The Scourge of Napa Valley
California winemaker Fred Franzia says the
world would be better off without all that expensive Napa Valley wine.
And that's not just an opinion--it's a business plan.
From:
Inc. Magazine, May 2006
|
By:
Kermit Pattison
Tell him to get f---ed."
Fred T. Franzia is dictating a message for his advertising consultant.
Franzia, the chairman and CEO
of Bronco Wine, is sitting in his office
in the San Joaquin Valley of California. His family business is one of
the largest wine companies in the United States, yet his headquarters
is about as luxurious as a trailer at a construction site. It's a
small, termite-ridden building beside a fence topped with barbed wire.
Behind him are shelves lined with dozens of his wines, many costing
less per bottle than a six-pack of beer. The bottles clink when the air
conditioning kicks on. Trucks rumble through the gate by the guard
shack outside the window. A gun safe gathers dust in the corner. He
can't keep weapons anymore because he's a convicted felon.
Franzia, 62, is a jowly winemaker with a barrel torso and little
patience for critics. After six years, he has just come out on the
losing end of a high-profile legal battle against vintners in Napa
Valley over whether he can put Napa labels on bottles of wine made with
cheaper grapes grown elsewhere. Franzia dismisses the Napa vintners as
"a bunch of whiners." He believes that the wine industry has become
intoxicated by elitism, inflated prices, and its own PR about terroir--the
idea that a wine is uniquely a product of the place it comes from, and
by extension that some places are better than others. "Why complicate
it?" asks Franzia, voice rising. "Does anybody complicate Cheerios by
saying the wheat has to be grown on the side of a mountain and the
terroir in North Dakota is better than Kansas and all this horse s---?
You put something in your mouth and enjoy it. If you spend $100 to buy
a bottle of wine, how the hell are you going to enjoy it? It's a joke.
There's no wine worth that kind of money."
It's not just Napatistas who rile him into bursts of profanity.
There are the retailers with their excessive markups ("greedy
bastards"), restaurants with their overpriced wine lists ("they rape
the consumer"), and his paragons of oenophile elitism: the famous wine
critic Robert Parker and Wine Spectator
magazine ("their expertise is talking about themselves and saying
they're the experts"). And don't get him started on corkage fees.
Still, the Napa vintners do occupy a special place in his spleen. "This
is what pisses off your friends in Napa," he says, and shows his latest
salvo: a newspaper advertisement that reads, "Think you have to spend
$20 for a Napa Valley Merlot? Think again!"
Soon his secretary appears at his side and slips him a note. It's a
memo from his advertising guy, recommending that Franzia not share the
ads before they're ready for publication. Franzia abruptly hands it
back to his assistant and renders his executive decision: "Tell him to
get f---ed."
He chuckles and shakes his head. "Like he's going to tell me what I'm going to share with people?"
Not surprisingly, many Napa vintners view Franzia as the barbarian
at the gate. Last summer, at the annual dinner of Napa grape growers,
the assembled chanted "Kick Bronco's butt! Kick Bronco's butt!"
Throughout his career Franzia has defied conventional wisdom, industry
trends, and occasionally the law. In 1994 he pled guilty to federal
charges of conspiracy to defraud and paid a half-million-dollar fine.
In 2000 he inspired a change in state law regarding the labeling of
wines. Then came the six-year fight over that law. "Mr. Franzia is what
I would call an unscrupulous renegade who not only loves to find an
edge but is pretty ruthless in doing so," says Vic Motto, a Napa Valley
consultant. "He not only likes to make a buck, but it's even better for
him if he can make it at your expense. It just adds another element of
pleasure for him."
"He not only likes to make a buck, but it's
even better for him if he can make it at your expense," says one Napa
consultant. "It just adds another element of pleasure for him."
