07.05.2018  
 

Diamond Estates takes shine to B.C. market

Latest acquisition makes Ontario-based buyer a coast-to-coast Canadian wine company

 
by Peter Mitham
 
hertz
 
Diamond Estates acquired Backyard Vineyards in Langley, B.C. Source: Backyard Vineyards

Langley, British Columbia–The wave of mergers and acquisitions washing across the Northwest has claimed a small B.C. winery, creating Canada’s third national winemaker as vintners look to expand their reach.

Diamond Estates Wines & Spirits Inc. (DWS:TSX-Venture), a publicly traded company based in Niagara-on-the-Lake, Ontario, has acquired Backyard Vineyards Inc., a small producer in the Vancouver suburb of Langley in a deal worth $3 million (all amounts in Canadian dollars).

The two wineries struck a co-production agreement three years ago to produce each other’s wines with local grapes, reducing the transportation costs between markets. The latest deal that closed June 28 will further expand the national presence for the companies’ brands.

“We’ve been producing Backyard’s Nosey Neighbour red and white here. They’re doing two of our varietals of [our] Fresh brand,” Murray Souter, president and CEO of Diamond Estates told Wines & Vines from his office in Ontario. “We’ll launch a deeper portion of the portfolio for Backyard here in Ontario, and we’ll launch more of our brands … into the B.C. market.”

Diamond Estates, which sold $17.3 million worth of its own wine last year, produces 235,000 cases a year under labels including 20 Bees, Lakeview Cellars, Fresh, Dan Aykroyd and the McMichael Collection. It also has an import and distribution division with sales of $17 million a year that handles brands including Josh Wines from California and Fat Bastard from France.

Backyard will add 25,000 cases a year worth about $2 million to its annual sales, with the greater market reach for its Ontario brands also promising to boost revenues.

“It won’t happen all at once, obviously,” Souter said. “We may have to buy some [juice] from some of the custom crush people in bulk and age it a little bit and blend it and do what we need to, but we’ll be launching those brands into those markets so we can serve … the larger chain operators, because we can’t supply product to them in all markets, and they want that consistency from rooftop to rooftop.”

This makes sense to Ewen Stewart, a real estate developer who acquired Backyard — originally known as Glenugie Winery when it opened in 2002 — in 2007. He wanted to grow the business, but it made sense to let Diamond Estates take the lead because it has the scale.

“They have a bigger footprint. They managed to get us right across the country with the product,” he said. “It’s a good deal for both sides, to get Backyard onto a bigger platform quickly and get Diamond a significant position in the British Columbia market.”

The strategy positions Diamond to go head-to-head with Arterra Wines Canada Inc. (formerly known as Vincor prior to it passing through the hands of Constellation into the portfolio of Ontario Teachers’ Pension Plan) and Andrew Peller Ltd. as the third-biggest vintner to have holdings in both Western and Eastern Canada.

Arterra has Ontario and B.C. labels for its Jackson Triggs and Inniskillin brands, while Andrew Peller has seen success with Niagara and Okanagan versions of its Wayne Gretzky Estates wines. Peller has also made several purchases in B.C. with a view to expanding its local reach.

It’s not just greater access to the lucrative B.C. market drawing in the investment from Ontario, Souter said. Shipping costs between Ontario and B.C. are prohibitive.

Data that Frank, Rimerman & Co. LLP of St. Helena compiled for the Canadian Vintners’ Association last year indicates that, in 2015, Ontario wineries saw an average of $10.42 per bottle of wine made entirely with domestic grapes. B.C. wineries received an average of $11.56 a bottle.

However, for an Ontario winery shipping to B.C., transportation costs wipe out the advantage.
“Most of the consumption is in and around $15 to $20 in B.C. It costs $1.25 to get a bottle of wine out there,” Souter explained. “Shipping a bottle of wine from Ontario to B.C. is prohibitively expensive unless it’s a really high-end wine.”

Production of Diamond’s brands in B.C. won’t be limited to the existing facility in Langley, which could be expanded to 75,000 cases, pending municipal approvals. The deal for Backyard will see Diamond partner with Steart’s development company, Azura Management Corp., to build a new estate winery on the Naramata Bench, where application has been made for sub-appellation status.

Azura has rights to 180 acres in the area, which sit within the Penticton city limits. The majority is slated for a 350-unit residential development. However, Diamond intends to purchase at least 10 acres for the project with a further 35 acres being discussed for vineyard development. Details are being worked out, but the parties estimate the total project cost at $7 million. The new winery would have a capacity of about 50,000 cases.

“It’s a co-operative effort to get the biggest manufacturing footprint we can in B.C., quickly,” Stewart said. “Between [Langley] and the Naramata Bench we’ll be able to get up to speed very fast.”

 

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