Issue link: http://winesandvines.uberflip.com/i/1019591
September 2018 WINES&VINES 37 DISTRIBUTOR MARKET 2018 Low-hanging fruit Ahn said it was not his company's intention from the start to build the brand that fast and then sell it, based on success in a region. The regional distribution strategy came into focus as his team began to sell Bread & Butter. It was a strategy of necessity, he said, because of the small size of the company in 2013, which led him to aim at medium-size wholesalers who were familiar with handling fine wine. The wholesalers were not focused on supermarkets and chains, but on independent retailers. "There was a feeling of 'let's go where there's less competition,'" he recalled. Having gone on ride-alongs with distributor reps in Boston and New York City in previous jobs, he found the practice was less common in smaller markets and with independent retailers. Ahn said the brand's success was based on relationships in the Northeast, and the team basically avoided trying to build much business in California. "Northern California especially was so com- petitive," he said. "The West Coast in general is more difficult for brand development." If you're a small or medium-sized winery in California, "you can get in your pickup and deliver wine around you, but so much of the business is based on chains that it's hard to penetrate." He said that in his career he had taken part in acquisition discussions when his former em- ployers bought brands, and he knew some of the attributes they valued. "So there was some conscious thinking about how you build value into a brand. One part of that is how do you grow so that there is more fruit left on the tree for a buyer. I had learned that you don't extend the brand to too many varietals, for one thing. That's for the bigger company who buys the brand to take that fruit. "The geographic fruit is also low-hanging. If you can prove out the brand's appeal in one region, and someone looks at it and says, 'Wow, they haven't even touched this other part of the country,' then that's something they can use to get their return on investment if they buy it," Ahn said. He added that since Bread & Butter did not have chain grocery distribution, that was an- other branch loaded with low-hanging fruit for a buyer that did have chain connections. "We were doing over 200,000 cases without na- tional chain distribution. So a buyer could imagine how quickly they might scale up the volume if they got into it." Funding the rapid growth of Bread & Butter was the most difficult hurdle the company faced, Ahn said. The brand got to the point that it needed bigger distributors, bigger part- ners, he said. "We could either change our partners or give it to someone who had that expertise already. WX was such a strong private label company, but they didn't have national brands. I think they saw it as an anchor brand." WX takes over Wine Business Monthly listed WX Brands as the 19th largest U.S. wine producer in its February 2018 issue, and that was before the announce- ment of the Bread & Butter acquisition and the simultaneous acquisition of the Jamieson Ranch Vineyards portfolio. WX CEO Peter Byck stated in a news release in April that "these acquisitions reflect the con- tinued evolution of our company. We built this company by providing exclusive, consistently great quality wines, beers and spirits to our retail customers, and that remains the core of our business. Now we are adding a collection of wine brands that uniquely appeal to consum- ers and will drive category growth for our retail and wholesale customers." Oren Lewin was the senior vice president of marketing of WX at the time Bread & Butter changed hands, but has since moved on to Peju Winery in Rutherford, Calif., where he is gen- eral manager. He confirmed to Wines & Vines, "We carefully analyzed the success they had building the brand regionally, which gave us confidence we could scale the brand when we would expand it nationally. "Unless you are one of the major wine companies, with a large sales force and sig- nificant influence with distributors and chain retailers, I believe wineries are better off building brands regionally. By concentrating your resources in a limited geography, you can demonstrate a success story that can be replicated in other markets. "It also gives key stakeholders confidence that your brand will be successful; winery own- ership confidence they should invest resources; distributors confidence they should take on the brand; and retailers confidence they should authorize distribution. "I generally prefer to build brands in inde- pendent markets, where you can gain distribu- tion store by store. In chain markets, you have to convince chain buyers to give you a chance, and they generally wait for brands with proven track records. So I often launch brands in in- dependent markets like Massachusetts, New York, Minnesota or Colorado." Lewin said the regional approach has af- fected his thinking about how to expand Peju's business nationally. "At Peju, we are focusing all of our wholesale efforts on our top 12 mar- kets, which represent 90% of our business. As we demonstrate success in these markets, we will add resources so we can expand to addi- tional markets." As for the other brands left in Gregory Ahn's company after he and his partners deposited their presumably large checks for Bread & But- ter, he said, "Across our portfolio there are other brands with the potential to grow like that. Our focus is controlled growth, however. We don't want to get the tiger by the tail again. Our goal is not necessarily to build something to sell, but there's an active M&A market out there, and people should be prepared to have that conversation." STRATEGIC REGIONAL DISTRIBUTION Independent, off-premise retailers accounted for two thirds of Bread & Butter's sales. Other 35% Off-Premise Independent 65% SOURCE: ZEPPONI & CO.