Tuesday, December 18, 2018

Organic Beverages: Organic Beer and Wine Experts See a Bright Future at Organic Growers Summit

Bill Vyenielo of Moss Adams, Ted Vivatson of Eel River Brewing Co.,
Katrina Frey of Frey Vineyards and Phil LaRocca of LaRocca Vineyards
A Full House at the Organic Growers Summit 

More than 1,000 people attended the Organic Grower Summit Dec. 13-14 in Monterey to hear industry panels and check out products from more than 60 exhibitors. The conference, now in its second year, is sponsored by the Organic Produce Network (OPN) and mainly caters to the large concentration of organic fruit and vegetable growers in the tri-county area of Monterey, Santa Cruz and San Benito Counties. 

The region is home to many of the nation's largest conventional growers whose gross sales over the past five years almost doubled, growing from $328 million to $574 million as conventional growers convert more acreage to organics.

Matt Seeley, founder of OPN, says Millennials and higher income parents are driving the booming organic food market (which reached $3 billion in 2018). This group, he said, is motivated by concerns about their young children's health, avoiding GMOs and enjoying more flavorful food. (Concerns over pesticides rank 4th on the list of these consumers' preferences, he said.)
Source: Organic Trade Association's 2018 Organic Industry Survey (conducted Jan.-March 2018)
Organic Wine and Beer Are Growing Markets: Costco and Lifestyle Marketing Fuel Growth

Organic wine and beer sales are part of the growing organic movement and a session on alcoholic organic beverages presented a view of the sales growth in this sector.

According to Nielsen data from June 2017 to June 2018, most of the organically grown wine is from in the "Made with Organic Grapes" wine category; 80% of wines sold off premise in the U.S. with the word "organic" on them belong to this category. These wines may contain a limited number of organic additives and up to 100 ppm sulfites. (No added sulfite wines may also contain the same list of organic additives, but may not exceed the lower sulfite cap of 10 ppm).
Nielsen data shows a 5% growth in off premise revenue of wines labeled organic. (In the rest of the U.S. wine industry, growth is fairly flat.)

The biggest winner in the "Made with Organic Grapes" category is Bonterra, which has a 25% market share of the organically grown wine sold off premise in the U.S. The Mendocino producer makes about 500,000 cases of wine annually and its Biodynamic wine program is featured in the new Wine Enthusiast Media lifestyle series It Starts with Wine set to launch Jan. 4 on Amazon Prime.

According to Fetzer, Bonterra's parent company, sales increased from 315,000 to 500,000 in three years, landing it a Hot Brand award in 2016 for its 20% growth in 2015.

Bonterra has recently been releasing new organically grown wines that edge into higher price points ($25) than its typical wines, which are sold widely in supermarkets and at Costco.

Nielsen Data Omits Major Outlets for No Added Sulfite Organic Wines

Nielsen data doesn't include Costco, the nation's biggest wine seller, or many of the natural foods stores where organically grown wines - including those with no added sulfites in the "USDA Organic Wine" category - are sold. Producers of no added sulfite wines say their wines are under represented by Neilsen as they are sold much more frequently in these locations.

Organic Beverage Panel: Veteran Producers

Three pioneers who have been in the organic beer and wine industry for decades discussed the current state of the organic beverage market in a lively session moderated by Bill Vyenielo, former General Manager of Peter Michael Vineyards and former CEO of Medlock Ames, an all organic estate winery in Sonoma County. Today he serves as senior wine business consultant at Moss Adams LLP.

Panelists included:
• Katrina Frey of Frey Vineyards (in Mendocino County)
Frey Vineyards has grown from 2,000 cases in 1980 to 270,000 today under its three brands: Frey Vineyards, the Agriculturalist, and Pacific Redwood
• Phil LaRocca of LaRocca Vineyards (in Forest Ranch, near Chico)
LaRocca is the board chair of the largest organic certifier in California, California Certified Organic Farmer (CCOF) and has grown organic wine grapes since the 1980's; in 1990, he authored the legislation creating the no added sulfite organic wine category 
• Ted Vivatson of Eel River Brewing Company (in Humboldt County)
Founded in 1994, Eel River is the largest organic brewer in the U.S. (180,000 cases)

The panel did not include any of the "Made with Organic Grapes" producers, even though they are the lion's share of the producers counted in Nielsen outlets. The omission highlights an old schism in the organic wine grape growing community between the no added sulfite producers (who are entitled to use the words "Organic Wine" on the front label, and the rest of the organically grown wine producers who produce and sell more wine).

