It has become axiomatic in the wine business that gaining national distribution for a brand is difficult if not impossible. Most everyone knows the chart of two funnels pointing in different directions that illustrates the challenge. Today, 9,700 U.S. wineries need to push their wines through just 1,200 distributor or wholesaler companies. That situation used to be reversed. In 1995, there were just 1,800 wineries fanning out into a wide funnel of 3,000 distributors.

"When I started my career, there was a lot more attention from wholesalers," said Gregory Ahn, CEO of Folktale Wine Group, based in Carmel, Calif. "It used to be that distributors would come out to California and knock on your door to look for new wines. Nowadays they don't even have time to taste all the wines that come to their offices."

It's a well-known challenge posed by distributor consolidation. Faced with that challenge, some brand owners like Ahn have found a solution in regional distribution. Focusing distribution and sales efforts on one region of the U.S. enabled Ahn and his team at Alcohol by Volume, the previous business name, to create a brand, prove its appeal in one region, and later sell it to a bigger wine company that could take it national.

Bread & Butter is that brand. Conceived in 2012 and launched in 2013 as a partnership between Alcohol by Volume and Fior di Sole custom-crush winery, the $15 retail Chardonnay and Pinot Noir brand grew to 200,000 cases in four years and was sold to Novato, Calif.-based WX Brands in April 2017 for an undisclosed sum. The advisor who assisted in the sale, Mario Zepponi of Zepponi & Co., said that Bread & Butter's focused, regional-sales approach was a key factor in attracting the buyer.

"I look at it as a pathway to success," Zepponi told Wines & Vines, "especially for brands that are more positioned for sale at some point. But no matter what, it's a strategy that will lead to a successful brand."

Zepponi used the Bread & Butter example in his presentation at the Unified Wine & Grape Symposium in January of this year. He told the audience that strategic distribution is becoming more and more important. "Independent wineries are going to have to think like craft beer and spirits makers. I would encourage them to look at this example."

Ahn confirmed Zepponi's characterization of the Bread & Butter distribution strategy, but admitted that it wasn't as intentional as it may have appeared. "Unfortunately, I am not smart enough to say that I sat in my evil lair and decided this is what we're going to do for distribution."

But he and his team's relationships with the trade in the Northeast, and outside the major urban centers, led them in that direction. Zepponi said the company built two-thirds of its distribution in case depletions in the Northeast and did it with 65% independent, off-premise accounts and middle-tier wholesalers.

"It was definitely distributor and wholesaler relationships that were key," Ahn said. Opici, based in New Jersey, distributed Bread & Butter in Connecticut and upstate New York. Bay State was the company's partner in Massachusetts, Rhode Island and New Hampshire.

Ahn said that when starting a new brand or new winery, trying to get distributors to add it to their books is the biggest challenge. "Wholesale channels have created such a bottleneck that it's difficult to even get distribution at all without relationships. But we had to get our own people to pound the pavement to help them."

He and two other salespeople did the pounding at first, building to five people total before the sale.

Origin story
A quirky shop in Salem, Mass., that sold both wine and kitchenware provided the aha moment in 2012 that led to the creation of Bread & Butter. Ahn, who had worked for Seagram, Diageo, Allied Domecq and Constellation Brands before founding Alcohol by Volume, said he had been hearing from various clients that consumers were turning away from unoaked Chardonnay and looking for a more classic style of California Chardonnay that was "more malolactic-driven, oak-driven and fruit-forward."

Ahn had begun to believe that the trend toward unoaked wines had peaked with the Naked brand and that the trade and the public were ready for more offerings in the mid-price points that were openly rich and oaky. He observed that many people in the wholesale tier especially remained affectionate about Rombauer Chardonnay, which continued to be a big seller because of, and not in spite of, its very fruity and oaky flavors and quite soft and luxurious texture.

The store stocked a number of what Ahn calls the pastry brands such as Layer Cake, Cupcake, and JaM along with cheeky labels like Twisted Sister and Bitch. It also sold cookbooks, and as he flipped through a dictionary of food terms he came upon an entry for bread-and-butter pickles. A description of the sweet pickles as a simple, uncomplicated staple got him thinking that the name would work especially well for a Chardonnay, except the pickle part.

He said Alcohol by Volume had already worked with the Fior di Sole winery in Napa, Calif., as a custom production partner, and he asked the winery to start making Bread & Butter Chardonnay. Fior di Sole's owners are Dario de Conti, Valentina Guolo-Migotto and Stefano Migotto, who are also the owners of Ca' Momi brand wines and a Napa, Calif., restaurant of the same name.

