Who Really Owns That Winery?

DEBRA MCCLINTON FOR TIME
ASSEMBLY VINES: Wine bottles whisk around a conveyer belt at the Mission Bell winery in Madera, CA. The winery can produce more than 100,000 cases per day

Jon Moramarco has wine in his blood. His ancestors made wine for eight generations in southern Italy, and after his grandfather Giuseppe emigrated to the U.S., he bought a winery in Los Angeles from the Jesuits during Prohibition. Jon's father was an expert in vine management the pruning, spacing, grape thinning and irrigating that influence the quality of the grapes and the taste of the wine. As a young boy, Jon cleared weeds between the vines. He later went to work at the Callaway winery as a "cellar rat," cleaning tanks, moving barrels, stacking bottles and sometimes working 19-hr. days during the busy crush season. "By high school," he recalls, "I swore I was going to get out of the wine business."

But he still had the stuff in his veins. After earning a degree at the world-famous school of viticulture at the University of California at Davis, and after spending 20 years learning every aspect of the industry, Moramarco, 45, is president and ceo of Canandaigua Wine. With sales of $863 million for its most recent fiscal year, Canandaigua is the second biggest wine company in the world, after E.&J.; Gallo Winery, with a reported $1.4 billion in annual sales. But Canandaigua (named after the town in upstate New York where the company was founded in 1945), a unit of publicly traded Constellation Brands, is expanding more aggressively than its competitors, with profits increasing 134% from 1999 to 2001. Many of his peers consider Moramarco the savviest operator in a tradition-bound industry that is rapidly consolidating under the pressure of changing tastes and global competition. "Moramarco is one of the brightest guys in the industry. He is one of the real movers," says John Gillespie, president of the Wine Market Council, a promotional body for the industry.

Moramarco works long hours directing a company that sold 45 million cases of wine last year. But as the wine industry has become more corporate--60% of U.S. wine is produced by the top five companies he no longer has much time to stroll through vineyards or sample vintages from the cellar.

On a recent Sunday morning he paused briefly in the Red Carpet Lounge at San Francisco International Airport before hopping a plane for Chicago and the first in a week of meetings that would also take him to Bentonville, Ark. (home of Wal-Mart, a big customer), and Rochester, N.Y. (headquarters of Constellation). Moramarco lives in a spacious house in the sere hills above Santa Rosa, north of San Francisco. But he spends three weeks out of four on the road. Moramarco is always in a hurry: to catch planes, hit delivery schedules, grow the business. "The goal is to double the size of the company by revenue every five years," he says, his eyes flashing to check the time.

Times are tough for most in the wine industry today which creates opportunities for Moramarco and other executives of big wine companies. As vineyards expand in the U.S. and around the world, there is an oversupply of grapes, which depresses prices for growers but offers a boon to companies like Canandaigua, which buys 99% of its grapes. There is a declining number of wine drinkers, as young adults are attracted to heavily advertised beer and malt beverages. And there is strong competition, with winemakers in Europe, Australia, New Zealand and Latin America benefiting from favorable exchange rates to grab more than 20% of the U.S. market.

The mass-market jug wines with screw caps that have been Canandaigua's largest source of revenue are losing customers to pricier wines in smaller bottles with corks. So how has Moramarco managed to increase Canandaigua's profits to $110 million in 2001 from $47 million when he took over the company three years ago? He has pursued a dual strategy of acquiring other wineries at bargain prices while shifting toward more-expensive wines with higher profit margins. Understand that when Moramarco talks about moving upmarket, he doesn't mean to Opus One at $150 a bottle. He can make lots of money just by shifting more of his production and more of his customers from 1.5-L jugs of generic red that sell for $5 retail to smaller bottles of $7 Merlot.

Around the world and especially in the U.S., companies with cash are snapping up wineries that are struggling, and everyone is trying to improve quality so that the wines can command higher prices. For the consumer, this is good news: new winemaking technology, new foreign producers and intense competition are resulting in higher-quality bottles at all price levels.

"The excess in grapes will accelerate consolidation some players will run out of cash," says Moramarco, who when he sees a bargain will buy down-market as well as up. He paid Sebastiani Vineyards $295 million last year for Turner Road Vintners (whose Talus Merlot sells for $7 a bottle at retail) and half a dozen mass-market brands, boosting capacity at the less expensive end of his business. To add more upmarket brands to the portfolio, he paid Corus Brands $52 million in March 2001 for several wineries and labels, including Columbia Winery's Syrah, which retails at $18.