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.

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