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Interview, Part 1: David Kent, CEO, The Wine Group

July 16, 2012

With a core portfolio that includes Franzia, Foxhorn, Almaden, Concannon and Corbett Canyon, The Wine Group (TWG) has long been a formidable player. But in recent years, the company has arguably become California wine’s leading innovator, with Millennial consumers flocking to its new stable of brands such as Cupcake, Fish Eye and Flipflop, among others. Shanken News Daily recently spoke with TWG CEO David Kent about the latest developments in the group’s portfolio in the context of current U.S. wine trends.

SND: How would you describe the state of the U.S. wine market?

Kent: The U.S. wine market is strong, but it’s currently undergoing a fundamental shift. After the Great Recession, producers became excited to see consumers re-engage with premium wine and try new things, even if the wines cost a few dollars more. Inventory that had been stacking up in Napa and Sonoma began to move again. Volumes surged for many producers, including TWG. In some ways that was ironic, since the emerging grape shortage made it impossible to maintain this pace of expansion.

SND: Where are the opportunities for growth in 2012?

Kent: The focus is now on what we call “sustainable growth”—which is rebalancing supply and demand so that value precedes volume.

SND: What are the biggest issues facing wine marketers today?

Kent: The single biggest issue for producers over the next five years will be managing their balance sheets. Wineries are diverting resources from advertising and marketing to vineyards and grape supply. That will help alleviate the grape shortage in the coming years, but the wine industry risks losing share of voice to spirits.

SND: How has the American wine consumer changed over the last few years? Are consumers trading up?

Kent: The Baby Boomer generation which spawned America’s vast expansion of premium wine consumption beyond a handful of coastal elites hasn’t changed much. Many traded down to extreme value (under $4) during the Great Recession and many who discovered that their basic requirements for wine were satisfied have chosen to stay there. God bless them; our business in this segment surged by 6 million cases during the lean years and hasn’t given up a case of that growth since then. Clearly the super-premium wine segment has awakened from its long slumber, but consumers are still addicted to the deal. It will take a while to wean them off discounts and acclimate them to paying full price for wines over $15. What has changed is the wave of adult Millennials—consumers born in the 70s and 80s who’ve now entered the market. They have little interest in most brands that the Boomers enjoyed. That has opened the door to a new generation of brands like Cupcake.

SND: You’ve had phenomenal success with Cupcake Vineyards through your Underdog Wine & Spirits subsidiary. Cupcake was named “Wine Brand of the Year” by Market Watch last year based on its growth from 60,000 cases in 2007 to 2.4 million cases in 2011. How is the brand performing now?

Kent: Cupcake continues to impress. The brand will pass 3 million cases in 2012, and in many ways it’s just now hitting its stride. From the time it rolled out of its test market in 2008, two thirds of the brand’s volume has been sourced from California’s Central Coast and one-third imported. Unlike most super-premium brands whose volume seems to skew toward one varietal, Cupcake is amazing in that virtually every type sells extremely well relative to the competition.

SND: How do you explain that phenomenon?

Kent: The Cupcake formula is simple: focus like a laser on making the $18 wines that Millennials enjoy, regardless of origin, and then sell them for $12.

Look for Part 2 of our interview with David Kent in tomorrow’s edition, and for the full-length version in the September 1&15 issue of Impact.


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