When Jim Mortensen, a former executive with Miller Brewing and Philip Morris, came out of retirement last September to be the new CEO at Ste. Michelle Wine Estates, local wine enthusiasts and industry experts braced for major changes.
The Woodinville-based winery, acquired in 2008 by tobacco giant Altria, had recently reported declines in sales and profits. Mortensen’s arrival sparked questions about a possible shake-up — or even a sale — for the largest player in the state’s $4.8 billion wine business.
Nine months later, some of those questions have been answered.
Under Mortensen, Ste. Michelle has replaced key members of its senior management team. It has announced plans to pare back its sprawling product portfolio. As important, the winery has rolled out an aggressive marketing campaign that departs, often dramatically, from the 52-year-old institution’s somewhat staid brand.
There are now ads on Hulu and on billboards in New York City’s Times Square, a multimillion-dollar online strategy, even a push down-market: In March, Ste. Michelle began putting its 14 Hands wines in aluminum cans and selling them in convenience stores.
All of this would have been hard to imagine under Mortensen’s predecessor, Ted Baseler, who came to Ste. Michelle in 1984 and was so determined to cultivate an upscale image that he largely resisted screw caps long after other wineries were using them.
But it may be right in line with a man who spent decades pitching beer and cigarettes.
Mortensen is unapologetic. An outsider’s perspective, he argues, is exactly what was needed to confront changing consumer preferences, a digitally disrupted marketplace and a massive generation gap.
“These are new challenges, and new challenges require more innovative solutions,” Mortensen, a 61-year-old native New Yorker, said during an interview at the winery’s 105-acre “chateau” headquarters. “There’s no choice but to do that.”
To be fair, Ste. Michelle is hardly the only winery looking for a fresh strategy.
Since the 1990s, American winemakers have ridden the coattails of a baby-boom generation that drank more, and more expensively, each year. That demographic bonanza had a huge impact in Washington state, where excellent growing conditions and cheap farm land yielded a perfect product for America’s new wine drinkers — “premium” vintages (typically $8 a bottle or higher) that consistently beat out similarly priced California competitors on quality.
Boomers’ appetite for Washington wines touched off explosive growth, with hundreds of new wineries and aggressive expansion at Ste. Michelle, bankrolled in part by its tobacco-company owners. By 2016, the company included 18 West Coast wineries, from Spring Valley Vineyard in Walla Walla to the Erath winery in Oregon to Stag’s Leap Wine Cellars in Napa Valley, and some 40,000 acres either owned or under contract. Between 2000 and 2016, Ste. Michelle’s annual output more than tripled, to 9.3 million cases, while operating income (earnings before taxes and interest) jumped eightfold, to $164 million.
That scorching growth put Ste. Michelle among the top three U.S. wineries for premium wine sales, and it was a big reason Altria held onto the winery after acquiring its then-parent, U.S. Tobacco Co, in 2008. (U.S. Tobacco had purchased the winery from its Seattle owners in 1974.)
But that red-hot growth story has cooled. As baby boomers have aged, they’re drinking less, which has helped cut per capita U.S. wine consumption by nearly 10% since 2015. Through 2017 and 2018, Ste. Michelle’s output fell 12%, to just 8.2 million cases, while sales revenues and operating income plunged 7.4% and nearly 70%, respectively.
Worse, even as Ste. Michelle and other wineries have struggled to regain momentum, their traditional marketing strategies have been digitally upended.
Apps such as Vivino, which let wine drinkers photograph a bottle on a grocery shelf and instantly see ratings by millions of other consumers, have diminished the importance of brand names and official rating systems. That has dramatically increased “the ease at which people can step in and out of a brand,” said Mortensen.
Ste. Michelle hopes to win back some of those brand escapees with a marketing strategy that is heavily digital. Last fall, Ste. Michelle hired Miia Suortti, a Starbucks marketing and customer-loyalty whiz, to serve as the winery’s first director of digital marketing. In February, Ste. Michelle rolled out a “multiyear, multimillion-dollar” exclusive partnership with Allrecipes.com, that will use artificial intelligence to suggest Ste. Michelle’s wines to the more than 30 million foodies who visit the website each month.
