Stone Creek Vineyards Analysis

5488 Words22 Pages
March, 2002
“If you accept my offer of $11 million dollars, the employment agreement will allow you and your sister to remain as managers for the next ten years. You will be able to continue to define the styles and tastes of Stone Creek’s red and white table wines, just as you have been doing for the last 9 years and you will be able to implement plans for developing and expanding these brands throughout the United States. Yet, you will be relieved of ownership and financing responsibilities. Together we will continue to build our brands, expand our production and distribution, and move towards producing fine wines for the higher end of the premium market segment.”
This was the essence of the proposal
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By the late 1990’s, more than 1500 wineries were in business, yet the top 20 produced approximately 90 percent of all American wine, by volume, and 85 percent, by value, at wholesale. Of these larger firms, a few were publicly held, with readily recognizable names: Robert Mondavi, Beringer, and Canadaigua. Probably the most well-known large firm was the privately owned and operated E & J Gallo Wine Company. Best known for its large production of less expensive wine labels, the firm had been expanding into the premium varietial market segment with it’s widely acclaimed winery, Gallo of Sonoma.
Consolidation among wineries began to accelerate in the early 1990’s, as larger producers decided to buy smaller ones in order to achieve greater economies of scale in marketing and economies of scope in gaining access to more varied distribution channels. Larger wineries could then become more effective in negotiating favorable selling terms with the small number of large, regional distributors. The “consolidators” were generally public firms that were able to offer predominantly family-run wine businesses a means to greater liquidity of their investment in larger, more diversified operations. Concurrently, the attractiveness of California’s wine industry to entrepreneurs continued un abated as new, small operations were started each year.
The wine industry was capital intensive. In addition to land and vineyards, a firm needed

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