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W i n e s & V i n e s A U G U s T 2 0 1 4 59 W I N E M A K I N G 500,000 gallons, can only be explained as such in my mind. Pinot Noir and Char- donnay statewide are moving through the system, but at lower prices than growers and wineries saw in the past two to three years. Zinfandel (particularly Lodi) is slow to dead in the water. I am uncomfortable naming prices but can tell you that in the past four months, we are buying at or below tonnage cost plus processing. That said, we are confident wine and grape prices are going to moder- ate. Judging by the samples on wine bro- kers' shelves, and having just been privy to two major lenders fretting about inventory builds in their wine clients both large and small (they are already worried about over- supply and asking their wineries for plans on how they are going to deal with excess inventories), we believe strongly that we are back in an oversupply situation. This includes Napa and Sonoma counties. We think the 2014 harvest will come in bigger than growers are currently predict- ing. The state of California underreports actual acreage significantly, and we believe the California Department of Pesticide Regulation is a far more accurate barom- eter of actual acreage, along with the report by Nat DiBuduo of Allied Grape Growers, to the tune of 70,000 acres, with another 90,000 to come on line over the next few years. (Read more on page 17.) The bulk market is trending long, and prices will continue to moderate—they have to, in my opinion. Fruit is overpriced in this state. This is just big picture, of course; obviously further analysis district by district and varietal by varietal will be more nuanced. W&V: How do you determine what you'll pay for bulk wine or whether it's correctly priced? Hughes: It depends on the situation, but for the most part we look at what price the wine will be sold for and then does the bulk wine in question allow us to out- perform the category in price and quality. When launching 50 wines per year, many of which are completely new offerings, you have to be able to outperform the cat- egory; otherwise, what is our reason for being? I always say we are only as good as our last Lot wine, because retailers and consumers expect the highest quality-to- price ratios from us and will only continue on our "treasure hunt" as long as we out- perform expectations. We bought very lit- tle bulk wine out of California in 2011 because it was overpriced for our custom- ers and lower quality than our customers had come to expect. We did purchase bulk wines from France and Italy. W&V: Where are you finding the best val- ues these days? Hughes: I think we are about to get pretty long here in California for Pinot Noir and Chardonnay, and hopefully Cabernet will moderate as well. Spain is showing us amazing wines right now. We just saw a 2007 Gran Reserva from Rioja (three years in wood, two years in the bottle) that could retail for $9.99-$11.99 and is every bit as good as $30-$50 California Pinots and Cabernets. There are delicious, modern-style Garnachas and Tempranillos with $6.99-$7.99 retails that, with the right packaging, could be quite successful. Italy also has some delicious bulk wine available for about 1.25 euros per liter (with current exchange rates, about $7 a gallon, including shipping to the U.S.) that land somewhere between Lodi/Cen- tral Coast and Sonoma County in terms of quality. Argentine Malbec is about to become dirt cheap here with their cur- rency devaluation, but we have not been as successful with Malbec under our label as we would have liked. W&V: Part of your business is direct to consumer. What sort of marketing strate- gies are you using? Hughes: I like to think we were one of the first—if not the first—flash wine sites. We offered up each of our Lot wines as they were released to Costco, then when they were gone, they were gone. Some, like Lot 17 Sierra Foothills Barbera, were gone in a day. The "flash" or treasure hunt aspect to what we do has always been successful on the Inter- net and through email marketing. We now have around 40-50 SKUs avail- able on a daily basis. We run sales and promotions, do marketing partnerships with brands such as Pottery Barn, Banana Republic and Room and Board, and update content constantly to make the site stickier. W&V: You recently added a new brand, CAM Collection, to your lineup. Why? Hughes: The dynamic, in-and-out nature of the Lot program is tough for some retailers, most notably the grocery chan- nel. We developed the CAM Collection to take advantage of our brand equity and consumer base to deliver consistently available wines (vintage to vintage, vari- etal to varietal, like traditional brands) from regions we believe deliver the nexus of quality and value for a particular vari- etal. For instance, we think the best bang for your buck for Chardonnay comes from Monterey County, and Cabernet from Lake County (though we'll see what happens with Lake County—I think we are being priced out of that appellation right now). We oversee the production of all the wines for the program and are adding a Central Coast Pinot Noir out of 2013. More varietals will be added down the road. A resident of the Santa Cruz Moun- tains, Laurie Daniel has been a journalist for more than 25 years. She has been writing about wine for publications for nearly 15 years and has been a Wines & Vines contributor since 2006. The keg proposition C ameron Hughes' retail wines are all in bottles, but in 2013 he started packaging some wines in kegs for on-premise accounts. "We think the keg proposition for restaurants is pretty compelling, and we wanted to be in the space," Hughes says. Hughes is using the Free Flow Wines system, which he says "seems to have the best way to go to market currently, but I think the space will see other packaging entrants as it matures and more restaurants embrace the format." one challenge, he says, is the constantly changing lineup of wines that he's selling. "We have been kegging up wines we usually have in our mix consistently, such as Monterey Chard, Washington state riesling, Central Coast Pinot noir and our Greenlip new Zealand sauvignon Blanc." L.D. Hughes is using kegged wines to break into on-premise sales.