By 2014, Alcohol by Volume was listed as one of Inc.com's 500 fastest-growing companies, producing Bread & Butter and other brands including Alias Wines, Aviary Napa Valley, Des Amis, Le Mistral, Manifesto and State of Art. At the time of the sale in 2017, Zepponi stated in a news release that the brand had consistently ranked as one of the fastest-growing in the industry, based on retail scan data, with a sales value increase of 139% for the 52 weeks ended Feb. 25, 2017, based on the Nielsen food and liquor outlet data. "Minimalist packaging design and a clean style have helped Bread & Butter stand out within the increasingly competitive super-premium price category," Zepponi wrote, "despite the brand's minimal distribution in retail chains and limited sales outside of the East Coast."

Low-hanging fruit
Ahn said it was not his company's intention from the start to build the brand that fast and then sell it, based on success in a region. The regional distribution strategy came into focus as his team began to sell Bread & Butter. It was a strategy of necessity, he said, because of the small size of the company in 2013, which led him to aim at medium-size wholesalers who were familiar with handling fine wine. The wholesalers were not focused on supermarkets and chains, but on independent retailers.

"There was a feeling of 'let's go where there's less competition,'" he recalled. Having gone on ride-alongs with distributor reps in Boston and New York City in previous jobs, he found the practice was less common in smaller markets and with independent retailers. Ahn said the brand's success was based on relationships in the Northeast, and the team basically avoided trying to build much business in California.

"Northern California especially was so competitive," he said. "The West Coast in general is more difficult for brand development."

If you're a small or medium-sized winery in California, "you can get in your pickup and deliver wine around you, but so much of the business is based on chains that it's hard to penetrate."

He said that in his career he had taken part in acquisition discussions when his former employers bought brands, and he knew some of the attributes they valued. "So there was some conscious thinking about how you build value into a brand. One part of that is how do you grow so that there is more fruit left on the tree for a buyer. I had learned that you don't extend the brand to too many varietals, for one thing. That's for the bigger company who buys the brand to take that fruit.

"The geographic fruit is also low-hanging. If you can prove out the brand's appeal in one region, and someone looks at it and says, 'Wow, they haven't even touched this other part of the country,' then that's something they can use to get their return on investment if they buy it," Ahn said.

He added that since Bread & Butter did not have chain grocery distribution, that was another branch loaded with low-hanging fruit for a buyer that did have chain connections. "We were doing over 200,000 cases without national chain distribution. So a buyer could imagine how quickly they might scale up the volume if they got into it."

Funding the rapid growth of Bread & Butter was the most difficult hurdle the company faced, Ahn said. The brand got to the point that it needed bigger distributors, bigger partners, he said. "We could either change our partners or give it to someone who had that expertise already. WX was such a strong private label company, but they didn't have national brands. I think they saw it as an anchor brand."

WX takes over
Wine Business Monthly listed WX Brands as the 19th largest U.S. wine producer in its February 2018 issue, and that was before the announcement of the Bread & Butter acquisition and the simultaneous acquisition of the Jamieson Ranch Vineyards portfolio.

WX CEO Peter Byck stated in a news release in April that "these acquisitions reflect the continued evolution of our company. We built this company by providing exclusive, consistently great quality wines, beers and spirits to our retail customers, and that remains the core of our business. Now we are adding a collection of wine brands that uniquely appeal to consumers and will drive category growth for our retail and wholesale customers."

Oren Lewin was the senior vice president of marketing of WX at the time Bread & Butter changed hands, but has since moved on to Peju Winery in Rutherford, Calif., where he is general manager. He confirmed to Wines & Vines, "We carefully analyzed the success they had building the brand regionally, which gave us confidence we could scale the brand when we would expand it nationally.

"Unless you are one of the major wine companies, with a large sales force and significant influence with distributors and chain retailers, I believe wineries are better off building brands regionally. By concentrating your resources in a limited geography, you can demonstrate a success story that can be replicated in other markets.

"It also gives key stakeholders confidence that your brand will be successful; winery ownership confidence they should invest resources; distributors confidence they should take on the brand; and retailers confidence they should authorize distribution.

"I generally prefer to build brands in independent markets, where you can gain distribution store by store. In chain markets, you have to convince chain buyers to give you a chance, and they generally wait for brands with proven track records. So I often launch brands in independent markets like Massachusetts, New York, Minnesota or Colorado."

Lewin said the regional approach has affected his thinking about how to expand Peju's business nationally. "At Peju, we are focusing all of our wholesale efforts on our top 12 markets, which represent 90% of our business. As we demonstrate success in these markets, we will add resources so we can expand to additional markets."

As for the other brands left in Gregory Ahn's company after he and his partners deposited their presumably large checks for Bread & Butter, he said, "Across our portfolio there are other brands with the potential to grow like that. Our focus is controlled growth, however. We don't want to get the tiger by the tail again. Our goal is not necessarily to build something to sell, but there's an active M&A market out there, and people should be prepared to have that conversation."