Amid the rocky fundamentals currently facing the American wine industry -- stagnant consumption, a looming oversupply and a loss of market share to imports -- Beringer Wine Estates (BERW) is doing a lot of things right, in a way that may offer important lessons for the rest of the industry.
Beringer has adopted a strong consumer branding strategy that has begun to pay off, with a shift toward higher average selling prices and away from less-expensive, smaller-margin wines. According to Beringer's financials for the quarter ending March 31, the company's average wholesale case selling price rose to $54.30, up from $52.52 in fiscal year 1998, and only $44.20 in 1995. This has enabled Beringer to widen its lead over archrival
Robert Mondavi Winery
, which had an average wholesale case price of $47.67 in fiscal year 1998.
Higher average selling prices have a dramatic impact on the bottom line, as the following estimates from Mike Fisher of industry consultants
Motto, Kryla & Fisher
That also helped Beringer produce higher gross margins in 1998 than its peers: 53% vs. 49% for Mondavi, 50% for
and 44% for
Chalone Wine Group
. This despite the company's continued heavy reliance on cheap White Zinfandel for more than a third of its total revenue, and a heavy debt load.
What's going on here? How is Beringer outperforming Mondavi and the other big players?
Hambrecht & Quist
beverage analyst Bonnie Tonneson, who rates Beringer a buy and whose company was an underwriter for the company's IPO. "Brands demystify the pain of buying, " according to Tonneson, and "brand loyalty creates protection against the cyclical effects of boom or bust pricing."
Tonneson emphasizes that Beringer has been extraordinarily successful in branding and promoting its
brand of wines, which retail in the $9 to $11 price range. According to company statistics, the Meridian brand has grown from 46,000 cases and $2.8 million in revenue in 1990, to 672,000 cases and $47 million in revenue in 1997. This amounts to average annual compounded growth in revenue of 50% per year, over seven years.
Salomon Smith Barney
analyst Jennifer Solomon points out that while Beringer shipments were up 16% overall in the quarter ended March 31, the Meridian brand grew 24%. How do they do this?
Beringer is an exception in an industry that has come very slowly to the marketing mindset. Industry icon
, for example, was proud of telling people that, up until 1993, when he took his winery public, Mondavi had never advertised.
Beringer management, on the other hand, has a keen nose for marketing. "These guys all came from
," says Tonneson, and they were grilled regularly on what they were doing to grow their brand each week. The proof is in their ad budget: Whereas Beringer spent $16.1 million on advertising in 1998, Mondavi spent only $10.6 million.
Beringer management is mum on how much of its budget was allocated for Meridian, but Tonneson says there's no question the Meridian television ads -- which feature an abstract painting -- are effective. The proof, she says, is in the number of people who "ask for the wine with a painting on the label."
Furthermore, Tonneson's numbers show case growth in markets with advertising at 50% for the second quarter of 1999 over the same quarter in 1998, while those markets without advertising grew at 30%. "Rarely do other industries see such immediate or dramatic returns," she said.
Tonneson also thinks that Beringer and other players are benefiting from a shift away from specialty publications toward broader consumer markets. According to her research, the wine industry's spending in publications such as
The Wine Spectator
decreased from 86% of industrywide marketing budgets in 1987 to 64% last year, and she thinks that's helping to reach new customers.
Beringer's focus on consumer marketing has resulted not only in better margins, revenue and a more profitable product mix for itself but also offers a bright hope for the future -- if only other big players will pick up on it.
In a highly concentrated market where the
Wine Market Council
says 11% of all wine consumers drink 88% of the wine, Beringer's expenditures outside the "wine geek" publications offer the opportunity to reach new consumers. The industry's ultimate goal should be reaching the 80% of American households which, according to a 1998
Sutter Home Winery
survey, do not even own a corkscrew.
After all, the long-term outlook for the industry -- to sell all the new wine hitting the market, to compete with imports and to produce healthy shareholder returns -- will depend on whether other wineries follow Beringer's lead, or simply continue to assume that consumers will come to them.
Lewis Perdue is editor and publisher of
Wine Investment News. While Perdue does not hold any positions in the companies discussed in this column, he is the chief technology officer (on a consulting basis) to the e-tailer Wine Society of the World, which may, from time to time, discuss purchasing or other agreements with wine companies. He can be reached at