Duckhorn Portfolio – Is it time to buy vineyards in California?
Introduction to Duckhorn Portfolio
Duckhorn is a company founded in 1976 in Napa Valley (California) that is dedicated to the production and sale of wines, primarily of the Cabernet Sauvignon and Sauvignon Blanc varieties being Duckhorn Vineyards, Decoy and Kosta Browne the cornerstones of its curated portfolio. Oriented towards the luxury segment (+$15/bottle), it has grown over the years both organically and through M&A. In March 2021, it made its IPO, becoming the only exclusively wine company listed in the US (excluding a couple of vineyards with a market cap <$20MM).
This IPO came at a sweet moment for the wine industry thanks to the strong increase in demand caused by Covid, in which companies with asset-light business models, that is, those that outsourced most of their production – like Duckhorn Portfolio or Italian Wine Brands – were greatly favored. In fact, just 7 months after its IPO, in October 2021, its shares had appreciated more than 50%, reaching a market cap of >$2700MM.
However, from that point on, the increase in raw materials due to supply chain issues, as well as the rise in utilities, labor, etc., diminished Duckhorn’s growth and profitability. To this day (including the acquisition of Sonoma-Cutrier), its shares have fallen by 70%, trading at barely $1.15Bn (the S-C deal was mostly paid for with shares).
The story is – so far – quite similar to that of Italian Wine Brands, an Italian wine company that we have known for over three years (and which is currently one of the main positions in our portfolio) with whom they also share a quite similar business model (light) and strategy (M&A).
Today we are going to analyze the economics of Duckhorn Portfolio and try to determine if, similar to what happened with IWB, this 70% drop in the last two years is marking an interesting entry point or if, on the contrary, something has broken along the way, and after the acquisition of Sonoma-Cutrer, the share price already reflects the company’s reality. To do this, we will review Duckhorn’s business model, strategy and economics (downloadable spreadsheet), and compare it with Italian Wine Brands’ thesis to facilitate a better understanding of Duckhorn. Lastly, we offer our conclusion / strategy with it from the investment point of view
Current situation – Wine Industry
As we have mentioned, the last two years have been quite challenging for wine producers due to the combination of inflationary pressures, material and grape shortages, and a slowdown in demand. In such a fragmented segment, those with a certain scale and synergies can be profitable, which has led to an intense wave of M&A in recent years. But let’s take it step by step:
• Wine production: Severe weather conditions and widespread fungal infections significantly impacted numerous vineyards worldwide, leading to a historically low global wine production of 237 million hectoliters. This represented the lowest output since 1961. This decline was partly due to a drop of more than 20% from the world’s leading producer until 2022, Italy.

If we zoom in on the current situation in California (Duckhorn Portfolio), we see that this year there is significant bulk inventory (due to both a good harvest and lower demand), which has led to a decrease in bulk grape prices (this is important because both $NAPA and $IWB.MI purchase the majority of the grapes they use. For example, in the case of $NAPA, after the acquisition of Sonoma Cutrer, in-house production represents 20% of their needs). The 2024 grape market is very quiet and a greater number of vineyards will be out of contract this year versus last, barring significant weather events – the frost risk has passed with little incident. Vine removals are underway and wait times for certain removal services are lengthening..

Wine Consumption: Wine consumption has continued to decline this past year, with an additional 2.65% drop on top of the already poor data from the previous year, accumulating a decline of more than 10% over the last 20 years (exacerbated post-COVID due to low demand from younger generations). The increase in production and distribution costs, driven by inflationary pressures, led to higher wine prices for consumers, who were already grappling with reduced purchasing power.

The consequence of this extra cost pressure and lower demand (also as a result of the price increases passed on to the consumer) is a decline in margins and consequently the urgent need to become more efficient. The importance of economies of scale in this industry is enormous, both in production and distribution as well as in securing marketing agreements.
This has resulted in a wave of M&A in the post-Covid years, in which both Duckhorn and Italian Wine Brands have been very active, allowing them to grow and consolidate their respective leaderships. However, the companies are vastly different from each other. Let’s see if, like in the case of Italian Wine Brands, Duckhorn also presents a tremendous opportunity.