New Decade Brings New Challenges
While the job market remains robust, consumer confidence is high, and the average value of wines sold continues to increase, slower growth feels like slower times to many.
The big question for the wine industry entering 2020 — as it has been for the past couple of years — is what’s next and, just as important, when will it happen?
Executives with several of the industry’s largest producers and those with high-performing brands told the Wine Analytics Report they expected the wine business to hold steady in the coming year, as they didn’t expect premiumization to end as long as the U.S. economy remains robust. Mindful of protecting their existing margins and brands, none of them said they were considering cutting prices this year to boost overall sales or clear out inventory.
As the second decade of the 21st century begins, the industry faces a mix of challenges it has seen in the past and some that are new. Tariffs and ongoing international trade disputes pose a huge risk to the trade. Younger consumers don’t appear to be following the consumption habits of their parents and have been quick to embrace new products such as hard seltzers or are instead eschewing alcohol altogether. Direct-to-consumer sales are still promising but not as easy as in the previous decade, while a route to the wholesale market is even harder to find.
Jon Moramarco, managing partner for bw166, noted that growth in wine sales — as measured by cases — has increased in step with the legal drinking age population. The wine market has effectively matured, reaching a point where it reflects the tastes of the population at large. Rather than expecting sales growth, wineries will need to lean into the current market and figure out what people’s tastes are. “It’s slow growth, it’s a competitive marketplace,” he said. “People have to work smart and figure out how to take market share. There’s opportunities out there, but it’s not as easy as it was.”
Slower growth shouldn’t stoke fears of a recession, he explained.
“People are feeling the pain that it’s not growing as fast,” he said. “If we regress to the mean of basically 1% growth, if wines can’t take share from other categories, unfortunately every producer is going to have to look at how they take share from within the segment they compete in. … That just means there’s going to be some winners and more losers.”
A recession may mean even more losers than in the current environment, but this will redouble the need for wineries to focus on the available opportunities. “When you … look at actual volume shift and consumer spending,” Moramarco said, “the beverage alcohol category over time is actually fairly recession-resistant.”
Consumers may spend less, but they’re still buying. The challenge for producers is figuring out what they want to buy, and at what price.
The rise of sober-minded consumers, as well as hard seltzers and other so-called healthy alternatives, shows that consumer tastes are shifting. One of the key growth areas Moramarco noted in the data for packaged imports is the rise not just of sparkling wines, but also coolers and other wine-based products labeled as including wine. These may get consumers to think about wine itself and eventually gravitate in the direction of traditional offerings.
But don’t count on all of them pairing high-end Napa Valley Cabernet Sauvignon with meals. With all the opinions swirling around how millennials are disrupting the U.S. wine market, Moramarco cautioned against treating them as a single homogenous group. Some may be disruptive, others are conservative, and no one assessment can be made of their role in the market. Moreover, individual members are, by choice or circumstance, more comfortable moving at their own pace through key moments such as marrying, starting a family, buying a home and paying off college debt. “It’s such a diverse population, that drawing straight lines is ridiculous,” he said. “I actually think the industry needs to … (be) really having the discussions as an industry, where is the targeted consumer base that provides opportunity.”
The same principles can be applied to the market as a whole, the diversity of which millennials reflect. Homing in on opportunities means identifying ways to serve members of older, more conservative age groups, as well as the younger, more culturally diverse demographic shaping the nation. Some are from cultures in which wine isn’t a traditional drink; awareness of and access to a greater range of cuisines is also shifting which wines are in demand and how people are drinking them.
Spirits lead growth in beverage alcohol
Reaching a broad swath of consumers as well as specific groups is something the spirits industry has done remarkably well and a major reason why spirits have outpaced beer and wine by sales value and volume in nearly every year since 2016. According to Nielsen, the entire spirits category grew by 5.4% in total value and 3% in volume in 2019. In the same period, wine grew by just 1.4% in value and declined 1.6% by volume.
“The gap between spirits and everything else keeps growing,” said Danny Brager, senior vice president of Nielsen’s beverage alcohol and cannabis practices. He said spirit producers have done an excellent job of offering something to nearly all consumers. This has helped keep traditional consumers loyal while also attracting new ones from a broad swath of demographic groups and at all levels of the market. “I can’t say that too much about wine.”
Brager said Nielsen’s data — and data from external sources — are telling the same story. “Everything is saying the market is slowing down and everyone is buying into it,” he said. “Everyone is concerned about demand slowing and supply needing to adjust. That definitely is the big picture.”
The bright spots for the wine industry continue to be sparkling wine — both Prosecco and U.S. bubbles — which continues to see strong sales in both the on- and off-premise sectors and the latest generation of ready-to-drink wine cocktails. One producer, BuzzBalls, has a wine-based cocktail on Nielsen’s list of the top 25 off-premise brands for sales growth. (See the entire list in this month’s Wine Industry Metrics section.)