The U.S is the only country in the world that has a no added sulfite organic wine category and the only country to apply three organic food standards to wine. (Organic wine certifications in the rest of the world permit the limited use of sulfites).

Organic's Unique Positioning

Frey and other panelists said that organic wine producers have something unique to offer in today's crowded marketplace. 

"The wine industry in these days is looking towards the Millennials," she said, "and what they want that we have is transparency and authentic stories. So we try to really educate the public about that."

"One of the reasons that I think organic wine has lagged behind other organic products is the fact that we don't have ingredients labeling on alcohol, and so wine has developed an undeserved reputation as being a natural product."
Sales for Frey Vineyards, one of the Frey's three no added sulfite organic wine labels 
"In reality, there's all sorts of additives and yeast nutrients and flavor enhancers and colors that can be added to conventional wines that nobody even knows about. So we try to be transparent about how we farm and what goes into a bottle. That's what we find people are looking for today."

Quality Grapes

Quality is another factor driving growth, said LaRocca, a former CCOF president. "What we're seeing at CCOF is that a lot of vineyards are converting but not necessarily selling as organic."

"They're just converting because they feel that they've got a better quality product to go out and market, which is pretty competitive right now."

Carving Out a Distribution Space

The organic route is one way to try to stay alive and differentiate themselves in the face of the extreme competitive environment for wine distributors, Vyenielo said. 

"I know that one of the things that I've dealt with when I've been running wineries is just how hypercompetitive and crowded the market is," he said. "If you go back 15 years ago, there were 2,000 wineries and 3,000 distributors in this country."

"Today there are about 600 distributors and almost 10,000 wineries," he said. "The ratio 15 years ago was that there were three distributors for every two wineries. Today, that ratio is about 11 wineries for every distributor."

"So with all the distributor consolidation and proliferation of wineries, fewer and fewer distributors taking on new wineries to represent many wineries have taken to selling wine directly to consumers. 
Trying to have your wine sold by a distributorin nearly any state is really difficult. It's really difficult just to break into their portfolio."

Vyenielo said many distributors have been shedding non-organic brands. 

Vivatson said being organic is a great niche in the beer industry, where his company stands out. "We are the organic beer segment," he said, "That actually opens a lot of doors because there's not a lot of us out there. And so when we go into a distributor - it doesn't matter where it is around the world - we're kind of sitting by ourselves. And we're in a pretty good spot. And I see that segment growing. and it's a really exciting time for us."
"I think as a consumer becomes more aware, we're going to we get more traction, we get higher sales. And also when you get the big players coming in - like AB (Anheuser-Busch), that's telling you something these guys don't do anything by accident.

"They're not going on, 'what the hell - let's make an organic.' No. They're seeing their own market research...So our distributors are coming around."

Treading a Fine Line with Distributors

Like Frey, Vivatson said the lack of additives is a strong selling point for his Eel River brand. "One of the big problems we've had for a long time is what's it's not about - what's not in our beer."

The two also said organic beverage producers must tread carefully in marketing organics to avoid alienating distributors - but for beer, the landscape may be changing as the major breweries begin to launch organic beers.

"We can't go and start talking about and attacking other breweries or products or what we do without attacking our distributors," said Vivatson. "So we have to be very careful about the way we market our product and how we talk about it."

"We talk about healthful benefits. But we don't attack the other guys, and that's been a really touchy subject. Yet, when I see Anheuser-Busch making organic products now, I think maybe all all bets are off, and I can start talking about it."

Light Beer Morphs From Low Cal to Sporty - and Organic

Image result for organic beer anheuser busch
AB's new Michelob Ultra Pure Gold, announced in Feb. 2018, is the first light beer made from organic grains. It's one of five beers in the Ultra family of "superior light beers," all of which are made free from artificial colors and flavorings. The company says it is the fastest growing beer brand in the country.

Uniquely the brand is marketing the family of all 5 Ultra beers (of which Pure Gold is one) not just to diet-conscious consumers looking for fewer calories, but to sports-conscious and athletic consumers. The brand's slogan: "Live Fit, Live Fun, Live Ultra."
Image result for kelly slater pure gold beer

Ultra brand spokesperson surfer Kelly Slater, who's been called an eco-warrior for supporting  environmental causes, is the brand's celebrity; he appeared in Michelob's Ultra commercial aired during the Superbowl in 2018.

Organic is Unique

Being in the no added sulfites organic wine category is definitely a plus for a winery to stand out in a crowd, Frey said.

