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."
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 bjte 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.
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 C! hardonnay.
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."
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."