Franzia is the most controversial figure in the U.S. wine industry
and also one of the most savvy. By moving in exactly the opposite
direction of the industry elite, he has built Bronco into the fourth
largest wine company in the United States in case sales: Last year
Bronco sold 20 million cases, or 240 million bottles, of wine, $400
million worth. His masterstroke is the cheapest of his dozens of
wines--the famous Two Buck Chuck, the fastest-growing label in the
history of the industry.
"He's the kind of person--there's one in every industry--who loves
to go against the grain and make money at it," says Robert H. Smiley,
director of Wine Programs at the Graduate School of Management at the
University of California, Davis. "He's a very good businessman, there's
no doubt. The legal issues I'll leave aside."
Franzia's mission is to make wine so affordable and plentiful that
every American can put a decent bottle on the dinner table. He drives
down prices by running an efficient operation that takes advantage of
economies of scale--Bronco owns nearly three quarters as much vineyard
acreage as all of Napa Valley combined--and by swallowing up
competitors that fall on hard times. Now, as U.S. wine consumption
reaches new high after new high and the domestic wine industry hits the
$27 billion mark, Bronco is flexing more muscle than ever. And that is
making Franzia the bête noire of some parts of wine country.
It's a clear winter morning as Franzia slowly prowls the grounds of
his vast winemaking plant in Ceres, California, behind the wheel of his
Jeep Cherokee. Ceres lies 100 miles south of Napa in the San Joaquin
Valley, part of the larger Central Valley, an area once derided as the
"jug wine capital of the world"--don't get Franzia started on that bit
of terroir snobbery. This fertile plain, once the floor of an ancient
sea, is the center of his wine empire, and outside his windshield looms
the citadel: his massive production, fermentation, and storage
facility, with more than 400 tanks that collectively hold 80 million
gallons of wine. Franzia constantly makes rounds of his production
facilities and vineyards to keep a hand in the minutia of his business.
His car is well known to his employees as a rolling second office, and
the chances are good that if he isn't at this Bronco property, he's at
another one. He's twice divorced and by his count works 100 hours a
week. "I don't socialize anywhere," he says. "There's no money made in
socializing."
Yet Franzia can be charming and extremely funny in his own
idiosyncratic way, and there's often a bit of gamesmanship behind his
bluster. His profanity isn't necessarily an expression of anger; often
it's just an indication that his vital signs are okay. "We often joke
in-house that if Fred stops abusing you, you've probably lost some
ground," Bob Stashak, a Bronco winemaker and plant manager, says with a
laugh. The private man, according to close friends, is somewhat at odds
with the public image. "When you start talking about family things,
he's very, very tender," says Don Sebastiani, a California winemaker
who has known Franzia much of his life. "There's a very, very soft
underbelly."
Many other winemakers cultivate their public image as much as their
vines. They build architectural wineries, retain publicists, spend face
time with customers, and tell romantic stories about their wines.
Franzia has followed a different formula: Deliver value, reinvest in
the business, and screw the pretense.
The proof lies outside his windshield. His production facilities are
an industrial behemoth. Franzia slowly drives through the complex and
points out huge lots where hundreds of trucks line up during harvest,
crush pits that can process 16 truckloads of grapes per hour, tank
presses, enormous decanter centrifuges. He brakes and points at one
tank that holds the equivalent of 3,500 wine bottles per vertical inch.
It's 42 feet high and holds only half as much as the 700,000-gallon
tanks farther down. There are 414 such huge containers of various
sizes; the place looks like a tank farm.
"We built this from literally nothing to where it is today in less
than 30 years," Franzia says. "Sometimes even I think it's been pretty
rapid."
He drives into a cavernous warehouse, clicks a remote control inside
his car, and opens automatic doors to reveal storerooms stacked with
wine cases and thousands of oak barrels.
"You been through some wineries in Napa, haven't you?" he asks. "You seen any with that many barrels in one place?"
Bronco owns 50 square miles of vineyards and adds three to six
square miles every year. The company grows vines, crushes grapes,
bottles wine, and runs its own distribution operation, Classic Wines of
California. It buys and sells bulk wine. It operates storage and
production facilities in the towns of Ceres, Napa, Sonoma, Escalon, and
Madera. It bottles about 30 of its own labels, including Charles Shaw,
Crane Lake, Forest Glen, and Forestville, plus wines for other
companies under contract.