"I agree with Ted that this niche that we're in (no added sulfite organic wines) has been very helpful for Frey Vineyards in our nationwide distribution chain," said Frey. "We're with some of the big distributors such as Southern Glazer's, but then we're also with some private distributorships that are particularly focused on Organic and Made with Organic. For many of our distributors, we're their only wine in the USDA Organic Wine (no added sulfites) category, and it's really helpful."

"It would be extremely difficult at this point to be a midsize winery and and start out down the distribution channel without having that very distinctive place in the market," she added.

Frey farms 350 acres of its own, which supports about 40% of the winery's production. The rest of the grapes come 40 contract growers, mainly in Mendocino County.

After the Mendocino Complex Fire destroyed most of the Frey family's homes and winery in 2017, the family owned company began rebuilding from what was a $10 million business loss. Some of the loss was covered by insurance; some was not. It prompted Frey to seek grapes abroad in Argentina to make enough wine to keep its suppliers happy and has even led to increased production this year using the imported organic grapes.

Frey credits Costco, along with natural foods stores, including Whole Foods, for Frey Vineyard's rapid growth over the last five years. In fact, she said, Frey may be able to supply Costco with more wine to be sold in additional regions, leveraging South American grapes and Frey's new winery facility.

"Four years ago, Frey Vineyards started selling wine to Costco in Northern California and Nevada, and that's been a wonderful partnership," Frey said. "And there are opportunities throughout the country for Costco. We don't have enough wine to fill all the potential Costco markets, but with our new winery (which will be completed in May 2019), we are looking at approaching a few other regions now."

"Costco is now the largest purveyor of organic produce in the country," Frey said, "and they sell more wine than any other venue in the country. So there's a lot of potential there."
But Costco isn't the only one, Frey added. "Even stores like Raley's are revamping their wine department. They're going to add a couple more aisles of wine and they're also adding organic products to their stores," she said.

Different Strategies: Simplify to Semi-Retire

For LaRocca, success has been defined more by being able to sell most of LaRocca winery's production to just a few large clients, in order to lessen the strain on his family's priorities - allowing his daughter to spend more time raising his grandchildren at home (instead of marketing wine on the road) and, enabling him to move towards semi-retirement.

The colorful LaRocca, born to Sicilian parents, was once the manager for the rock and roll band Creedence Clearwater Revival and also had an organic food TV show. 

"I used to farm 300 acres at the peak and make 25,000 cases," he said. "But now I'm at about 7,000 cases of wine." Today he sells 125 barrels of bulk wine a year to manufacturers for culinary products. 

"We lucked out for awhile," he said, "where we had been selling to Taiwan and Japan through this one broker and he hooked us up with China. And so we said, 'this is a good way to sell most of our product to China and then focus which I always wanted to do.'"

"We're pretty rural - Forest Ranch is kind of up there (close to Paradise, the site of the Camp Fire of 2018) - but we ended up opening up a tasting room with Chico which I had always wanted. So when we bottle our $20 (retail price) bottle of wine, we get the $20 and not $9 out of the $20."

"We channeled a lot of our energy then into going to one big place. We kept some of our early distributors that are purely organic. And then I developed the market that I started working on many years ago selling to manufacturers." LaRocca has 12 contracts with food processors for tomato sauces, organic jerky and organic frozen dinners.

Meanwhile, LaRocca is also winding down - a bit. Selling to manufacturers and having a tasting room, he said, "has allowed us to keep my daughter home with the grandkids and to keep the doors open."

LaRocca said most wineries need to pro-actively market their product constantly. "You've got to have someone on the road most of the year," he said.  "If you don't have a marketer with your brand, you're pretty much done - no matter how close you are to your distributor."

The Takeaway: It's All About the Organic Lifestyle

When it comes to marketing organic beverages, Vivatson says he's learned to market on lifestyle; the informative approach hasn't worked as well.

"We're trying to match a product to our consumers' lifestyle," he said. "When they choose an organic wine and organic spirit or organic beer, they're choosing a lifestyle. And that's what it's all about."

Note: The Organic Grower Summit posts audio of panel sessions on its website.

Constellation's Crystal Ball Point Person, Dale Stratton, Shares Insights at North Coast WinEXPO

From left to right, Damien Wilson, George Hamel III, Stephanie Peachey, Bill Stratton
Wineries may already be looking nostalgically back in time to the easy days - when well heeled Boomers drove up to country road wineries and paid top dollar for wines and wine clubs. Those days are numbered, experts say.

