Tuesday, April 12, 2011

Cameron Hughes in his own words

"This is full malo Chard, a butter bomb. 'Cougar Juice,' we call it."

Few people understand the wine industry like Cameron Hughes. He grew up in Modesto, the seat of the Gallo empire. He worked at arguably the only other company quite as wine-biz savvy, The Wine Group, before launching his own eponymous label in 2001.

He doesn't make wine; instead he gets wines from other people who couldn't sell them. That means he's constantly in touch with wineries.

Michael Beaulac, now the winemaker at Pine Ridge, says, "I was at home one night at 8:00 and I got a call. It's Cameron Hughes. He said, 'I'm in a gay bar in Florida and I'm giving reviews to my salespeople and I thought of you.' (He was buying some wine from Beaulac's previous employer, St. Supery, but had barely spoken to Michael.) He had some questions and I answered them."

Hughes is most famous for buying declassified wines from famous wineries and selling them at a steep discount. But he also commissions wines, buys bulk wines and buys previously bottled wines and relabels them (he says scraping off labels costs $10 per case; recorking is $6/case).

His launch plan was brilliant. Initially he didn't even produce a product until he had a purchase order from Costco for it. But while selling direct to Costco helped build his business, he didn't want to be tied to one outlet, so he put his wines in general distribution in 2007. In 2009 he sold 250,000 cases, only 30% of it at Costco.

Hughes, an energetic 39, is not short on publicity. In fact, Lettie Teague's initial column for the Wall Street Journal was on Hughes, and it helped establish his brand for people who aren't Costco shoppers. I last wrote about him 5 years ago for the San Francisco Chronicle, and I wasn't sure what I could say about him that hasn't been said already.

It only took about 10 minutes in his office in San Francisco, where he shares a building with the Zynga dweebs* responsible for all those annoying Farmville announcements on Facebook, to realize that what's interesting is not what can be said about Hughes, but what Hughes has to say.

* Hughes says Zynga people never make eye contact, and though they're all highly paid engineers, the only time they buy his wine is when he has a $5 clearance sale.

Note: Tomorrow I will run reviews on all of Hughes' current releases. Stay tuned.

Hughes has a BA in English from University of Colorado-Boulder, but he immediately went to work as a cellar rat at Corbett Canyon.
"I first thought I wanted to be a winemaker. I saw the winemaker sitting at a desk all day looking at tables. I didn't want to do that."

Hughes: "The three-tier system is fundamentally broken. The path to market is too clogged. It's too expensive."
Me: I'm surprised there aren't more small distributors.
Hughes: "Small distributors were popping up pre-meltdown. All those guys got murdered because they were bringing in higher priced, small lot, geeky wines. They don't have the economies of scale. The big guys can own a wine list. They can tie up a retailer's dollars. Don't get me wrong, distributors are necessary. But there ought to be a lower-priced way to market."

Me: Why did you leave the exclusive Costco arrangement?
Hughes: "If you're concentrated like that, with one customer, banks won't finance your inventory. That's how this whole thing grew, with purchase-order financing. I would present tank samples to Costco. They would give me a purchase order. I would take that purchase order to the banks and they would finance it."
(In other words, Hughes didn't buy the wine from the producer until he had already sold it.)
"You couldn't get this program going with Costco now. No.1, they do it themselves. No. 2, their buyer happened to be the Bordeaux buyer and knew how to taste tank samples."

"We make over half our wine now. And we speculate more."

Hughes is a huge fan of filtering; he's frank on a topic that most winemakers avoid. He says filtering is the true reason for bottle shock, because filtering breaks up the long strands of molecules that make wine taste smooth.

"I like lightly filtered wines. I think they're better. There's not an aromatic or phenolic component that can't get through a filter. They get beat up but they come out cleaner biologically, I think for the better. All those high-end Napa Cabs are filtered. All those 100-point wines, they're filtered."

Me (looking at a bottle): Does anybody buy Atlas Peak Meritage?
Hughes: "If I tell them to online, and I sell it for $15, they buy the heck out of it. We send out emails (to consumers and retailers) on all of our releases. We have 50,000 people on an email list."

"Argentina has 30% inflation. Vineyards should be planting like crazy. But everybody's afraid of devaluation. Why plant a vineyard today that will be worth half as much tomorrow? The Chilean earthquake cut their glass production. The meltdown in the States took away their ability to raise prices. They're growing like crazy, but they're not making any money. Like us in 2009."

We talked the day after news came out about an Australian winery buying bulk wine to produce a different second lot of one of Wine Spectator's top 10 wines of the year. Hughes thinks this happens all the time, and says the samples Spectator and Parker get often aren't the same as the wine consumers buy.
"Anything over 20,000 cases made in California is not the same wine. It's just not. Consistency in larger production wines is impossible to maintain."

Andrew Murray is one of the few winemakers who will admit to working with Hughes.
"Andrew's winery is at 60% capacity. We take up 40%, which allows him to keep his winery staff year-round. That's better for his quality. And he's a bigger player with his growers so he gets better pricing. His wines are more profitable. We do that with five or six wineries: take them to 100% capacity. We've figured out what makes wineries tick, and we exploit those opportunities."

On the samples people send him:
"99% of what comes through here is shit. It's damaged wine that somebody's trying to sell. It's diamonds in the rough and needles in the haystack."

Hughes bought all of the wines in the cellar at Havens when it went out of business, as well as the wines that Napa Smith brewery was making.
Me: You're the guy who makes dreams come true, but not for the dreamer.
Hughes: "We can help dreamers get out of problems at the least worst cost to themselves."

"We don't know what our endgame is. We will probably at some point need some sort of partner on the financial and sales side. No matter what happens, I'm attached to the brand."


1WineDude said...

"99% of what comes through here is shit. It's damaged wine that somebody's trying to sell. It's diamonds in the rough and needles in the haystack."

I feel like he is speaking directly with my brain, it sounds like my samples stacks in the basement! ;-)

W. Blake Gray said...

"Don't Look In the Basement," starring Joe Roberts, Robert Englund and Mel Gibson. Directed by George A. Romero. Rated 78.

Anonymous said...

"Cougar Juice"


Casey said...

I've got serious respect for Cameron. He's a risk taker, a very hard worker and a smart dude.

Kris Chislett said...

Great interview, very insightful! Would love to talk with him, I bet he's got a ton of good stories.

Thanks again mate!

Douglas Trapasso said...

"I'm surprised there aren't more small distributors."
Hughes: "Small distributors were popping up pre-meltdown."

I just can't avoid thinking of eBay and all the stay-at-home entrepreneurs that company created. Why can't the same thing happen in the distribution arena?

Say you're a blogger who loves Pinot. (For example). Why can't you rent some storage space, and independently represent five or six of your favorite Pinots that haven't hit your market yet? Great second job if you work at a restaurant in the evening!

SteveinOakland said...

Great post. Good insights.