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C. Mondavi CEO: ‘Cultural premiumization' fuels consumer thirst for higher-priced wine and other goods

Wine Industry Conference

Read more interviews 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

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Details on the conference: nbbj.news/wine18

The Caesar Mondavi and Charles Krug names span the history of California winemaking, and the brands that still bear their names also reach across the spectrum of wine-price segments, from "popular premium" to luxury.

St. Helena-based C. Mondavi & Family, now in its fourth generation, produces the Charles Krug brand, which has labels retail for just under $20 per standard 750-milliliter bottle and go up to $250. The bigger-production brand is CK Mondavi, which retails for $7 a bottle. Annual production is 1.7 million 9-liter cases, ranking the company No. 16 among U.S. vintners, according to Wine Business Monthly.

Krug started his Napa Valley winery in 1861 and was an early proponent of quality, such as making varietal wine.

Cesare Mondavi was father to the late vintners Peter Mondavi Sr. and Robert Mondavi. The elder Mondavi purchased the Krug winery in 1943. Robert Mondavi started his eponymous winery in 1966, but his brother continued to run Charles Krug. More than two decades ago, Peter Mondavi Sr. and sons Peter Jr. and Marc reinvested heavily into vineyards and winemaking to turn Charles Krug into a high-end brand and establish CK Mondavi as an entry-level wine.

Peter Sr. died two years ago. Peter Jr. and Marc last July brought in Judd Wallenbrock as CEO. Wallenbrock has been in the wine business for four decades. His executive experience actually started with Robert Mondavi Corp., where he was vice president. He moved on to lead operations at De Loach Vineyards, be president of Michel Schlumberger Estate and, most recently, serve as president, CEO and managing partner of The Good Life Wine Collective, which produces Jessup Cellars and Handwritten Wines.

He produced his philanthropy-focused label Humanitas. C. Mondavi & Family makes its own benefit wine, Purple Heart.

Wallenbrock is set to be on a panel discussing "premiumization" at the Business Journal's Wine Industry Conference in Santa Rosa on April 26 (nbbj.news/wine18). Previously called “trading up,” it has been a trend in U.S. wine sales toward faster sales growth at higher price levels, particularly more than $10 a bottle.

Wallenbrock talked to the Business Journal about how new premiumization actually is, the value in diversifying a vintner's portfolio by price point and whether there's a coming glut of higher-priced wines.

How is premiumization affecting your approach to brand-building and brand extension?

JUDD WALLENBROCK:

Premiumization is nothing new at all. I started in the industry in 1979, and it has been going on since then. Back in the day, we used to call “premiumization” the introduction of “fighting varietals,” and that was premiumization up from jugs.

Culturally, there is an evolution in the wine industry that has been going on for years. Like any cultural change, it is not really noticed.

When I first got into the business, the jug business was all in gallons, and now it's metric. Suddenly, you got those cork-finished magnums, and that was evolution of the jug-wine business. Then you started going into the evolution of (wine) being (labeled) a Chablis, Burgundy or rosé to a varietally labeled jug.

In the early '80s, Jess Jackson (the late proprietor of Jackson Family Wines) came out with a wine by the glass called chardonnay. Before that, there wasn't really varietal-labeled by-the-glass options. It was all house wines.

We limit premiumization to price, as opposed to other elements such as the marketing mix of wines. It's a premiumization of package, of how we have access to wines.

While I'm driving - although I would never do this - I could pull up an app and buy a wine. That is premiumization of access.

Maybe the ceiling on wine pricing has changed and the average has shifted up a bit, but the real premiumization has been in the sheer volume of wine - consumer choices.

When I got into the business, the place people sold wines was on the coasts. To think that 25 years ago I could go to Keokuk, Iowa, and see somebody ordering a glass of wine at lunch was rare, and now I can go there and see businesspeople regularly ordering wine. Cultural premiumization is a big overriding picture.

Many goods we deal with have been premiumized. The car I'm driving does more things than I could have dreamed of and is about to drive itself. I'm about to put my third kid in college, and the amount we pay for college has gone up substantially.

One thing that hasn't changed is we still want to have wine available for everybody at any time in their wine journey financially and educationally and also for any time of day or week. I would love to think that everyone could buy $100 bottles of wine for lunch on Monday, but I don't think they can.

Wine Industry Conference

Read more interviews 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

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Details on the conference: nbbj.news/wine18

Is that price spectrum something that can be done with one brand with tiers or multiple brands?

WALLENBROCK:

Both. It's very hard to do it with a single brand that ranges from $6.99 everyday wine to a $250 bottle of reserve. If you look at the automobile industry, I'm driving a Lexus, but my wife drives a Toyota. It's the same company, but different branding for different price points. That certainly is the easier way to do that.

We're family-owned, so it's challenging to do different things at different levels. If you choose as a company to be diversified, it is easier to do that with multiple brands.

And it is clearer for the consumer. On one side, the customer has so many choices, and there are many more impressions of the lower-priced one, because there are so many more bottles out there.

But on the flip side, if you're making a $6 bottle of wine and $200 bottle of wine, how do you differentiate it in the consumer's mind? I worked for Robert Mondavi for nine years in the '90s, and that was the problem we had back then.

What stage of premiumization are we heading into?

WALLENBROCK:

Technology will change. I've seen a poster of a guy in the 1990s standing with a computer, boombox, telephone, every technology you can think of, and now it's all in the cell phone.

The economy will probably tank in a little while, because it always does. The rich will continue to drink. Those less to do will probably consume a little less. Wine is still life's affordable luxury. I may not take that trip to Hawaii, but I will still have my bottle of wine tonight.

My favorite example of premiumization is Starbucks. Before that, we opened our coffee in a can and percolated it. Now, it's a double mocha cappuccino, and I'm spending $6-$7 on it. They've taken a culture and changed it.

People are never going to go backward. We're not going to go back to horses and buggies because of petroleum prices.

Do you see movement to red blends and rosé a revisiting of yesteryear at a different level?

WALLENBROCK:

It's a voyage of discovery. Rosés we used to talk about for the average person in America were very inexpensive and sweet. For the wine-savvy, it was professional, beautiful, dry, excellent wines. And not there has come mass appeal to it. Part of the premiumization is expansion of the consumer themselves.

For red blends, if we called them “red Burgundy,” we'd be going backward. But if we call them proprietary red-blend names, that's something Bordeaux hasn't really done. It's an expansion of the base, discovering something the wine-savvy already had.

Will there be a glut of high-end wine with a big economic downturn?

WALLENBROCK:

The big change came in 1997, when we didn't have enough wine in 1996, so we started importing. Then the perfect storm of so much plantation (of grapes) came on board.

The good news is that the U.S. is still a net importer of wine. We consume more than we produce and still have 25 to 30 percent imports. If push comes to shove, we could still make wine domestically and meet all our needs.

There might be a blip for high-end wine. When 2008 happened and the world went upside-down, there was a glut, but what did it do. In 2009 in Napa Valley the three-tier system said it would not take more wine because there was not a market for it. There was a market for it. Wine tourism, consumer direct and wine clubs became the norm.

Declassifying wine and putting it under private or second labels has happened three or four times in my career. In 1974 Mondavi introduced Bob Red and Bob White because they weren't selling all the wine. They had all this investment in the physical property but not enough cash flow to service their debt.

That's just called diversification. A company that is reliant on a single varietal, single blend $200 wine will be in a different position from a company with a $6 brand, $12 brand, $20 brand and a $50 brand.

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

CORRECTION, April 24, 2018: Cesare Mondavi's name was misspelled.

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