Okanagan Valley Wine B.C.’S Region Savours Its First Sips of Success One
Now Is the Time to Tap into Purchasing Its Wineries
of the stops the Duke and Duchess of Cambridge made during their royal tour of Canada in September 2016 was a visit to British Columbia’s Okanagan Valley to soak up the sun, pick grapes and sip wine.
“This royal visit will be a defining moment in our history,” said Mission Hill Winery founder and proprietor Anthony von Mandl. “It will place the Okanagan Valley on the international map as a region producing exceptional quality wines that can stand alongside the best in the world.”
John Mcewen, CEO of British Columbia- based technology venture capital firm Discovery Capital Management Corp., agreed with von Mandl. “The royal visit was a bonus to an already- bubbly business.”
The wine industry in British Columbia contributes around $ 2 billion CAD annually to the province’s economy, according to the British Columbia Wine Institute.
When wine aficionados think of the Okanagan Valley, breathtaking landscapes, lakeshore communities, its dry and sunny climate, and its award-winning wineries come to mind. The Okanagan is synonymous with B.C. wine as it is by far the largest region, comprising 84 percent of the province’s vineyards and is home to the majority of its wineries.
The Okanagan Valley is a unique market place, as it is beginning to develop an international reputation for producing quality wines like Riesling, Chardonnay, Pinot Noir and Cabernet Franc, Mcewen told CAIFU Tuesday, Nov. 1, 2016. This success is spilling over into the region’s vineyards, as they are 20-30 percent ahead of sales in 2016, compared with sales from 2015. Around 800,000 visitors are pouring into the region every year, boosting its wine tourism market. “There’s a lot of smiling,’ he added.
Wine connoisseurs have traditionally associated Canada’s wine industry with their production of icewine, a dessert wine made from handpicked frozen grapes during the winter months. Icewine’s sweet taste is also a hit among Chinese consumers, as they frequently give bottle of icewine as a high-end gift to business partners, friends and family.
Wine exports from Canada have skyrocketed in the 2010s – from $36.8 million CAD in 2011
to $73.9 million in 2015, according to Statistics Canada and CATSNET Analytics. Meanwhile, icewine represented 25 percent of total export value at $18.6 million CAD in 2015, with China comprising approximately 34 percent of those sales at around $6.3 million CAD.
A Young Wine Region
Mcewan emphasised British Columbia is among the world’s youngest wine regions. “In the advent of free trade, wineries had to compete; therefore there has been major growth [ in the province] since 1988,” he noted.
That was when the Canada-u.s. Free Trade Agreement – the precursor to the North American Free Trade Agreement – came into effect, paving the way for the Okanagan Valley’s rise as a major global player in the wine industry. This trade agreement encouraged Canadian winemakers to experiment with European grapes and winemaking techniques to compete with the American market.
Established in 1990, the Vintner’s Quality Alliance (VQA) standard guarantees consumers they are drinking wine made from 100 percent B.C. grown grapes. Therefore, the province’s wine industry has grown from just 17 grape wineries in 1990 to more than 255 as of January 2016.
Mission Hill Winery’s award-winning wines attracted the attention of Prince William, Duke of Cambridge and Catherine, Duchess of Cambridge during their brief stop in Kelowna, B. C. during autumn 2016. Its Chardonnay put the winery on the map in 1994 by winning “Best Chardonnay in the World” in London. A decade later, vintners voted Mission Hill’s Pinot Noir best in the world under $50 in 2013.
Therefore, the quality of wines grown in the Okanagan Valley has improved significantly over the past 25-plus years, Mcewan added.
The secret is now getting out about the Okanagan Valley, as a number of travel publications and traditional news sources have been touting the region’s praises. USA Today readers first acknowledged as the second- best wine region in the world in 2014, while Travel and Leisure magazine ranked the Okanagan as one of the best places to travel in 2016.
“To not only have the Okanagan Valley recognized among the finest wine regions globally
but to finish in second spot by readers of a major international newspaper is a tremendous honour,” Ellen Walker-matthews, marketing chair for the Okanagan Wine Festivals, said in a news release in August 2014. “This will continue to build the incredible momentum we have seen in our wine region over the past several years. … This type of recognition inspires travel to the Okanagan Valley as a premier wine tourism destination.”
