tastes of consumers, pinot noir could today be as much an integral part of Duckhorn’s identity as merlot. This was one of the first wineries to focus solely on producing Pinot Noir from the cool-climate Anderson Valley in Mendocino County, which was previously primarily known for the production of sparkling wine. Its Goldeneye wines are among the top-rated in the region, and Migration makes solid Sonoma Coast Pinots. With Kosta Browne in Sonoma (which also makes the best pinots in the Santa Lucia highlands) and Calera’s central coast releases from his San Benito County winery, Duckhorn has a wide reach in most pinot noir districts. top notch from Golden State.

“It’s a priority over the past two years. It’s an exciting and exciting grape to see the West Coast perfecting world-class pinots,” said Ryan. “We still feel the pressure to become the world leader in quality merlot, but the appetite for pinot is insatiable now. “

The Decoy brand of moderately priced varietals ($ 20 to $ 35 a bottle and typically rated between 85 and 90 points on Wine spectatoron a 100 point scale), sourced primarily from vineyards in Sonoma County and the Central Coast, has been a driver of Duckhorn’s growth in recent years. Ryan noted that Decoy started out as a traditional second label in the mid-1980s, but due to its quality and price, its role has transformed over the years. “The decoy is an amazing funnel for people to get into luxury wines. It helps us go to market with one package,” Ryan explained.

“There are very few wineries that have been able to achieve Duckhorn’s premium and luxury positioning with the type of volumes they have, the scale they have achieved. It’s a very unique company in that sense, ”said Stephen Rannekleiv, global beverage sector strategist at Rabobank. “They have done a very good job both in maintaining the high-end positioning of their luxury brands, but also in creating more massive brands like Decoy which have taken advantage of these luxury brands without damaging the prestige.”

Decoy has averaged an annual growth rate of 23% over the past three years to reach 1.1 million cases in 2020, according to Impact database, a sister publication of Wine spectator. Overall, Duckhorn sold over 1.4 million cases in 2020, with 39% of sales coming from direct retail accounts and direct-to-consumer (DTC) channels. It has seven tasting rooms and 55,000 wine club members who bought wine last year.

DTC is a growing source of revenue for many wineries as it cuts wholesale and retail markups, which can be as much as half the price of a bottle of wine on the shelf. Duckhorn also sees it as a way to interact with consumers and build a stronger brand identity with them. “Our DTC channel will continue to play a vital role in authenticating our luxury credentials to consumers, and we believe our large-scale presence and expertise in the channel separates us from our competitors,” the prospectus states.

Public potential and perils

For Duckhorn, the challenge with Decoy has been to avoid the mistakes of other large companies that have continued to grow at the expense of quality, thereby diluting the overall brand identity in the eyes of the consumer. A prime example of this phenomenon is the low-cost Woodbridge label of Robert Mondavi Winery, particularly during its time as a publicly traded company from 1993 until its purchase by Constellation Brands in 2004. “When we launched Decoy in his current incarnation in 2010, he was, “Oh my God, let’s not repeat the mistakes of those who came before us,” Reber said.

“Traditionally, public wine companies have been producers of big brand wine at lower prices, and they have struggled,” Rannekleiv said. “Something like Duckhorn, he’s got a good reputation, he’s seen strong growth. I think he’s positioned well. I guess there will be a pretty good appetite for this IPO.”

Duckhorn owns 843 acres of vineyards across 22 locations and reported sales of $ 270.6 million and net income of $ 32.4 million last year. The company has experienced rapid sales growth over the past six years; comparable figures for 2015 were $ 117.5 million in sales with $ 9.6 million in revenue, averaging an 18% annual growth rate.

Going public during a pandemic may not seem like a good time, but Reber says the challenges of the past year have accentuated Duckhorn’s marketing strategy, especially its DTC channels. She has gained 3,000 new DTC customers in the past year, she says. The migration winery will complete its move to a new winery in Napa’s Carneros neighborhood this summer, where it will open its first tasting room, and new wines, including a limited edition Decoy cabernet sauvignon as well as a new sparkling wine. domestic, have also been released.

Last fall’s massive Glass Fire, which burned more than 67,000 acres in Napa and Sonoma counties, burned dangerously near the Duckhorn Cave. It was a mixture of luck and diligent firefighting that spared the cellar. The leaders of the company believe they have the luck and the planning that will determine the success of its next chapter.

—With a report by Mitch Frank

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