The party's not over, but North Coast and other wineries are going to have to work harder and in innovative ways that require acquiring new skills in order to go forward and prosper, said experts at the WinEXPO conference held Dec. 6 in Santa Rosa.

Expert panelists from California's North Coast offered sobering analysis and sage advice on how to survive the current trends buffeting wineries in the wake of the 2017 fires and generally flat sales in the overall wine industry.

Note: While the panel was not focused on organic producers in particular, wineries in the North Coast region - which includes Mendocino, Napa and Sonoma - form the largest concentration of organic vineyards in the country. 

These three counties have more than 9,000 acres of certified vines, according to the most recent statistics (2015) provided by California Department of Food and Agriculture (CDFA).

In 2015, Mendocino County had 3,963 acres, Napa had 3,739 acres and Sonoma had 1,573 acres of certified organic vines for a total of 9.249 acres. 

That represents 68% of the organic wine grapes grown in California, according to the CDFA statistics.

The industry has been reflecting on new strategies to survive what Rob McMillan of Silicon Valley Bank Wine Division earlier this year characterized as the tail end of the wine industry's big growth era.

Said panelist Joel Miller of Customer Vineyard, "We've been frankly milking the Boomers and the Gen Xers. Many wineries in the North Bay derive 60-75% of their revenue from these two groups."

While these buyers are core, their numbers and spending potential are not likely to fuel new growth.

Panelists weighed in on the trends that are reshaping the industry and offered advice from their diverse perspectives.

Moderated by Damien Wilson, professor at Sonoma State University's Wine Business program, the panelists included:

• George Hamel III, managing director of Hamel Family Wines (certified organic and Biodynamic)
• Stephanie Peachey, vice president of DTC & Brand Strategy for Kosta Browne Winery
• Dale Stratton, vice president of strategic insights for Constellation Wines US
• Joel Miller, founder and president of Customer Vineyard

Hamel Perspective: Customer Experience Drives Engagement

Customer campaigns - not calendar events - drive wine club sales and retention, said George Hamel III (whose family endowed the wine business professor chair that Damien Wilson was selected to fill.) As a relatively new winery, Hamel said the winery, which has both organic and Biodynamic certified estate vines, learned quickly to hone in on customer services and experiences, a big theme all the panelists mentioned.

Constellation's Insights: Three Main Themes

Stratton focused on major trends affecting the overall wine outlook, looking at the impact of intersecting sectors competing for the wine category's share of the alcohol market. In his remarks, he outlined three themes from his research:

• Occasions - new environments are emerging
• Total Beverage Alcohol (TBA) consumption - patterns are changing
• Premiumization - prices are trending up in wine, beer and spirits

1. Occasions 

"Occasion is a big driver of what you drink and what category you participate in in terms of demographics," he said, explaining this his research shows many new types of events encroaching into gatherings that used to be about wine.

"We see spirits and beer producers really trying to push into spaces that would be traditional wine experiences," he observed. He says beer and spirits producers are actively promoting beer pairing dinners and spirits pairing dinners.

"That's a traditional wine space - and always was - and they're really trying to push into that," he said.

2. Total Alcohol Beverage Consumption

Stratton says the lines between beer, wine and spirits as well as other beverage categories are very fluid, which Wilson later characterized as being "promiscuous."

Said Stratton, "Today's consumer is very much driven by participating in all three categories.

"And as you go younger, it is more prevalent that that occurs. We believe that that trend is going to continue and then it's going to expand, not contract."

3. Premiumization

"The other trend that is very, very powerful is premiumization," Stratton continued. "Premiumization isn't only a wine phenomenon. It is across the Total Beverage Alcohol landscape."

"When you look at the numbers, it's really prominent in the beer category...Six years ago 42% of  what was consumed was premium. It's now up to 56%."

"Spirits are also experiencing that," he said. "This is a trend that we also believe is going to continue."

Owning the Alcohol Beverage Experience: Rising Competition from Retailers 

Stratton said wine marketers need to upgrade the brand experience and customer service standards.

"You're seeing these two wineries (Hamel Family Wines and Kosta-Browne) mentioning personalization," he said. "Everything has to be personalized in today's world, and technology can enable a lot of that."

On the retail side, he said that means more competition from retailers who increasingly want to own the customer experience. "Retailers are now putting restaurants in pretty heavily into their spaces. They're putting wine bars into their space. I have even seen a microbrewery in a grocery store. So they're really trying to capitalize on that and get the experience for themselves."

