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Wine Industry Conference

Read more interviews this week with Wine Industry Conference 2018 speakers (nbbj.news/wine18qna):

Keynote: Brian Vos, CEO of The Wine Group

Panel: Drive to Premiumization

Jeff O’Neill, founder of O'neill Vintners & Distillers, Larkspur

Judd Wallenbrock, president and CEO of C. Mondavi & Family (Charles Krug Winery), Napa

Kevin Phillips, vice president of operations for Michael David Winery, Lodi

Bob Torkelson, president and CEO of Trinchero Family Estates, St. Helena

Panel: Wine Growth Cycle: Are we at the peak?

Dan Leese, president, CEO and co-founder of V2 Wine Group in Sonoma

Gary Schlossberg, Wells Capital Management

Jon Moramarco, Managing Partner, BW 166

Tony Correia, The Correia Group, North Coast vineyard appraiser

JoAnn Wall, Above & Beyond Real Estate Services, Central Coast vineyard appraiser

Carl Stillman, Stillman & Associates, Oregon vineyard appraiser

Details on the conference: nbbj.news/wine18

The Wine Group has grown to become the second-largest U.S. wine company, producing the equivalent of 53 million standard 9-liter cases annually.

Based at Concannon Vineyard in San Francisco’s East Bay, the company produces more than two dozen brands that span the post-Prohibition history of U.S. winemaking. It operates 13 wineries in California, New York and Australia. Brands include the world’s biggest, Franzia, as well as Cupcake, Chloe, Benziger, Imagery, Love Noir, Glen Ellen, Corbett Canyon, Big House, Flipflop, Almaden, Oakleaf and Mogen David.

The Wine Group started in 1981 in a leveraged buyout by managers of a business unit by that name within Coca-Cola Bottling of New York. It has grown by acquisition, such as Glen Ellen from the Benziger family in 2002, as well as by import alliances and brand creation. The company acquired the Benziger and Imagery brands from the family in 2015.

North Bay Business Journal spoke with Brian Vos, president since 2009 and CEO since 2012. He’s set to be the keynote speaker at the Journal’s Wine Industry Conference in Santa Rosa on April 26 (nbbj.news/wine18). His wine business career spans nearly three decades, starting with the largest U.S. producer, E&J Gallo, in 1989. He joined The Wine Group as vice president of supply chain in 2002.

In the following interview, Vos talks about his company’s drive to innovate brands in the “premium-plus” price segment — below $20 a bottle — and how attracting millennials with lower-priced premium brands will help keep them reaching for quality wines as their careers give them more disposable income.

What are top drivers for the U.S. wine business right now?

BRIAN VOS: Right now, there is a bit of slowdown in growth. We were growing great for a lot of years. We’re still growing, but it is a little tamer than it was. The premium end is driving a lot of (it).

Rosés are, obviously, a big deal. The question is, are they here to stay? Are they year-round (sellers)?

There’s packaging innovation with single-serve cans and premium 3-liters like Black Box. They are both providing tons of growth for the category right now.

How is that changing the way you do business, affecting the way you do brand marketing and brand creation?

VOS: We’ve been a company that has always believed in balanced offerings for our consumers, so we continue to try to grow premium. At the same, we believe the value consumer is always going to be there and we want to offer those consumers a robust offering as well. You won’t see us abandoning the value end and the popular (premium) segment as well, but you will see us leaning in on the (ultra)premium end, because that is where the growth is at.

Are you looking to acquire or create brands toward the faster-growing ultrapremium, even up to the luxury side of the market, as well as continue your other brands at other price points?

VOS: Our innovation has focused on south of $20. Everyone has different terminology for that (segment). I call it “premium-plus.”

How diversified should companies be in beverage alcohol?

VOS: We gave spirits a try five to seven years ago. We weren’t ultimately successful. We’re pretty pragmatic, and we found it was something we weren’t really good at. We took a step back and focused on what we’re good at.

Wine Industry Conference

Read more interviews this week with Wine Industry Conference 2018 speakers (nbbj.news/wine18qna):

Keynote: Brian Vos, CEO of The Wine Group

Panel: Drive to Premiumization

Jeff O’Neill, founder of O'neill Vintners & Distillers, Larkspur

Judd Wallenbrock, president and CEO of C. Mondavi & Family (Charles Krug Winery), Napa

Kevin Phillips, vice president of operations for Michael David Winery, Lodi

Bob Torkelson, president and CEO of Trinchero Family Estates, St. Helena

Panel: Wine Growth Cycle: Are we at the peak?

Dan Leese, president, CEO and co-founder of V2 Wine Group in Sonoma

Gary Schlossberg, Wells Capital Management

Jon Moramarco, Managing Partner, BW 166

Tony Correia, The Correia Group, North Coast vineyard appraiser

JoAnn Wall, Above & Beyond Real Estate Services, Central Coast vineyard appraiser

Carl Stillman, Stillman & Associates, Oregon vineyard appraiser

Details on the conference: nbbj.news/wine18

Some of those brands are still around. We licensed them to someone who is really good at it, and they are giving a go at it.

