Rombauer Vineyards shows how luxury wine can raise prices in discount world

From its beginnings with an oversized production facility, Rombauer Vineyards was positioned for the future.

Similarly, the new hand at the yoke has been working to set the Napa Valley family-owned winery on a course toward success long over the horizon.

Bob Knebel, 63, was promoted to CEO in early May, when co-founder Koerner Rombauer died at 83. Knebel had been chief operating officer since 2015, but he had been helping to advise Rombauer on its next steps for 15 years before that as a member of the board of directors.

Rombauer Vineyards started making wine from its winery near St. Helena in 1982, and several years ago the winery opened a production facility for the chardonnay it’s known for near Napa County Airport.

Today, the winery produces several hundred thousand cases annually.

Knebel met Koerner Rombauer through their mutual love of aviation. Both were attending a 50th anniversary party for Napa County Airport in 1995. Knebel at the time was vice president of sales for business jet manufacturer Cessna Citation out of Wichita, Kansas. A friend recommended he try the Rombauer chardonnay wine that was being poured at the event and meet the proprietors, Koener and Joan Rombauer.

“With our mutual interest in aviation and my longtime interest in beautiful wine, we developed a nice relationship,” Knebel said.

Their friendship grew during the years shortly thereafter, when Joan Rombauer was battling pancreatic cancer. After she died in 2002 following a three-year battle, Koerner Rombauer started developing a business-succession plan, so the operation could pass to his children and grandchildren should anything happen to him.

Rombauer formed an advisory board of three, with executives from outside the wine business.

“As a family-owned business, they are very private in all aspects of their business,” Knebel said. “To maintain that level of privacy, he thought it would be good to have outside business leaders. Koener himself came from a different industry, and during 25 years (in aviation) he had associated with leaders in other industries.

He recognized that there was a cross-fertilization that could occur in business practices, hospitality, strategy, all those things that the wine ?industry in Northern California tends to focus on internally.

That looking outside the wine business is part of the secret sauce of Rombauer’s ability to be able to hold its pricing in the marketplace, he said. Looking at how other owners of luxury hospitality and consumer products brands approach marketing has been helpful.

“It hasn’t always been that way; that’s how we’ve evolved,” Knebel said. That shift has accelerated in recent years, but Koerner Rombauer laid that foundation in its infancy.

“He was focused on making the best wines we could in a style that was appealing to a broader audience of people who knew something of wine but also to people knew a great deal about wine,” Knebel said.

Also equally important was the authenticity of the story behind the brand. For it to be a family operation, the family would have to be involved in the business and paying attention to how consumers interacted with the brand.

That was partly done through the design and operation of the hospitality center at the main winery on the 40-acre knoll-top property Koerner and Joan Rombauer purchased near St. Helena in 1972. But the family also went to the consumer and trade customer, with Koerner and his son, Koerner III aka K.R., logging miles of travel throughout the country to present the wines. Joan and their daughter, Sheana, also made trips.

That worked well with Koerner Rombauer’s jovial and larger-than-life personality and love for the gourmet, Knebel said.

“We weren’t focused on the next new fad on developing styles,” he said. “We were focused on varietal purity, making the purest expressions of any variety we were involved with and polishing them every year. That focus helped us become known as a very reliable, committed, serious provider of wines at a favorable price for the quality.”

The stalwart pricing strategy for Rombauer wines amid the pressure for discounting during the Great Recession came out of planning. In 2008–2009, it became challenging to sell high-priced wines, and owners of notable brands started moving inventory by methods such as flash sales and relabeling as lower-priced retailer private labels.

Though sales growth largely returned for luxury wine producers in the North Coast a few years after, the pressure from retailers and wholesalers against moving up pricing has been a lingering challenge. That pressure has been building, with increasing costs of grapes and labor plus the entry of more vintners into faster-selling higher-priced segments.

Amazingly, Rombauer sales grew slightly during the Great Recession, even without resorting to discounting and special trade-channel programs to move inventory.

“We’ve never been focused on growth for growth’s sake,” Knebel said. “We’ve been chasing demand since the mid-’90s. We’ve grown very carefully.”

Growth has been controlled by keeping production behind the demand curve and being able to throttle output to avoid an inventory surplus that would increase pressure to discount.

