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Trinchero Family Estates CEO: Wine-marketing shifts needed as grocery slows, boomers gray

Wine Industry Conference 2018

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

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Details on the conference: nbbj.news/wine18

Trinchero Family Estates grew over its seven decades in Napa Valley to become the fourth-largest wine producer in the U.S. via the sub-$10-a-bottle brand Sutter Home. But the company has been focusing in recent years on upscale brands.

The family bought Sutter Home Winery in 1947, and a fluke “stuck” fermentation of zinfandel led to a sweet rosé released as “white zinfandel” in 1975. That wine became a top-selling premium wine by 1989.

In the past two decades, the family has been moving brands upscale. The Ménage à Trois brand was released in 2004 with wines retailing for over $10, followed by the namesake Trinchero Napa Valley brand with the inaugural 2007 vintage. In 2016, the Trincheroes purchased luxury-tier brands Mason Cellars and Pomelo and partnered with Karen Cakebread's Ziata Wines. Last year, a partnership was forged with Neyer Vineyards in Napa Valley to make wines retailing for $25–$100.

The company imports Angove Wines from Australia, Doña Paula Wines from Argentina, Carmen and the Wave Wines from Chile.

Bob Torkelson last year was promoted to president and CEO of St. Helena-based Trinchero Family Estates, as Roger Trinchero retired. Including private-label wines, the company produces about four dozen brands, totaling the equivalent of 19.3 million cases last year.

Torkelson is set to be on a panel discussing “premiumization” at the Journal's Wine Industry Conference in Santa Rosa on April 26 (nbbj.news/wine18). That and “trading up” have been buzzwords in the wine business in the past several years, reflecting a trend in U.S. wine sales toward faster growth a higher price levels, particularly more than $10 a bottle.

In the following interview, Torkelson talked to the Business Journal about his company's strategy in coaxing millennials and Gen Xers to replace baby boomers as the primary buyers of upscale wines. Toward that goal, the company last year launched a millennial-oriented wine, Australian red blend Hopes End.

Does the premiumization trend in the wine business still have legs to it?

BOB TORKELSON:

Although the numbers seem to be moderating a bit, I still think there is opportunity in terms of the way the consumer is reacting. There are challenges, but if the industry is intelligent in the way we are reacting then we can look at where the opportunities are going to be. If we have an approach to bringing younger consumers into higher-priced categories, we are going to be in really good shape.

Even as sales level off, it's a big opportunity for those of us who have portfolios that can still benefit from more diversification.

It will be important for us as an industry to figure out how we will bring younger consumers along with us. Think about who is still consuming premium wines today and who really drove the premiumization trend, it is generally baby boomers. It's for us to find a way to connect with younger consumers - whether we call them millennials or Gen X - and get their more engaged in premiumization. How do we get them to appreciate more quality-crafted wines?

Is the need to reach younger consumers playing into your creation of brands or selection of imports?

TORKELSON:

Absolutely. That is driving a lot of our strategy on what's in the portfolio - creating a way for consumers to enjoy an adventure around the world. Whether it's a malbec from Argentina or an Italian prosecco, those seem to be the categories that are driving the most interest from younger folks.

It's market by market. Along the East Coast, there is a sizable market for Old World wines, and we have items in our portfolio for that.

Having a diverse portfolio of authentic brands will be really important for all of us in the future.

Have recent deals you've done in co-branding or co-production of labels for celebrities played into this at all?

TORKELSON:

Some. We try to be thoughtful. Celebrity brands can be a double-edged sword. Our most enduring celebrity partnership has been with the Paul Newman Foundation, and though Paul is gone, they continue to do good work with the Newman's Own group for children. That for us was not so much a celebrity deal as it was to give back.

What have you noticed in movement of consumers between different price points?

TORKELSON:

We see people at the entry level who are moving into different package sizes. We see migration from large-sized glass (bottles) - 1.5-, 3-, 4-liter glass - into premium box wine. Portability and convenience are important for those folks.

As you start moving up the price ladder, you see more interest in the over-$10 category, where numbers are positive and are not growing as they once were but is still a lot of business there. As you go up the pyramid on price, you see a good amount of people trading up and good deal of life north of $15. Even though it's a smaller category, you are still seeing some positive trends.

