© Chateau Ste. Michelle

The company's distinctive chateau was built in 1976

How did a riesling specialist from Washington State end up producing America's biggest-selling brand under $11?

When Ernest Gallo was dominating U.S. wine sales in the 1950s (allegedly by urging his sales team to crack open competitors' bottles and insert used cigarette butts*), nobody was bothering to add tobacco to Washington State wines. They weren't competition. Most of their wines weren't even made from grapes.

How times change.

Today, Washington winery Chateau Ste. Michelle is not even an up-and-coming challenger to the big Californian wineries in the important $8–$11 price bracket: it's the heavyweight champion, according to figures released by Wines & Vines in August.

Amazingly, Chateau Ste. Michelle tops the category, with sales reaching almost $94 million in the year to July 8 2012, despite being a riesling specialist – a variety that is a notoriously hard sell.

While the company celebrates its 80th anniversary next year, all of its sales growth has come in the last 30 years. Before that, some of its best vineyards were still covered in sagebrush – like an old Western movie location, only colder.

National Wine Company, an ambitious name for a regional fruit-wine company, was founded in Seattle in 1934, just after the end of Prohibition. By 1954, mergers led to a new name, American Wine Growers, and the first wine made from vinifera grapes. But those bottles of grenache were merely an experiment, as were the first riesling grapes the company planted in 1965.

Just seven years later, in 1972, a riesling with the brand name Ste. Michelle took first place in a Los Angeles Times blind tasting. Yet that was not enough to propel it to star status. The winery was still little-known when its Seattle-area winery and visitor center opened in 1976.

"In the old days I'd go on the seminar circuit and evangelize, and people would snigger when you'd talk about Washington wine – like it was wine from Quebec or something," says chief executive Ted Baseler.

Undeterred, the Chateau Ste. Michelle team took their wine to the critics, and also homed in on customers coming to them en route to northwest destinations such as Microsoft, the Canadian border, grunge rock and Starbucks.

The winery's urban setting was key to converting Americans to both the brand and the riesling grape, says Allen Shoup, who took over as CEO in 1984. It wasn't hard to attract visitors to the Seattle winery on a rainy day – the city has 140 of those every year. At Chateau Ste. Michelle they could taste wine as an alternative to ascending the Space Needle, a 605-feet tower that is one of Seattle's main attractions. And having riesling actually helped.

© Andrea Johnson Photography

The 559-acre Canoe Ridge vineyard, planted mainly to merlot and chardonnay

Unlike in California, riesling worked perfectly with eastern Washington's climate, because the grape is resistant to occasional hard freezes and thrives in the cold nights of early fall. While riesling is now sold as an alternative to chardonnay for its freshness and food-friendly style, in the 1980s it was viewed as a sweet alternative to wine coolers and white zinfandel. People with fewer pretensions about wine than today simply liked drinking it.

Shoup ran the company until 2001, when Baseler, who had been his No. 2, took over the reins.

"It's a very stable, well-managed company, [with] just Shoup and Baseler for all those years," says wine industry analyst Barbara Insel of Stonebridge Research. "Growers seem to be happy working with it. People are comfortable working there."

Shoup and Baseler shared several philosophies that continue to pay off. Most importantly, Chateau Ste. Michelle bought vineyards early, when land in eastern Washington was cheap.

"When you're a pioneer you get the best sites," says Baseler. "But when you're experimenting a lot you also get the worst sites. We had some vineyards in the '70s and early '80s that were just not very good. We replaced those with better slopes with better drainage."

The winery now owns 3,500 acres of vineyards. Its three biggest vineyards are Cold Creek (811 acres, 42 percent cabernet sauvignon, 20 percent riesling); Canoe Ridge (559 acres, 38 percent merlot, 29 percent chardonnay); and Horse Heaven Hills (500 acres, 42 percent sauvignon blanc, 32 percent riesling). While it's unnerving to see cabernet and riesling planted together, the estate claims that 811 acres is big enough to find suitable microclimates for each.

The critics also don't seem to mind such an unusual combination of varieties in the vineyard, and good reviews have been crucial to gaining national recognition, Baseler believes.

"People hate the 100-point scale [but] I love it. If we go up against Château Mouton-Rothschild, and we have a wine – Ethos – that gets a 94 and Mouton gets a 94, Mouton is $600 and Ethos is $45." The math is easy.

The company re-invests a proportion of its profits in technology, with an eye towards keeping quality high even at the lowest end. Recently, winemaker Bob Berthau participated in a decision on how to spend some profits on equipment: whether to build a new boutique winery-in-a-winery, or create a new grape processing area for all red grapes. Ste. Michelle chose the latter.

"Now we can move grapes in here at a very high speed," Berthau said. "We can separate MOG (material other than grapes) at a 60-tons-per hour scale. Even though we're very large and we're bringing in a lot of grapes, we're doing it on a quality basis. If a winery can't make good high-tier wines, shame on them. I think it's more important to make that $12 to $15 wine as good as it can be."

© Chateau Ste. Michelle

L to R: Horse Heaven Hills; Bob Berthau and Ernie Loosen; Cold Creek Vineyard

Shoup and Baseler have also gained cool points by partnering with respected winemakers abroad. Ste. Michelle has a firmly entrenched relationship with the Antinori family of Italy, acting as its sole importer in the United States. The companies collaborated on a winery in Washington called Col Solare, and together purchased Stag's Leap Wine Cellars in Napa Valley.

On the riesling front, Ste. Michelle works in partnership with the German producer Ernst Loosen, in particular on its flagship riesling Eroica, which Berthau says is crucial for the brand's image. Anyone who's met Ernie will know that he can talk riesling like nobody else and he can do it in leather pants with outrageously colored shirts.

Looking to the future, the winery is not satisfied with best-seller status in the States. It now wants to increase international sales and believes that the style and structure of its wines are well-suited to Old World tastes.

"We have good growth in Europe," says Baseler. "The wines in Washington tend to be closer to the European palate – a little lower in alcohol and higher in acidity, though they have the intensity of flavor. And we're looking to grow all around the Pacific Rim."

After buying Stag's Leap five years ago, Baseler is also keeping an eye out for other wineries. "I can see some properties in the Rhône that would be compatible and would be prestigious," he says.

So, watch out, syrah producers, Chateau Ste. Michelle is on the hunt. Better get those cigarette butts ready.

* According to the book "Blood and Wine: The Unauthorized Story of the Gallo Wine Empire," by Ellen Hawkes.

We have selected some of the top-value Chateau Ste. Michelle wines for you to try:

Chateau Ste. Michelle's specialty is riesling. Here are our picks of the bunch: