The Wine Group, Inc.

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The Wine Group, Inc.

240 Stockton Street
San Francisco, California 94108-5325
U.S.A.
Telephone: (415) 986-8700
Fax: (415) 986-4304
Web site: http://www.winegroup.com

Private Company
Incorporated: 1981
Employees: Not Available
Sales: $300 million (1999 est.)
NAIC: 31213 Wineries

The Wine Group, Inc. (TWG), a privately owned company, is the third largest wine company in the United States in terms of sales volume. At its vineyards in California and New York, it produces a variety of wines sold under the Franzia, Corbett Canyon, Mogen David, Tribuno, and Lejon labels. Their product line is largely inexpensive, making them available to a wide audience. Franzia and Corbett Canyon, at their California vineyards, are principal producers of TWG’s standard table wines. Franzia Winetaps, sold in boxes, are the best selling wines in the United States. Corbett Canyon, with wines sold in distinct, re-sealable decanters, produces very competitive, premium-grape varietals at its winery near San Luis Obispo. More specialized are the sweet concord grape and blackberry Mogen David kosher wines produced in New York, the premium vermouths sold under the Tribuno label, and the less expensive vermouths sold under the Lejon name. Most recently, TWG has begun marketing wines under the Foxhorn and Crysta labels as well as producing a line of wine coolers under the Lyrica name. The company has also purchased Turner Road Vintners, the Woodbridge production and bottling facilities of Sebastiani Vineyards Inc., which bottles medium-priced wines under a variety of brand names, including Talus, Vendange, Farallon, Nathanson Creek, Heritage, and La Terre.

The Wine Group’s Origins in the 1980s

Early in the 1980s, several large conglomerates began divesting wine companies that they had acquired just a few years earlier. Among the sellers were the Coca-Cola Company, R.J. Reynolds, Schlitz Brewing Company, and the Coca-Cola Bottling Company of New York. For whatever reason, the wineries no longer fit into the conglomerates’ plans for growth and diversification. The Coca-Cola Company had in fact caused quite a stir in 1977, when it created the Wine Spectrum, a subsidiary consisting of the Monterey Vineyard and Sterling Winery in California and Taylor Wine Company and Great Western Winery in New York. Some critics questioned the advisability or propriety of the soft-drink giant’s entry into the alcoholic beverage market. Whether it took such concerns seriously or not, it sold its winery holdings to the Seagram Company in 1983.

By that time, the Coca-Cola Bottling Company of New York, which had owned three wineries, had already divested itself of its holdings. These consisted of Franzia, Mogen David, and Tribuno, which were bought in 1981 by The Wine Group, a limited partnership formed for the purpose of buying the wineries. The partnership was headed by Arthur A. Ciocca, who was the president and CEO of Franzia and formerly a marketing executive with Gallo. He was joined in the venture by some other members of his team, men who had been charting Franzia’s way under the ownership of the Coca-Cola Bottling Company of New York and were opposed to a buyout involving a third party.

At the time, Franzia was a well established California winery offering a range of varietal wines. It also shipped wine, grape concentrates and brandy in bulk to the Mogen David winery in Westfield, New York, to be used in such Mogen David products as MD 20-20 and Golden Chablis. Mogen David also had a long history and was noted for its regional kosher wines, notably its sweet concord grape and blackberry table wines. Tribuno vermouths, both sweet and dry, bottled in New Jersey, were also established products. The brand was the number one premium vermouth produced in the United States. It and Lejon, a leading popular-priced vermouth, were two high-volume brands of TWG. Both produced sweet (red) and dry (white) vermouth. The wines, often used in standard cocktails like martinis and Manhattans, were also used as both aperitif and dessert wines.

The Histories of the Wineries

At the time of its acquisition by The Wine Group, Franzia had been in existence for 66 years. In 1893, Giuseppe Franzia, its founder, immigrated to California from his native Italian city of Genoa. He worked in small truck farms around San Francisco, earning a meager salary that kept him at the poverty level for several years. He was very frugal, however, and by 1906 he had saved enough to plant and cultivate a small vineyard of his own. He founded the first Franzia family winery in 1915. It was not a particularly auspicious moment, however. The country was two years away from entering World War I and just five from passing the infamous 18th Amendment, which cleared the path for the Volstead Act, barring the manufacture, sale, or transportation of intoxicating liquors.