According to surveys by Nielsen CGA, which tracks on-premise spending, millennials are more likely than older generations to go out to eat and drink and do so at a broader range of venues, running from the traditional to the novel, such as food trucks and tiki bars.
“We tend to still talk about wine and food and talk about traditional food styles,” Moramarco said. “When you look at how people are eating today, and what’s going on with noodle shops and sushi and other foods that have not traditionally been thought of as foods that you have wine with, the wine industry needs to start looking at it differently.”
The shifts will play into how producers manage future grape supply and, in turn, the flow of wine to market. While all signs point to rising bottle prices (bw166 data indicate an average bottle price through all channels of $10.98 in 2019), lower sales volumes underscore a more discerning customer base.
This may be best exemplified in Constellation Brands’ bid to sell multiple lower-priced wine brands to E. & J. Gallo Winery, a deal announced last April and now set to close by the end of February. While several similar moves across the industry underscore the weakness of brands selling for $10 a bottle or less, divestment of key brands by Constellation sent shock waves through the industry because of the reach of the two companies. The deal involves 22 million cases of wine, including 550,000 associated with the New Zealand-based brand Nobilo. Any move to address the market performance of the U.S. brands will be felt in every state.
The delay in closing the deal gave observers a chance to watch the response of the retail market, as distributors had minimal incentive to promote the brands. Consumers, effectively, could access the wines but with few enticements. This left them to choose for themselves, and the growth in sales of wines priced $15 and up bore witness. According to Nielsen data for the 52 weeks ending Dec. 28, sales of wines in glass priced $11 and up increased 5% while lower-priced wines – which account for 55% of the category’s total sales value – fell by the same percentage.
Most observers don’t expect tariffs on European wines, if increased to 100%, to help matters. Several submissions to federal trade officials have warned of widespread job losses if tariffs take effect, as consumers balk at paying higher prices. Since the new round of tariffs would include bulk wines, the prospect of some producers importing wines in bulk to evade the tariffs doesn’t seem realistic. Since wines from Europe have few if any substitutes in the U.S., these sales would be an irreplaceable and direct loss to the industry.
A decision regarding the tariffs hadn’t been announced by the time of publication. Moramarco is cautious about forecasting the impact tariffs might have. Data from the last round, implemented in October, is too minimal to draw firm conclusions.
“My own belief is that it’s unpredictable what will happen,” he said. “Suppliers, importers, distributors can’t eat those kinds of tariff rates, so you would either have to see prices go up, but I actually believe that (before) you see prices go up, you’ll see retailers move away from those products.”
Moreover, tariffs would complicate an already challenging export market. U.S. wines tend to be more expensive overseas when the dollar is strong, as it is now, and retaliatory duties would add to the purchase price in Europe, currently the single largest export market. While a new trade deal with Canada, which includes provisions for greater access to store shelves in that country, is positive, there are simply too many obstacles to trade with Asia and Europe (not to mention the Brexit wild card, now set to be played Jan. 31), and producers are best advised to look homeward.
Confidence in the next generation
Mark Koppen, vice president of marketing for C. Mondavi & Family in Napa Valley, said that as long as the U.S. continues to see strong economic growth, he expects consumers to continue to trade up, even younger consumers. “We’re seeing it right now with Generation X. Twenty years ago we were worried Generation X would never be a wine-drinking generation,” he said. “I have no doubt the same will be true for millennials.”
To take advantage of the ongoing move toward premium wines, Koppen said the company expanded its range of limited-production, vineyard-designate wines offered just to wine club members and visitors to the renovated Charles Krug tasting room in St. Helena, Calif. These moves help capture dollars on the direct-to-consumer end of the market, but C. Mondavi, which produces around 1.5 million cases a year, is also looking to capitalize on the lower price tiers of the market.
Koppen said the company adjusted how it farms the roughly 2,000 acres of vineyards it owns in the Dunnigan Hills AVA, which is in the northern interior of California. These vineyards have supplied the company’s CK Mondavi wines, which are nationally distributed and retail for $7.99-$9.99 per bottle.
This year, the company launched a new brand, Flat Top, that will be supplied from the same vineyard but is priced in the $13-$15 range. To elevate the quality of the wines, Koppen said, yields were reduced in the vineyard, a portion of the Chardonnay was barrel-fermented, and the reds received an enhanced oak regimen.
Today’s youngest drinking generation may be more brand-promiscuous that previous ones, but Koppen said as they mature into regular wine drinkers their overall consumption will help keep wine sales stable in the long run. Koppen also likened the current hard-seltzer boom to that of wine coolers or other fads that will soon reach its height of popularity and begin to fade.
Mondavi considered a wine-in-a-can brand, but Koppen said the company’s distributors strongly urged against it, as that segment of the market is quite competitive and stores are running out of shelf space to display all the new can brands. He said cans will likely be dominated by two to three wine companies in the next couple of years.
Koppen said he is concerned about the wider effects of higher tariffs on wines traded between the U.S. and Europe, even if such tariffs could possibly benefit C. Mondavi in the short term, because of long-lasting damage to wholesalers and importers throughout the U.S. “In a sense we’re pretty optimistic, but on the other hand we have these huge tariffs hanging over our heads, and no one knows what’s going to happen there,” he said. “That’s not good for anyone. We’d rather see the whole industry grow as a group.”
DtC and wholesale growth
Daou Family Estates in Paso Robles, Calif., was founded in 2007 by brothers Daniel and Georges Daou, who had previously made a fortune in the health-care industry. The winery, which focuses on producing estate Cabernet Sauvignon from the Adelaida Hills District of Paso, has thrived through DtC but has also been a fast-growing brand in the wholesale market.
President Neb Lukic said the winery’s success has come from investing in quality from the vineyard to the point of sale. According to the Wines Vines Analytics database, Daou produces around 400,000 cases a year, although Lukic would not confirm current case production. He said the winery’s sales overall have improved 62% in the past year, and the flagship brand Soul of a Lion is up 200%.
Focusing on quality and brand messaging has been instrumental to the winery’s sales growth, Lukic said, not just premiumization. “This is the reason we’re seeing success,” he said. “It’s not that there’s just a trend. If that were true, we would probably be declining as our competitors but we’re not, we’re far exceeding our competitors’ growth.”
While relatively small, Daou does have an export program that has tripled in size in recent years, and Lukic said he was not too worried that tariffs would curtail future growth. He added he was just about to leave on a sales trip to Canada to support the winery’s recent placement in Liquor Control Board of Ontario (LCBO) stores.
The winery recently acquired an adjacent 250-acre property with 88 acres of vines it has ripped out and will replant and an 80-acre parcel it will soon develop into vineyards. Lukic said the company has also purchased a historic property in downtown Paso Robles and has plans to convert that space into offices as well as a tasting room and restaurant. “We love Paso, so we’re going to continue to promote the region,” Lukic said.
‘The tide is not rising anymore’
The next three to five years could be pretty challenging for the wine industry, said Pat DeLong, a 25-year veteran of the wine business who launched the consultancy group Azur Associates.
DeLong said the new venture, based in Napa, Calif., will provide clients with the data and expertise to take their business to the next stage of growth or to determine what that next stage should be. A partnership with Cascadia Capital in Seattle taps a source of capital for mergers and acquisitions.
He said the industry has changed and what has worked for the past decade will not in the coming one. “The wine industry in particular has been guilty for not paying attention to actual consumer trends, and that’s not acceptable anymore,” he said. “The rising tide used to lift all boats, and now we know those days are over and the tide is not rising anymore. We know there will be winners and losers.”
Wineries have to think hard about strategy and where they fit in the overall industry. He said it’s challenging to find success in the wholesale market but not impossible. The wineries that are successfully distributed put together a sensible, targeted plan five to 10 years ago and have stuck with it. While it may not make sense to pursue national distribution, DeLong said, certain, specific markets may be a smart move.
On the DtC side, it’s no longer as simple as starting a wine club and providing a decent experience for visitors. The success and prevalence of Amazon has shown that consumers now appreciate, if not expect, “frictionless” integrated e-commerce. In the real world, however, these consumers want a unique, memorable experience and what has worked in the past is not as effective today. “It’s not just sipping a glass of Chardonnay on a deck in a beautiful setting,” he said.
When considering the industry’s larger challenges of an oversupply of grapes and wine and changes in consumer preferences and buying habits, DeLong said, it’s nothing the industry hasn’t seen before. But that’s not to say the next few years will be easy.
Some regions probably have more wineries and brands than they can support, and as things begin to shake out, companies that find themselves “stuck in the middle” may find few to no interested buyers if they want to sell. “There’s going to be a lot of brands that just don’t transact,” he said.
Holding the line on prices
Bogle Vineyards is based in Clarksburg, Calif., and produces about 2.5 million cases of wine. The company has grown through its mainline brand, which retails for about $9.50 a bottle.
Vice president Ryan Bogle said sales of those wines were flat in 2019, and the company was “pretty happy” in light of the industry’s overall trends.
He said that in the coming year, the company will shift more resources to marketing, which hasn’t always been the case for the family-owned company. While the winery has considered launching a can brand, it’s not something Bogle said he anticipates doing anytime soon, although he said in general such innovations do seem to be attracting new wine drinkers, which the industry needs overall.
Bogle has seen some success by using augmented reality labels with its Phantom brand, which also has a higher retail price of about $17.99.
Despite sluggish sales, Bogle said, his family’s winery has absolutely no plans to reduce pricing in the coming year to generate sales. He said they have brands at higher price points to appeal to customers trading up, and if the economy were to falter, the winery’s baseline brands at around $10 are there for any wine drinkers looking to cut some spending out of their monthly budget.
“We feel our prices are fair already,” he said. “We want to maintain our brand integrity.”
— Andrew Adams, Peter Mitham
Wine Industry Faces Full Employment
Winejobs.com’s Winery Job Index fell 3% to 146 in December versus a year earlier and was down 2% for 2019 versus 2018.
The moderating trend is part of a general plateauing of wine industry hiring activity that’s taken place since 2016. While the index has grown overall, the number of job postings has leveled off in recent years. The situation echoes that of the U.S. wine industry as a whole, which has seen its growth slow, with volumes declining even as the value of sales continues to increase modestly. Stability has taken hold as consumption keeps pace with growth of the legal drinking age population.
“We hit a satiated point at the beginning of last year,” said Dawn Bardessono, managing partner of Benchmark Consulting in Napa, Calif., which has 25 years of experience in the industry.
Coming off 2018, a record year, Benchmark anticipated a year like 2007 as hiring pulled back. But when Bardessono examined her books, business was off just 1% versus the previous year. “I think there are a lot of micro things going on that affect the bigger picture, but not enough that you can say, ‘Oh, that’s the problem,’” she said. “We’ve just kind of hit this plateau of where we’re going to go. You throw in a glut and a couple other major market course corrections, and they’re just going to sit here for a while.”
It’s not necessarily a bad place to be. People are working – so many that it’s tough for employers to find qualified candidates. According to the Bureau of Labor Statistics, 102,352 people were employed at wineries and vineyards in June 2019. The situation has prompted some to hold off on hiring externally, instead looking inside for people to promote or to streamline operations so that some roles have expanded responsibilities. The positions Bardessono is called on to fill are typically leadership roles, while production and tasting room positions have fallen off for a variety of reasons.
Consolidation is a big factor. Wineries have either been acquired or grown to the point where hiring now focuses on management roles while production has become automated. Other wineries have expanded through brands that have no facility, and therefore no overhead or separate physical presence to staff. Similarly, consolidation among distributors has meant fewer sales and marketing positions to fill.
Competition in some areas from the technology sector has also meant that wineries need to pay top dollar for talent and give staff expanded responsibilities and a title commensurate with the pay. Bardessono noted that some larger wineries have compensation packages of up to $180,000 for estate managers who might formerly have been responsible (and paid less) for just the tasting room. “Now you’ve got one manager managing multiple facilities and ($75,000) and below doing all the other stuff. And they’re giving them unlimited upside on the tasting room,” she said.
Even so, it remains challenging to find qualified staff to fill roles. A lack of supply means ambitious new entrants are being snapped up out of school, but they’re often migrating through the industry as more attractive offers come up. This keeps the hiring market active, even though the actual number of industry positions remains steady.
“It’s definitely the job hunter’s market, it’s not a hiring manager’s market,” said Amy Gardner, president of WineTalent, an agency based in Sacramento, Calif.
This has led to a certain degree of fatigue among employers, who face a limited pool of candidates for the work that needs doing. The industry is facing the equivalent of full employment, forcing it to cast a wider net to fill positions or simply stand down and not hire.
“Right now, we don’t have anyone who’s not working, and I’m lucky if I can find someone who has relatable skills from a different industry,” Gardner said. “If I put a $175 posting, and I get 10 candidates, nine of them I’ve seen already and I’m not willing to talk to them. … In the past, I would get 40 candidates for a quality position, and I would be able to really put five people in front of my client.”
To fill jobs, she’s looking for candidates who may be open to new roles but aren’t necessarily looking. A contraction in employment would free up talent, potentially making life easier for recruiters, but neither Gardner nor Bardessono see it offering much relief. When the last recession occurred, hiring activity saw double-digit declines before rebounding. The current shifts in the Winery Job Index have been less than 10% and typically reflected seasonal trends. “If you’re steady as she goes, that tells me that we’re OK,” Bardessono said. “I think we’re fine.”
— Peter Mitham
Wine Industry Metrics: Sales up 4% in December
U.S. wine sales increased nearly 4% to $47.9 billion in the 12 months ended December, according to market research firm bw166. However, Nielsen off-premise data reported that domestic, off-premise wine sales declined 1% in the four weeks ended Dec. 28 to $1.2 billion. On-premise sales in the 52 weeks ended Nov. 2 rose 1% to $18 billion. Direct-to-consumer (DtC) shipments increased 12% versus a year ago to top $271 million in December. Winejobs.com’s Winery Job Index reflected the overall moderation in the market, with activity falling 3% to 146 in December versus a year earlier.
Domestic wine sales, including bulk imports, rose 4% to $47.9 billion in the 12 months ended December, market research firm bw166 reported. Table wines posted the greatest increase, rising nearly 5% to $43.2 billion while sparkling wine increased more than 3% to $2.2 billion. Sales of bulk imports continued to fall, slipping 15% to $1.5 billion. The growth in domestic wines worked out to nearly $1.7 billion in additional sales during the period. The steady growth helped boost the value of the total wine market in the U.S. by 4% to $72 billion. While sales of packaged imports increased 4%, on par with the market as a whole, the growth in dollar terms was considerably less at $971 million. The value of packaged imports sold in the latest 12 months totaled more than $24 billion, accounting for more than a third of the total wine market in the U.S. Sparkling wines are a significant component of packaged imports, rising 9% in the latest 12 months to $5.3 billion, or nearly 2.5 times the value of domestic sparkling wine sales.
Sales of domestic table and sparkling wines at off-premise outlets Nielsen tracks rose 1% versus a year ago in the 52 weeks ended Dec. 28, totaling more than $11.3 billion. Table wine sales increased less than 1% to $10.6 billion, undercut by a 2% drop in case volumes. Sparkling wine sales gained nearly 4% to approach $690 million as case volumes increased 1%. Both types of wine saw average bottle pricing rise versus a year ago as buyers continued to trade up.
Activity in the four weeks ended Dec. 28, typically one of the most active months of the year, showed the annual sales trends accelerating. While domestic table and sparkling wine sales fell 1% to nearly $1.2 billion and case volumes fell more than 2%, average bottle pricing continued to increase. Table wines retailed for an average of $8.20 per 750 ml in the four weeks ended Dec. 28 versus $7.44 in the latest 52 weeks.
Trends revealed by a dive into the off-premise data suggest a ceiling on consumer willingness to spend. While consumer spending on a per-bottle basis has increased at the off-premise outlets Nielsen tracks, rising 3% versus last year to an average of $7.59 for domestic and imported product overall, the biggest gains were seen at the lower end of the market. Box wines rose 4% to $3.50 per 750 ml, while wines in glass packaging priced below $4 gained 2% to $3.37 a bottle. All other price bands saw growth of 1% or less, with average prices in the popular $11 to $19.99 tiers unchanged.
Data from Nielsen CGA shows on-premise sales growing more than 1% in the 52 weeks ended Nov. 2, slightly faster than off-premise sales. On-premise accounts rang through $18 billion worth of wine in the period. Price gains have been tough to secure at on-premise outlets, however. Per-bottle pricing in the period remained largely even with a year earlier, averaging $40.44 per bottle.
According to Nielsen data, the five top-selling brands in the 52 weeks ended Dec. 28 included Barefoot, Woodbridge, Franzia, Sutter Home and Yellow Tail. Josh ranked sixth, but saw the biggest gain in absolute dollars, followed by box wine Bota, Stella Rosa, La Marca and Decoy.
Direct-to-consumer (DtC) shipments increased 12% versus a year ago to top $271 million in December, according to Wines Vines Analytics/ShipCompliant. Shipment volumes grew at a slightly faster rate, approaching 13%, to 622,488 cases. The growth in shipment value was the second-strongest for the channel this year, bringing the year to a strong close. Shipment value in 2019 exceeded $3.2 billion, up more than 7% from the previous year. Case volumes for the year topped 6.6 million, up nearly 5%.
DtC shipments now account for more than 10% of domestic, off-premise wine sales. This is up a percentage point from a year ago, indicating that the channel is growing in step with the industry as a whole. It is not necessarily immune to the moderating trend being felt across the industry, however. While it remains the brightest light in the sector in terms of growth, the channel saw slower growth this year than last. With minimal direct impact from wildfires this year, the industry as a whole was able to boost shipments through the channel in the final three months of the year compared to 2017 and 2018. Shipments in the final three months of 2019 were 9% above a year earlier, and 20% above the same period of 2017.
Similarly, while the channel has seen greater participation from a broader range of wineries, the greater array of wines being shipped has had limited impact on per-bottle pricing. It stood at $38.88 for the 12 months ended December, up 2% from a year earlier.
The annual DtC Wine Shipping Report produced by Wines Vines Analytics/ShipCompliant will be available for download later this month at dtcreport.com.
Winejobs.com’s Winery Job Index fell 3% to 146 in December versus a year earlier. Among the major subindices, a 26% increase in demand for winemaking and production roles helped offset an 83% decline in demand for direct-to-consumer positions, including tasting room and retail staff, and a 21% drop in demand for sales and marketing staff. The shifts underscored the moderation of hiring activity in a tight labor market that has prompted some employers to forgo job postings.