How diversified should wineries be? It depends on the winery. Pick a name: If you’re Duckhorn, you can diversify across very high price points very well. Other wineries have a wider range and serve customers on a volume base.

How is the acquisition of Benziger a signal for the future of your company?

VOS: We’re pragmatic about acquisitions. If they financially make sense and we can strategically make them work, we will compete with others to see if we can acquire them.

I don’t think you can read a lot into it, that were trying to do anything significant that (the Benziger deal) is a harbinger of. We’re very pragmatic about that. We want to build a balanced portfolio.

Was the Benziger deal part of a strategy to diversify into brands that are in a higher price point or into different categories such as Biodynamic or organic wine?

VOS: The Biodynamic aspect of the Benziger portfolio is very unique and interesting offering for the consumer, and there are a lot of consumers who find that very compelling. It is a very good story for those who want to visit. That is all about the story-telling around Benziger.

One of the things that attracted us to Benziger is the heritage, the family. It is a really cool story.

We have another brand that came in that acquisition, called Imagery. We continue to operate what, I think, is one of the coolest tasting rooms around with the art and everything else.

But we also launched a more commercial tier of Imagery that isn’t part of the tasting room-only offering. It’s currently in fine-wine (retail) and on-premise only (venues) and has been for about a year. It’s done very well. We’re building that brand in a very patient fashion.

How have you seen activity in the on-premises realm — restaurants, lounges and hotels? Has there been a rebound? Have you redirected brands to serve that?

VOS: In all candor, we used to not put much emphasis into that, and now we’re doing quite well in that segment, because we put resources into it and made it a priority. As you develop more premium-plus and ultrapremium-type brands, (on-premises sales become) very important to the brand health. … We’ve been very happy with the progress we’ve made today.

Is that something that requires a tailoring of brands to do well and improve in that category?

VOS: It’s a different category with very unique players who don’t all behave the same and have different needs and demands. So you need to have the right people to listen to what the customer really wants. You can’t meet everybody’s needs. Then find the right fit, and execute.

What have you noticed with the aging of boomers and emergence of Gen Xers and millennials? Is that changing the way you develop brands?

VOS: There was a good summary recently on the aging boomers and the impact of their declining consumption and on how the forgotten Gen Xers are starting to drive some sales volume. Millennials are early on, and we need to develop them as wine drinkers so that our successors in the business have a robust consumption base in the business as they move up.

All of us in the industry need to pay attention to the different demographic groups and do what’s necessary at their stage to build a healthy demand stream consumption pattern for the future. Millennials don’t have enough money to buy $20 bottles of wine every day. We need to give them a good alternative they can afford every day, so we develop wine as an everyday occurrence.

So that’s where it really helps to have a good variety of brands at different price points, so you can serve the millennials as they move up in their buying power.

VOS: Yeah, then their occasion for usage varies. More and more of them are living in urban areas, where they are accustomed to $12 glasses of wine on-premise(s). Well, if you can buy a bottle of wine for $12, they might do that. They might be OK with buying a $20 bottle of wine on a weekend, but on a Monday or Tuesday after work they don’t want to spend that much.

Does e-commerce play much of a role in the future of your company?

VOS: I think it’s going to play a role in everybody’s company. It’s only a matter of wine, as we’ve seen, until this all gets figured out. Alcoholic beverages are a little difficult through the e-commerce channel, not only because of the legal requirements but because of the value-to-weight, the value-to-logistics-cost issue.

But you get your shampoo from Amazon, so somebody like that should eventually be able to bring you wine like that. It’ll probably happen sooner than we all think.

What are the most promising markets globally for The Wine Group?

VOS: I don’t think it’s a secret that the market of choice for everybody is the United States. We’ll pay more money and drink better wine than any other market. We do a lot of stuff globally, both import and export. Everybody we run into wants to sell their wine in the United States, so I look at that and say, I should try to sell all my wine in the United States too.

How does it help your company to have brands to have wines made in the United States and also coming in from Australia?

VOS: It depends on the brand. For our value-oriented brands, the key is to deliver the value proposition — quality at the right price relative to the competition. Having some flexibility in where you source is a big deal, because the consumer may not be concerned about the origin. They are concerned about quality and price.

You bring up a good point about where wines are sourced from. As you as a company have a spread between the value end up to premium-plus, is California becoming a challenging place to source your grapes from, source your wine from?

VOS: It’s cyclical, but it’s not cyclical like it used to be. I’ve been around this industry for 30 years, and the cycles used to be more predictable. It ebbs and flows with things like the exchange rate and crops in other countries — size of the crop in Europe, the size in South America, the size in Australia — and pricing.

It’s more of a commodity global market than it used to be. You’re trying to predict weather every six months (with the coming crop in the Northern and Southern hemispheres).

Jeff Quackenbush (jquackenbush@busjrnl.com, 707-521-4256) covers the wine business and commercial construction and real estate.