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09.14.2011  
 

Wineries Win Financing for Upgrades

Improved efficiencies fuel major funding

 
by Peter Mitham
 
 
joe dobbes Wine by Joe
 
Joe Dobbes secured funds to finance equipment to increase production and storage capacity at Wine by Joe, Oregon's second largest winery.
Dundee, Ore.—Wineries aren’t just bringing in the grapes this vintage: Several have announced major new investments in their operations just prior to crush.

Vincor Canada, a division of Constellation Brands Inc., and Andrew Peller Ltd.—Canada’s two largest vintners—each announced expansion to their production capacity in recent weeks. Vincor received a CAD$750,000 grant from the Ontario government in August it to upgrade its press and crush capacity, capping investments of more than of $36 million in land, buildings and equipment during the past eight years. Andrew Peller, meanwhile, secured a repayable federal grant of more than CAD$1 million to fully automate its bag-in-box packaging lines at facilities in Grimsby, Ontario and Kelowna, B.C.

Vincor and Andrew Peller both emphasized the importance of the investments in allowing them to pursue opportunities in the value brands market, a segment also targeted by investments undertaken by Wine by Joe LLC, Dundee, Ore.

Principal Joe Dobbes recently secured “significant” funding (terms were not disclosed) from San Francisco-based Bacchus Capital Management LLC to boost production capacity and expand distribution. Dobbes is using the cash to acquire a hopper and destemmer-crusher capable of handling 25 to 30 tons per hour; increasing tank capacity by 90,000 gallons and, next year, upgrading pump and refrigeration equipment.

“Value-priced wines right now are doing better,” Dobbes told Wines & Vines, while standing in a vineyard of ripening Pinot Noir. “We have been profitable since Day One, and we have a great opportunity to grow.”

With production circa 119,000 cases per year, Wine by Joe is Oregon’s second-largest producer. The new capacity will help it boost production of house brands, without compromising its custom-crush capacity.

“We’re going to start putting more gallons into our own case goods,” Dobbes said. “We’re going to use that for expansion—internationally, nationally as well as direct to consumer.” Three brands—Dobbes Family Estate, Wine by Joe and Jovino—account for 25% of Wine by Joe’s annual production.

The new investment will help Wine by Joe stay competitive in the $14 to $20 per bottle segment of the market occupied by the Wine by Joe and Jovino labels. “There’s more emphasis on those: There’s more competition on those now, too,” Dobbes explained. “I think it’s more difficult quite frankly to make a value-priced bottle of Pinot Noir for $20 than it is a single-vineyard Pinot at $65—and make money. It’s more of a challenge.”

Greater production will help reduce per-bottle production costs, ensuring ongoing profitability in the competitive sub-$20 per bottle market.

What the financiers say
Peter Kaufman, a managing partner and co-founder with Sam Bronfman II, and Henry Owsley of Bacchus, said the past year has seen a growing number of opportunities for Bacchus as wineries consider refinancing or fresh investment. The financing for Wine by Joe follows deals earlier this year with California producers 30,000-case Andretti Winery, Napa, and 36,000-case Qupé Winery, Santa Maria. Bacchus is working on other deals, while 30,000-case Willamette Valley Vineyards Inc., Turner, Ore., secured $1.4 million in long-term debt from its own lenders for the purchase of land, equipment and capital improvements to its winery.

Kaufman, who will speak at the 20th annual Wine Industry Financial Symposium in Napa on Sept. 19-20, said there are many reasons for the surge in financing, but identified a few common factors.

“There’s lots of things driving it,” he said. “There can be good things driving the growth, or there could be a need to grow; to get your head above the parapet versus other wineries.”

In addition to building production in the sub-$20 per bottle segment, cutting production costs is a significant factor in the recent upgrades announced by Vincor and Andrew Peller. “The new automation combined with more efficient energy consumption via motors and controllers significantly reduces power usage,” according to a statement from Andrew Peller.

“The new equipment will upgrade the bag-in-box lines to today’s technological standard resulting in improved efficiency, less packaging material waste and longer product shelf life,” noted Agriculture and Agri-Food Canada when it announced funding for Andrew Peller’s new packaging lines.

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