Bronco's wines are associated more with the brands, or labels, than
with the place the grapes were grown. (Franzia talks of a new label
named Harlow Ridge, after a street on an industrial development where
Bronco's bottling plant is located--how's that for terroir?) The
company's 17 winemakers pick from wines coming through the inventory to
enhance blends for a particular label. They might mix a bit of Shiraz
with Merlot, for example, or wines aged in oak barrels with those aged
in steel tanks. There's nothing unusual in this, but it's bold to
insist that these blended wines are every bit as good as Napa wines
that cost several times as much, which of course Franzia does. "I defy
anyone that charges more money to let me conduct a blind tasting," he
says. "He'll look like a fool with his own wine."
Franzia says a lot of things, but nothing from his repertoire causes
as much eye rolling within the industry as his claim that no bottle of
wine is worth more than $10. "I'm not sure that his sense of taste is
that refined," says Vic Motto. "If he disdains things that cost more or
are of higher quality, he may not understand what the differences are.
He does not seem to be a nuanced type of person."
In fact, Bronco does sell a few wines for more than $10. Franzia
says he doesn't like those prices either, but he claims his hands are
tied by the cost of wines from premium appellations such as Napa and
Sonoma. And he'll apparently break the two-figure barrier when buying
wine for himself. "He will publicly say he won't pay over $10, but he's
paid a lot of money for some of my wines in the past," says Michael
Mondavi, scion of the famous wine family and a lifelong friend of
Franzia's. "He did it because he liked them."
Franzia was born in 1943 to one of the most prominent wine families
in California. His grandfather, Giuseppe Franzia, emigrated to the
United States from Genoa, Italy, in 1893 and began commercial wine
production in the San Joaquin Valley by 1915. His five sons continued
the business after the end of Prohibition and built a winery in Ripon.
Fred spent summers and holidays stacking cases and pruning vineyards
alongside his brother Joseph and cousin John. He grew up around the
founding fathers of California wine, including his uncle Ernest Gallo,
Julio Gallo, Robert and Peter Mondavi, and August Sebastiani, and he
considers these men his models.
The admiration ran both ways. Don Sebastiani recalls how his father,
August Sebastiani, enjoyed sparring with the young Franzia. "My father
was stunned by Fred," he says. "The guy was born with amazing business
acumen and personality. Fred would offer advice to my father almost
like an older man would to a younger one."
Franzia went to work for the family company, assuming that one day
his generation would take its turn at the helm. Then came a painful
blow. In 1973, Fred's father and uncles sold the family winery to Coca
Cola Bottling. (Coca Cola later sold the business to the Wine Group, a
San Francisco company, which continues to sell Franzia wine as a bag in
a box. The Franzia family has no connection with its namesake wine.) "I
just didn't feel selling was the right thing to do and I told my dad,"
Franzia says. "I ended up not talking to him for seven years afterward
because I thought he made a mistake."
Fred, Joseph, and John struck off on their own. Bronco incorporated
on December 27, 1973. Fred serves as chairman and CEO, Joseph is
co-president and runs the company's distribution arm, and John, also a
co-president, oversees production. A dozen members of Fred's family now
work for Bronco, including two of his five children (his other children
are a doctor, an actress, and a Navy SEAL).
Franzia says he later reconciled with his father, but some friends
believe the loss of the original family business stoked his ambition.
"Let's face it, Fred's a driven man," says Marc Mondavi, president of
Charles Krug Winery in Napa Valley. "I'm sure that had some influence
on the three of them--we're going to start over and, by God, we're
going to show everybody we can do it."
