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Monday, April 21, 2014, 6:30 am

Wine Industry Conference Q&A: Phil Hurst, Truett-Hurst: Packaging innovation for wine success

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    Phil Hurst is co-founder, president and chief executive officer of Healdsburg-based Truett-Hurst, Inc., a publicly owned wine producer.

    The wine company was started seven years ago by Phil Hurst, a veteran of Golden State Vintners and co-founder of Novato-based Winery Exchange, and Paul Dolan III, whose credits include building Hopland-based Fetzer Vineyards into a large environmentally sensitive vintner. It started with four brands — Truett-Hurst, VML, Healdsburg Ranches and Bradford Mountain — then has added several brands in the past couple of years.

    Phil Hurst

    Seeing growth capital, Truett-Hurst went public in June, netting $14.1 million. Innovative packaging on new brands pushed Truett-Hurst in the black in its fiscal second quarter, ended Dec. 31. Net sales for the quarter, which ended Dec. 31, were nearly $6 million, up from $3.4 million a year before.

    Key to that jump in sales were the releases of Evocative Wraps for grocery chain Safeway, PaperBoy initially with Safeway, and California Square for alcoholic-beverage retailer Total Wines & More. There also was a national distribution agreement with Southern Wine & Spirits

    Mr. Hurst is set to be part of a panel discussion at the Business Journal‘s 14th annual Wine Industry Conference on April 22 on innovation in brand-building. He spoke with the Journal about the company’s novel approach.

    What’s the origin of your innovative approaches to wine packaging?

    PHIL HURST: Innovation is a key driver for us. The biggest retailers in the country want to push for that. There is so much competition coming into the market, so they want to be first to market with cool stuff. That’s what happened with Safeway and PaperBoy.

    The key differentiator for us from other private-label producers is we own all our intellectual property. Retailers know that going in, and as long as they have an exclusivity period they are OK with it because they get the initial press and public relations.

    It helps to have a designer who also is a shareholder and partner — Kevin Shaw, owner of Stranger & Stranger in New York. I think he is one of the top designers in beverage alcohol. He designed the innovations brands for Truett-Hurst, starting with Dearly Beloved, which was the skull label shape launched in Trader Joe’s stores. The Wraps line launched in Safeway was the dipping of the toe in water for cutting-edge packaging. Then we did California Square, then PaperBoy. We have two to three more that will drop in next 12 months.

    What opportunities and challenges are there in different sales channels?

    MR. HURST: One of the challenges with so many different points of distribution is managing that. We’re not Gallo with 10,000 people on the street. We have a lean and mean sales organization. As we get bigger there are greater pains of management. The pains of growing are hiring. We’ve been bolstering sales department, doubling in six months from three to six. We will double our marketing team from one to two. Those are big expenses for us.

    The flip side is the opportunities is amazing. The stickiness of our brands has been very strong now, so we know if we add additional sales and marketing resources for brands already in market and selling well that there is opportunity for strong growth.

    We signed a partnership agreement with Daryl Groom on his Colby Red brand a little over a year ago. It was with Treasury Wine Estates before that. It has been a real on-premise success, running at 35,000 cases a year. It has six to eight on-premise chains where sells.

    Truett-Hurst sold very little on premise before that, so we had to develop a whole team to manage it. It’s a great story and a great wine.

    For PaperBoy, after 90 days of exclusivity with Safeway, we found out that Kroger just picked it up in some of its markets. Other key retailers are on the precipice of doing so. Our distributor, Southern Wine & Spirits, is excited about it. It’s now in 45 markets.

    Direct-to-consumer sales are doing well in both of our tasting rooms. Truett-Hurst has one of the top ones in Dry Creek Valley, and VML is growing as well. The symbiotic relationships of the brands with the tasting rooms is that it establishes a place for the brands and adds a level of credibility. We’re not just a broker or negotiant, but we have a real presence.

    We sell some of the innovative brands in the tasting rooms, and customers love it. It’s a place to test ideas. We had PaperBoy packaging in one of the tasting rooms early on. It’s like a little R&D lab.

    As for other consumer-direct sales, VML and Truett-Hurst have significant wine clubs. Yet most of the wine is sold through the tasting rooms.

    Truett-Hurst also has a half-interest in The Wine Spies, and it’s doing well. We’re increasing quality of wines and increasing the number of offerings. It used to be a pure flash sales site, and now it has up to six wines on an ongoing basis. When it runs through an allocation it gets the next one.

    What’s the balance between cutting-edge packaging and “traditional cues”?

    MR. HURST: It’s changing quite fast, because we’re launching so many innovation brands. A number of brands we have are “traditional.” Growth in innovation brands is coming partly because Southern Wine & Spirits is so excited about innovation brands, and being the top distributor in country brings interest in that innovation. We help create buzz and attention, so when they have those tools in their tool bag, they can really do well on the street.

    There is a market for both cutting-edge and very traditional brands. The market is growing very fast for innovative brands. We do not have to worry about one brand bouncing back and forth between innovative and traditional. We just launch a new brand and do not worry about trying to bring it back into the traditional market. We just created a second label for one of our existing traditional brands.

    Bradford Mountain has the same look its always been for 25 years with the pig on the label, and we won’t change it. Curious Beasts couldn’t be any more different — super modern and cutting-edge. Both have brand essence without having to skirt that.

    Need more production capacity, vineyards to own or buy from, staffing?

    MR. HURST: Just before you called, I had our winemaking team in and we were talking about targeting vineyards in Mendocino County, Russian River Valley, Dry Creek Valley and Paso Robles. We’re expanding into Napa now.

    We’re signing three- to four-year grape contracts now, and we’re growing production through outsourcing and organic growth, too.

    How is it as a publicly traded startup wine company?

    MR. HURST: Part of the reason we took the company public was to fund capital for growth. The benefits far outweigh the challenges, with access to capital and image this drives with customer and consumers. Huge for us and wouldn’t change a thing. Absolutely love it and think see more wine companies go public in near future.

    The challenges are it’s expensive and a lot to manage with reporting and accounting and SOX [Sarbanes--Oxley Act] compliance. It’s very sophisticated, and a lot of wine companies aren’t.

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