Davis, Calif.—Peter Byck, co-founder, president and CEO of Winery Exchange, a full-service provider of private-label wine, beer and spirit brands for retailers, told an audience of students, faculty and wine industry professionals at the University of California, Davis (UCD), last week that private-label wine brands comprise 50% of the retail wine market in the United Kingdom. While private-label wines may not grow to that level in the United States anytime soon (they currently total 5%), Byck believes the potential U.S. market could reach 25%.

Byck’s talk, presented through the UCD Robert Mondavi Institute and the Department of Viticulture and Enology, was the eighth annual presentation in the Walt Klenz Lectureship Series sponsored by Treasury Wine Estates (formerly Beringer Blass Wine Estates) in honor of former Beringer CEO Walt Klenz. Klenz, who introduced Byck, said the lecture series is intended to present business-related topics at UCD to familiarize students with the many facets of the wine business. Beginning in 2013, the series will expand to two lectures per year, held in spring and fall. In his introduction, Klenz said, “Winery Exchange is a new type of wine company that is looking at the wine business in a different way, building intellectual capital instead of asset-based capital.”

The theme of Byck’s talk was “Entrepreneurship in the Wine Industry—Balancing Risk and Reward in an Ever-Changing Market.” Byck discussed business lessons learned during the course of his career and tied them to highlights in the Winery Exchange’s company history, which began in 1999 in Novato, Calif., where it remains headquartered. The company was founded with the intent of blending extensive industry experience with cutting-edge business practices. The company now has international offices in the United Kingdom, New Zealand and Spain, managing more than 100 brands and 300 products. Winery Exchange produces products in 22 countries on five continents and ships products to 16 countries on four continents.

Byck is a UCD graduate in computer science and math; he holds an MBA from the Wharton School of Business. Previously Byck was a consultant for Southcorp Wines of Australia and was VP of strategic and business development at Golden State Vintners. He discussed how Winery Exchange has had to adjust its business model during its short history and adapt to market conditions.

It’s easier to win in growing markets
Originally, Winery Exchange was intended to be a business-to-business (B2B) company with plans to sell bulk wine through an auction process. “We quickly realized the concept of bulk wine auctions didn’t work as a business model, and we pivoted to the private label wine business,” Byck said.

The private-label wine business grew successfully, but at one point, the company found itself with Albertsons supermarket as its largest customer, right as Albertsons went through a corporate change that affected its private-label products and created uncertainty for Winery Exchange. As a result, Winery Exchange began moving into private labels for beer and spirits as well as diversifying into the international market.

Although the company did not start with the right business model, it was in the right market. “It’s easier to win in growing markets,” Byck observed as an important lesson learned for a successful business. He noted that U.S. wine sales have grown about 2% over the last year, and have shown sales growth from year to year for nearly two decades. Similarly, beer sales are up in dollar volume, with strong sales in the craft beer category, and spirits sales also have grown during the past year.

Wine brands focus on quality sourcing, production
The company has four full-time winemakers led by UCD graduate and VP of winemaking and sourcing Kurt Lorenzi, who makes decisions and monitors each step of the process including sourcing, blending and bottling as well as working with wine production facilities in sourcing regions.

Winery Exchange sources domestic grapes and wine from Napa (seven of its sub-AVAs), Sonoma (five AVAs), Lake County, Mendocino County, Monterey County, Paso Robles, Santa Barbara, Oregon and Washington state—and internationally from Argentina, Australia, Chile, France, Germany, Italy, New Zealand, South Africa and Spain.

“We’re very focused on quality and production standards. In many cases, we bring up the quality standards of the wineries we work with,” Byck said. “Quality wins over the long term.”

You don’t need assets to succeed
Winery Exchange owns no winery facilities or vineyards, and just recently it started entering into grape-purchasing contracts. “We’re a non-asset-based wine company for the world and act as a one-stop shop for retailers to come to us,” Byck explained. Winery Exchange develops and manages private-label brands for U.K. retailers Tesco and Sainsbury’s—and for U.S. retailers such as Supervalu (brands include Jenica Peak, Pacific Flyway, Q Vineyards), Whole Foods (carries H&G, Grandmaster, PushPin Rose and others), Cost Plus World Market (Foodies), and many other brands for other retailers.

One of the company’s largest private wine brand clients is the Cincinnati, Ohio-based Kroger supermarket chain with more than 2,400 U.S. stores that include Ralphs, Fred Meyer, Food4Less and others. Kroger’s private-label wine brands include Hawkstone, Parkers Estate and Arrow Creek.

Winery Exchange has a five-year plan to grow Kroger’s control wine brand share from 2% in 2012 to 15% in 2017. A recent Kroger wine brand launch was Acronym GR8 Red Wine, dominated by Pinot Noir and Syrah, which hit the shelves in October 2012 in the $9-$15 per bottle price range. The wine capitalizes on the current red blend trend and targets millennial-generation consumers using digital communication. Byck said 30,000 cases of Acronym sold in its first two months on the market. Observing how being a non-asset-based business gives speed and flexibility over an asset-based winery and vineyard business model, Byck said, “We have the ability to follow a hot trend and get a product on the market within a matter of months.” 

With success creating private label brands for retailers, Byck observed, “We have this great engine to make wine, and great information technology, and now were leveraging our expertise and technology to create and build our own national and international brands.” The company made its first brand purchase in 2011 when it bought the Echelon Vineyards brand from Diageo Chateau & Estate Wines.

One of the company’s most successful international wine brands is the Italian-sourced Ogio, which started in 2006, has sold 4.5 million cases in the U.K. alone during the past six years and is the No. 2-selling Italian wine brand in the U.K. Byck said Ogio will be introduced into the U.S. market in Southern California in 2013.

Byck’s other advice under lessons learned:
• Copy models that work.
• Data and information are critical to targeting the right areas for products and sales.
• Trying new products and models can be valuable, but don’t use too much capital.
• Service your customers.
• Use technology and platforms to create efficiency.
• Good company culture and a good team are critical to success. Continually work on your culture by listening to employees.

Byck’s concluding advice: “Work hard, never give up, and be sure to have fun along the way.”