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Inside the C-suite: Rich Bouwer of Sonoma’s Free Flow Wines talks surge in canned wine during the pandemic, rebound for restaurants

Free Flow Wines has come a long way since founders Jordan Kivelstadt and Dan Donahoe caught the concept for a kegged-wine company after a visit to an Atlanta restaurant in 2004.

They started the company five years later in Sonoma, first by filling the bullet kegs with their own wine then transitioning to doing that for North Coast vintners. That new business model involved handling logistics for the leased containers to restaurants and bars then back for cleaning and refilling.

Demand for wine-by-the-glass programs led to expansion of the company to Napa in 2014 then back to Sonoma in a much larger facility in late 2019.

Interest from consumers for wine in cans led to expansion of that business. It was a move that proved strategic for further company revenue and serendipitous ahead of a deep dive in the restaurant business during the coronavirus pandemic.

Kivelstadt and Donahoe stepped back from day-to-day management in 2019, with Kivelstadt focusing on his own canned wine and cannabis beverage ventures. Rich Bouwer came to Free Flow as chief operating officer in 2018, after nearly two decades in the wine business, including senior positions at beverage container distributor Saxco International and major vintners Beringer and E. & J. Gallo Winery. He moved up to president of Free Flow.

In this the inaugural interview in the Business Journal’s series on North Bay top executives, we talk with Bouwer about how the pandemic resulted in a major shift in focus, operations and forecasting for the company. He explores the importance for canned wine of a new federal ruling on wine container sizes for individual sale.

How did you come to Free Flow Wines?

Rich Bouwer
Rich Bouwer

… I was with Beringer 2001–2003, and the person who was the president and CEO at the time was Walt Klenz, who is on the board here. Walt introduced me, and then separately, (longtime equity funder and vintner) Bill Price introduced me. Then I was talking to other people in the industry who said I should talk to Dan (Donahoe) and Jordan, that they're doing some interesting things. …

How has Free Flow Wines grown and evolved?

We grew at least 50% per year for seven straight years right up until COVID.

We grew from just a couple of wineries to well over 500 wine companies that we work with. We don't have our own brands. We deal with 14 of the 30 largest wine companies, as well as a couple of hundred smaller ones.

Initially, we were just wine on tap. We would be leasing the kegs to wineries that want to pour on tap at restaurants and bars. And then we also added canning services with a couple slow speed lines about three years ago.

At the end of 2019, we moved into a new, larger facility in Sonoma and put in highly automated lines for both kegging and canning, and increased our throughput pretty dramatically in the new facility. So we can handle millions of gallons of throughput, with tank storage and a cold room and high-speed lines that fills 300 cans a minute in parallel.

We put all that all that automation in just in time for COVID to shut a lot of it down. But it was great that we diversified into canning, because frankly, the wine on tap and restaurant bar trade obviously got hammered by COVID.

How much so?

Most statistics show that the entree consumption is down more than 50%. But if you take into account the pipeline effects, the actual (wine) shipments are down more than that. If you were (shipping), let's say, 100 bottles a week, and you had two months' supply out there, and then your consumption dropped to 50 bottles a week, but you still had that much (in the) pipeline, you get kind of shut off for a couple of months while the pipeline adjusts to a different level of inventory.

So our filling was down more than what consumption was. It has come back now to something more like half of pre-COVID levels. We're really encouraged to see that. We were talking with a lot of restaurant operators. It is kind of surprising us about how many conversations are going on right now, from restaurants for wine on tap and wineries that are wanting to start filling kegs again.

So is this in California, or is this in states that are to varying degrees open?

It's in various states. Certainly, places like Texas and Florida have remained more open than California. But even in places like California, some longer-term operators are thinking into the future.

And they see wine on tap specifically as providing better efficiencies for their waitstaff not having to deal with bottles, as well as better sanitation — potentially, touchless pouring.

We've also had a number of restaurants convert beer handles. Let's say, the Quackenbush restaurant had 20 beer handles. Beer in a keg only lasts 60–90 days, so they haven't been tapping 20 kegs. They convert a couple of beer handles onto wine, because the wine is good in the keg for years. We had a couple of restaurant chains convert handles from beer to wine to (adjust to) slower throughput. We're hoping those handles stick with wine.

