extreme
value wines
what does it mean for you?
By Jeffery Lindenmuth
For the majority of wine-drinking Americans, the first decade
of the new millennium will be memorable not for some stellar
Bordeaux vintage or a new auction record, but for a $2 wine with a
déclassé nickname that forced them, perhaps for the first time, to
ask not “Why is wine so expensive?” but “How can it be so cheap?”
••
“If I could have made it any cheaper, I would have,” says
Fred Franzia, the outspoken president of California’s Bronco
Wine Company. Franzia knows the secret to making the
average wine drinker happy: give them wine they enjoy at
a great price. And with his Charles Shaw label, which retails for under $2 in California Trader Joe’s markets, he has
made thrifty wine drinkers euphoric. Bronco produces more
than 40 wine brands, but is most famous for Charles Shaw,
dubbed Two Buck Chuck by its legions of fans, who have
consumed nearly 500 million bottles to date.
Upon its appearance in 2002, the $2 price tag of Charles
Shaw seemed so preposterous that it spawned wild myths about
the wine’s origins. According to Franzia, the widely accepted
explanation is equally absurd: “There is not a grape glut. That’s
a misnomer and the alleged oversupply of wine is a lie.” The
grape glut explanation may have been wishful thinking from
those who would prefer Charles Shaw disappear, but eight years
later the brand shows no signs of fading. “Our biggest plan for
the future is: We’re not gonna change, and we’re gonna keep
doing what we’re doing,” says Franzia.
••
Indeed, Franzia’s land holdings in
California are estimated around 40,000
acres, and between his own fruit and
purchased bulk wine, the brand seems
well supplied. That said, Bronco’s newest extreme-value bottling, “Down
Under,” hails from Australia and recently debuted at Trader Joe’s sporting a $3 price tag. Varietals include a
Chardonnay, Shiraz and Cabernet Sauvignon. But Franzia notes that Down
Under does not aim to exclude any
of the Southern Hemisphere; in fact,
he says Chile and Argentina, labeled
with their respective origins, are fertile
hunting grounds for future extremevalue wines.
Retail Buyer Beware
Bob Torkelson, president and COO of
Trinchero Family Estates, a respected
value producer that does not trade in
extreme-value wines, cautions that such
wines may not be right for all retailers.
“There is always going to be a place in the
market for entry-level wine, but when you
devote a lot of space and energy to it in
your store, you run a risk of over-promoting it,” says Torkelson.
Like the extreme-value producers
themselves, Torkelson does not dismiss
low-priced wine as some recessionary
fad that will simply fade away. “There
is going to be a glut somewhere every
year. That’s agri-business. We get what
Mother Nature brings us year to year, and
there will always be people somewhere
with excess wine. It’s not a question of
whether or not it will be around; it will
exist forever,” says Torkelson.
His best advice for small retailers is
as old as business itself: build trust and
relationships. “The advantage of a wine
specialist is that they can communicate
with their customer. When Trader Joe’s
drops a pallet in the store, it’s hard to find
someone who is knowledgeable. A wine
retailer has the opportunity for greater
hands-on with a customer.”
“Extreme-value wine has helped
spawn a group of wine buyers who
either trust their own taste, or
take pride in paying less—a kind of
reverse snobbery.”
— Mike Veseth, WineEconomist.com
Unlikely Acceptance
Selling a $2 bottle of wine is as challenging as selling a $200 bottle—just different. A study by Hilke Plassmann, from
the California Institute of Technology,
had blind tasters rate wines knowing only
the prices. Tasters liked the same wine
nearly twice as much when they thought
it cost $45 versus $5. Another study, by
Cornell professor Brian Wansink, demonstrated consumers enjoyed their wine, and
their meal, more when they thought they
were drinking California wine, rather
than North Dakota wine. As consumers,
we are trained to equate price with quality, to scoff at cheap imitation, to relish
the expensive stuff. Cheaper, low- and
no-prestige wines, are actually at a disadvantage with average tasters.
Two Buck Chuck defies this logic. According to Mike Veseth of wineeconomist.
com, Franzia’s selection of Trader Joe’s as
the exclusive retailer was vital to its success. “The problem in terms of marketing
was that there was a certain social stigma
attached to extreme-value wines. Many
people judge a wine’s quality by its price,
and are therefore afraid to pay too little, or
to be seen to be paying too little,” says Veseth. “Trader Joe’s is a brand that breaks all
the rules of American food retailing. The
stores are small. The selection is limited.
There are lots of mysterious house brand
items. Trader Joe’s shoppers trust that
Trader Joe’s will provide good quality at a
good price. So, this was the perfect place
for extreme-value wine to go mainstream.”
People gambled on Trader Joe’s reputation
for quality. Chuck delivered.
A New Price Landscape?
