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Wal-Mart of Wine

Since the first bottle of `Two-Buck Chuck' sold four years ago, vintner Fred Franzia's company has shaken up the industry by driving down prices

April 30, 2006|Jerry Hirsch | Times Staff Writer

HERALD, Calif. — On a wind-swept vineyard south of Sacramento, a small army of laborers armed with razor-sharp knives is fighting the next battle in California's wine wars.

Prunings from last year's cabernet sauvignon crop lie in piles next to Jose Antonio Gonzalez and his crew as they make their way down the long rows of this 3,000-acre vineyard.

Gonzalez pauses, then deftly uses his long knife to strip bark from a section of the woody vine. Sap wells forth like tears. Gonzalez slices deeper into the plant. He angles two pinot noir cuttings into the opening and then secures the graft with white plastic tape. Another worker seals the wound with tar.

"You are seeing the creation of Charles Shaw Pinot Noir," Fred Franzia, chief executive of Bronco Wine Co. and father of the popular "Two-Buck Chuck," tells a visitor as they watch Gonzalez and his crew work.

Once thought a transient artifact of a recent grape glut, Bronco's $2 wine has grown into a permanent fixture in the marketplace, now accounting for about 12% of the domestic wine shipped within California, said consultant Jon Fredrikson of Gomberg, Fredrikson & Associates in Woodside, Calif.

Since the first bottle of Charles Shaw sold at a Trader Joe's market a little more than four years ago, Franzia's company has perfected the low-end wine business by whittling expenses in everything from vineyard management to cork purchasing.

In the process, Bronco has become the Wal-Mart of wine -- driving down costs and prices in a way that is shaking up the entire industry.

"Until recently the wine business as a whole has focused on competing on quality and has not focused as much on cost," said Bill Turrentine, president of Turrentine Brokerage, a Novato-based grape and bulk wine broker. "But that's what Franzia has shown the industry. He exacts maximum efficiency out of the entire supply chain to produce inexpensive, quality wine."

For $2.99, consumers can have Bronco's J.W. Morris Chardonnay. A couple bucks more will buy a bottle of the company's Black Mountain Pinot Noir. Last year, Bronco offered a $3.99 Napa Creek Merlot made by a Napa Valley vintner that found itself stuck with too much wine and sold the surplus to Bronco. There's even a sparkler, the $5.99 Almond Creek Vineyards almond-flavored bubbly.

"I think this level of wine fills a real niche in the market," Cory Merchant said as he shopped the wine aisle at a Trader Joe's in Long Beach.

Merchant said he could serve Shaw, Morris or any other Bronco budget wine to most of his friends and few would be able to discern any difference from more expensive labels.

Others say there is a difference, but that the price can't be beat.

"Charles Shaw is a great bargain," Malcomb Davis said as he purchased two bottles from the Long Beach store. "It might not be as hearty as a $7 or $8 wine, but it is good."

Whether they're buying it for the taste or the price, wine lovers are drinking about 6 million cases of Two-Buck Chuck annually.

And Shaw's volume is likely to grow this year as Bronco adds new varietals to the lineup and Trader Joe's, the brand's exclusive retailer, continues a nationwide expansion, Fredrikson said.

The company can exploit this segment of the market -- where the profit margins are so thin that few other companies are willing to compete -- because of the massive vineyard and winery infrastructure it has built since its founding in 1973.

"It is a big competitive advantage," said Walt Klenz, the former global managing director of Beringer Blass Wine Estates. "Franzia bought a lot [of land and facilities] at the right time and at the right prices."

Bronco controls 35,000 acres of California vineyards -- more than any other vintner -- including its large holdings in Herald, and grows enough grapes to supply 60% of the 27 million cases of wine it produced last year, Franzia said.

Bronco's main winery and headquarters in the Central Valley town of Ceres sprawls across 500 acres, including a forest of stainless-steel tanks and fermenters that can hold 82 million gallons, or the equivalent of 410 million bottles, of wine.

As production of Two-Buck Chuck outgrew the operations in Ceres, Bronco snapped up a winery in nearby Escalon for about $6 million in 2003; it is spending millions more to upgrade machinery and filtering equipment and expand wine storage capacity there.

Bronco also has built a high-speed bottling plant in Napa licensed to process 18 million cases of wine a year, more than twice the annual production of the entire Napa Valley.

A tour of Ceres reveals a sophisticated operation capable of processing huge loads of grapes in a short period of time.

At the front of the winery, nine large grape presses, each able to handle a 50-ton truckload of fruit, can process 2,400 tons of grapes a day at harvest time. Another bank of presses farther back has the same capacity.

So many trucks come through during the grape harvest that there's a 10-acre staging area to handle them all.

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