Wine Industry Conference 2018

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

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Details on the conference: nbbj.news/wine18

You're seeing a continuation in the numbers we've seen for the past four of five years, although they are starting to moderate. That's third-party data from Nielsen, which don't hold into account people changing their behavior around direct-to-consumer (sales channels), which is difficult to capture. I think there is more hope there than meets the eye if you are just studying Nielsen or IRI data.

How much of a play does your company have in DTC?

TORKELSON:

We're not a huge player in direct to consumer, because we have a portfolio that is well-distributed. But we recognize that the consumer's behavior is changing, and we're certainly keen to evolve with the consumer.

What's happening with on-premises sales versus retail?

TORKELSON:

We still see opportunity to grow. Some of the more casual restaurants, the national chains, are suffering a bit. You can see that in overall stock price and earnings, in companies like Darden that have more entry-level clientele.

You still see good activity in upper-end white-tablecloth restaurants. Wine is certainly a key element in those restaurants, a big part of what those establishments present to the consumer. So we still see good opportunity there.

By-the-glass activity is moving north. There used to be a big barrier at $10. We've pushed through that now, so a $15 glass of wine is not out of the norm anymore. You see some trade-up there.

More restaurateurs are becoming more thoughtful as it relates to their pricing strategy. Typically, it was a huge mark-up, and now some restaurants are moderating it a bit to encourage people to be more adventurous.

Has there been a significant change in on-premises mark-up?

TORKELSON:

I wouldn't say significant, and it's not across the board. But you see some operators who are not working from a formula anymore and being more thoughtful in what they select to mark up.

Not just the two or three times retail price it once was?

TORKELSON:

That's typically the formula, but you have some outliers at both ends. Now there is a move afoot to express diversity and value in their offerings.

What are key players in your portfolio for on-premises sales?

TORKELSON:

Trinchero Napa Valley is our flagship in that world. Below that we have Napa Cellars that does quite well in on premise(s) and premium wine shops. Joel Gott sits tall in independent retailers through white-tablecloth (restaurants), good value for price.

What is happening with chain retail, especially in retail?

TORKELSON:

You start to see foot traffic in national retailers has come down a bit - fewer trips to the store, smaller market baskets when people are ringing out. You see a lot more impact with national grocers, with consumers figuring out how they want to act in those accounts, whether it's click and pick up, or have an Amazon deliver all the paper products to your home then shop in the store only for fresh things.

There was a traditional shopping pattern we all got used to when national supermarkets got going for 40 years, and now it is has been disrupted.

Younger people have become more comfortable using technology to shop, and we have seen an impact on wine sales. Wine is a very impulsive item. At times, people walking through a food store hadn't intended to purchase wine but they see a display and are motivated by it, or they remember they want to serve wine with an event coming up. Some of that impulse that existed in the category is missing when shopping trips are down.

Have there been changes in your marketing approach to address these changes in consumer behavior?

TORKELSON:

Yeah, we're looking more at where we're trying to connect and communicate with the consumer. We're investing more in digital. We've allocated more of our marketing budget toward that, because we understand that there is a 365-day, 24/7 conversation going on with consumers via technology. We need to be thoughtful about our share of voice there.

Are you changing your approach to the three-tier system, with the changes in the scale of wholesalers?

TORKELSON:

We're pretty well diversified. We don't have one particular wholesaler across the nation we do business with exclusively, as some have elected to do. We believe that the wholesaler that can be best represent us is a market-by-market decision.

Consolidation has made it more difficult for a broad portfolio. You have fewer and fewer options. Thankfully for us, we do have some scope and some scale for our portfolio, so we can get some attention that some smaller operators couldn't have.

Are you deploying more of your marketing staff in key markets?

TORKELSON:

Yeah, we've added an awful lot of labor across the country, because we believe we can tell the story. Certainly in the on-premise(s) trade, it is certainly more difficult to rely on the wholesaler to tell your story, so having resources so we can approach the market with the wholesaler.

We overlay that with trying to create a dialogue with the consumer through digital. You create a place for the consumer to learn. The web is so powerful, and people are looking for answers to things on their computers and phones. We want to be there to provide intelligent solutions.

The Trincheros for 70 years have had the mantra that you find out what the consumer wants, then you find a way to get it to them. For that now, it's about taking a leadership role in technology to provide answers in different ways.

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

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