Realities of Owning a Wine Business
Currently, the Okanagan Valley is home to 200- plus vineyards and around 165 licensed wineries – most of which are small, family- operated businesses. A small boutique winery sells between 5,000- 15,000 cases of wine per year, Mcewan said. “[ These winemakers] want to achieve a cult status – similar to a craft beer model.” Meanwhile, medium- size wineries sell between 15,000- 20,000 cases of wine annually, and count high-end restaurants among their clients.
“The Okanagan is one of the most beautiful places worldwide – it’s like Napa Valley with a lake,” Mcewan continued. “But most of the [vineyards] are undercapitalized, and five percent of these wineries would be interested in selling.”
This is why the Okanagan Valley is ripe for investment, as a growing number of Chinese- Canadians and investors from China have purchased around a dozen wineries there since 2010.
A Chinese buyer should recognize the huge potential in investing in Okanagan Valley, Mcewan said. “If they have the capital, then investing in a winery is a great opportunity, as the Okanagan is very accessible to the Vancouver market,” he added. The Okanagan Valley is a 45-minute flight or a half-day’s drive from the city.
According to Mcewan, the key challenges facing investors is to know where to spend their time and wealth, as the winery business is location-specific. Properties should be accessible to customer traffic, but isolated enough to produce a bumper crop.
The slope of the land is important, or its terroir – the complete natural environment in which a particular wine is produced, including factors such as the soil, topography and climate. The sun’s location also makes a difference, he explained.
“If they have the capital, then investing in a winery is a great opportunity, as the Okanagan is very accessible to the Vancouver market,”
British Columbia’s northern latitude also has a big advantage when it comes to sunlight, according to the B.C. Wine Institute. During the peak of the growing season, British Columbia vineyards will see as much as two hours more sunlight per day than famed regions such as Napa Valley in California.
“Magic happens in the vineyard, not the winery itself,” Mcewan continued. “Buy a property with those characteristics.”
Perhaps the most challenging aspect of owning a winery business is to have expertise in three different specialities, Mcewan advised:
• Farming hybrid grapes, as well as vinifera vines
• Chemistry: to cultivate organic vineyards and biodynamic farms
• Sales, marketing and brand development
While vineyard management is important, Mcewan continued, hands- on experience in agriculture is key for a winemaker. Additionally, taxes and regulations of running a winery are complex. That is where Discovery Capital comes in – Mcewan said they will help Chinese investors meet these challenges by having their experienced management team advise them in running the
“Magic happens in the vineyard, not the winery itself,”
business for a decade. Discovery Capital’s team then hands over the wine business to the investor when it is profitable and easier to run.
Tapping into Confidential Listings
The average sale price of a winery in British Columbia lies between $ 5 million-$ 15 million CAD, according to Mcewan. However, many of the listings are confidential, as potential investors must know someone in the industry.
“Winery owners want to keep it a secret, as wine is an emotional thing,” he added. “…It makes sense to buy in early before the price goes up. The Canadian dollar is low [as of November 2016].”
Mcewan noted land in the Okanagan Valley is becoming scarce, as there is only 10,000 acres of arable vineyard land. “When the best land is gone – it’s gone,” he said.
Mcewan has forecasted the winery business will experience consolidation and acquisitions over the next few years. Constellation Brands Inc. agreed to sell its Canadian wine business to the Ontario Teachers’ Pension Plan for $1.03 billion CAD in October 2016.
“We seized the opportunity to sell the entire business in a value-enhancing transaction when it presented itself,” Constellation CEO Rob Sands said in an October 2016 news release. “The Canadian wine business is the leader in the Canadian wine market and is a long-term growth opportunity.”
Chinese investors would be wise to acquire existing vineyards and land for vineyard development now, as the Chinese have developed a taste for the beverage and are interested in learning more about wine, Mcewan stated.
“Most owners are thinking too small,” he continued. “Chinese investors should look at the opportunities and see what’s possible.”
If Chinese investors can increase quality and production at a winery, drive profitability of each winery and develop Canadian sales and distribution, they then can import the wine back to China and Asia, Mcewan explained.
“Wineries are in beautiful regions, close to golf courses and restaurants,” Mcewan concluded. “We will help investors build a good life in the Okanagan, as they are buying land as part of an investment for future generations. It’s a trendy and fashionable business choice – it’s now time enjoy the lifestyle benefits of the wine business.”
“Chinese investors should look at the opportunities and see what’s possible.”