Like Talking To Bill Walsh About Football

I got to spend some time with a hero of mine recently. GCN presented the New California 100 conference in Davis last month, which culminated in a banquet to honor the central valley's top 100 privately-held companies, and to induct the inaugural class of the New California Hall of Fame. As part of that awards ceremony, I gave the "Legacy Market Leadership" award to Fred Franzia, the founder of Bronco Wine Company, the fourth largest winery in the US, shipping more than 20 million cases per year.

The best part, though, was getting to enjoy his company during the dinner, and listen to some of his observations about the winery industry in general.

For those who don't know, Bronco made a pretty big splash a few years back with the introduction of the Charles Shaw Winery brand, the first so-called "super value" wine. You may know it by its more popular sobriquet "Two-Buck Chuck". This is the wine distributed exclusively by Trader Joe's for $1.99 per bottle in the western states.

Someone asked Fred one day "how can you sell a great wine for only $2 a bottle?" He replied "I only make a dollar a case, but I sell a million cases a year. You do the math." He's also on record as saying "No bottle of wine is worth more than ten dollars." This may be hyperbolic, but he may have a point.

I love wine, and I love bargains. The truth is that making good wine is not significantly differentiated from making good paint or making good motor fuel. It's process manufacturing, and assuming you use good ingredients, pay attention to the process, and strive for quality, you should be able to make a good product. Franzia understands this.

The wine industry is actually three separate lines of business; agriculture, process manufacturing, and marketing. Bronco has innovated aggressively in all three areas. For one thing, Bronco has nearly 40,000 acres under viticultivation (and adding a section a year), making it the largest winegrape grower in the world. Secondly, Bronco has streamlined the production process, squeezing cost out of every step. Bronco is building the first new wine bottle plant in decades, further consolidating their vertical integration and controlling both cost and quality for maximum value to the customer.

Finally, Bronco has broken the monopoly of the three-tiered distribution model, which is critical not only for Bronco, but for the industry as a whole. Consider this; a ton of grapes costing $2000 per ton will produce a bottle of wine that retails for around $20. The retailer takes 40-45% on sell, the distributor take 20-25%, and after the cost of goods sold, the winemaker pockets about $3. If he sells that bottle to a customer in his tasting room for "10% off list", he pockets $15.

By negotiating directly with Trader Joe's to carry the Charles Shaw product, Bronco eliminated a critical factor contributing to the high cost of wine.

So getting the chance to sit with Fred Franzia and listen to him talk about his experiences, the history of his family (producing wines in California for more than a century), and his insights into delivering excellent quality at a substantial discount to the prevailing pricing in the industry was a memorable experience.

There are some things no man should know about making wine; Fred Franzia knows all of them.