Two-Buck Chuck's father tells competitors to stop whining

by Jerry Hirsch, Los Angeles Times

January 7, 2004

LODI - Here on the western edge of the Sierra foothills, underneath the soaring cooling towers of the defunct Rancho Seco nuclear power plant, 5,000 acres of rock-strewn vineyards mark the birthplace of Fred Franzia's Two-Buck Chuck.

As the amiable and ample Franzia leads a visitor through neatly planted cabernet sauvignon vines, he discusses why he's perplexed that his Bronco Wine Co., which makes the $1.99 wine sold exclusively at Trader Joe's stores in California, has become the bane of the industry. Franzia is facing litigation over labeling practices and criticism from retailers and distributors who fear their profit margins will erode if the popularity of low-priced wine grows.

To his thinking, the Charles Shaw brand and inexpensive labels such as Estrella, ForestVille and Napa Ridge have done a lot to promote California wines by fighting the deluge of cheap imports and reducing the state's grape glut.

In a rare interview, Franzia, whose family has made wine in California for 110 years, talked with the Los Angeles Times about California's wine industry, his business and the Two-Buck Chuck phenomenon.

How can you sell wine at a price point so low that Trader Joe's can offer it for $1.99 in California?

Our vineyards are so efficient. (Bronco controls 30,000 acres of California vineyards.) We have vineyards where you drive three miles before you have to turn the tractor around. Do you know how much money I save on rubber by turning the tractor less and not using up tires compared to the average farmer who is turning his tractor every quarter-mile?

The efficiencies of maintaining large acreages allow us to pick tonnages at lower cost. There is nothing like watching 20 or 30 harvesters go out and pick 120 truckloads. It is like an orchestra operating. Trucks moving 3,000 tons of grapes a night. Everything is done on a mass scale, correctly and efficiently. Our strategy is to fish where the fish are. I think more people in the marketplace are buying wines costing $2 to $8. If we felt there was more business at the higher price strata we would be in that market.

You will sell more than 60 million bottles of Charles Shaw this year. Are you making money?

Yes. The margin varies with every batch. But I am not going to give you an answer as to what the margins are. Just remember, we aren't losing weight over this.

What's your company's annual revenue?

You would not be out of order guesstimating $250 million. We processed 300,000 tons this year, plus or minus. It is the equivalent of around 20 million cases of wine. We sell over half of that at the retail level. (The rest is sold as bulk wine to other wine companies.)

Industry lore says you are buying up tanks of highbrow wine on the bulk market and using that for the Shaw label. Or is it most of your own fruit and then you use bulk wine for blending? What's the truth?

I can't give you a 100 percent answer that would be true for every variety. It moves around. I am not trying to be evasive; that is just part of the process.

Our winemakers blend to keep consistency in the wine taste. They have access to a wide range of grape products that we have in our wineries to do that. Some wines might be blended with petit verdot or cabernet franc or shiraz, depending on the winemaker's taste. It is up to him to keep the consistency.

Overall, our company grows about 60 percent of our grapes and purchases about 40 percent of what we process.

Why don't we see more $1.99 wines in the markets?

There is no reason why more retailers in California can't be doing the same. Some retailers are buying similar wine from us at about the same price, and they are selling it to their consumers at a higher markup. I am not going to name names.

Charles Shaw has done wonders for our company. I think Trader Joe's has been an instrumental partner in this combination. They are willing to sell the consumer a product at such a fair price.

How does the average consumer walking down the wine aisle know the difference between a $5, $8, $15 or $50 bottle of wine?

The consumer has to make the trial and error with his own palate and taste buds. Don't listen to some wine writer's rating system that is just numbers. Somebody might rate a wine at 94 points, but you as a consumer might not like it and then say, ``If I can't appreciate what somebody said was a 94, then I am not going to go buy wine.''

There is an old-fashioned way of finding wine that works. You try it, you taste it and, if you like it, buy it. If you don't like it, don't buy it. We feel very confident that if you taste our wines, you will buy our wines and continue to buy them.

You're involved in a legal battle with the Napa Valley Vintners Association over the use of names such as Napa Ridge on bottles that don't contain grapes from Napa Valley. What do you think of their complaint?

There is a vocal minority that is leading some of them on a quest to put Napa on a pedestal. But we don't believe in that. ``Napa'' could mean auto parts to most people. To us, it is just the location where we bottle our wines.

But why bottle wines there when you don't grow grapes there?

The reason we built the bottling operation there was because we have customers whom we bottle for and they wanted it located there so that they can watch the bottling of their products. We had completed and opened that plant long before we introduced Shaw. (Certain Charles Shaw labels say ``Cellared & bottled in Napa.'')

Even though you are a nephew of Ernest Gallo, people say you have a ``prickly'' relationship with the wine industry establishment. Why is that?

Well, there may be some people who don't know me and who have operations and might want to throw rocks because of my success and their lack of success or their financial problems or they can't sell their wine. They can't blame me for that. I didn't go there and tell them to try to build some monument of a winery.

California vintners should be concerned with promoting California wines and planning for the future to make us competitive instead of being prickly in their opinions about the people who are trying to be competitive.