Yesterday, we talked about the reasons that a wine company would or would not be a good candidate for an IPO. Wine at heart is an agricultural business, which creates a number of uncertainties. As a result, pure play wine companies make for risky public companies. This might explain why there are so few pure play wine companies listed on public exchanges (e.g. Crimson, Treasury).
As I look towards the future, I wonder whether it will become even more unlikely for a wine company to be a successful publicly traded company. Climate change is already altering the patterns of agriculture in California. As a result of climate shifts, Napa Valley growers harvested grapes significantly earlier than usual. Many wineries harvested their grapes a month earlier than average. Some wineries harvested their grapes earlier than ever. In addition, last year was one of the driest years on record while this year is supposed to be a terrible El Nino year. How are wine makers and grape growers supposed to be able to make consistent wine year after year if the conditions keep changing? If we believe that terroir truly is important to making great wines, is virtually impossible to make great wines from the same locations every year if the climate component of terroir is constantly changing? How will this uncertainty affect IPO aspirations of companies like Vintage Wine Estates?
Emily, I agree with your viewpoint above. I don't think that a pure-play wine company would be a viable publicly listed stock on account of the unpredictable (and uncontrollable) nature of the company's profitability due to weather patterns. While technological innovations, as demonstrated by Fruition, may help wineries improve their yields and manage the elements, I think investors would still be wary of the inherent risks of operating a winery.
ReplyDeleteI think the best route to the public markets would be to follow the strategy of a company such as LVMH (Moet Hennessy Louis Vuitton). This French luxury brand conglomerate has been public for decades (though controlled by the Arnault family). The company has a portfolio of almost 60 brands in the Fashion & Leather Goods, Wines & Spirits, Watches & Jewellery and Perfumes & Cosmetics space. Annual revenues exceed $30 billion. In the last 5 years the company's stock has performed in line with the Dow Jones Industrial Average.
The success of LVMH's strategy highlights that there is strong market interest in luxury consumables. However, the sheer number and broad diversity of the company's brands suggests that diversification is a necessary component of a public markets strategy in this space.