Still, despite some early success — first quarter sales in 2019 were up 6.3% year over year — Mortensen knows the real battle is at the other end of the market.
To truly rekindle the growth from its glory years, Ste. Michelle must win over millennials. That generation, which will hit its prime wine-drinking years over the next five to 10 years, is large enough to easily replace boomers’ fading demand — but thus far, it hasn’t picked up wine.
Not only are millennials less well off than boomers were at this age, they also show little of the boomers’ loyalty to brands or even to beverage types.
“They move across categories very fluidly,” Mortensen said with some exasperation. “It’s almost borderless for them — beer, spirits, wine,” along with emerging categories like hard seltzers and legal cannabis.
And, critically, millennials have “a highly sensitive B.S. meter” when it comes to marketing aimed at them, Mortensen said. Trying to get their attention, he added, “opens up a lot of pressure on our marketing.”
In some respects, dealing with that pressure is a challenge perfectly suited to Mortensen.
Although his background in cigarettes and beer might seem out of step with the image of the winery (to say nothing of the Washington’s strong anti-tobacco politics) there is little question that Mortensen knows how to woo customers in a crowded, competitive, difficult marketplace.
Case in point: Putting 14 Hands Rosé, an affordable, quality vintage, in cans could be just the thing to convert a price-conscious, beer-drinking millennial into an “early-stage wine consumer,” says Rob McMillan, author of a widely read wine industry report for Silicon Valley Bank. Premium wine may have an upscale image, says McMillan, but “in the end, you are selling a packaged good.”
That packaged-goods approach could become more central at the Woodinville business.
Mortensen has brought in Dan Werth, 52, another former beer and tobacco executive (Miller Coors and Altria) to be chief operating officer at Ste. Michelle, where he is widely seen as Mortensen’s understudy. Werth’s hiring has put to rest, at least for now, speculation of a sale by Altria, which has suffered sales declines of its own recently.
What remains unclear is what Ste. Michelle’s new, more assertive strategy means for a brand that has been a cornerstone for much of the rest of the state’s wine business.
Over the decades, Ste. Michelle has operated as a mother ship for other Washington winemakers. Surplus grapes from its vast vineyards helped smaller wineries survive when their crops were decimated by frost.
As important, Ste. Michelle’s “unrelenting focus on quality” was critical to winning over consumers to Washington wines back in the 1980s and 1990s, when the state’s industry was still largely unknown, says Sean Sullivan, a contributing editor at Wine Enthusiast Magazine and longtime observer of the Northwest wine business.
Even though the state now boasts more than 900 wineries, Sullivan says, Ste. Michelle’s reputation and output are still so outsize (some three of every five bottles produced in the state come from a Ste. Michelle winery) that it continues to be the first Washington wine that many consumers encounter.
“They carry the mantle for Washington wine around the country and around the world,” he says.
Mortensen insists that the mantle will remain intact and that Ste. Michelle’s commitment to quality is unwavering. Bob Bertheau, Ste. Michelle’s wunderkind head winemaker since 2003, is still very much in charge. Further, while the winery plans to “prune” underperforming brands from its several hundred offerings, it continues to make investments necessary for premium wine, including tens of thousands of French oak aging barrels each year at cost of around $1,100 a piece.
And, importantly, Ste. Michelle continues to invest in new vineyards. Although the company has looked into the increasingly popular trend of “landless” wineries — low-cost bottling operations that buy their wine on the bulk market — Mortensen is unpersuaded: “The quality of their wine is absolutely questionable.”
The larger question, though, is whether Mortensen can find a way to maintain that brand’s association with tradition and quality while simultaneously recasting it for a new consumer who is far more skeptical of such a pedigree.
“The stakes are incredibly high,” says Sullivan. If Ste. Michelle and other state wineries can flip millennials and get them drinking Washington wine, “then we have the potential to ride that for decades,” says Sullivan.
“And if we do not, then that’s a serious problem,” Sullivan says, “because then we will be wandering in the wilderness for a couple of decades.”
This article has been updated to indicate that it was the “unrelenting focus on quality” by Ste. Michelle as an organization, and not only by one individual, that was critical to winning over consumers to Washington wines.