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Duckhorn Wine CEO: Planning for luxury market after boomers, coping with new Napa County regulations

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Wine business insights

These key players on the California North and Central coasts and in Oregon talk about what’s coming for the industry and layout of the marketplace now.

David Duncan, proprietor, chairman and CEO, Silver Oaks Cellars

Corey Beck, CEO and winemaking chief, Francis Ford Coppola Winery

Bob Torkelson, president and CEO, Trinchero Family Estates

Alex Ryan, president and CEO, Duckhorn Wine Company

Dan Baker, executive vice president, Korbel

Michelle Benvenuto, executive director, Winegrowers of Napa County

Ron Denner, Denner Vineyards

Cam Baker, proprietor, Larkmead Vineyards

Tom Bonomi, president and CEO, Price Family Vineyards & Winery

Steven W. Spadarotto, Far Niente Wine Estates

Sarah House, director and senior economist, Wells Fargo

They are set to speak at North Bay Business Journal’s Wine Industry Conference in Santa Rosa on April 18.

Napa Valley-based Duckhorn Wine Company makes ultrapremium and luxury brands Decoy, Duckhorn, Goldeneye, Paraduxx, Migration, Canvasback from Washington state and Calera from the California Central Coast.

The company owns or leases 800 acres of vineyards and produces over 800,000 cases a year.

In 1981, Alex Ryan came to Duckhorn and worked his way up to president and CEO in 2005. Private-equity firm GI Partners acquired Duckhorn two years later. In 2016, another private-equity firm, TSG Consumer Partners of San Francisco, became the new owner.

On the "hot topics" panel at the Business Journal's Wine Industry Conference on Thursday, Ryan talked with the Journal about the forces propelling and hindering the business, including the challenge of marketing to the next generation and the prickly matter of whether it's economical for the industry to operate in Napa County with new regulations this year on use permits and vineyards in watershed areas.

What are the biggest trends for luxury wine, especially in the North Coast?

The cannabis trend as it relates to the wine or the wine consumer, Duckhorn is gonna stay away from that. I don’t want to mix cannabis and THC with alcohol. It exists out there, and it might be a consumer trend, but it won’t be any part of our company.

The most exciting trend will be a function of economics at some level: new, underappreciated, unknown appellations and winegrowing regions that, honestly, compared to California, compared to Napa, produce really interesting wines at really quite value prices against Napa Valley.

I call it the craft beer craze. The West Coast of the United States is producing so many great wines from many small, underappreciated or just under-understood appellations. They’re going to gain more favor, if you assume Napa and Sonoma are pretty expensive.

The other trend is the resident-industry interface issues that we have to deal with here in Napa and Sonoma counties. The experiential need for the consumer to continue to get closer to and get involved with their favorite vintners is going to grow: demands on local vendors to produce experiential marketing tools, experiences at the wineries, customer engagement, and all those things that come along with that.

That’s a function of the way the business moves and intersecting with the new crop of consumers: the millennials and the Generation X. These people want experiences and their wine — not just the wine. That will demand new marketing, sales marketing techniques.

What sales and marketing innovations has Duckhorn implemented to tap further into that trend?

Integrating your digital experience is key. You’ve got to be able to talk to your consumer the way they want to be talked to: interactive, fancy, real-time digital experiences. Whether it’s on your iPad, phone or computer or however you touch digital, integrating those with our somewhat traditional, boring brick-and-mortar business is key. Those innovations happen quickly these days.

Make sure you have all the right visual content that excites people — pictures and videos. Make sure your social sites are up to the demands of the consumer. These are fast-moving, ever-evolving issues. Tying digital in with the real-world experience is where we’re gonna put a lot of our focus.

What have you noticed in shifting demographics for your brands?

I don’t have it broken down with any good numbers. We believe our customer base is shifting from baby boomers. Baby boomers are aging, they (have) got a lot of money, they’ve got full cellars, they're probably not buying as much.

Wine business insights

These key players on the California North and Central coasts and in Oregon talk about what’s coming for the industry and layout of the marketplace now.