Local Wine Shops: Personalization Par Excellence?

"Big retailers are going to continue to buy things," Stratton said. "We're going to continue to see them look for other places to buy. But you're also going to have new retailers."

Stratton predicts a resurgence for local wine shops. "They could come out and be able to hit the personalization, hit the experience, and really learn how to win in that space," he said.

On Premise Shifts - With Food Delivery Up, What Happens to Wine Sales?

"The rise of delivery is important. When we think about food being delivered - prepared food, restaurants that are now delivering - it's interesting to see what happens to the wine purchase," Stratton said. Consumers are going to drink something they bought at retail or whatever's on hand at home, or they may skip wine altogether."

"The industry may be moving to smaller sizes. We know people are looking to try and do something with small sizes so that they can capitalize on the food delivery trend."

Health and Wellness

"We're seeing many more on-premise establishments focus on health and wellness and driving that through their menus," Stratton said. "Health consciousness and driving toward that is a big topic."

New Types of Experiential Outings

Stratton identified a number of emerging types of gatherings that he said are influencing the marketplace.

"We're seeing some new concepts come into play...kind of like the Dave & Buster's (a restaurant chain with video arcades) - experiential outings but with high end food."

"These are places where you can bowl, you can play foosball, you can throw darts. It's very much about an experiential outing and being there as a gathering place."

Taprooms are another expanding - and competing - space, Stratton said.

"We have seen a growing number of taprooms - right? Microbreweries exploded. And most of the taprooms that I have been to - they're a pretty simple thing."

"They have more of a warehouse feel; they don't have food, but they let you bring all the food in that you want. Have a pizza in. A couple that I have been to have food trucks outside and the taprooms just sell you beer. It's a really easy solution for the taprooms to get beer trial and, by the way, people take beer home from that."

From the wine industry's perspective, Stratton said, "that's stealing occasions. That is another occasion that's coming in that is really having an impact here."

The Big (and Changing) Picture

Summing up, Stratton said, "On a macro level, what we see is happening is that the consumer is a Total Beverage Alcohol consumer. Premiumization is going to continue. Focusing on personalization and experience are going to be vital to success as we go forward."

Note: Material presented by Joel Miller of Customer Vineyards, who also spoke on the panel, are included in a separate article.

Monday, December 17, 2018

SIDEBAR: Tony Norskog on Our Daily Red's Origins and Market Success

Image result for wine tony norskog
Tony Norskog
Another early no added sulfites organic wine pioneer, Tony Norskog, started Our Daily Red and his other brands in 1989; today its wines still selling for $5 a bottle at Trader Joe's.

"They cost half as much as Frey Vineyards," he said.

By 2012, he was selling 150,000 cases a year for all three of his labels including Well Red and Orleans Hill, his varietal wines brand. "Ninety nine percent was red wine," he said.

He also sold 2,000 cases of of Our Daily Red in boxes at Trader Joe's.

"We had double the sales of Frey," he said "until Frey got picked up by Costco."

Norskog said there was a time when supermarkets were not interested in organic wine at all. Then came the rise of organic foods and Whole Foods stores spread like wildfire, he said.

"In the 1990's, Publix, Raley, Safeway - they would not talk to you. But by 2000, these wines were in the mainstream," he said. "By 2005, they were calling me and wanting big distribution - first Wegman's, then the Safeway's and Krogers."

"If you ran a grocery store back then, you'd be reading grocers monthly magazine, and every third issue would have another story about Whole Foods' double digit growth. That was all through the 90's" he said. "They were the darling of supermarket chains."

Then the other supermarkets began to drive growth with organic food and, for some, organic wines.

"They sold our wines in Florida at Publix," he said, "and little blue haired ladies liked the wines because they were clean."

But, he says, organic wine in America (produced in any form) has lagged behind Europe. "In the U.S. we got no help," he said, "whereas in Europe, there were subsidies for converting to organics."

In 2012, Norskog sold his brands WX Brands in Novato. "It was growing at about 5 percent a year at that point," he said in an interview this summer.

Sales of all three of Norskog's former no added sulfites organic brands continue growing at 8 percent annually, according to its current owner, WX Brands with the Our Daily Red Cab increasing 19% over the last year, according to the company. Altogether, the three brands sold 156,000 cases this year.

"Florida, California, Colorado, Washington are the largest markets. We have seen a lot of interest in the vegan community, as well as individuals with sensitivity to sulfites," said Kate Eckert, associate brand manager for national brands at WX Brands.