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It could be said that Alex Ryan, chief executive of the Duckhorn Portfolio, has the wine business in his blood.
Ryan likes to talk about coming up in California’s famed wine region from “the back of a pickup-truck tailgate” in vineyards, rather than in marketing, sales “or some other fancy, glamorous point,” like many other industry CEOs.
He also came of age in Napa Valley when its wines were first gaining top accolades abroad, while still growing and adapting in the decades to come as tastes evolved and the climate changed. “You’d better make awesome wines. That’s the cost of entry,” Ryan said of any rivals looking to go public.
His first job in the 1980s was working for the father of a childhood friend, at what is now Duckhorn Portfolios
NAPA,
which he helped take public in 2021. The portfolio includes 10 winery brands and over 1,100 acres of vineyards from California to Washington state, with its Decoy, Migration, Goldeneye and other labels — mostly duck-themed — fetching $20 to $200 a bottle.
Ryan says it’s tricky being the only large-scale luxury U.S. wine company trading on Wall Street, even though three decades have passed since after California’s famed Robert Mondavi Winery went public in 1993. It later stumbled, and in 2014, Constellation Brands swooped in, paying about $1 billion to keep Mondavi’s brands from being sold off in parts.
Growing up, Ryan’s family had front-row seats to the early corporate mashups helping to shape the U.S. wine industry for decades to come. His father relocated the family to Modesto, Calif., from Boston to work for wine giant E. & J. Gallo Winery, when Ryan was only a few years old. A couple of years later, they moved to St. Helena, Calif., where his father took a top sales job at Beringer — one of Napa Valley’s oldest wineries — after the Swiss conglomerate Nestle SA
NESN,
purchased it in the early 1970s.
Ryan sat down with MarketWatch at Duckhorn Vineyards in St. Helena, a property abutted by Howell Mountain and the still-evident burn scars from the Glass Fire of 2020, one of California’s most financially devastating wildfires.
The following is a condensed and lightly edited Q&A about key issues gripping California’s world-renowned wine industry, from wildfires and smoke taint to blending wine with Wall Street:
MarketWatch: You came aboard the wine train right when California wines, maybe a decade earlier, were put on the map, and freaked people out in France, because they were making some special wines, getting huge awards.
Ryan: It was an exciting time. You could do no wrong. The entrepreneurial spirit, it’s actually what I see in the state of Washington now. That was the Napa of what I knew from the ’70s. I see it happening there right now. It’s a bunch of small guys, no one’s competing with one another, they’re all sharing ideas, and the sky’s the limit. It’s a can-do attitude. We’re a little more formal now [in Napa], we are a little more built out, still making good wine. But I see that same spirit. [Editor’s note: the Duckhorn Portfolio includes the Canvasback brand, from grapes from small vineyards in Washington state’s Red Mountains, near the border with Oregon.]
MarketWatch: Let’s talk about overseeing a luxury wine company. You’re the only game in town on Wall Street of scale, that’s a public company. So, no competitors with the same sort of portfolio.
Ryan: This is really important. We are pure-play, which means we only do wine. We don’t do cocktails and craft beer and pot. We only do wine, we are only in the luxury price-point, that’s $15-$20 dollars a bottle and up. We have some scale, we have some breadth. There’s no one like this. Yes, you can pick up Treasury [Wine Estates, an Australian company]
TSRYY,
which is a jack-of-all-trades, including [creating the 19 Crimes label] with Snoop Dogg. There’s Constellation Brands
STZ,
it’s a beer company that sells a little wine. So yeah, we’re one of one.
MarketWatch: You’ve got the NAPA ticker. Was it just available?
Ryan: Some of my buddies here were furious, because I’m not a Napa-only winery. We have locations in Washington state, the Anderson Valley, the Central Coast, Sonoma. But I also think one of my buddies wanted it too. I said, “Look, it’s a license plate, not a trademark.” I also said, it was available. Larry Flynt [the former publisher of Hustler] could have got it. It’s better to let me have it.
MarketWatch: You have a group of 10 winery brands. Is that the economic template for the Napa, California, the U.S. going forward?
Ryan: You have to step back. We have always been shareholder-owned. When Dan and Margaret Duckhorn started the winery, it wasn’t their winery. It was run like their winery, a private company. But we have always had shareholders. So, the mind-set of growth, creativity and new product development was always there, even in our first vintage, when we made 1,600 cases. We will sell about 2.3 million this year. I see growth in our future. I see acquisitions in our future too. [Editor’s note, Duckhorn in May disclosed plans to acquire another California winery for about $55 million.]
MarketWatch: Do you see other companies using your template and going forward?
Ryan: It isn’t easy to be an asset-heavy company with long inventory cycles. Our inventory cycles run from six months, for simple, white wines, to up to four years for our big, heavy reds. It’s long and expensive inventory cycles. A vineyard can last 25 years. It can take us four years to make a bottle of wine. So, we can’t pivot quickly, like maybe a napkin company. It isn’t easy being public.