They did. And they collided with the law. In 1993, Franzia and
Bronco were indicted on federal charges of conspiracy to defraud for
misrepresenting cheap grapes worth $100 to $200 per ton as Zinfandel
and Cabernet Sauvignon grapes worth five to 10 times as much. The
indictment charged that Fred Franzia himself instructed others to
sprinkle Zinfandel leaves on top of loads of cheaper grapes in what he
called "the blessing of the loads"--a parody of the traditional
blessing of the harvest. All told, prosecutors said, Bronco
misrepresented 5,000 tons of grapes and one million gallons of wine
that were sold on the wholesale market for $5 million.
"They tattooed me, so fine," Franzia says. "Do I look like I'm worried about it? Does it look like it's killed our company?"
The company pleaded no contest and paid a $2.5 million fine. Franzia
pleaded guilty and agreed to pay a $500,000 fine. As part of the plea
agreement, Franzia stepped down from the board of directors and as
president and refrained from any involvement in grape purchasing or
production for five years. The prosecutor agreed to a downward
departure in sentencing and no prison time, saying that Franzia's
absence might have resulted in the closure or sale of the company and
would have unfairly punished his partners and hundreds of employees.
"The safest guy to do business with is me because I have the most to
lose," Franzia says. "I have no reason to cheat. I didn't have then
either." He declines to explain further. "They tattooed me, so fine,"
he says. "Do I look like I'm worried about it? Does it look like it's
killed our company? We've done quite well, thank you."
That is true in part because Franzia knows how to find a bargain. He
snaps up wines, grapes, labels, and land when prices are low, often
during foreclosures or bankruptcies. "Fred has got his ears to the
ground," says Marc Mondavi. "He's always asking, always listening,
What's going on? Anybody in trouble?" The wine industry is violently
cyclical, and Bronco tends to emerge from each down cycle with more
land, more labels, and less debt. "You know how they say buy low and
sell high?" says Michael Mondavi. "He bought low and doesn't sell. He
builds."
The most famous example of Franzia's savvy, the Two Buck Chuck
story, has become an industry legend. In 1995, Franzia bought the
Charles Shaw label from a Napa Valley winery that had gone into
bankruptcy. The label sat in a drawer with dozens of others until 2002,
when the wine market was flooded by excess inventory. Grape prices
plunged and many wineries sold bulk wines at a loss. Bronco became one
of the few success stories of the year when it struck a deal with the
Trader Joe's chain to sell an ultravalue wine for $1.99. (It's
generally $3.99 outside California.) With its own bottling facilities
and distribution system, and with the market awash in cheap, decent
wines, Bronco could produce an ultravalue wine and still make money.
Bronco resurrected the Charles Shaw label, which soon picked up the
nickname Two Buck Chuck. Critics pronounced it surprisingly drinkable;
the editors of the trade publication Wines & Vines
picked a Two Buck Chuck over a $67 Chardonnay. Two Buck Chuck became
the fastest-growing wine label ever and Bronco now sells five million
to six million cases of it annually in five varietals. Franzia dreams
of repeating the coup on a larger scale by developing an ultravalue
line for a major chain like Costco, Wal-Mart, or Target. But he says
the big retailers remain unwilling to accept such a slim profit margin.
Thanks to Two Buck Chuck, Bronco was named winery of the year at the
2003 United Wine and Grape Symposium. When the announcement was made,
the Western Farm Press reported, "the ballroom literally erupted in disbelief and contempt."
Bronco, meanwhile, became embroiled in another dispute that went beyond taste. This time it centered on labeling laws.
During the years that Franzia was building his business in the San
Joaquin Valley, Napa solidified a reputation as the mecca of American
winemaking. It has almost 400 wineries, roughly one quarter of the
total in California, and is by far the most recognized appellation in
the USA. Napa Valley produces just 4 percent of California wine by
volume but earns $2.3 billion in sales--about a quarter of the state
total. On average, Napa labels are 61 percent more expensive than those
with a generic California designation. The valley has become a magnet
for business moguls and celebrities with aspirations--and money--for
making great wine, including director Francis Ford Coppola, football
star Joe Montana, and racecar driver Mario Andretti.