Franzia had no choice but to close his winery during Prohibition, which lasted from 1920 to 1933. During that period, Franzia’s five sons continued cultivating the vineyard, and when the Repeal came in the form of the 21st Amendment, they reopened their father’s business under the name Franzia Brothers. Initially, the sons sold their wine in bulk to eastern bottlers. Then, late in World War II, they began bottling their own branded wine, using the mass-production methods that had been introduced by their in-laws, Ernest and Julio Gallo, who had opened bottling plants in Los Angeles and New Orleans. In addition to an assembly-line method of bottling, the Gallos used screw-caps rather than corks to seal the bottles, something considered almost a criminal act by some wine connoisseurs but defended as sanitary improvement by health-conscious customers.

In 1971, a family squabble over the future of the winery resulted in its sale to a group of investors in the East who subsequently sold it to the Coca-Cola Bottling Company of New York (itself acquired by Coca-Cola Enterprises Inc. of Atlanta in 1997). However, some members of the Franzia family continued in the business, creating the JFJ Bronco Winery near Modesto, California.

The Mogen David Winery, located in Westfield, New York, also had been around a long time when TWG acquired it. Originally, the company was located in Chicago, but it relocated to upstate New York in 1967, a practical move to put it closer to its supply of grapes for its Concord wines. At the time it was purchased by TWG, it was producing about six million gallons of wine annually and was the world’s largest producer of Concord wines. Not all of its wines were the kosher wines for which it was best known. Popular among a younger audience, specifically college students, was its MD 20/20 affectionately know as “Mad Dog” 20/20, a line marketed in several flavors that recalled non-alcoholic drinks, including pink grapefruit, wild berry, and Hawaiian blue.

1982–89: Becoming a Major Market Player

TWG faced some troubling prospects in the early going. By 1983, the California wine boom of the 1970s had ended, leaving an industry in a slump and a major marketing problem. In the decade prior to TWG’s formation, California had at last won the long battle to establish itself as a world class producer of wines. State vintners, buoyed by a new optimism, added considerable acreage with new grape plantings, developed new technologies, and created new wineries, including, for example, the Lawrence Winery, the forerunner of Corbett Canyon. In 1982, after a decade of an annual average growth of ten percent, wine shipments flattened out. About half of California’s leading wineries shipped fewer cases than in the previous year, and between the 1981 and 1982 harvests, wine inventories climbed by 16 percent to 685 million gallons. The 3.1 million ton grape crush of 1982 broke all previous records; it also caused wine prices to plummet, aided by a general recession that was reining in a growth in the sales of all alcoholic beverages.

The wine glut compelled wineries to use new marketing strategies, and it soon became clear that the 1980s would be ruled by the low-cost producers and marketers. TWG responded with some innovative measures for producing and marketing its array of bargain-priced wines. Notably, with Franzia, TWG pioneered the “wine tap” container, a box containing a pouch with a tap. It would become the fastest growing wine package of the 1990s. Because a loophole in federal wine standards allowed boxed wine producers to dilute the wine with water and still market it under classic varietal names such as Merlot and Cabernet Sauvignon, the new packaging caused some industry flack. Also with Franzia, TWG helped initiate the wine cooler craze in the 1980s.

In 1988, the company took an important expansion step, buying Corbett Canyon from Glenmore Distilleries Co. The vintner was originally established in 1979 as the Lawrence Winery but was re-established as Corbett Canyon in 1983. From grapes grown on its 350-acre Los Alamos Vineyards in the Edna Valley, outside of San Luis Obispo, California, the winery was producing a line of award-winning Coastal Classic varietals and Reserve designated wines. Its line would eventually grow to include Cabernet Sauvignon, Chardonnay, Merlot, Muscat, Muscat Canelli, Sauvignon Blanc, White Zinfandel, and Zin-fandel. Growing sales would also compel it to buy some of its grapes from other producers.

Company Perspectives:

The Wine Group’s innovations have changed the way millions of Americans enjoy wine. Our company pioneered the wine-on-tap category with Franzia, and made this the fastest growing wine package of the 1990s. We are also a leader in developing and marketing new varietals and blends, and recently introduced freshness assurance dating to the wine industry.

1990 and Beyond: TWG Becomes the Nation’s Third Largest Producer

In most ways, TWG fared very well in the 1990s. It enhanced its reputation as an innovator, introducing, for example, freshness assurance dating to the wine industry and garnering some awards for the distinct design of some of its bottles. Both its Franzia and Corbett Canyon brands were highly successful. According to A.C. Nielsen ratings, in the mid-1990s, Corbett Canyon was the fastest growing domestic wine. From 1995 to 1996, Corbett Canyon produced one million cases, a 67 percent leap in production. The wine maker—one of 19 wineries and vineyard members in the Edna Valley Arroyo Grande Valley Vintner’s Association—was so successful that it had to close its doors to the public; it needed its tasting-room space for additional barrel storage to accommodate its growing product line and sales. In 1995, after cultivating additional acreage, it added Merlot and Zinfandel to its range of Californian varietals. However, the closing move made it the only winery in the Association to turn away visitors and prompted some criticism because the vintner, immensely popular, had previously drawn many visitors to the area, a benefit to all the other area wineries.

