The Scourge of Napa Valley

No Wine Is Worth $10 +
Bronco's wines are associated more with the brands, or labels, than with the place the grapes were grown. (Franzia talks of a new label named Harlow Ridge, after a street on an industrial development where Bronco's bottling plant is located--how's that for terroir?) The company's 17 winemakers pick from wines coming through the inventory to enhance blends for a particular label. They might mix a bit of Shiraz with Merlot, for example, or wines aged in oak barrels with those aged in steel tanks. There's nothing unusual in this, but it's bold to insist that these blended wines are every bit as good as Napa wines that cost several times as much, which of course Franzia does. "I defy anyone that charges more money to let me conduct a blind tasting," he says. "He'll look like a fool with his own wine."

Franzia says a lot of things, but nothing from his repertoire causes as much eye rolling within the industry as his claim that no bottle of wine is worth more than $10. "I'm not sure that his sense of taste is that refined," says Vic Motto. "If he disdains things that cost more or are of higher quality, he may not understand what the differences are. He does not seem to be a nuanced type of person."

In fact, Bronco does sell a few wines for more than $10. Franzia says he doesn't like those prices either, but he claims his hands are tied by the cost of wines from premium appellations such as Napa and Sonoma. And he'll apparently break the two-figure barrier when buying wine for himself. "He will publicly say he won't pay over $10, but he's paid a lot of money for some of my wines in the past," says Michael Mondavi, scion of the famous wine family and a lifelong friend of Franzia's. "He did it because he liked them."

Franzia was born in 1943 to one of the most prominent wine families in California. His grandfather, Giuseppe Franzia, emigrated to the United States from Genoa, Italy, in 1893 and began commercial wine production in the San Joaquin Valley by 1915. His five sons continued the business after the end of Prohibition and built a winery in Ripon. Fred spent summers and holidays stacking cases and pruning vineyards alongside his brother Joseph and cousin John. He grew up around the founding fathers of California wine, including his uncle Ernest Gallo, Julio Gallo, Robert and Peter Mondavi, and August Sebastiani, and he considers these men his models.

The admiration ran both ways. Don Sebastiani recalls how his father, August Sebastiani, enjoyed sparring with the young Franzia. "My father was stunned by Fred," he says. "The guy was born with amazing business acumen and personality. Fred would offer advice to my father almost like an older man would to a younger one."

Franzia went to work for the family company, assuming that one day his generation would take its turn at the helm. Then came a painful blow. In 1973, Fred's father and uncles sold the family winery to Coca Cola Bottling. (Coca Cola later sold the business to the Wine Group, a San Francisco company, which continues to sell Franzia wine as a bag in a box. The Franzia family has no connection with its namesake wine.) "I just didn't feel selling was the right thing to do and I told my dad," Franzia says. "I ended up not talking to him for seven years afterward because I thought he made a mistake."

Ambition stoked from loss
Fred, Joseph, and John struck off on their own. Bronco incorporated on December 27, 1973. Fred serves as chairman and CEO, Joseph is co-president and runs the company's distribution arm, and John, also a co-president, oversees production. A dozen members of Fred's family now work for Bronco, including two of his five children (his other children are a doctor, an actress, and a Navy SEAL).

Franzia says he later reconciled with his father, but some friends believe the loss of the original family business stoked his ambition. "Let's face it, Fred's a driven man," says Marc Mondavi, president of Charles Krug Winery in Napa Valley. "I'm sure that had some influence on the three of them--we're going to start over and, by God, we're going to show everybody we can do it."

They did. And they collided with the law. In 1993, Franzia and Bronco were indicted on federal charges of conspiracy to defraud for misrepresenting cheap grapes worth $100 to $200 per ton as Zinfandel and Cabernet Sauvignon grapes worth five to 10 times as much. The indictment charged that Fred Franzia himself instructed others to sprinkle Zinfandel leaves on top of loads of cheaper grapes in what he called "the blessing of the loads"--a parody of the traditional blessing of the harvest. All told, prosecutors said, Bronco misrepresented 5,000 tons of grapes and one million gallons of wine that were sold on the wholesale market for $5 million.

The company pleaded no contest and paid a $2.5 million fine. Franzia pleaded guilty and agreed to pay a $500,000 fine. As part of the plea agreement, Franzia stepped down from the board of directors and as president and refrained from any involvement in grape purchasing or production for five years. The prosecutor agreed to a downward departure in sentencing and no prison time, saying that Franzia's absence might have resulted in the closure or sale of the company and would have unfairly punished his partners and hundreds of employees. "The safest guy to do business with is me because I have the most to lose," Franzia says. "I have no reason to cheat. I didn't have then either." He declines to explain further. "They tattooed me, so fine," he says. "Do I look like I'm worried about it? Does it look like it's killed our company? We've done quite well, thank you."

