Laughing Stock is cashed in

The big news in wine country today is about a small winery. Laughing Stock, on the  Naramata Bench northeast of Penticton, has been acquired by Arterra Wines Canada (formerly Constellation, formerly Vincor, formerly Cartier Wines and Beverages …. formerly Grower’s Wine Company) which is now administered by the Ontario Teachers’ Pension Plan.  Of course John Schreiner wrote about the take over but so too did Business in Vancouver among may others. It seems that wineries getting bought and sold is big news these days since Andrew Peller Ltd’s acquisition of Tinhorn, Black Hills, and Gray Monk this past September.

So what is going on here? What is happening to #bcwine?

Consolidation. This has been talked about more often over the past 5 years within the industry as the logical next step. Talking to winery owners, wine makers, and managers, I heard a lot of talk about consolidation being the thing that is probably just going to happen. And now it has started.

It seems like wineries are making money hand over fist but the reality might surprise many consumers. Making wine is an agricultural business and, like all agricultural businesses, the profit margins are not always that amazing. The only difference between an American corn farmer, a Canadian dairy farmer, and a small BC winery is that the first two (particularly the American one) are heavily subsidized by governments while the grape grower is essentially penalized with taxes (particularly in BC). American corn farmers would not be able to survive without the US federal government doling out money to make them profitable. To continue making wine, small wineries are reaching an end point, for various reasons, and to go beyond that they need investment from bigger companies. As former owner David Enns said in the press release, Laughing Stock had “reached the tipping point both in terms of scale and demand”.

BC wine seems to be attractive now to the large commercial wineries, of which there are now only three major players – Arterra Wines Canada,  Andrew Peller Ltd., and Mission Hill. Other than at a select few people in BC’s wine history (Bob Holt and Don Triggs come to mind), commercial wineries were never interested in the small scale of boutique winery operations in any serious way until this year.  It seems that without growing via quantity, the commercial wineries are now trying to follow where the market has been going (for decades now, some might argue) which is towards higher quality wines. No company wants to be the one left holding the portfolio of plonk, cheap and cheerful though it may be. For a while, it was looking like that’s exactly what was going to happen, particularly for Arterra, which inherited brands that are arguably shadows of their former selves after years of neglect at the hands of Constellation.

In that sense, Arterra’s purchase of Laughing Stock is a smart move and probably just the beginning. Laughing Stock is not a huge winery (10,000 cases) and has the respect of the wine cognoscenti but nowhere near the reach of a winery like Black Hills. Sales of Portfolio or Blind Trust could not possibly hope to make anything more than a tiny blip on the revenue charts  of the parent company. I suspect that Arterra is not done shopping in BC just yet and there are certainly more wineries out there for the pickings, especially for boutique wineries with owners who are approaching retirement age. With Laughing Stock’s purchase, half of Grand Crus that I listed in my article from 2014 are now under the ownership of a large wine company.

What does this mean for consumers? In the short term, I suspect nothing although availability and visibility of some products will change and maybe even for the better. Laughing Stock’s wines were not always easy to find so perhaps access to larger distribution channels and more sales staff will make some of these wines more widely available or at least better positioned.

As for wine quality, I suspect that Arterra will try to keep the wines as intact as possible for a number of years. As long as the Enns family is involved in making those decisions, there’s no reason to suspect otherwise. The big unknown is how Arterra will handle itself in the Canadian wine industry. Arterra is owned by the Ontario Teachers’ Pension Plan, an investment management company that also includes various European airports, American toll roads, crematoria, and an Australian desalination plant among other investments in its portfolio. Can Arterra make all of those sales charts go up to please the investors?  We shall see. Ultimately, how successful they are will determine wether Laughing Stock’s future as a Grand Cru of BC wine will continue or not.

Cheers from wine country.

~Luke

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