It was also in 1996 that Corbett Canyon received a Wine Business Monthly Clear Choice Award for package design for its 1.5 liter bottles that tapered from rounded shoulders to square bases, a distinct, innovative shape. Still, it was not just TWG’s break from the traditionally shaped bottle that made Corbett Canyon a great seller. It won plenty of accolades for it caliber, and even “wine snobs” were buying some of Corbett Canyon’s line, its Sauvignon Blanc, for example, that in 1997 still cost under $5 for a .75 liter bottle.

As for Franzia, in 1997 it was the top selling brand of wine in the country. In that year it recorded depletions of 18 million nine-liter cases, 6.6 million cases ahead of its closest competitor, Carlo Rossi. Even Mogen David continued to lead in its particular market sector. In 1998, 1.5 million adults were drinking Mogen David, beating out it chief competitor Canandaigua’s Manischewitz wine by 100,000. Demographics indicated that the drinkers of the kosher wines produced by Mogen David and rival Manischewitz were not typically part of a kosher community or even Jewish. The non-vintage kosher wines, with their relatively high sugar content, had an appeal to a broader customer base, principally to consumers who preferred sweet dessert wines in traditional flavors like blackberry and concord. Mogen David was also tapping into a more youthful market, a mainstay of TWG.

Throughout the decade, TWG continued to develop products with a primary appeal to that market sector, one that was not hidebound by tradition and was willing to try anything at least once. In 1999, it started shipping its new, clear-bottled Lyrica brand in a variety of flavors: Raspberry Merlot, Passion Berry White Zinfandel, Peach Chardonnay. The bottles, created at the San Francisco design shop Primo Angeli, were again unique, reinforcing the impression that TWG always did things a little differently than other wineries. However, in 2000, it appeared that TWG was also going to invest some more in standard varietals and pricier wines. Sebastiani Vineyards Inc. agreed to sell its Woodbridge production and bottling facilities, the Turner Road Vintners, the largest in the Lodi, California, area, to TWG. The facilities included a crushing and wine making complex with a 275,000 square foot bottling plant and distribution warehouse located nearby. The Turner Road Vintners produced about 7.8 million cases of wine per year (about 90 percent of Sebastiani’s wine) bottled under a variety of brand names: Talus, Vendange, Farallon, Nathanson Creek, Heritage, and La Terre.

In addition to being an industry leader in the development and marketing of new varietals and blends, throughout the decade TWG played an exploratory part in the development of new markets, including Mexico. The North American Free Trade Agreement (NAFTA) that went into effect at the start of 1994 encouraged American wineries to make a serious attempt to export wines to Mexico and other south-of-the-border countries. Mexico’s tariff was reduced by 20 percent and would continue to decline by two percent per year until it would finally be eliminated. Arthur Ciocca, TWG’s CEO, noted that once the tariff barrier was sufficiently lowered NAFTA would give American wine makers an opening in a market with enormous potential.

The Wine Group was clearly going to remain a major industry player at the century’s turn. In the first calendar quarter of 2000, The Wine Group shipped 5.47 million nine-liter cases of wine, an increase of 7.2 percent over the same period of the previous year. Its exporting volume also soared by 46 percent over the same period in the previous year. Furthermore, TWG was rapidly closing in on second-ranked Canandaigua, which shipped 5.56 million nine-liter cases. Though both trailed industry leader Gallo by a wide margin, they were way ahead of fourth ranked Robert Mondavi.

Principal Operating Units

Franzia; Corbett Canyon; Mogen David; Tribuno; Lejon.

Principal Competitors

Canandaigua Wine Company; E. & J. Gallo Winery; Sebastiani Vineyards Inc.; Sutter Home Winery, Inc.; Robert Mondavi Corporation.

Key Dates:

1915:: Giuseppe Franzia founds family winery in California.
1979:: Lawrence Winery is established.
1981:: The Wine Group (TWG) partnership is formed to buy Franzia Bros., Mogen David, and Tribuno brands.
1988:: TWG acquires Corbett Canyon, formerly known as the Lawrence Winery.
1997:: Franzia is the top selling brand of wine in the United States.
2000:: TWG buys Humphrey and Brown International Wine Marketers from the Sebastiani and Cuneo families.