"They don't impress me one bit," Franzia says of the Napa
winemakers. "You know, I've purchased a lot of wineries and products
from people who pretended they were pretty rich. When they cash in
their chips, we're there to buy them."
And therein lay the roots of the conflict. In 1993, Bronco bought
the Napa Creek label. The following year, it acquired the Rutherford
Vintners brand, named after a community in Napa Valley. In 2000, Bronco
paid more than $40 million to buy Napa Ridge from Beringer Wine
Estates.
Federal law requires that if a wine bears the name of a geographical
place, at least 75 percent of the grapes in the wine must have been
grown within that region--85 percent in the case of federally
designated American viticultural areas. But a grandfather clause
exempts labels that existed prior to 1986. This meant that Bronco
could, and did, sell Napa-labeled wines using grapes grown elsewhere, a
tactic already employed by Beringer. (Labels identify the source of the
grapes in smaller print.) At the time, Napa Valley Cabernet Sauvignon
grapes sold for about $2,600 a ton; grapes from the Central Valley sold
for $600 a ton. According to court records, Bronco sold 300,000 cases
of Rutherford, Napa Creek, and Napa Ridge wines--$17 million worth--per
year.
Napa vintners saw this as an act of piracy. And they feared it was
about to get worse. In the city of Napa, Bronco was building a massive
bottling plant capable of churning out 216 million bottles a year--more
than twice the output of all the Napa County wineries combined. The
vintners lobbied state legislators to close the loophole, and in 2000,
the California legislature passed a law requiring wines whose labels
bore the name Napa or any federally recognized viticultural area within
Napa County to contain at least 75 percent local grapes.
Bronco sued to stop the state from enforcing the law. The Napa
Valley Vintners Association, which represents about 250 wineries, filed
as an intervenor on behalf of the state. The case began a tortuous
six-year legal odyssey through the state and federal courts.
"He's just an opportunist," says Tom Shelton, president and CEO of
Joseph Phelps Vineyards. "I think he missed the ethics course in
college--he was out that day. He doesn't understand what the hullabaloo
is all about."
Shelton and Franzia first crossed in the 1990s when Shelton began
getting calls from friends joking about Bronco buying the Phelps
winery. Soon he found out why: Bronco had run an ad that mocked the
idea of Napa terroir, and the picture in the ad showed the Phelps
Vineyard in the heart of Napa Valley. (Bronco apparently didn't know
that was the case when it bought the photo.) Shelton phoned Bronco.
Franzia told him to buzz off.
Shelton recounts the story as he sits in his office at Phelps, in a
beautiful building designed by a noted architect. On the shelf sit
Phelps wines that sell for $45 to $200 per bottle. A hostess leads a
wine tasting on the patio outside. Sheep graze in the vineyards below,
part of biodynamic farming techniques to emulate the traditional
European vineyard. "Fred Franzia and Joseph Phelps Vineyards are not
even in the same industry," says Shelton. "The real danger of
opportunists like Fred Franzia is that a lot of our brand strength is
related to the association between place, style, and quality. If you
misappropriate the name Napa and diminish that, then you are damaging
my prospects in the marketplace."
Many of Franzia's loudest critics in Napa come from smaller
wineries. The industry has undergone a wave of consolidation, and the
25 largest California wineries now ship 82 percent of the state's wine.
Small wineries cannot compete with giants based on price, so they often
seek niches as artisanal or boutique operations. The Napa address adds
valuable cachet, and winemakers pay for it: Napa vineyards can exceed
$350,000 per acre, versus an average of $10,000 in the Central Valley.
The Napa Valley vintners--more than half of whom produce fewer than
10,000 cases per year--protect their name as one of their most prized
assets and bolster it with PR, such as the slogan "To a wine grape,
it's Eden."
