Wednesday, June 20, 2012

Is Two-Buck Chuck bad for California wine?

My column this month for Palate Press is a rant and a call-to-arms about being called a wine snob, which is apparently defined by the non-enophile world as anyone who thinks wine can be better than 2-Buck Chuck.

I'm not here to knock Charles Shaw wines. As I say in the column, they're the best wines you can buy for $2. Fred Franzia allows schoolteachers and social workers and other people with low incomes to have a bottle of wine on the dinner table, which is nice.

I admire Franzia's mastery of the supply chain that allows him to deliver competent wines with a $2 retail price and still turn a profit. We're so accustomed to it now that we don't think much about what an achievement it is: thinner glass, cheaper corks, cheaper paper, a single dedicated merchant -- anything to save a nickel.

But last week on my blog I ran excerpts from an industry report that says Australian wine is dead in the US market and blames Yellow Tail -- another wildly successful, competent, cheap wine -- as a major reason.

So I have to wonder: Is Two-Buck Chuck hurting American wine the same way Yellow Tail ultimately hurt other Australian producers?

The market for California wines is still robust. But for a certain segment of the market, there is now no reason to spend more than $2. If you write about wine for any newspaper, people make that comment on almost every story. You see it on Facebook, Twitter, all over the Internet: Why waste $40 on that single-vineyard Pinot Noir when you can have 20 bottles of 2-Buck Chuck?

Whole Foods recently introduced its own $2 wine, and I think it's a major mistake. Whole Foods wants to take customers back from Trader Joe's. But I talked to a distributor last year who said Trader Joe's can barely sell any wine BUT 2-Buck Chuck now; it has cannibalized the market for everything else. Like many retailers, Whole Foods has made surprisingly big profits from private-label wines -- sometimes half the cost of a $10 wine. You have to sell a whole lot of bottles of $2 wine to make that kind of money.

Is that a microcosm for the whole US wine market? Look at the comments on the Palate Press piece: in 10 years Bronco has sold 600 million bottles of Two-Buck Chuck. Whatever good the brand has done in introducing wine to people, it's hard to look at that figure and not think that a few million bottles of other wines would have been sold if Two-Buck Chuck wasn't around.

Is it possible that one day we'll look back on the introduction of 2-Buck Chuck as the beginning of the end for fine winemaking in California?

Read the Palate Press column here.

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Unknown said...

The only decent wine in the TBC line up is their Chard. The other wines, particularly the reds, are pretty crappy.

It's not TBC or yellow tail, or whatever other bargain brand that is to blame.

It is the notion that whatever you like is good, bolstered by the beliefs (as pernicious as they are pervasive and erroneous) that 1) perception of a wine's organoleptics is subjective and 2) that because of this people can't be taught organoleptic evaluation of wine and 3) for these reasons, one cannot have objective standards in wine assessment.

Very American point of view. But also very wrong.
But hey, Charles Shaw is cheap and Americans will not trade down in quantity in tough times, they'll trade down in quality. More is gooder, right?

John M. Kelly said...

Yellowtail killed the export market for Aussie wine. Is TBC killing the export market for California wine? I don't know - have not seen any data to support this.

And who says TBC turns a profit? $24 a case RETAIL, right? That's under $12/case FOB. I calc the all-in cost at the million-case margin to be something like $16/case to bottle AIR. Can you say "loss leader"? I knew that you could.

W. Blake Gray said...

John: I agree that TBC is a loss leader for Trader Joe's. BUT I can't see why Bronco would do it as a loss leader. I'll bet very few TBC customers could name the company that makes it, so it's not gaining anything for Bronco in company image. If Fred Franzia's not making money, why do it?

Anonymous said...

I think there is some merit to people who otherwise probably wouldn't be drinking wine at all drinking $2 wine. (SOME!).

The real question is: Will those people ever trade up to better wine. I think we're in a perfect position to tell now. The discounting of the past few years is ending (for CA wine) and prices are going back up. Will the consumer who got used to drinking $10 and paying $5 for it, realize that $5 is not good and start paying more? Or, will they stay at $5? Worse yet, will not not drink wine at all if they can't afford $10 and don't like $5 wine?

Anonymous said...

The US is one of the only growing wine markets in the world, let’s hope there is growth in value not just volume.

John M. Kelly said...

Blake - Bronco can do it because in distribution you get a pull-through effect: "yes you can have 3 cases of TBC if you take 2 cases of X at this price."

W. Blake Gray said...

John: Thanks for clarifying; that's a savvy point.

But still: it's only at Trader Joe's, which can't sell anything else now, and that includes Bronco wines.

