Chateau Ste. Michelle by Richard Duval

Late last week, the Wyckoff family purchased Ste. Michelle Wine Estates (SMWE) from Sycamore Partners, a New York-based private equity firm. This included all of the company’s Washington wineries and assets. Sycamore kept the Oregon-based A to Z Wineworks, Rex Hill, and Erath brands that had been under SMWE’s umbrella. SMWE retains a sales relationship with these wineries.

Here, in Part I of a two-part series, I look at who benefits from the transaction. Tomorrow, in Part II, I look at questions that remain after the sale.

Please note that these represent my own thoughts and speculations, though they are informed by numerous conversations that I have had with people in the industry over the last several weeks.

Why the purchase should be good for Ste. Michelle and for Washington wine. 

1. The purchase takes the winery out of private equity ownership.

Private equity companies are notorious for asset sales, layoffs, and other measures to reap financial rewards. This is certainly consistent with what Sycamore did during its four and a half-year ownership of SMWE.

Private equity companies are not, generally speaking, interested in long-term investments. This makes how they operate inconsistent with how the wine industry does.

Wine industry horizons are always on multi-year terms. Wine companies are very much not designed for quick profit.

In this regard, just getting SMWE out of full private equity ownership is a win. It ideally allows the winery to better position itself for the future by creating the space for the long-term strategizing that success in the industry requires.

2. Ste. Michelle is now locally-owned.

Chateau Ste. Michelle and its affiliated wineries have not had local ownership since 1974. For most of the ensuing decades, the company was owned by large tobacco giants (specifically, US Tobacco and later Philip Morris/Altria).

The broader wine industry was, for much of that time, in a period of continuous growth. Ste. Michelle thrived, as did the larger Washington wine industry. At that time, SMWE’s owners were happy to make money in what was essentially a tiny sidecar to their larger overall business. The arrangement was mutually beneficial to both parties.

After Ste. Michelle started having financial challenges, Altria quickly sold the company to Sycamore in 2021. Of note, Altria was having its own financial difficulties at that time.

There is value in local ownership. Local owners need to get up every day and look the people who work for them in the face. They are also, by definition, part of the local community.

Local ownership by no means guarantees success. In that regard, there are surely difficult days and more challenges and changes ahead for SMWE. But it does mean that the workers involved will hopefully be more than just line-items on a spreadsheet.

Additionally, an important aspect to consider is, what were the options beyond local ownership? The most obvious one is ownership by a large California winery.

Generally speaking, in most recent cases, Washington wineries have not been well-served by California owners. There are a variety of reasons for this, but chief among them is that the Washington brands have been, in all cases, very small parts of these companies’ larger overall businesses.

As a result, the brands have not received the focus and attention that they needed to help them grow and be successful. Moreover, when times get tough, as they are right now, the Washington wineries have become afterthoughts, at best. That has harmed the Washington wine industry, as it has hurt several major brands with national distribution.

It’s unlikely, in my opinion, that ownership of SMWE by a large California winery would have gone well for the company for a variety of reasons. Among them, as large as SMWE is, many of its brands would still would have been relatively small compared to whatever company might have bought it and, again, not necessarily a primary focus.

In that regard, having local ownership seems like another win. The success of SMWE will presumably be mission critical to the Wyckoffs in a way that it never would have been to an outside buyer.

Keep in mind as well that any large California winery that purchased SMWE would have immediately laid off a large number of redundant staff (sales, marketing, communications, administrative support, etc.). That would profoundly impact a company that has already had major personnel reductions. This is not, of course, to say that additional staff reductions won’t happen.

3. Ste. Michelle is now family-owned.

As Washington’s oldest winery, Ste. Michelle has been an indispensable player in growing the state’s wine industry over nearly 60 years. The industry has gone through a period of continuous growth in the last several decades. This is true not only of Washington but also of the larger wine industry.

Now, there is a reset taking place. The industry is changing, and wineries must change along with it.

Due to the nature of the wine industry, changes like this require accurate long-term approaches and the will to see them through. Both necessitate a high level of strategizing, fortitude, commitment, and execution.

The Wyckoff family owns multi-generational businesses. They are embedded in the Yakima Valley community. They are people who say that they think long-term and think about the communities in which they work.

The Wyckoffs are also very much financially committed to Ste. Michelle’s success and hopefully personally committed as well, having partnered with the company for more than 40 years. A family-owned Ste. Michelle, again, looks like a win for SMWE and for Washington. There should be much more focus on the winery’s long-term success going forward, one would hope.

Why the sale makes sense for Sycamore.