Bronco Wine Company's Fred Franzia and his
infamous Charles Shaw wine has redefined how
many licensees sell wine.
Charles Shaw’s greatest legacy will not
be in Bronco’s bank account, but in completely transforming how consumers think
about wine. Years of admonition and reassurance from sommeliers and wine educators that consumers should “trust your
own taste” have finally amounted to this:
We like $2 wine. “Extreme-value wine has
helped spawn a group of wine buyers who
either trust their own taste, or take pride
in paying less—a kind of reverse snobbery,” explains Veseth. Add to this the
current economic downturn, with thriftiness again considered a virtue, and it’s
easy to see why extreme-value is thriving
••
and more large retailers are finally coming
around to creating competing custom labels. Franzia is amazed it took so long.
Beyond the obvious ‘trading down,’ associated with consumer financial pressure,
Veseth observes a complementary effect
he calls ‘trading over.’ “This also involves
— Bob Torkelson,
spending less money, but the intent is to
cushion the blow to your ego by switching
to products that don’t seem to take themselves as seriously. You don’t spend less beWines from Oak Leaf
Vineyards sell for $3
cause you’re cheap or can’t afford to, you
or less at Wal-Mart
spend less because, hey, you’re more relaxed
and laid back and changing your lifestyle to
reflect this,” says Veseth.
Dana Fehler, marketing and public
relations manager for Adler Fels, which
makes the Electric Reindeer seasonal
wines (retail price: $2.99) says even established drinkers are ‘trading over’. “We
also have found that people that drink at
a higher price point are enjoying these
wines because they are true to varietal
character and very approachable at a price
that makes it an easy decision to buy them
on a consistent basis,” she says. A recent
blog comment from “Harper” is typical of
grape growers and source the best fruit for
this phenomenon: “I’m normally a white
the money from the finest growing regions
wine drinker—Rombauer, Franciscan and
throughout Australia. Consumers also
the like—however, I’m absolutely in love
benefit from the reputation of [yellow tail]
with the Electric Reindeer Cabernet Sauwhich our consumer research shows is still
vignon.” Seemingly, the stigma of buying
considered a discovery brand for people ‘in
cheap has evaporated.
the know’ despite its widespread popularity,
Of course, not all wine lovers are easand a brand that consumers feel reflects
ily swayed, and the first wave of value
positively on them when shared with
wines, brands like [yellow tail], spent
friends and family,” says Lewin. In other
years building consumer allegiance
words, some consumers are reluctant to
through quality and value. According
trade down when they are happy with
to Stephen Lewin, CMO of [yellow
the wine they count on—which haptail] importer W.J. Deutsch & Sons,
pens to be a great value as well.
the brand enjoys a high degree of
Mark Vanston, VP Sales and Marloyalty. “[yellow tail] consumers stay
keting
North America for VSPT Wine
largely loyal to the brand versus
Group, makers of value brand Gato
other brands, regardless of whether
Negro, sees both sides of the issue:
they are store custom wine labels or
“The bottom line is there is a need for
other branded products, for a number
the ultra-value price segment. Some
of reasons. First is value for money.
producer somewhere in the world will
Due to [yellow tail]’s size and
fill the category for different reaeconomic stability it enjoys
sons. Many in our industry don’t
Electric Reindeer
the privileged position of beseasonal wines also retail
ing able to pay higher prices to for approximately $2.99 like it, but it is an undeniable
reality that does fill a consumer
“There is always going to be a
place in the market for entry-level
wine, but when you devote a lot of
space and energy to it, you run a
risk of over-promoting it.”
Trinchero Family Estates
need.” That said, he does not endorse all ultra-value entrants: “The key is it needs to be
done right and there has to be some level of
quality. Retailers should never be promoting
very poorly made or distressed wine. There
needs to be a credibility factor from the winery to insure a sound product.”
Gato Negro is more in the value segment than extreme-value, at a suggested
retail of around $5. That small step-up in
price, according to Vanston, is what guarantees consumers will get quality that is
consistent and why “Gato Negro is arguably the best wine value for the money on
the market.”
Trust Your Palates
What value wines and extreme-value wines
do have in common in many cases is that
consumers have come to trust their palates—
an attitude that leaves wine writers and reviews out of the equation. While Charles
Shaw and other extreme-value wines like
Oak Leaf Vineyards, from The Wine Group,
which sells for $3 or less at Wal-Mart, have
performed well in some wine competitions,
Franzia refutes that critical success has anything to do with consumer acceptance.
“There is no credibility in a wine tasting or
in ratings. The real facts of the matter are
that we’re closing in on 500 million bottles
of Charles Shaw and I’ll take that over 10
gold medals any day. If I take gold medals
to the bank they laugh at me. What’s most
enjoyable to me is the consumer expanding
the base. It’s not only that we make them
a customer but they become our best salespeople,” he says.