So if you're right, Trader Joe's will push back on the deal and it becomes Three-Buck Chuck (in California; I realize it's already Three-Buck Chuck in some other states, but that's because of distribution issues.) Which hasn't happened yet.

W. Blake Gray said...

Chris: Well that's kind of the point of the Palate Press column: that there IS better wine. Which is what SUAMW is also saying. Nothing wrong with TBC, but we do have to get people to accept that if they're willing to pay a premium for better hamburgers or coffee or dress shirts, the same concept applies to wine.

Lynn said...

Will they trade up? Probably not.

I have seen snobby neighbors who showed off by buying a Hummer and then served Franzia box wines at their dinner party. And they looked down their noses at us. At least we have a decent wine cellar!

Another example, I just came back from a watercolor workshop attended by people who have money. What did they serve at the social hour? Charles Shaw! And I had even mentioned in the past about maybe getting a little better wines. It isn't just poor people that are ignorant about wines. There are plenty of rich ones too. Of course, maybe they got that way by buying 2 Buck Chuck to serve to their friends.

W. Blake Gray said...

I just got this comment by email from a wine researcher who doesn't want to be named:

"Market research done shortly after 2BC really took off showed that most of the volume came from: (a) trading down from $5-10 bottles; (b) people adding wine-drinking occasions because it was so affordable. E.G. “I’ll open a bottle just because I feel like a glass, because at $2 it doesn’t matter if I don’t finish it before it goes bad” or “I can afford wine on Wednesdays with my sloppy joes”. But sadly, only a small proportion of 2BC volume came from getting new consumers into wine. It’s possible this has changed in more recent years, but I wouldn’t bet on it.

Pace John Kelly, I don’t think Fred Franzia does “loss leaders”."

Anonymous said...

Is the potential problem one of price or story telling?

I suspect once Yellow Tail became the primary Australian wine story everything else suffered.

Same thing in New Zealand, when the grape supply increased and marketing lacked the ability to quietly move the product it became the story of the season.

I once read that if we do not learn to tell our story - then someone else will and in your story Fred Franzia is happy to be the California story.

Wine regions that use a single story to promote everyone will be caught in this trap and all brands will be lowered to the common denominator of price.

Tom said...

At 600,000,000 bottles over ten years, that an average of 60,000,000 bottles annually, or 5,000,000 cases annually. That represents about 1.5% of all wine produced annually in the U.S. It's a big figure, but not enough to significantly bring down the whole market a la Australia.

Portland Charcuterie Project said...

My wife is a Social Worker and I WISH she had a taste for Franzia or TBC. Unfortunately (or fortunately? ) living so close to Oregon Wine Country and having friends that make and own wineries has upgraded her taste to top notch Pinot Noir ( although not expensive in my view, definitely not "cheap".)

I personally have tried almost every "cheap" wine at TJ's..( those under $10), and some I enjoyed.. like some of the whites.. and a few cheap spanish reds.. some have been "meh".. and some have been quickly spit out into the sink.

I wouldn't wash my balls with TBC, but I know people who drink it and like it. When they come to parties at my house, I steer them away from my Pinot and point them to the cheap spanish reds...

Beau said...

Trader Joe's does make a profit on Charles Shaw.

People buy it for a few reasons, in my experience.
1. Americans' culturally-embedded sense of cheapness. The "hey it's in a glass bottle so even though it's $2, it must be ok" factor.

2. The line of reasoning that "Well if Trader Joe's sells it, how bad can it really be?"

3. The ego: "Yea I drink wine, I'm classy, and despite the fact that it's $2, it's still in a glass bottle and has a real cork".

Interestingly the Bronco/Trader Joe's partnership over the past decade has produced some fascinating responses to rising fuel and glass costs. Charles Shaw used to be orderable (by each store) in any quantity you wanted. Now, stores must order by the pallet (60 cases per). Also, the boxes used to be white, now they're unbleached cardboard. The cardboard itself used to be thicker and much higher in quality. Now, it's thin fragile. Lastly, the glass used to be thicker and with an actual punt. Now, it's about as thin as possible and has no punt.

And that's just over the course of 4.5 years of observation!

Douglas Trapasso said...

ronmcfarland said...

"Wine regions that use a single story to promote everyone will be caught in this trap and all brands will be lowered to the common denominator of price."

But isn't that what Robert Mondavi did in the 1960's to great acclaim? I guess the lesson for developing wine regions is choose your storyteller very carefully!

W. Blake Gray said...

Chicago: Could be wrong (I wasn't there), but wasn't Mondavi's story basically that Napa Cabernet was as good as Bordeaux, which at the time was considered the pinnacle of wine?

That said, you're right, Mondavi was the king of wine charm.