Becoming industry legend
That is true in part because Franzia knows how to find a bargain. He snaps up wines, grapes, labels, and land when prices are low, often during foreclosures or bankruptcies. "Fred has got his ears to the ground," says Marc Mondavi. "He's always asking, always listening, What's going on? Anybody in trouble?" The wine industry is violently cyclical, and Bronco tends to emerge from each down cycle with more land, more labels, and less debt. "You know how they say buy low and sell high?" says Michael Mondavi. "He bought low and doesn't sell. He builds."

The most famous example of Franzia's savvy, the Two Buck Chuck story, has become an industry legend. In 1995, Franzia bought the Charles Shaw label from a Napa Valley winery that had gone into bankruptcy. The label sat in a drawer with dozens of others until 2002, when the wine market was flooded by excess inventory. Grape prices plunged and many wineries sold bulk wines at a loss. Bronco became one of the few success stories of the year when it struck a deal with the Trader Joe's chain to sell an ultravalue wine for $1.99. (It's generally $3.99 outside California.) With its own bottling facilities and distribution system, and with the market awash in cheap, decent wines, Bronco could produce an ultravalue wine and still make money. Bronco resurrected the Charles Shaw label, which soon picked up the nickname Two Buck Chuck. Critics pronounced it surprisingly drinkable; the editors of the trade publication Wines & Vines picked a Two Buck Chuck over a $67 Chardonnay. Two Buck Chuck became the fastest-growing wine label ever and Bronco now sells five million to six million cases of it annually in five varietals. Franzia dreams of repeating the coup on a larger scale by developing an ultravalue line for a major chain like Costco, Wal-Mart, or Target. But he says the big retailers remain unwilling to accept such a slim profit margin.

Thanks to Two Buck Chuck, Bronco was named winery of the year at the 2003 United Wine and Grape Symposium. When the announcement was made, the Western Farm Press reported, "the ballroom literally erupted in disbelief and contempt."

Bronco, meanwhile, became embroiled in another dispute that went beyond taste. This time it centered on labeling laws.

During the years that Franzia was building his business in the San Joaquin Valley, Napa solidified a reputation as the mecca of American winemaking. It has almost 400 wineries, roughly one quarter of the total in California, and is by far the most recognized appellation in the USA. Napa Valley produces just 4 percent of California wine by volume but earns $2.3 billion in sales--about a quarter of the state total. On average, Napa labels are 61 percent more expensive than those with a generic California designation. The valley has become a magnet for business moguls and celebrities with aspirations--and money--for making great wine, including director Francis Ford Coppola, football star Joe Montana, and racecar driver Mario Andretti.

"They don't impress me one bit," Franzia says of the Napa winemakers. "You know, I've purchased a lot of wineries and products from people who pretended they were pretty rich. When they cash in their chips, we're there to buy them."

Taking on Napa
And therein lay the roots of the conflict. In 1993, Bronco bought the Napa Creek label. The following year, it acquired the Rutherford Vintners brand, named after a community in Napa Valley. In 2000, Bronco paid more than $40 million to buy Napa Ridge from Beringer Wine Estates.

Federal law requires that if a wine bears the name of a geographical place, at least 75 percent of the grapes in the wine must have been grown within that region--85 percent in the case of federally designated American viticultural areas. But a grandfather clause exempts labels that existed prior to 1986. This meant that Bronco could, and did, sell Napa-labeled wines using grapes grown elsewhere, a tactic already employed by Beringer. (Labels identify the source of the grapes in smaller print.) At the time, Napa Valley Cabernet Sauvignon grapes sold for about $2,600 a ton; grapes from the Central Valley sold for $600 a ton. According to court records, Bronco sold 300,000 cases of Rutherford, Napa Creek, and Napa Ridge wines--$17 million worth--per year.

Napa vintners saw this as an act of piracy. And they feared it was about to get worse. In the city of Napa, Bronco was building a massive bottling plant capable of churning out 216 million bottles a year--more than twice the output of all the Napa County wineries combined. The vintners lobbied state legislators to close the loophole, and in 2000, the California legislature passed a law requiring wines whose labels bore the name Napa or any federally recognized viticultural area within Napa County to contain at least 75 percent local grapes.

Bronco sued to stop the state from enforcing the law. The Napa Valley Vintners Association, which represents about 250 wineries, filed as an intervenor on behalf of the state. The case began a tortuous six-year legal odyssey through the state and federal courts.

"He's just an opportunist," says Tom Shelton, president and CEO of Joseph Phelps Vineyards. "I think he missed the ethics course in college--he was out that day. He doesn't understand what the hullabaloo is all about."

Shelton and Franzia first crossed in the 1990s when Shelton began getting calls from friends joking about Bronco buying the Phelps winery. Soon he found out why: Bronco had run an ad that mocked the idea of Napa terroir, and the picture in the ad showed the Phelps Vineyard in the heart of Napa Valley. (Bronco apparently didn't know that was the case when it bought the photo.) Shelton phoned Bronco. Franzia told him to buzz off.

