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Wine Wars

Kendall-Jackson crushes the competition

By Bruce Robinson

THE KENDALL-JACKSON winery made many headlines in the past year--none of which had anything to do with wine. This fast-growing, Santa Rosa­based operation drew criticism for building a warehouse without a county permit; cutting native oaks to make way for vineyard planting; planning an enormous, active winery facility in the quiet Alexander Valley; and proposing to log some recently acquired property near rustic Occidental.

Most conspicuously, the company went out on a limb against wine industry giant E&J Gallo in a high-profile copyright dispute over label imagery. Claiming that its falling-leaf emblem was unfairly grafted by Gallo, Kendall-Jackson filed a suit that, like Gallo's leaf, turned against the firm, ending in a decisive defeat for it.

Unfazed, K-J still is quietly growing like a grapevine in the hot summer sun, buying more small local wineries, creating new ones in other parts of California--last week the company unveiled plans to erect a controversial $18 million facility in the Napa Valley--and even establishing a winemaking presence on two other continents.

This unprecedented growth has attracted industrywide notice, but K-J appears to have leapt into prominence without alienating the community of smaller winemakers from which it has emerged. Even its recruiting of talented winemakers and acquisition of struggling local labels may be a good thing, says Rich Cartiere, editor of the Sonoma-based Wine Business Monthly. "Those brands would be nonexistent if [Jess Jackson, who co-founded the winery with his former wife, Jane Kendall] did not buy them," he says. "He has poured a huge amount of money into them and made them better wines."

Becoming the county's second largest winemaker--after Sebastiani, which still outpaces in its output of cases--in just five short years, K-J has enjoyed sales now estimated at $200 million annually. From producing a modest 18,000 cases in 1983, its first year, the firm went on to triple its volume within two years, tripling sales again in another two years. Ranked sixth in the Bay Area by the San Francisco Business Times for sheer case volume, K-J now projects sales of a whopping 2.7 million cases this year.

Industry observers credit the company's meteoric growth to founder Jess Jackson's decision to blend grapes from multiple California vineyards in K-J's tremendously popular Vintner's Reserve Chardonnay, and to his success in pricing his wines at an affordable $11-$20 a bottle midpoint between bulk wines and premium vintages.

As sales have soared, so have K-J's landholdings, which range from 2,000 acres in Sonoma County to 10,000 acres statewide. "We're buying vineyards to sustain our growth, and I'm not sure how far it's going to go. We want to get so we have about 60 percent of our needs satisfied from our own vineyards," says Tom Selfridge, K-J's vice president of production and marketing. "We acquire vineyards, but then we keep growing, so the percentage doesn't change very much."

About 40 percent of the grapes now come K-J's own vineyards.

So just how big does K-J want to get? Even Selfridge is not sure. "When I started in 1990, we were at 600,000 cases and I thought, 'We'll get a little bigger, but not much.' Well, now we sell 2.7 million cases," he says. "We want to focus on quality, and if the consumer still demands our product, we'll grow with that. If it means we can grow from 2.7 [million cases] to twice that, we'll probably take that."

But Selfridge, a former winemaker at Beaulieu Vineyards, insists that getting still bigger will not change K-J's approach to winemaking. "We're trying to make wines in the style of a little winery. That's been the hallmark of the wines we make, and I think that would be the same if we were double the size we are now."

A LESS VISIBLE ASPECT of the company's expansion has been its growing acquistion of smaller, localized wineries. Managed collectively as Artisans and Estates, these are more than a dozen premium estate vineyards that each produce a handful of specialized wines. While most are new operations K-J established, several are existing labels that were acquired and retooled under K-J management.

These include Edmeades in Mendocino's Anderson Valley, and La Crema, which is now produced in western Sonoma County. Kendall-Jackson also has absorbed Santa Rosa's former Chateau de Baun winery (off Highway 101 at River Road), which now serves as the main K-J tasting room, and Forestville's Domaine Laurier, rechristened Hartford Court.

Further afield, the K-J portfolio also includes estate labels in the Napa Valley (Robert Pepi, Lokoya) and Santa Maria Valley near Santa Barbara (Cambria, Camelot, Kristone), as well as Chile, Argentina, Italy, and France.

"I like to think that we're doing this right," says Selfridge, noting that other large American wineries also are expanding abroad. "We're not just buying bulk wine and bringing it into the United States and bottling under a label in this country," he explains, but actually making the wine where the grapes are grown.

"Chile has some great vineyards, it has some great wineries, but no one was taking the grapes from the great vineyards down there and putting them into a great winery," he elaborates. "I think we were the first."

In part because of his extensive acquisitions, Jackson is seen by others in the industry as "somewhat of a lesser Ernest Gallo," says Cartiere, who characterizes both men as "very aggressive, very dominating business people."

But local winemakers view K-J's spurting growth with mixed feelings. Winery owner Michael Topolos sees it as a positive thing. "I think they're going to end up doing us a lot more good than ill," he says, "because they're going to be putting a lot more [Sonoma County] wine in front of people than we'll ever do."

George Davis, owner and winemaker at tiny Porter Creek Winery, agrees. "Kendall-Jackson is raising the awareness of the difference between coastal wines and Central Valley wines," he says. "As their customers become more sophisticated, they might want to try a few wines from some of the single-vineyard wines, so we might benefit from that."

But Davis also sees a downside to the lengthening shadow of the big boys. "It's scary because of their potential effect when the industry downturns" and investors in the large companies pull out, he says. "When the price of grapes changes and the wine market takes its inevitable downturn, these guys will go running for cover," Davis frets. "It can exacerbate any kind of a situation that develops on the bust part of the boom-and-bust cycle.

"Last time we had a bust, we had a bunch of insurance companies invest very heavily in vineyards and wineries and as soon as their profit margin started eroding, they got out--sold their shares for a low price and depressed the market even further."

That depressed market, Davis contends, is one big reason K-J was able to expand its holdings so rapidly in the early '90s. Selfridge acknowledges that the steep upward curve on the K-J sales charts cannot continue at its current pace, but he expects the market and his company to grow. Meanwhile, they are hoping that some new public relations experts will help stave off more of those annoying negative headlines. The bad press "made us all more aware of making sure we were more responsive to the community and we were getting our story out," Selfridge says.

"Our ultimate product is something we want people to buy," adds K-J spokesman Jim Caudill. "If they're angry at us, they're not going to buy our wine."

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From the June 19-25, 1997 issue of the Sonoma County Independent.

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