Duckhorn Debuts on New York Stock Exchange

Trading begins at $18.60 for Napa Valley–based luxury wine brand portfolio. Can it gain capital from an IPO while avoiding the pitfalls of public wine corporations?

Duckhorn Debuts on New York Stock Exchange
Duckhorn CEO Alex Ryan and winemaker Renée Ary are part of a team that has been at the winery for awhile, despite two ownership changes. (Nat & Cody)
Mar 18, 2021

Updated: March 18, 3 p.m.

Napa Valley's Duckhorn Vineyards became a publicly traded company on the New York Stock Exchange today when it began offering 20 million shares of common stock at an initial asking price of $15 a share. It opened at $18.60 this morning. Its trading 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 the history of California wine but raises numerous challenges.

"From somewhat humble beginnings it's hard to believe where we are now," said Duckhorn CEO and president Alex Ryan. He rang in trading on the exchange floor this morning, joined by founder Dan Duckhorn. Ryan, who first worked part-time at the winery while in high school, joined Duckhorn full-time in 1988 and took the management reins in 2005. He has seen the company's ownership change from family and friends to private equity and now a public company.

In 2007, private-equity firm GI Partners bought a majority stake in the company, then valued at more than $200 million. In 2016, TSG Consumer Partners, another private-equity firm based in San Francisco, purchased control for an undisclosed price—sources say roughly $600 million.

"I think our founders set the stage—creating shareholder value has always been in our DNA. We're pretty dogmatic in what we do and what we do well and we've had two great partners," Ryan said.

Under TSG's ownership, Duckhorn continued to expand its portfolio and bought the historic Central Coast Pinot Noir producer Calera in 2017 and Sonoma Pinot Noir powerhouse Kosta Browne in 2018. If the initial public offering comes in at the midpoint of Duckhorn's estimates, the company, now formally 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 maintain control of 77.7 percent of the shares of the stock at the outset. The company expects to collect net proceeds of $181 million from the public offering.

IPOs are normally used to fund growth and acquisitions. Ryan would not speculate on specifics but said he would be looking for opportunities.

Explosive growth

The Duckhorn IPO comes 45 years after the company’s founding by Dan and Margaret Duckhorn on a 10-acre site just north of the city of St. Helena that today is home to its visitor facilities and main winery. Only 1,600 cases of wine were sold in the inaugural 1978 vintage.

They focused on Merlot from the start, which beguiled Dan when he took a trip to Bordeaux in the mid-1970s, and found success as consumers took a shine to the softer flavor profile Merlot offered compared to Cabernet Sauvignon. Duckhorn has had few competitors in producing high-quality Merlot, and the varietal reached new heights of recognition when Duckhorn’s Three Palms Vineyard Merlot 2014 was named Wine Spectator's 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 pursuing upscale wines. The code word here is "luxury," which Duckhorn has pursued with laser-like focus over the past decade. To that end, it has grown beyond its original roots with Merlot to encompass Pinot Noir, Cabernet Sauvignon, Sauvignon Blanc and Chardonnay, among the total of 18 grape varieties that it produces.

"Our story is why we resonate with our fans and consumers, and how we developed an unparalleled luxury portfolio," said Carol Reber, the winery's chief marketing and direct-to-consumer (DTC) officer. "Luxury" is commonly used to described wine priced above $20. At Duckhorn, the highest price for a 750ml bottle is $155 for its Napa Valley Cabernet Sauvignon–based blend The Discussion; most of its top bottlings, such as its single-vineyard Merlots and Pinot Noirs, are priced at $100 to $200 a bottle, with the bulk of its wines costing between $25 to $55.

In addition to Duckhorn, the holdings of The Duckhorn Portfolio, Inc., now include 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.

In a sign of Duckhorn's growth and evolution over the years, and also of shifting consumer tastes, Pinot Noir might be as integral to the Duckhorn identity today as Merlot. It 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 known primarily for sparkling wine production. Its Goldeneye wines are some of the most highly rated from the region, and Migration makes solid Pinots from the Sonoma Coast. With Kosta Browne in Sonoma (which also makes top Pinots from the Santa Lucia Highlands) and the Central Coast releases from Calera from its winery in San Benito County, Duckhorn has wide reach to most of the Golden State prime Pinot Noir districts.

"It's been a focus in the last couple of years. It's an exciting varietal—and exciting to see the West Coast perfecting world-class Pinots," Ryan said. "We still feel the pressure to lead the world in quality Merlot but the appetite for Pinot is insatiable now."

The Decoy brand of moderately priced varietals ($20 to $35 a bottle and usually rated in the 85- to 90-point range on Wine Spectator’s 100-point scale), sourced mostly from Sonoma County and Central Coast vineyards, has been a driving force of Duckhorn's growth in recent years. Ryan noted that Decoy began as a traditional second label in the mid-1980s but because of its quality and price point its role transformed over the years. "Decoy is an incredible funnel for people to luxury wines. It helps us go to market with one packet," Ryan explained.

"There are very few wine companies that have been able to achieve the premium and luxury positioning that Duckhorn has with the kind of volumes they have, the scale they've achieved. It's a very unique company in that sense," said Stephen Rannekleiv, global sector strategist for beverages at Rabobank. "They've done a really nice job both maintaining the premium positioning of their luxury brands but also creating the more mass brands like Decoy that have leveraged off those luxury brands without damaging the prestige."

Decoy has averaged a 23 percent annual growth rate over the past three years to reach 1.1 million cases in 2020, according to Impact Databank, a sister publication of Wine Spectator. Overall, Duckhorn sold more than 1.4 million cases in 2020, with 39 percent of sales coming from direct-to-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 income for many wineries, because it cuts out the wholesale and retail markups, which can amount to as much as half the price of a bottle of wine on the shelf. Duckhorn also sees it as a way to engage with consumers and create a stronger brand identity with them. "Our DTC channel will continue to play a critical role in authenticating our luxury credentials with consumers, and we believe our scaled 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 pursued growth at the expense of quality, thus diluting overall brand identity in the consumer's eye. A prime example of this phenomenon is the low-priced Woodbridge label of Robert Mondavi Winery, especially during its time as a publicly traded company from 1993 until its purchase by Constellation Brands in 2004. "When we started Decoy in its current incarnation in 2010 it was, 'Oh my gosh, let's not repeat the mistakes of those who came before us,'" said Reber.

"Traditionally, public wine companies have been big-brand wine producers at the lower price range, and they've struggled," said Rannekleiv. "Something like Duckhorn, it's got a good reputation, it's seen strong growth. I think it's well-positioned. I'm guessing there will be a pretty good appetite for that IPO."

Duckhorn owns 843 acres of vineyards spread out over 22 sites, and reported $270.6 million in sales and $32.4 million in net income last year. The company has been on a fast sales-growth path over the past six years; the comparable figures for 2015 were $117.5 million in sales with $9.6 million in income, which averages out to an 18 percent annual growth rate.

Going public during a pandemic might not seem like great timing, but Reber says the challenges of the past year accentuated Duckhorn's marketing strategy, most notably its DTC channels. It has gained 3,000 new DTC customers over the past year, she says. Migration winery will complete its move to a new winery in Napa’s Carneros district this summer, where it will open its first tasting room, and new wines, including a Decoy limited-release Cabernet Sauvignon as well as a new domestic sparkling wine, have also been released.

Last fall's massive Glass fire, which scorched more 67,000 acres in Napa and Sonoma counties, burned perilously close to the Duckhorn winery. It was a mixture of luck and diligent firefighting that spared the winery. The company's managers think they have the luck and planning that will determine the success of its next chapter.

—with reporting by Mitch Frank


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