Shelton recounts the story as he sits in his office at Phelps, in a beautiful building designed by a noted architect. On the shelf sit Phelps wines that sell for $45 to $200 per bottle. A hostess leads a wine tasting on the patio outside. Sheep graze in the vineyards below, part of biodynamic farming techniques to emulate the traditional European vineyard. "Fred Franzia and Joseph Phelps Vineyards are not even in the same industry," says Shelton. "The real danger of opportunists like Fred Franzia is that a lot of our brand strength is related to the association between place, style, and quality. If you misappropriate the name Napa and diminish that, then you are damaging my prospects in the marketplace."

Many of Franzia's loudest critics in Napa come from smaller wineries. The industry has undergone a wave of consolidation, and the 25 largest California wineries now ship 82 percent of the state's wine. Small wineries cannot compete with giants based on price, so they often seek niches as artisanal or boutique operations. The Napa address adds valuable cachet, and winemakers pay for it: Napa vineyards can exceed $350,000 per acre, versus an average of $10,000 in the Central Valley. The Napa Valley vintners--more than half of whom produce fewer than 10,000 cases per year--protect their name as one of their most prized assets and bolster it with PR, such as the slogan "To a wine grape, it's Eden."

Franzia dismisses this, of course, as Napa propaganda. "California wine shouldn't be divided up into these little oligopoly appellations," he says. "They try to create a myth to keep the consumer from buying other people's wine." Napa vintners beg to differ. "Why are so many people willing to pay $50 for a Napa Valley Cabernet?" fumes Dennis Groth, owner of Groth Vineyards and Winery in Oakville. "His implication is those rich guys up there are all cheating the consumer. Well, he's the one cheating the consumer."

Animosity runs deep. Franzia has tried to have Groth removed from the board of the Wine Institute, an industry group. He cracks jokes about Napa being an auto parts store, and wonders why nobody sues over London Fog or Hawaiian Punch. When an appeals court ruled against Franzia on the appellation issue, Bronco surprised everybody by quickly releasing a $3.99 Napa Creek Chardonnay and Merlot, with Napa grapes, nicknamed Four Buck Fred. Franzia gave the impression of a guy who enjoyed a good fight. "These f---ing guys have no mind-games capability," he says of his Napa critics. "Guys like that are no challenge to me."

Despite Franzia's constant tweaking of Napa vintners, he may be helping them in a backhanded way. He's introducing consumers to good wine; they could well trade up as their palettes become more discriminating. "People love him or hate him, but they have to privately admit that he has introduced one hell of a lot of new consumers to wines that taste good," says Michael Mondavi. "Because of that, he has helped members in the industry who despise him."

And there's another hole in the Franzia-as-scourge-of-Napa story: He is a major player in the horse-trading of wine and grapes. "When I was looking for wine, Fred would be one of the first people I would call," says Richard Grant Peterson, a longtime Napa vintner. "I knew that if he had wine I could use, it would be priced fairly, good quality, and the deal I made on the phone would be good." In fact, Franzia did business with many Napa wineries even as the vintners association was embroiled in litigation against him.

Some even turn to Bronco to bottle their wines. In southern Napa County, where the valley opens up into a broad plain near San Pablo Bay, stands a Mediterranean building with a red tile roof, a bubbling fountain, and flower beds. No sign advertises its identity: Bronco's Napa bottling plant.

Wine arrives in tanker trucks from Ceres and elsewhere and moves out again within 24 hours with a Napa bottling address on the labels. Inside bottles clink along conveyors where they are cleaned, filled, corked, labeled, and boxed in seconds. Bronco officials say they bottle for Napa wineries such as Beringer, Markham, and others that they decline to identify. "This line will put out about 240 bottles per minute," says Bob Stashak, the plant's general manager, as he stands beside one of the three lines. "They're running 24 hours a day, five days a week. When we get to the holidays, we kick in with a sixth and seventh day."

In January, the U.S. Supreme Court declined to hear Bronco's final appeal. Franzia had exhausted his legal options. The Napa vintners celebrated by putting out a press release that said, "Corks are popping at wineries throughout Napa Valley." Franzia sat in his office in Ceres, shook his head, and called it a case of government protecting a Napa oligopoly. "Shame on them for thinking that's a victory," he said. "What they've done is hurt the free enterprise system and made bad law."

He's not done with Napa. On the desk sits a plan for another development on 85 acres near the Napa bottling plant. He stabs a finger at the map. "We're going to put another winery in here, a glass plant in there, and a warehouse in here. We'll have office buildings. We've got it all laid out."

His prediction for the next five years: more volume, more labels, more success. He talks of a new wine called Napa River, made with real Napa grapes, that will sell for less than $5. Critics claim that such prices cannot be sustained, but Franzia repeats one of his maxims: "I make money at it or I don't do it."

The dustup over the legal case has eclipsed the fact that Bronco already has several other labels made with Napa wines purchased on the bulk market. And a big harvest of 2005 bodes well for Bronco. "Many people," says Franzia, "are holding excess inventories in Napa that don't want to sell them--yet."

Previous 1 | 2

More About the Cheap Wine Craze