Nevertheless, the Winery Job Index continues at levels well above previous years. It was down just 2% for 2019 as a whole versus 2018, but was 4% above two years ago. Demand for winemaking and production staff has been the most resilient over the past two years, while consolidation among distributors has pushed down demand for sales and marketing roles. Hiring for DtC roles has also been muted, as tasting room visits plateau and growth in the volume of wine sales slows. While the index for the year was up 1% from two years ago, it was down 9% from last year. Moreover, its level in December – 40 – was the weakest since 2011.
Hiring for DtC roles has also been muted, as tasting room visits plateau and growth in the volume of wine sales slows. December saw the index for the subcategory fall 11% to 211.
(Editor’s Note: This article was updated on Feb. 19, 2020 with correct December data on DtC hiring activity.)
O’Neill Expands National Brands and Brandy
Jeff O’Neill founded O’Neill Vintners & Distillers (O’Neill) in 2004, after completing the sale of Golden State Vintners, where he was president and CEO, to The Wine Group. O’Neill is privately held by Jeff O’Neill, who is based in Marin County, Calif., while the company’s main winery is in Parlier, Calif., southeast of Fresno.
Recent major improvements have reshaped the facility, which dates to the early 1900s, into an efficient, modern winemaking, distilling and bottling center with 37 million gallons of stainless steel, temperature-controlled storage and solar power. The 2016 acquisition of Robert Hall Winery gave O’Neill a smaller facility in Paso Robles, Calif. Jeff O’Neill is also one of the owners of Ram’s Gate Winery in Sonoma County.
O’Neill is a major producer of bulk wine and bottler of many private label or exclusive brands. Today O’Neill also makes and markets numerous national brands of its own. In total, O’Neill produces 10.7 million cases of table wine, of which 1.7 million cases are branded consumer goods and 9 million cases are bulk wine, Jeff O’Neill said. O’Neill contracts more than 15,000 acres of grapes from 160 growers in California. On Feb. 4, O’Neil will open the 2020 Unified Wine & Grape Symposium as the event’s keynote speaker.
O’Neill also produces over 5 million proof gallons of brandy and dessert wines annually. Jeff O’Neill declined to say which brands dominate the company’s custom brandy production, but industry sources confirmed they are produced for The Christian Brothers and Paul Masson labels.
Q: Let’s start with a big question. Nielsen reported that O’Neill brands grew by 17% in volume for the 52 weeks ending Nov. 30, 2019. How are you achieving that rate of growth in the US wine industry that’s decreasing in volume?
Jeff O’Neill: One of the reasons is a lot of the companies have legacy brands that I just don’t think are that interesting to the consumer and the retailer any longer. Most of our brands are under 10 years old. Some of them are under five years old, so I think we get the benefit of newness in the marketplace, but I also think at the end of the day, it’s delivering consumers what they want. We always believe that you can get them to buy it once based on the packaging, but to get them to buy it twice it has to be based on what’s in the bottle.
Q: What’s a good example of one of your brands that’s giving the consumer what they want?
O’Neill: I think Line 39 is the best example. When we acquired that from Roy Cecchetti, it was doing about 110,000 cases. We’ll do right around, I think 560,000 cases this year. We bought it about six years ago. When we think about the blends, whether it’s Sauvignon Blanc or Cabernet or Pinot Noir, we want it to overdeliver for everything in that class. And the way we’ve been able to do that is bring grapes from various regions so that we can hit the price point. But also by blending from various regions, we’re able to substantially increase quality for that particular bottle of wine.
Q: At a $10 price point, what regions are the grapes coming from?
O’Neill: For Line 39 they’re coming from a lot of places. They’re coming from Lake County, Lodi, Clarksburg, even Madera, Monterey, Paso Robles. Now that’s not to say they’re 100% from any one of those locations. Generally they’re not. But one of the best examples is that it has been very hard to produce a really good Pinot Noir under 10 bucks, and the Wine Enthusiast gave back-to-back 90s on Line 39 Pinot Noir in the 2013 and 2014 vintages. That’s a function of really being able to select growers in the right regions, but at the right price point.
Everybody told me that these smaller packages aren’t going to be that attractive because they’re going to be a higher price per volume but we think there are a lot of consumers out there that want a smaller serving.
Q: What is your stance on taking discounts to clear inventory this year in advance of the balance of the abundant 2018 and 2019 vintages hitting the market?