Perhaps most interesting, or alarming,
these proudly-cheap, value-obsessed con-
••
sumers are not Social Security recipients
and early-bird diners. They are the future. According to a 2009 tracking study
of core wine consumers of 750ml bottles
by the non-profit Wine Market Council,
Millenials between the ages of 21 and 32
are the most regular buyers of wines under
$3. About 20.8% purchased these wines
monthly or more often, versus only 6.3%
of baby boomers.
And these extreme-value consumers
see little reason to change. When wine
buyers were asked about their future purchase intentions, Wine Market Council
discovered that 38% of wine buyers will
continue to buy wine that is less expensive than the wine they used to buy even
when the economy turns around. Brian
Vos, chief operating officer and president of velocity business for The Wine
Group, explains: “The core extremevalue wine consumer learned a lesson
that is now being learned by many others: that price doesn’t necessarily mean
that the consumer is going to like the
wine better. Once they are comfortable
with their own palates, they stay loyal
to their chosen brand(s).”
To Stock or
Not to Stock?
As long as the quality remains high, the
extreme-value movement seems to be
self-perpetuating. “I think wine consumers
are willing to try wines at the ultra-value
level because they know that the quality
is there,” says Fehler. “The quality of wines
now available at that price point almost
takes the risk out of it. Price doesn’t necessarily equate to quality these days. There is
so much very good wine available on the
bulk market today that it makes good wine
more affordable in general and thus more
available to the masses. That is a win-win
for both sides: The more tasty, cheap wine
we provide, the more consumers crave. If
these brands demonstrate anything, it’s
that it is becoming harder and harder to
buy a bad wine.”
Vanston would agree. At the end of
the day, it all comes down to customer
satisfaction and brands that actually taste
good will continue to sell: “You buy it, you
like it, you buy it again and you feel good
about your purchase,” he explains. There is no denying that consumers
are delighted with extreme-value wine.
They love not just the price, but the approachable, food-friendly, easy-drinking
nature of wines that require no more aging than the drive home.
So where does this leave retailers,
especially smaller independents, as they
observe neighboring big-box stores piling
cases of extreme-value wines directly into
the trunks of BMWs?
Not far, according to Marcy Whitman,
senior vice president, marketing for Palm
Bay International, importers of Cavit, especially if retailers are looking for support
from brand owners. “The rock bottom
price of ultra-value brands largely prevents
them from participating in other types of
traditional sales and incentives. For Cavit
Extreme Decisions
Retailers around the country are grappling
with the idea of whether ultra-value priced
wines are right for their business.
Pros
Cons
• Super-gentle
• Too much shelf
price points drive
space can lead to
experimentation
inefficient overpromotion
• Attracts the coveted • Consumers
Millennials (ages
equate price with
21-32)
quality
• Consumers feel • No prestige wines
empowered
at a disadvantage
upon discovering
with average
bargains
tasters
• Builds loyalty
and leads to
additional
purchases
• Hurts overall
image of wine
among vanity
drinkers
• Can teach consumers to trust
their own palates
• Supplier incentive
programs such as
rebates, coupons
unlikely
we have developed a loyal following of
consumers based upon consistently offering great taste plus added value—often
through savings with IRCs and MIRs (depending on legalities by market) not only
on Cavit but on other popular well-recognized brands with whom we partner—
from magazines to emusic free downloads
to KitchenAid as well as food brands. Our
promotions, like the annual Cavit Gourmet
Pizza Classic result in thousands of original
recipe submissions, and build on our relationship with our consumers.” says Whitman. Retailers, many warn, will receive no
support from ultra-value wine producers
because they simply can’t afford to offer it.
Both Cavit and [yellow tail] also continue
with print, online and radio or television
support, while ultra-value brands rely almost entirely on word of mouth.
While statistics suggest that many wine
drinkers will remain contently devoted to
extreme-value wine, it’s also very likely
that some upscale buyers of the future lurk
hidden among these value hunters. Adding
more wine drinkers to the collective pool
only improves the opportunity to identify
and nurture them. There are also, Vanston
notes, many consumers who “want a certain price segment for everyday consumption, but will trade up for weekends and
special occasions.” Besides, people’s palates
do evolve and soon “many will gravitate to
better and better wines,” he adds.
“Other good ways to help the evolution of entry-level drinkers along,” according to Lewin, “are sponsoring and pouring
at events, offering in-store tastings where
legal as well as making personal recommendations. These are excellent ways of
teaching consumers why it’s worth paying
more for a bottle of wine.”
Veseth is optimistic about the effect of
the vibrant extreme-value market for the
future of wine-at-large. “Some drinkers
will be satisfied with these products and
go no further. Others will move beyond
the value wines and start to experiment. I
am especially happy for these wine drinkers because there is a fascinating world of
wine waiting for them,” he says. n