Wine brands must blend demand, margin to move upscale, says O'Neill Vintners & Distillers CEO
O'Neill Vintners & Distillers started 14 years ago as a producer of wine and spirits brands and in bulk for retailers and other beverage-alcohol companies. But in the past few years the Marin County-based company has been creating and acquiring its own national brands in a move upscale.
In 2016, the company purchased the 80,000-case-a-year Robert Hall Winery of Paso Robles, propelling O'Neill into the fast-growing California Central Coast premium-wine category. Two years before that was a deal with North Coast vintner Roy Cecchetti to bring his upscale labels Line 39, RedTree, Austerity, Backhouse and Exitus into the portfolio and oversee national brands.
And just prior to Cecchetti, O'Neill acquired the Camelot and Pepi brands from Jackson Family Wines. Also picked up was the Martin & Weyrich Allegro moscato brand.
In 2011, O'Neill and partners launched the Ram's Gate Winery project to produce luxury-tier wines from Sonoma County's Los Carneros appellation.
Today, O'Neill ranks No. 26 among U.S. wine companies, producing 760,000 cases a year, and proprietary brands and control labels bump that figure to 1.125 million cases, according to Wine Business Monthly.
“Premiumization” 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. Jeff O'Neill, founder and CEO of Larkspur-based O'Neill Vintners & Distillers, is set to be on a panel discussing that trend at the Journal's Wine Industry Conference in Santa Rosa on April 26 (nbbj.news/wine18).
O'Neill got into the wine business in 1980 and five years later teamed with private-equity firms to found Golden State Vintners, a Marin-based producer that eventually went public. O'Neill was CEO until The Wine Group acquired it in 2004.
He talked to the Business Journal about his company's move into $10–$20 wines, efforts to leverage large-scale production capacity to produce high-quality wines at those prices, and whether it's more profitable to create new brands or revive existing ones to balance costs and bottle prices.
Where are we in the premiumization trend?
Consumers in general are aspirational, so if they have the money, they are always going to try to upgrade to a better-quality wine. Overall, we've seen the consumer is fearless (buying wine retailing) above $10 (a bottle). Maybe not a lot above. We can provide pretty outstanding wines in the $10 to $20.
I think the train has left the station on premiumization and has a pretty good head of steam. The real question for all of us is we're hearing quite a bit of softness around the U.S. from wholesalers. You have to dig deep to determine what that is. That includes everything from regional wineries to direct-to-consumer platforms like Winc, Drinks.com and Amazon.
Everyone is picking at channels right now. If anyone is terrified in this business, it's about what the distribution channels will look like in 10 years. They are all changing.
There's no question that all the growth, generally, is above $10. Below $10 with the exception of BotaBox, Black Box and Barefoot, everything else is down. That tells you that either people are drinking less wine or they are trading up.
Generally, shipments for every single category are up slightly, call it 1 percent.
Is the growth reaching a pinnacle point of, say, $20?
It looks like it is going to keep ratcheting up. Volume growth at $20 to $25 is relatively strong as well. It's probably up 10 to 12 percent, but the base volume is not that huge.
I doubt consumption is going to increase significantly, but we're going to continue to see people move up the quality-wine chain.
When you're looking at your strategic direction, are you going to continue to diversify into a wide spectrum of price points and categories? Are you looking to target specific price points or products such as rosés, red blends, cabs or pinots?
We try to back into that decision. The question is, where is the growth, and what is the consumer doing? If you get out there and look at the consumer and deliver the best value, that means you are going to play in the rosé market, you're going to play in the oaky, butter chardonnay market. It means you're going to play in the Paso Robles red wine market. And all those can be done in the $10 to $18 range, and the quality can be outstanding.
Rather than look and see what we have, we look at what the consumer will want over the next several years. If the consumer doesn't want it, that means the retailer doesn't want it, the wholesaler doesn't want it, and we got a problem.