Mondavi went public in ’93. That was 30 years ago, and it didn’t help. [One of the lessons is] that the wine industry has vintage variations, which are obvious to the wine industry, but Wall Street doesn’t [care] about that.
Vintage variations, that’s just Mother Nature. That’s winemaking. Wall Street wants consistency, certainty and growth. Where those two things don’t intersect, you better have an answer.
MarketWatch: So, you’re not going to say that you built the template for other wine companies to go public?
Ryan: Oh, the template’s built. Executing is really difficult. I’ve got 45 years and 500 awesome employees. We’ve made every mistake you can make, we know our business, we are well-capitalized. The template is easy, execution isn’t. You have to remember, when you think about buying vineyards, not only are they expensive, but that’s a 30-year investment. A vineyard lasts about 25 years, then you have to replant it, if you do it correctly. It’s a long-term asset.
The trick is the scale. We are fairly large, but we look really small. That’s the personal connection. Your wines have to compete, the wines are f—ing great out there. You’d better make awesome wines. That’s the cost of entry. But also what we’ve achieved is scale, while holding on to a premium price point, and looking small. That’s the tricky part.
MarketWatch: I don’t think a lot of people realize that most U.S. wineries are very small, and they don’t have scale. You aren’t going to find their wines at Target.
Ryan: There are about 10,000 wineries in the U.S., and I bet you 9,750 are producing less than a couple thousand cases. They are just a family’s way to make money. They are not going public. They are not getting rich. It’s just like farming, only they happen to be making wine.
MarketWatch: Private equity has been interested in Wine Country, do you see them coming in, scooping up a couple and trying to make a go of it as a public company?
Ryan: We would like more people in the public space. But it cuts both ways, because if they come out and do a sh– job, it taints the industry. If they come out and do a great job, all boats rise. They are going to come, or they’re not going to come. Meanwhile, I’m going to beat the crap out of them in the market.
MarketWatch: A wildfire question. Driving around here, you can still see the burn scars from 2020. How do you see that risk in your portfolio?
Ryan: I only worry about one thing, and that’s not it. The reason I don’t is we haven’t lost any assets to fires. We’re in a Mediterranean climate, we have really hot, dry summers. We always have, and 2017 and 2020 weren’t the first fires we’ve had. We’ve got a defensible base, we’ve got fire departments, good insurance. But more important, we’ve got diversification. If I had 500 acres in a mountain right here, I’d be a lot more concerned. But I’ve got 10 wineries up and down the West Coast of the U.S.
The only thing I worry about is our brands not remaining relevant in the marketplace of pure-play luxury wines.
MarketWatch: Are you worried about the future of Napa winemaking with climate change?
Ryan: Not really, we are an adaptable species. We’re making changes with technology, with planting material, with water technology. Will it become easier? Probably not. But you’re going to have to adapt or die, so you might as well face the facts. Over time, varietals might change. I think the adaptiveness of winemakers makes it fun.
MarketWatch: On smoke damage, is 2020 a vintage to avoid from Napa?
Ryan: No. There are pick, no-pick decisions. There are taint, no-taint decisions. Maybe a little smoke taint actually makes sense. We burn our barrels and put wine in it. Charred flavors are kind of a part of the game, a little bit. But I argue that you, in the wine business, are bottling a piece of history each and every year, and they’re all different. They aren’t all going to be A-pluses. I like the idea of having vintage continuity.
The point is, consumers are simpler than you think. And they are always right. They just like what they like, at a price point.
The other thing we’ve learned from 2020 is that some varietals don’t pick up smoke taint at all, and some pick it up like you are smoking a cigarette right next to them.
But we bottled, essentially, everything we normally bottle, some smaller versions. There were some health issues, we couldn’t put pickers out there. But even if you are rich, and you skip a vintage, how are you going to give your employees a bonus next year? How are you going to buy new equipment? That’s a lot of money to forgo. It affects years to come.
MarketWatch: Do you think there were some other 2020s that made it to the market that maybe shouldn’t have? Because they do taste like an ashtray?
Ryan: Sure there are. But would they be better skipping? I’m not sure about that. If you are a $4 bottle of wine, nobody cares. But a $20, $40 or $60 bottle of wine, your customer deserves the opportunity of continuity. [Duckhorn also said it wouldn’t release any wines that weren’t high quality.] That isn’t just a smoke thing, it’s everything. We routinely declass things. It could be smoke or other things, because it’s just not good enough.
MarketWatch: When did you have your first glass of wine that you remember?
Ryan: My dad was working for Beringer. He was in charge of sales, and they had an import division. I was 11 years old. My dad had to go on a trip for five weeks seeing all his suppliers, in Europe, to Germany, Italy and France, and he visited all of his suppliers. Mom and I went. I said, “This lifestyle is kind of cool. It’s different than America.” We sat at the table, we all drank wine together, little sips. But it was just very interesting and I was fascinated with it.
Then, I came home and I said, “Dad, I want to start a wine collection.” He helped with some wine bottles, I put them on a shelf. I was in the fifth grade and I had a little wine collection, with boxes in my closet, I just fell in love with it.
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