Virtual Brands: When Land Doesn’t Matter

Several things about Constellation Brands’ purchase of the Prisoner Wine Company this spring turned heads. First, the price: $285 million for a brand that six years earlier sold for $40 million. Second: Its fast trajectory into a super brand from its creation in 2000 by Dave Phinney to a 170,000-case business under the ownership of Huneeus Vintners, who acquired it in 2010.

And third: The transaction was deedless. No real estate, no vines—just the brand, ma’am.

The Prisoner Label“That was extraordinarily high for a wine brand that doesn’t have any other assets, but it’s indicative of the value of what Constellation or any of the big boys bring to the party,” says Steve Raye, president of Bevology Inc., a marketing company specializing in market introduction and growth. Raye refers to Constellation’s massive marketing and distribution resources.

Of the five brands in the Prisoner portfolio, the eponymous label comprises 75 percent of the production, said a spokeswoman for Constellation. The Prisoner, a Zinfandel-based blend, retails for $35.

It was the second such mega-transaction for Constellation in a year. Last summer the company bought the Pinot Noir-based Meiomi, paying $315 million for the name and, arguably, its pedigree. The brand was created in 2006 by Caymus winemaker Joe Wagner.

What made them appealing, despite lacking land? “They were both top-rated wines, with the Prisoner being the No. 1 super-luxury red blend and then also Meiomi being a rising star with such great velocity,” said Michelle Perry, vice president of luxury marketing for Constellation.

She added that about 21,000 acres of vineyard are cultivated by properties throughout Constellation’s portfolio, and its acquisitions are “striking the right balance” between brand and land.

“There’s a lot of interest in both the vineyard and the chateau side, but also there’s room for this new consumer coming in that’s ready to drink the wine now,” Perry said.

Such transactions have paved the way for similar sales. This month, Phinney sold his Orin Swift Cellars—the originating company under which the Prisoner was developed—to E. & J. Gallo for an undisclosed sum. The transaction included the name, inventory, and the tasting room in St. Helena. No actual real estate.

Industry experts say the trend validates the notion that today’s non-collecting wine consumers don’t care about the chateau/domaine/winery model.

“Wine isn’t any one thing,” says Mike Veseth, author of numerous books on wine marketing and current editor of the Wine Economist blog. “While there are consumers like me who want to know where it comes from, there are consumers that don’t.”

new CANNONBALL LOGO labelEither way, he added, “It’s becoming important to know who you are, who your customer is, and to tell a story.”

For young wineries such as the 10-year old Cannonball Wine Co., and the four-year-old Rebel Coast, both virtual brands based in Sonoma, the lack of a winery is freeing, allowing principals to focus their resources on growing their brands.

“It’s a great business model, you’re not exposed by buying land or equipment,” said Yoav Gilat, who cofounded Cannonball with winemaker Dennis Hill, after working for a large wine and spirits distribution company. “We go to market and sell the wines and are not tying up a lot of money in inventory.”

Gilat, who holds law and business degrees, added, “We are not a big company with a huge budget…we let the wine speak.” Cannonball produces four single-varietal wines, and in 2014, tapping into the trend fangels+cowboysor blends, Gilat introduced two labels under the Angels & Cowboys brand.

Part of his communications is the cleanly designed packaging. Cannonball features a child jumping into the water in a “Cannonball dive.” With its deer-skull silhouette, Angels & Cowboys would be at home on a bar in a hip Brooklyn neighborhood.

The Cannonball image in particular, Gilat says, “goes back to the roots that wines should be fun. For me, that boy on the label is a symbol of joy and happiness and [of] enjoying life.”

Perhaps no wine brand echoes that sentiment as loudly as Rebel Coast Winery, whose three founders range in age from 26 to 30. With a tag line of “Not your parents’ winery,” Rebel Coast eschews deep-rooted notions of wine, with messaging featuring bathing-suited millennials drinking from bottles (literally) called “Sunday Funday” and “Reckless Love.”

“We’rrebelcoast5e not trying to be elegant or sophisticated,” co-founder Doug Burkett said. “We wanted to be—not flashy, but show we can be just as edgy and fun as any microbrewery.”

The company makes easy-drinking blends from Sonoma and Paso Robles grapes that aren’t described on the label. Says Burkett, “When somms [ask] why doesn’t it say the blend on the bottle, we say no one gives a sh*t.”

Bevology’s Raye says that’s on target with consumer preferences across the board. “You don’t need to say what it is a blend of now. Americans are embracing blends that are not defined by their varietal composition.”

Ask Burkett what he thinks of the traditional chateau model and he laughs. “Half the people don’t even know what a chateau is.”

Co-founder Kate Seiberlich agrees. “What millennials are looking for—it’s no longer a chateau. [That] story does resonate and chateaux are beautiful for what they are, but I also think there’s a place in the market for us, who have found a way to source really amazing juice…it’s a whole new galaxy to the industry that we’re fulfilling.”

Burkett says social media comes second nature to them, and thanks to the team’s online prowess (and Instagram), he says, “No one can touch us in marketing.”

intrinisicVeseth noted distinctive visual marketing—online or not—is usurping the traditional. “Even companies where they have houses and the winery investment, it seems like they’re going for that feel-good label.” He cited Intrinsic, a Washington State brand owned by Ste. Michelle Wine Estates that launched in March, and uses urban street art as its brand platform. Brooklyn street artist Zimer designed the evocative label.

“Intrinsic is an example of having the end-consumer in mind and recognizing that more consumers are staying in the urban cores where wine is enjoyed,” said Kirsten Elliott, marketing manager for the brand.

“It really ties back to winemaking in a fascinating way, as street art was born from the environment around it, similar to how vineyards are influenced by their terroir,” she said.

With more brands trying to get some “pop on the label and cut through the clutter,” Elliot says the unusual Intrinsic story is a good conversation starter—much more so than its varietal composition or house.

“For consumers, there is a subset that are interested in that information, but overall, they are interested in a brand with a good story and with layers they can peel back and keep discovering,” she said.

Gilat, now an elder statesman, is both philosophical and practical about the mythology of the chateau.

“It’s nice to have a beautiful facility—it’s a very romantic idea and authenticity matters,” he said. “Is it necessary to invest hundreds of millions? Probably not.”

“I didn’t inherit any vineyards. I had to find a different path.”

About the Author

Based in New York City, Lana Bortolot is a senior editor at Wine Enthusiast magazine.

She has provided social media content consulting for a number of wine regions. She received the Advanced Certificate with Merit and the Intermediate Certificate with Distinction from the Wine & Spirits Educational Trust, and when not traveling to wine regions, is working on the WSET Diploma.

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