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Monday, April 21, 2014, 6:30 am

Wine Industry Conference Q&A: Jordan Kivelstadt, Free Flow Wines: Tapping into thirst for freshest wine

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    Jordan Kivelstadt is co-founder and chief executive officer of Napa-based Free Flow Wines, which fills and manages wineries’ kegs used in on-premise by-the-glass sales.

    Wine industry trendwatcher Jon Fredrikson at the Unified Wine & Grape Symposium in January said wine by the glass, and particularly that served by wine in kegs, would be a hot trend for on-premise wine sales this year.

    Jordan Kilvelstadt

    Free Flow has been gearing up for that demand. Its fleet of 19.5-liter 304-grade stainless-steel “torpedo” kegs has expanded from 50 when the company started four years ago to about 50,000 now. The company expanded late last year to Napa and now works with about 350 wines in 20 varietals for about 180 brands, distributed to 45 states.

    This year, Free Flow’s market penetration is on tap to reach 0.65 percent of on-premise wine sales. About one-fifth of U.S. wine is consumed on-premise.

    Mr. Kivelstadt is set to be part of a panel discussion at the Business Journal’s 14th annual Wine Industry Conference on April 22 on emerging trends. He spoke with the Business Journal about some of them.

    What’s changed in demand and supply of kegged wine?

    JORDAN KIVELSTADT: We’re noticing more and more brands are coming to us. We’ve attended the Wine & Spirits Wholesalers Association trade show for last three years. The first year, many didn’t care. The second year, about a dozen wholesalers asked us about it. Last year, about half the wholesalers seemed excited. This year, all we talked to were saying this is here and it’s real and asked how to get involved. Wholesalers are a critical component, and that they are seeing this and coming around to it is exciting.

    We also heard from wholesalers who have been waiting to see who the leader and the technology would be, and now the stainless-steel Free Flow keg is the predominant package for wine on tap in the country.

    [Co-founder] Dan Donahoe was on panel about new trends at the recent VIBE [Very Important Beverage Executive] conference. There were 400 people in a 350-person room for that segment. It was the first year for the question about whether wines on tap was here to stay, and five senior beverage directors gave thumbs up.

    Wineries, wholesalers and restaurant owners are on board with this and think its becoming a permanent part of the industry.

    What are the big differences in the way kegged wine inventory is managed between producer and trade accounts?

    MR. KIVELSTADT: There are a couple of differences. We’re kegging four times a year, and maybe vintners are bottling once a vintage. Generally, one of our kegs is consumed in about 90 days, so we keg with 25 percent to 30 percent lower sulfur levels than wine bottled under the assumption it will be on the shelf an average of six to seven months.

    Corks have a certain level of oxygen transmission, so you need to compensate for that. But with kegs, it is zero, so no compensation is needed. It’s the freshest wine, and it absolutely helps with concerns about sulfites.

    Wine wholesalers have to get used to that they don’t just deliver wine but also pick up empty kegs. We’re working through ways for them to do that more efficiency. Only 5 percent of alcoholic beverage wholesalers sell both wine and beer and are familiar with kegs.

    What are the biggest misconceptions or misunderstandings?

    MR. KIVELSTADT: First, when we talk about wine on tap, we say draft wine and not keg wine. We stay away from keg because of its association with consumers in beer and lower-quality wine.

    One of the biggest misconceptions for consumers two years ago is what wine on tap meant. As we’ve built a successful market is that some competitors are building businesses with a bag-in-box that is attached to a tap. Our model is from a barrel in the winery to a barrel under the bar.

    Most consumers are excited about draft wine because they have been drinking exceptional draft beer from a tap for at least the past five years.

    The biggest challenge we find is reinforcing there are quality products in the best containers. Sommeliers will talk about environmental and quality benefits of wine on tap, but consumers will give it one shot. If they get a bad glass they will blame wine on tap.

    How different is wine on tap now than its previous U.S. appearance?

    MR. KIVELSTADT: There were Inglenook, Paul Masson and others in the good old days. American wine consumers are more savvy than they were 30 years ago. Not every consumer is a geek asking for Napa Valley cabernet sauvignon. But for American consumers, wine is becoming more a part of their lives, and they are expecting better quality. Back then, wine on tap was about price and ease — speed of service.

    The screw cap is a brilliant closure for a bottle of wine, but it was launched at bottom of market. So American consumers thought if the wine was in a cap, it would be cheap. Then the industry spent 10 years trying to remove that idea until PlumpJack came along. I’m still not sure all consumers are there yet, and some think caps should be on white wines and not reds.

    That’s why we insisted on starting with top-quality wines. We started with Paul Hobbs. Constellation Brands putting higher-end Simi in kegs, and Beringer is putting its Knights Valley wine in there. It’s not their $7.99 supermarket blends.

    Wineries want to sell more premium juice, wholesalers want to have more margin for the same amount work, and restaurants want to serve the best wine without worry about spoilage and loss. Everyone wins when the whole thing is premium.

    One of our hottest markets now is Ohio, with 30 new restaurants in last month adding wines by tap. I think it is the changing demographics of the U.S. What used to be B and C towns are moving up as people who not afford to live in New York are moving outward. Chefs trained in New York or San Francisco but can’t afford to work there go to their home markets and bring that culinary sophistication from the coasts with them.

    What’s ahead for Free Flow?

    MR. KIVELSTADT: Big milestones are coming up. The big one is when we cross 1 percent of wine on premise. We are adding some other great, great brands — some flagship North Coast, Central Coast and imported brands. Another milestone is when a special restaurant declares its intent to expand wine on tap to 200 to 400 of its locations, and we expect that by the end of this year.

    Premium wine on tap started in independent chef-owned restaurants. Now we have kegs in California Pizza Kitchen, PF Chang’s and Ruth’s Chris Steak House.

    We want to break the production level of 10,000 kegs a month, which is about 22,000 9-liter cases.  That should be coming before the end of this year. We want to make sure this category that Dan and I invested our hearts and souls into is here 10 years from now and still in stainless-steel kegs.

    I’m not trying to replace bottles. You can’t replace three-year bottle-aged hillside cabernet sauvignon. It needs that bottle time to come to full maturity. We get so spoiled as wine people in wine country. But the average consumer wants to have a great glass of wine and not be intimidated. Why are more people ordering beers, and is not part of that the intimidation factor of wine?

    Craft beer is kicking wine’s butt from a coolness perspective with Millennials and Gen X. Bordeaux and Burgundy are struggling because consumers are not buying $200–$300 bottles of wine. When a consumer is out for a great bottle of wine, it shouldn’t like with Champagne that it’s only for special occasions. I want to consumers to have wine like having a beer.

    Brands love wine on tap because it is finding a way to be cool and appeal to new consumers and creating an off-premise pull by being in this new format.

    We’re talking to one restaurant chain that is looking for vintage canisters like plant watering cans as a cool, fun way present wine at the table.

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