But we've had conversations in Oregon, Washington, California — pretty much every state — and been really surprised about how much pent-up demand there appears to be for people getting back to restaurants, dining.

Operators who are thinking, "OK, after the vaccine rolls out, how big is demand going to be? And how much how much wine are we going to need?" We've been pleasantly surprised, especially over the last 30–45 days, with people thinking past the COVID crisis to what are things going to look like next May, next June, and what are we going to do now to load the pipeline with enough wine to satisfy customers. After a crisis, whether it's a war or something, there's a frenzy of people going out traveling and enjoying themselves.

But for us, it was fortunate that we diversified into canning, because the canning demand and the on-trade businesses for wine in cans has grown dramatically over the last year. It's been interesting to us about how diverse it is. A lot of mid-sized brands, people coming in with 50,000 to 200,000 cases of a brand launch.

Watch Free Flow Wines’ new kegging and canning lines in action:

It was quite a fortuitous shift that you folks did right before this happened, to be catching not only the wave of canning but also to have something to quickly switch to.

I give Jordan (Kivelstadt) credit for that. There was a fair number of people who were skeptical. I think there still are. You still see things from people saying, "Well, I don't want my wine in a can."

But the winds in the marketplace are saying that the consumers enjoy wine in a can. It's fun to have that little single serve. It's fun to have that portability, being able to take it with you to the beach or hiking and not need a corkscrew and not have to hike out the bottle. It's a fun package. And the consumer trends say it's going to continue to become a bigger part of wine.

And I'm sure you saw the TTB ruling (Dec. 29) with relaxation on what the size can be for individual sale. (The Tax & Trade Bureau published a final rule that adds 250 and 355 milliliter and other sizes to the list of standards of fill for individual sale.)

I was going to ask you about that.

We're having a lot of conversations right now with people. Let's take the 250s: They used to have to package them up in the four packs to get to 1 liter to sell. Obviously, being able to sell a 250 at a convenience store by itself is going to be really nice. We were having conversations with people about 12-ounce (355 milliliter cans) and 12-ounce slims and other sizes as well.

I would say the market is a long way from deciding what the standard for wine in a can is going to be, whether it's going to be 375s or 250s or 12-ounce slims. I think the marketing folks right now are throwing a lot of things against the wall to see what's going to stick in terms of new packaging. That is great if we have a period of a really quick innovation with a lot of new brands, a lot of exciting packaging and convert some new customers over to wine in a can. Hopefully, that's good for the whole industry.

With what you've been canning, what has been the predominance? Have they been 250s, 187s, 375s?

Up to this point it's been predominantly 250s. We filled a million cases, a million 9 liters of cans in the last 12 months directionally. Three-quarters of that has been has been 250s. So our gallonage did not decrease.

But we had planned for the year to see that increase in canning and the maintenance of the catering business. So our business changed pretty dramatically to packaged products sold retail, and the on-premise dropped much more than we expected. COVID really is a crisis of health, and people are affected their families and their loved ones are getting sick. There's been too far too much death, so you feel kind of silly talking about demand levels. But we saw that shift pretty dramatically, an 80% volume swing.

So that swing was from kegs to cans?

That's right. We expect it to come back around May, so we're getting ourselves ready. None of us knows when the vaccines are really gonna get rolled out and when people are going to feel safe. I don't know if that's going to be March or May or August. But I think when that happens, you'll just see (our volume) swing back. It looks like there'll be this surge in on-premise activity at that point.

What things have changed as far as your staffing through all this?

We had to make some tough decisions and furlough a good portion of the staff at different times, based on changes in demand. So we're pretty much getting back to normal now, because we're seeing so much demand on canning. In the July-August time frame, it was very tough to see what was going to happen.