Franzia dismisses this, of course, as Napa propaganda. "California
wine shouldn't be divided up into these little oligopoly appellations,"
he says. "They try to create a myth to keep the consumer from buying
other people's wine." Napa vintners beg to differ. "Why are so many
people willing to pay $50 for a Napa Valley Cabernet?" fumes Dennis
Groth, owner of Groth Vineyards and Winery in Oakville. "His
implication is those rich guys up there are all cheating the consumer.
Well, he's the one cheating the consumer."
Franzia cracks jokes about Napa being an auto parts store, and wonders why nobody sues over London Fog or Hawaiian Punch.
Animosity runs deep. Franzia has tried to have Groth removed from
the board of the Wine Institute, an industry group. He cracks jokes
about Napa being an auto parts store, and wonders why nobody sues over
London Fog or Hawaiian Punch. When an appeals court ruled against
Franzia on the appellation issue, Bronco surprised everybody by quickly
releasing a $3.99 Napa Creek Chardonnay and Merlot, with Napa grapes,
nicknamed Four Buck Fred. Franzia gave the impression of a guy who
enjoyed a good fight. "These f---ing guys have no mind-games
capability," he says of his Napa critics. "Guys like that are no
challenge to me."
Despite Franzia's constant tweaking of Napa vintners, he may be
helping them in a backhanded way. He's introducing consumers to good
wine; they could well trade up as their palettes become more
discriminating. "People love him or hate him, but they have to
privately admit that he has introduced one hell of a lot of new
consumers to wines that taste good," says Michael Mondavi. "Because of
that, he has helped members in the industry who despise him."
And there's another hole in the Franzia-as-scourge-of-Napa story: He
is a major player in the horse-trading of wine and grapes. "When I was
looking for wine, Fred would be one of the first people I would call,"
says Richard Grant Peterson, a longtime Napa vintner. "I knew that if
he had wine I could use, it would be priced fairly, good quality, and
the deal I made on the phone would be good." In fact, Franzia did
business with many Napa wineries even as the vintners association was
embroiled in litigation against him.
Some even turn to Bronco to bottle their wines. In southern Napa
County, where the valley opens up into a broad plain near San Pablo
Bay, stands a Mediterranean building with a red tile roof, a bubbling
fountain, and flower beds. No sign advertises its identity: Bronco's
Napa bottling plant.
Wine arrives in tanker trucks from Ceres and elsewhere and moves out
again within 24 hours with a Napa bottling address on the labels.
Inside bottles clink along conveyors where they are cleaned, filled,
corked, labeled, and boxed in seconds. Bronco officials say they bottle
for Napa wineries such as Beringer, Markham, and others that they
decline to identify. "This line will put out about 240 bottles per
minute," says Bob Stashak, the plant's general manager, as he stands
beside one of the three lines. "They're running 24 hours a day, five
days a week. When we get to the holidays, we kick in with a sixth and
seventh day."
In January, the U.S. Supreme Court declined to hear Bronco's final
appeal. Franzia had exhausted his legal options. The Napa vintners
celebrated by putting out a press release that said, "Corks are popping
at wineries throughout Napa Valley." Franzia sat in his office in
Ceres, shook his head, and called it a case of government protecting a
Napa oligopoly. "Shame on them for thinking that's a victory," he said.
"What they've done is hurt the free enterprise system and made bad
law."
He's not done with Napa. On the desk sits a plan for another
development on 85 acres near the Napa bottling plant. He stabs a finger
at the map. "We're going to put another winery in here, a glass plant
in there, and a warehouse in here. We'll have office buildings. We've
got it all laid out."
His prediction for the next five years: more volume, more labels,
more success. He talks of a new wine called Napa River, made with real
Napa grapes, that will sell for less than $5. Critics claim that such
prices cannot be sustained, but Franzia repeats one of his maxims: "I
make money at it or I don't do it."
The dustup over the legal case has eclipsed the fact that Bronco
already has several other labels made with Napa wines purchased on the
bulk market. And a big harvest of 2005 bodes well for Bronco. "Many
people," says Franzia, "are holding excess inventories in Napa that
don't want to sell them--yet."
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