Wineries Gingerly Delve into Beer and Spirits

Wine executives share disparate attempts to enter other markets, say craft beverages aren't rivals

by Paul Franson
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Since brewing takes place year-round, equipment at Carneros Brewing Co. (above) can be used more often than winemaking equipment.
Santa Rosa, Calif.—With craft breweries popping up everywhere and craft distilleries growing in popularity, many winery owners have considered whether they should hop into those ponds.

After all, all three businesses deal with national, state and local alcohol laws, and all three involve some of the same technology and equipment.

A recent panel at the North Bay Business Journal Wine Conference, however, suggests that their synergy may not be great as it seems at first glance.

The speakers included Derek Benham, owner and CEO of Purple Wine + Spirits in Graton, Calif., Amelia Ceja, president of Ceja Vineyards in Napa, Calif., and Oren Lewin, senior VP of marketing and strategy for WX (formerly Winery Exchange) in Novato, Calif.

The panel was moderated by Brad Bollinger, publisher of North Bay Business Journal, and Perry DeLuca, senior vice president and industrial head wine, food and beverage for Wells Fargo Bank.

Purple Wine’s transition
Benham started producing private labels including Merlot-focused Blackstone in the early 1990s, selling that brand in 2002 to Constellation Brands.

He formed Purple Wine Co. in 2002 as a virtual wine company that eventually acquired a production facility, Sonoma Wine Co.

One of its brands was Mark West, a leader in affordable Pinot Noirs, and he sold that to Constellation and BRL Hardy in 2012.

The company now produces and sells other brands including Avalon, Raeburn, Four Vines, Lucky Star, Cryptic, Flint & Steel and Calista as well as private labels. It has grown to occupy three facilities including a craft distillery. It made 850 cases of its first spirit, which is selling in the North Bay.

“There’s a potential synergy, but you have to keep them separate,” he noted. “They overlap in the distribution network, but the spirits world is different. There’s different follow up and education.”

He added, “You may sell one or two bottles at a time, not cases.”

On the other hand, he can make and bottle some spirits in three weeks and sell them for $30 to $40 each at a 60% gross margin. “And it never goes bad,” unlike wine.

Benham doesn’t expect a return on his investment in the distillery any time soon, but he isn’t offering custom distilling either (though the company does bottle spirits for some other distillers).

And in production, you have to keep wine and spirits totally separate, though he admitted, “Winemakers like to play with new things.”

He summed up, “There are some similarities in distribution to on- premises sites, but that’s about it.”

Ceja Vineyards and Carneros Brewing
Winery owner Amelia Ceja is more bullish on beer.

The tireless entrepreneur came to this area from Mexico as a grape picker and later formed Ceja Vineyards with her husband and his brother and wife, one of the earliest wineries owned by Mexican immigrants. It also was the first winery with a female president.

The Cejas now own vineyard land and are planning to build a winery.

They created Carneros Brewing Co. with her brother-in-law Jesus, a master brewer from Anheuser-Busch in St. Louis, Mo.

Ceja says that Carneros Brewing is one of only three craft breweries in the United States founded by Mexicans, which is surprising considering the commercial success of Corona and other imported Mexican beers.

Ceja sees synergy between beer and wine in many ways. “Both require you to understand and work with distributors,” for one thing. And many of her wine distributors also wholesale beer. “They were excited to distribute our beer,” she claimed. “Total Wines is excited to add our beer to all its 130 locations.”

A talented cook who has demonstrated Mexican cooking at the Smithsonian in Washington, D.C., Ceja also points out that both beer and wine pair well with food, and she looks forward to organizing dinners pairing both beer and wine. “We promote both wine and beer (while) embracing our culture,” she said.

Ceja Vineyards has an active wine club, and she also found that the club and mailing lists provided a welcoming market for beer. “We had built-in consumers. We could tell them via social media without spending a lot of money.”

Most of all, there’s a huge demand for microbrews as well as wine, and she notes that many men prefer beer, while their female partners like wine.

Carneros Brewing produces 1,000 barrels annually but has the space to grow to 5,000 barrels.

She admitted that there’s less profit in beer than wine, but it’s easier, faster and less expensive to make beer. There are no expensive vineyards or materials, and the equipment can be used continuously, not just at harvest. “The return on invested capital can be great.”

That said, Ceja says the business has encountered obstacles.

Though her wine tasting room and Carneros Brewing’s brewpub are on the same property, they are required to have different entrances (they’re actually in different buildings), and wine tasters can’t take their glasses out into the beer garden to drink. “We can’t mingle them,” she lamented.

Winery Exchange becomes WX
Winery Exchange was a large supplier of private wine labels, but the company changed its name as it got into beer and spirits. Senior VP of marketing and strategy Oren Lewin noted that consumers were becoming more experimental—and large retailers want to reduce their number of suppliers. “The concept of private brands is hot among chain stores, but it hasn’t had much impact yet among alcoholic beverages,” Lewin said.

He saw that if he could produce multiple types of beverages, he could expand his market. Sales representatives could talk to the same buyers at many chains, too.

Lewin added that the interest in farm-to-table food has extended to beverages, too. People want local products, and they want more flavors. He needed local breweries across the country.

In addition, craft beer succeeded with social media and word of mouth, not the expensive advertising employed by large beer companies, an attraction for the bootstrapped company.

Lewin says that synergy between the beverages could be strong in direct sales to consumers, as Ceja has found, but that’s not WX’s business. He does see a future in wine aged in spirits barrels and spirits in wine barrels as well as some beer crossover. That could be an option for producers who cross lines.

Lewin concluded that craft wine, beer and spirits will all benefit from growth. “They’re not taking from each other. A rising tide lifts all boats.”

“Craft beverages continue to nibble away at the market share of large suppliers in beer and spirits,” Benham added, acknowledging that some brands are rising faster than others.” Lewin added, “Big brands beware.”

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