But we've also transitioned so that almost all the office staff work from home at this point. I'm sitting in the office right now; I'm the only one in the building. Not only in wine but in other places, we're all going to ask the question of how much do we want business travel to go see people versus Skyping and Zooming? And how many people need to be in the office five days a week? We're asking ourselves the question, OK, which jobs have to be on site? How frequently do we want to see each other face to face after the vaccines are rolled out and we're not worried anymore about the virus?

What are other top challenges you're facing?

We all had extreme concerns about employee health. I had a couple employees catch COVID. Fortunately, it didn't spread internally to anybody else. It's about the protocols you put in place, whether it's people working from home or masking. We had to shut down one of our (production) lines, because we couldn't maintain safe distance between people. That was the overriding concern, even more than the economics was how do you operate safely during a pandemic.

And the second concern was changing and dropping in demand in restaurant trade and managing through that from an employee morale standpoint, from a financial standpoint. It's been not the year that we anticipated, but I'm really proud of how the employees got together and figured out how to manage their crisis.

So in speaking of management during the crisis, you said you had to darken one of your lines to maintain the social distancing. Are there are other strategies that you undertook to keep up with the canning demand?

We've installed new automated writing with a lot more throughput, but we didn't need it. Let's take the kegging. We went from five days a week, double shifts, down to three days a week, single shift. Wow. Now we're back to five days a week, and we anticipate going back to five days a week, double shift, in January.

We talked to employees that it doesn't make sense for us to go through the whole line-startup costs. Every time you start a line, you have to clean and sanitize. We'd rather start it up and run it for 12 hours, three days a week than for run it for five days a week for eight or 10 hours. It just kills you to have a brand-new facility and be running it at only three shifts a week. That's just not a great way to run a business.

This is not a normal outlook year. Normally, we spend a lot of time trying to try to forecast where we're going to be and settle our plans for customer interactions, for financial plans, for staffing based on what we think it's going to be.

And this year, specifically, you can't really forecast. So instead, we've got ourselves much more into a contingency plan. So basically, we have actions lined up and ready to go for either situation. If there is continued bad news with the virus — the more virulent part that's in the U.K. comes over here, there's more of a lockdown — what steps do we do to deal with a continued downturn?

Likewise, if the vaccine (distribution) is faster rather than slower, what are the steps we do? So our planning has become much more contingency read and react than a normal budget.

Normally, we'd be saying, here's our revenue, and I feel pretty good within certain percent that's what we're gonna do. This year, the conversations we've had with the management team is, when this happens here's what we're going to do good or bad. Just get the whole organization and have them process that and ready to take those steps out, knowing you don't know if it's going to happen at all, or if it's going to happen in February or July.

So it's a very different type of expectation planning. When do we reengage in business development and start visiting markets? When do we go back to long double shifts and six days a week? Those are all dependent on things that are completely out of our control. All we can do is monitor the news and know when we're gonna do those things.

In general, my outlook is for a much better 2021 than 2020. But as I said to the management team and the board, there's no way to know at what point we're going to be fully engaged and growing again. Is it April or July? We just don't know.

Is there any traction for aluminum bottles?

There are people asking about aluminum bottles. It's not an area focus for us. The nice thing about aluminum is that the majority of aluminum does get recycled. Conceptually, other packages are recyclable, but plastic really doesn't end up being recycled — it ends up in a landfill — and the percentage of glass that is actually recycled is lower than aluminum.

Fortunately, people have gotten used to drinking a soda water or a beer or Pepsi and and crushing the can and putting it in the recycling bin, so a large percentage of standard cans are being recycled. The aluminum bottles are kind of fun, and there's some people doing some pretty interesting brand concepts with them. We don't see enough volume there to warrant a separate filling line for that.

I guess the idea is that if you're going to crack open an aluminum wine bottle, you're most likely going to finish it and not want to reseal it.

Well, that's what I think about a 250. It's one thing to finish a (standard) 750 (milliliter) bottle, but the 250s, especially with a lower-alcohol wine, isn't that much wine.

Jeff Quackenbush covers wine, construction and real estate. Before the Business Journal, he wrote for Bay City News Service in San Francisco. He has a degree from Walla Walla University. Reach him at jquackenbush@busjrnl.com or 707-521-4256.

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