“When you do that, you start down the road toward commoditization,” Knebel said. “You slide into a category where you look like others that manage volume growth by pricing and incentives. That we just won’t do.”

Rombauer production now is eight times what it was in 1998, but it has been steady growth each year. As long as it fit the quality targets, Rombauer would invest in more advanced process management, vineyard development and purchase of quality fruit outside the estate acreage to increase volume. Attention to the early years of vines can help turn what normally would be a 25-year life for a vineyard into a 50-year vineyard, Knebel said.

Currently, half of the grapes going into Rombauer wines are from the estate vineyards. Most of the rest is from long-term purchase contracts for grapes grown in Los Carneros, Napa Valley and Sierra Foothills appellations, with the latter supplying most of the vintner’s zinfandel fruit.

The wine business has been facing significant upward movement in recent years in the price of North Coast grapes, particularly for hot-selling Napa Valley cabernet sauvignon.

Last year, the average price for Napa County’s top winegrape blew through $7,000-a-ton for the first time, jumping 9.78 percent from 2016. About 66,733 tons of Napa County cab were harvested from 20,953 acres and sold at an average price of $7,498 per ton, according to the Napa County Agricultural Commissioner’s Office. The average price for Napa cab in 2017 was nearly 17 percent above the five-year average, per analysis of California Grape Crush Report data.

The rise in costs has led Rombauer to raise prices in recent years, but pricing continues to be in the mid-point for the peer group for certain wines, Knebel said.

But Rombauer also is addressing rising costs by making investments in production technology over the past 25 years. The goal has been to plan ahead for later capacity and process-management needs, Knebel said.

“It’s really about how we maximize our efficiency within those processes,” he said.

But a key point of planning for price increases is consumer perception.

“We ended being so hesitant that our peers in certain categories had surpassed us by quite a lot,” Knebel said. “It left us in a rather odd position, from a pricing point of view. People who didn’t know our brand weren’t sure whether this was a very expensive cheap wine or an extraordinary value for a luxury wine.”

So in the past two years, the winery has been on an education campaign to reinforce that, yes, Rombauer means “uncompromising” luxury quality and is priced accordingly. Last summer, the price of Rombauer’s biggest attention-getter since the early 1990s, Carneros chardonnay, went up a couple of dollars a bottle. The suggested retail price for the latest vintage, 2016, is $38 a bottle. That 5 percent bump was the first increase for that wine in three years.

Part of the brand-strengthening campaign in the past couple of years has included carefully working with wholesalers and retailers on pricing.

“It was a very purposeful allocation of product to make sure that our pricing at retail was reflective of the wine put in the bottle,” Knebel said. “It’s all about brand stewardship for us right now. At this stage, we’re production-limited, but we’ll continue look at whether the market demands it to increase production.”

That allocation includes placing the right wines in the stores that have the best fit.

“We will not let this brand become a commodity,” Knebel said.

But with this tighter focus on how the wines are allocated at the retail level has come with risk. A shift in where wines are predominantly sold and where consumers interested in Rombauer are looking for them has put the spotlight on chain grocery stores. Some distributors have discounted Rombauer wines deeply as a way to tap into brand demand.

“That started to cause a bit of chaos in the pricing, so we have taken steps to more carefully allocate and discuss what our standards are in brand stewardship,” Knebel said. “It’s making sure people are honoring the brand and the history of the family.”

In the early days of the winery, Rombauer was placed mainly in fine-wine shops and white-tablecloth restaurants.

But in the last 15–20 years, chain grocery and chain wine shops emerged as more dominant players in fine wine, as they upscaled their beverage and food selections to match ever-more-refined consumer tastes and ever-more-hurried lifestyles in search of convenience.

“This had a very significant impact on us and fine-wine shops, given that wine, beer and spirits are available in more places,” Knebel said. “Our notion of where we should be had to change as well.”

So Rombauer had to look for stores that would treat the brand with respect in shelf placement, pricing, how staff talk about the wines and effective display of wines of the same type, such as variety.

“You don’t need a consultant in the aisle to help you decide what type of cereal to pick out or what type of diapers to buy,” he said. “Some with what I’d call wine shops within a store are realizing that they can command more margin and sell more product if they have the consulting expertise in the store.”

Contact Jeff Quackenbush at jquackenbush@busjrnl.com or 707-521-4256.