David Duncan, proprietor, chairman and CEO, Silver Oaks Cellars

Corey Beck, CEO and winemaking chief, Francis Ford Coppola Winery

Bob Torkelson, president and CEO, Trinchero Family Estates

Alex Ryan, president and CEO, Duckhorn Wine Company

Dan Baker, executive vice president, Korbel

Michelle Benvenuto, executive director, Winegrowers of Napa County

Ron Denner, Denner Vineyards

Cam Baker, proprietor, Larkmead Vineyards

Tom Bonomi, president and CEO, Price Family Vineyards & Winery

Steven W. Spadarotto, Far Niente Wine Estates

Sarah House, director and senior economist, Wells Fargo

They are set to speak at North Bay Business Journal’s Wine Industry Conference in Santa Rosa on April 18.

And we don’t know how they train their kids to enjoy wine.

The younger generation, whether a Gen X or millennial or somewhere else in there, are getting more selective. They’re looking for potentially smaller amounts of more authentic experiences, authentic wines. The next generations will be wine drinkers, but we believe they’re going to be much more selective of their brands and the wines they follow. It’s not just based on ratings or flavor quality. It’s based on flavor ratings and quality — and digital experience and physical experience.

Some reports recently talked about visitors through tasting rooms changing the time they spend there and the volume of visitors. What are you noticing?

The same thing. We’re seeing more lifestyle-focused visitors. They want to come to Duckhorn, but they also want to come to Duckhorn to taste wines and have the Napa Valley experience. It’s a whole package. It’s not just a wine tasting. Instead of going to four wineries a day, now you go to two and spend more time at each. People coming here are willing to pay a little bit more for wine experience and spending more time.

What they want now are the special wines. One of the key pieces in the experience now is tasting-room-only wines. Can I try something here that my buddy back in St. Louis can’t get or is not sold in Safeway? That forces us to source out and make a small amount of very unique wines that are sold only direct to consumer, primarily in the tasting rooms.

Does “source out” mean taking your existing operations and carving them down to make not just small lots but micro lots?

It makes it expensive to make wine, but it’s part of winemaking. We’re asking a lot out of our winemakers to make super-special, high-quality, small amounts of something that’s real and authentic. We can offer special wine from the vineyard where the customers are sitting at the winery. Or some neat little parcel on top of the mountain that has a deep, rich, historical story.

People want more than just the wine. They want to become part of the story, part of the brand. Engagement with knowledgeable, passionate salespeople and a bottle of wine with a unique label on it you cannot get elsewhere, with the story and our history behind it. These are must-haves in the in your deck of cards when you’re working with high-end customers today. If we’re selling $12-$15 bottles wine, it’d be a different discussion. But when you’re selling $45, $50, $60, $70, $100 bottles of wine, the engagement factor is much different in what they expect.

So with these expectations of modern consumers, and especially at the at the high end of the spectrum, how has Duckhorn approached the movement in Napa County toward realigning use permits to actual operations, the increasing requirements for hillside vineyards?

As it relates to vineyard development, it’s essentially taken a huge category of people like us out of the vineyard-development business. It’s just not sustainable anymore to do a lot of new vineyard development. So we were not in the vineyard-purchasing or vineyard-development business anymore in Napa County.

On a business basis, is makes it a little bit harder. And there’s a classic lag between industry’s need to change for the customer and the regulators’ — Napa County (and) the other entities — understanding and ability to react to business changes. It’s not a good place right now.

The other counties where we do business have a much more diversified business platform, which is great. Napa County, luckily or unluckily, is kind of a monoculture. We have to recognize that. So you don’t get a lot of flexibility when you are trying to regulate your only industry. If you bet wrong, your bet the ranch. If you bet right, that’s good. But Napa County is in a very precarious place in that regard.

I heard a lot from the industry about the March 29 county deadline for voluntary use permit updates.

They want to clean up the use-permit processes and try and maybe improve on the processes. That’s great. So they said to the industry, here’s a deadline that moves the ball forward and after this deadline, a different set of playing rules.

So I just saw a note about 100 new applications. It will be years before we get any attention. OK, Napa County, you created this deadline thing, which hopefully is meaningful and helpful for the county, you clearly staffed up with the right qualified people to manage this very rare resource, the use permits in Napa County, and you’re ready to tackle these things. So these business operators can keep doing what they need to do.

What, in fact, will happen is some of these wineries could be stuck in some strange limbo for years, without qualified support from their county. It’s really going to be a mess to unwind. Business people are gonna slowly ask themselves, can I make money in Napa County? Does it make sense?

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