O’Neill: Fortunately, with the growth in our branded portfolio and our long-term relationships with our bulk-wine customers, our inventories are balanced while helping us meet demand. We really don’t hold long inventories due to the growth of our brands. And on the bulk side we have long-term contracts, so basically we produce almost to what we sell, plus we continue to add new customers each year looking for the quality and value of our wines.
Q: What are you doing in terms of alternative packaging?
O’Neill: We think convenience at the consumer level is really important. We have a complete line of 375-ml glass for Harken, Line 39 and Day Owl. We think convenience is important whether you’re in a train station in New York or on Amtrak in California. Everybody told me that these smaller packages aren’t going to be that attractive because they’re going to be a higher price per volume but we think there are a lot of consumers out there that want a smaller serving and a 375 or even a 187 allows two people to have two different wines without having to open a whole bottle. We think there is an opportunity there.
O’Neill: Then, of course, the can phenomenon has hit, and we’re finding that there is a generation out there that loves the convenience of a can. We have had several. For Day Owl, our rosé is in a can. We do several Chardonnays in cans including Creamery and Buttercup, which are for major retailers in America, and it appears the can idea is here to stay.
We started laying down brandy about 12 years ago, alambic brandy, because we thought with the whiskey phenomenon that ultimately brandy should come along behind it.
Q: Have you found technical difficulties with getting the wine in the can and maintaining the quality?
O’Neill: I think if quality is attended to properly, the can is a great solution. I’m highly confident where we do our canning. We’re at the front edge of technology, but I believe that there are quite a few that are at the tail end of technology and that’s potentially a problem.
Q: Let’s talk about the distilling part of the business briefly. What brands and what types of spirits are you succeeding with in that category?
O’Neill: The distillery at our home winery does probably 40% of the brandy that gets produced in California. It’s two of the big-name brands. Those categories are generally flat and have been, although we are optimistic. We have a number of new initiatives. We started laying down brandy about 12 years ago, alambic brandy, because we thought with the whiskey phenomenon that ultimately brandy should come along behind it. We’re partners in a brand called Bertoux which just launched nationally, and then we have a couple of more in the pipeline.
Q: Are you planning a tequila or vodka or other spirit that you’re going to brand?
O’Neill: No, we only try to focus on things where we add value, and we don’t know anything about the tequila business. We certainly don’t know anything about the vodka business. There are plenty of other suppliers and for us to get in that space would be very, very difficult to navigate. We do specialty gins because we have the beautiful alambic still and our master distiller is sourcing botanicals from around the world. We really excel in that space. But brandy and gin so far are the two where we think we add value.
Q: What other new products are coming out?
O’Neill: We’ve acquired Robert Hall in Paso Robles, which has been a great success for us, but we also just launched something that I normally would not do, which is a celebrity brand. Charles Woodson, who was the Heisman Trophy winner, is a wine fanatic. He has a tiny winery in Napa and he was looking to touch more of his followers. And so we did a joint venture with Charles to launch Intercept, which is mostly Cabernet, Pinot, Chard at 19 bucks with a Paso appellation.
Q: And that just hit the marketplace last year?
O’Neill: We’ve shipped about 10,000 cases, but we think for a number of reasons the product should work. The packaging is awesome. It’s not really driven around a celebrity. He’s seriously involved and loves the industry but if you saw the packaging and you weren’t a football fan, you would have no idea that it was geared around Charles.
— Jim Gordon
Jan. 27, 2020: Wine Star Awards
Awards ceremony for the winners of Wine Enthusiast magazine’s Wine Star awards honoring individuals and companies that made outstanding achievements over the past year in the wine and alcoholic beverage world. Taking place at the Palace of Fine Arts in San Francisco. winemag.com
Jan. 28, 2020: Wine Data 2020
Presented by the Wine Market Council, Wine Data 2020 is a conference featuring presentations by Nielsen, Wine Intelligence, Wines Vines Analytics and other leaders in wine data collection and analysis. The event will take place at the San Francisco Palace of Fine Arts and is intended for anyone in the wine business looking for consumer data and insights to make better business decisions in 2020 and beyond. winemarketcouncil.com
Feb. 4-6, 2020: Unified Wine & Grape Symposium
North America’s largest wine industry trade show and conference in Sacramento, Calif. unifiedsymposium.org
Feb. 10-12, 2020: VinExpo Paris
VinExpo Paris takes place at Parc des Expositions in Paris and will bring together buyers from all over Europe. The expo features new tasting expositions of spirits and organic wines. vinexpoparis.com
Feb. 11-12, 2020: Oregon Wine Symposium
Learn, connect and grow at the Oregon Wine Symposium, the Northwest wine industry’s premier educational event and trade show. Organized by the Oregon Wine Board and Oregon Winegrowers Association in partnership with event organizers Social Enterprises at the Oregon Convention Center in Portland, Ore. oregonwinesymposium.com
Feb. 20-22, 2020: Texas Wine & Grape Growers Association Annual Conference
The 44th Annual Conference and Trade Show of The Texas Wine and Grape Growers Association takes place at the Irving Convention Center in Irving, Texas. txwines.org
Feb. 26-28, 2020: B.E.V. NY Trade Show
B.E.V. NY is New York’s annual conference for the grape and wine industry, combining the resources of Cornell’s Extension Enology Lab, the Finger Lakes Grape Program, and the Charles H. Dyson School of Applied Economics and Management at the Rochester Inn & Convention Center in Rochester, N.Y. bevny.org
Feb. 27, 2020: Innovation + Quality
IQ2020 in Napa, Calif., features wine trials, educational sessions and tastings as well as hands-on demonstrations of the latest equipment and techniques curated by the editors and publishers of Wine Business Monthly. Join more than 50 exhibitors and sponsors for intimate conversations with leading wine industry professionals at the IQ Salons throughout the day as well as experience the latest innovations in packaging, equipment, barrels and lab analysis all aimed at improving wine quality in ultra-premium wineries. na.eventscloud.com
March 2, 2020: VinExpo N.Y.
