Some of the solutions for today’s challenges to California wine industry growth — whether it be regulation, climate or crop disease — can be found by looking at how the business has responded to impediments to progress over a long stretch of time, according to a Michael Mondavi, whose family has been seen flowing and ebbing fortunes of the making wine in the North Coast for more than a century.
“A lot of us look at the business as what is going on today and tomorrow, but we forget to look at the longer cycles in the wine business,” said Mondavi, 72.
In his keynote talk at the Business Journal’s Wine Industry Conference on April 24, he plans to reach back to the 19th century for actionable lessons on looking for and taking advantage of opportunities. That’s how the Napa wine business became a California business then nationwide business and now a global endeavor, he said.
For example, today’s premium branded wine business might have looked more like the largely commoditized dairy industry had it not been for government price controls, Mondavi asserted. Government price controls around World War II froze the price of wine at 12.5 cents a gallon, and almost all wine at the time was unbranded, delivered by rail tanker car to national wholesalers.
With costs for making wine from Napa and Sonoma counties costing around 12 cents a gallon, his father, Robert, uncle Peter Mondavi and grandparents Caesar and Rosa Mondavi decided a better way to make money was to turn a commodity into a consumer product. In 1943, they bought Charles Krug winery and began bottling branded Napa Valley cabernet sauvignon wine for 25 cents a bottle, as well as selling it in bulk. Peter Mondavi and his sons are still at the helm of the 150-year-old Krug winery.
“That law changed the way wine was made and sold in America,” Michael Mondavi said. “Some of the regulations today are crazy, so I’m hoping that using this example and a few others will help people think about the opportunity in the roadblock, rather than just the roadblock.”
Michael Mondavi Family Estate started in 1999 with his wife, Isabel, and children Rob Jr. and Dina, after they bought a vineyard in the Atlas Peak appellation of Napa County. Now the family has 120 grape-bearing acres in two properties located above 1,200 feet. Five years later, the family opened Folio Wine Partners as a sales and marketing company for family-produced wines from regions such as Italy, Spain, Austria, New Zealand, Argentina and California, with annual case production ranging by brand from 250 to nearly 40,000.
The companies have 62 employees combined, and 45 of them are partners via 12 percent of nonvoting company stock set aside for the workforce.
“If they think like an owner, they will ask the right questions and will ask if it’s the right thing to do for their customers,” Mondavi said. Eight percent of the stock has been awarded to employees so far.
Also known as the “quiet icon” of Napa Valley’s meteoric rise to global recognition, Mondavi’s career began in 1966 just after graduating from college. At that time, his iconic father, Robert, and he co-founded Robert Mondavi Winery in Oakville. Michael Mondavi served in many positions at the winery, including winemaker for the first eight harvests, through 1974. From 1969–1978, he was vice president of sales then was named managing director and CEO in 1990. Following the company’s going public in 1994, he was appointed president and CEO and later served as chairman 2001–2004.
Part of his global presence as an advocate for California wine was serving as a California State Chamber of Commerce board director, chairman and CEO of the Wine Market Council, president of the Napa Valley Vintners and chairman of the Wine Institute, Winegrowers of California and Napa Valley Wine Auction.
In 1998, Mondavi was named Industry Executive of the Year by The Market Watch Leaders, a group of top industry executives. In 1997, he received the Who’s Who in Food and Wine Award by the James Beard Foundation.
In 2008, Mondavi launched his first eponymous wine, M by Michael Mondavi, from the Atlas Peak winery. Last June, Michael Mondavi Family Estate sold its 100,000-case-a-year winery on the Napa County side of Los Carneros appellation, moving to a custom-winemaking facility until a smaller winery with tasting room is secured.
Mondavi talked with the Business Journal about more insights about finding opportunity in the highly competitive and roadblock-filled wine market.
What’s the opportunity among all the competition?: There are opportunities and also risks. The counties are saying you have to restrict growth of the wineries. We’re in a global competitive business. If we don’t do a good job in the quality of wine in Napa and Sonoma and do not do it with efficiency compared to Italy and Bordeaux and Australia, they know America is the best marketplace. We have to compete with them for the share of stomachs of today’s customer.
What opportunities are there amid the challenges of getting wine to market?: The opportunity today is in the young person — those under 40. There’s opportunity in communication, whether it’s on a phone or tablet. Information is vibrant today, and the young consumer wants to know where the grapes are grown and who grows them and if it’s natural. And the more we communicate with them, the more successful we’ll be.
How should the wine business be marketing better?: Prior to Prohibition through the 1940s, wine was sold in bulk in tank cars as commodities. In the late 1940s–’50s through 1990s, if you wanted to sell wine you could be a tiny boutique and sell at the winery or work through the three-tier system. In the last few years, because of communication and because of travel and freight improvements, many wineries today in order to survive economically have to have a good percentage of wine sold directly to the consumer or by shipment to them.
There are over 130,000 wine labels approved every year. In 1966 when Robert Mondavi Winery was one of 30 or so wineries, and four only produced wine as a commodity. Now there are over 450 wineries and over 2,000 labels in Napa Valley alone, so how do you differentiate yourself to the wholesaler? Today there are fewer wholesalers, and most have 300-500 wine brands each, so how do you get their attention if you’re a smaller company? So a lot of companies are going direct to consumer.
The reason we started Folio Wine Partners was because of the saturation in the number of brands and lack of wholesalers to bring wine to market. In order to get their attention, you have to have volume. My wife, son and daughter did not want to get big again, so we wondered how we would get wine.
I thought of the ancient guilds. The best wine is produced by family-owned-and-run wineries. Most are medium to small in size, and most have similar problems getting wine to market as we do. So why not have them work interdependently? We now represent 21 wineries, and our wines are only 10 percent of the volume of wines we represent. There is enough image and number of high-quality wines and brands that we get wholesalers’ and restaurateurs’ attention. They can be independent with direct to consumer and wine clubs, but it is more difficult to get into distribution. When there is a problem like that, there is an opportunity, which caused us to start Folio Wine Partners.
We’re not just marketing and selling, but we talk to each other on viticultural practices and environmental farming. ... And we learn from each other on the heritage and style of our wine regions. With open dialogue, we’re constantly learning how to produce wines as they do in Champagne and Burgundy and why a region produces lively and crisp white wines.