Wine and spirits producers from all over the world will present their products to buyers in North America. Two days of tastings, education, networking and business will take place at the Javits Center in New York. vinexponewyork.com
March 2-5, 2020: Washington Winegrowers Convention and Trade Show
Join the winegrape industry from all the Pacific Northwest in Kennewick, Wash., to learn more about and leverage the opportunities that abound for Washington wine. wawinegrowers.org
March 3-5, 2020: Wine Marketing and Tourism Conference
The Wine Marketing & Tourism Conference is an industry conference designed for those working in the wine and tourism industries. The conference, to be held at the Valley River Inn in Eugene, Ore., provides concrete, actionable information to help attendees enhance marketing skills and develop a progressive tourism position. winetourismconference.org
March 9-11, 2020: Women of the Vine & Spirits Global Symposium
Women of the Vine & Spirits, the world’s leading membership organization dedicated to empowering and advancing women in the alcohol beverage industry, will hold its annual symposium at the at the Meritage Resort and Spa in Napa, Calif. womenofthevine.com
March 10-12, 2020: Eastern Winery Exposition
The largest industry event east of the Pacific states, EWE takes place at the Lancaster County Convention Center & Lancaster Marriott at Penn Square in Lancaster, Penn. easternwineryexposition.com.
March 22-26, 2020: UC Davis Wine Executive Program
In its 20th year, the University of California, Davis Wine Executive Program is designed to teach the fundamentals of winemaking and management skills necessary to be profitable in today’s challenging and dynamic wine industry. Sessions are tailored to help industry leaders grow their businesses by expanding on such topics as building one’s financial acumen and expanding a company’s current marketing and branding strategies. eiseverywhere.com
March 24, 2020: Central Coast Insights
The economic and financial conference in Paso Robles, Calif., for the wine industry of California’s Central Coast. eiseverywhere.com/website/4856/
March 25, 2020: WiVi Central Coast
WiVi Central Coast, is the premier wine and viticulture symposium and trade show for the wine industry of California’s Central Coast. Now the largest wine industry event south of San Francisco, WiVi takes place in Paso Robles, Calif., and features nearly 200 exhibits and hundreds of new products, product demonstrations, educational seminars and networking opportunities for winemakers, grape growers, winery owners and managers. This one-day conference and trade show features sessions by top industry leaders on regional viticulture, enology and DtC topics and gives attendees the opportunity to understand and experience new trends and technology. na.eventscloud.com/website/5082/
April 21-23, 2020: Wine & Spirits Wholesalers Annual Convention & Exposition
The WSWA Convention will be hosted at Caesar’s Palace in Las Vegas to provide an opportunity for distributors to seek out new beverage products, meet with existing partners and look for services to enhance internal operations. wswaconvention.org
Sept. 1, 2020: Winejobs.com Summit
Winejobs.com Summit is a forum for HR professionals to connect with their peers and discuss the hiring, retention and training of winery employees. The event is a full-day conference taking place at The Archer Hotel in Napa, Calif. eiseverywhere.com
Sept. 15, 2020: Wine Industry Technology Symposium
The Wine Industry Technology Symposium is the only conference focused on successfully deploying technology solutions in the wine industry. The conference takes place at the CIA Copia in Napa, Calif. eventscloud.com
Sept. 15-16, 2020: Wine Industry Financial Symposium
The Wine Industry Financial Symposium is the premier event covering the financial, business and strategic issues of the wine industry. Attendees to the financial symposium can also attend sessions of the Wine Industry Technology Symposium, which will take place concurrently at the CIA Copia in Napa, Calif., on Sept. 15. eventscloud.com