The fine wine private label

Cameron Hughes has done something unthinkable – made fine wine private labels and reinvented how consumers buy wine. Jeff Siegel has the story.
 

Image by congerdesign from Pixabay
Image by congerdesign from Pixabay

Traci Dutton remembers what New York City wine retail was like when she started in the business in the 1980s. There weren’t any in-store tastings and the wine magazines were still in their infancy, so people bought wine because the guy in the store recommended it.

In other words, she says with a smile, Cameron Hughes may be reinventing how consumers buy wine.

“He sells wine to people who don’t want to put it on their Instagram feed or on Facebook so that others can see what they’re drinking, what they can afford to drink,” says Dutton, a consultant, sommelier, and long-time Culinary Institute of America wine instructor. “Wine drinkers, I think, fall into one of two camps. Either you drink good wine, or you drink wine so that other people will think you’re drinking good wine. Cameron sells wine to the first camp.”

The background

Hughes did just that with a wine company called CH Wine about a decade ago. He bought quality California wine that was sitting unsold in bottles and tanks and turned it into private label, most notably for Costco. Now, he is taking the concept behind CH Wine – today owned by Vintage Wine Estates after Hughes went under during the recession – one step further. His company de Négoce takes unsold wine from around the world, re-packages it as Hughes’ private label, and sells it on-line by the case – sight and taste unseen, cash up front, and without going through the US’ notorious three-tier system.

Which, for all practical purposes, no one in the US has ever done before – let alone successfully.

“When CH Wine was restarting, I didn’t have a lot of cash flow, and I thought about doing something like this,” says Hughes. “I knew, with my experience and my ability to find quality wine, that I could make it work. So, when I was ready to do something else after CH Wine, I thought I could make this work.”

Unlike any other wine company

To understand the challenge facing de Négoce, it helps to understand two things. First, the US’
restrictive alcohol retail laws, which mandate that every wine sold must go through a distributor. No distributor, no retail or restaurant presence for the wine.

Second, how top heavy the US wine business is. Almost one out of every four bottles of wine made in the US comes from E&J Gallo, the world’s biggest producer, while the five biggest producers account for 77% of the total. The top three distributors account for more than half of wine wholesale sales, while more than half of all wine in the US is sold in supermarkets.

So where is there room for someone selling wine on-line who markets to customers by sending  e-mails? And who can’t sell wine in all 50 states because he doesn’t have a distributor in 14 of them? Or an importer’s permit in 36? And who is limited to selling wine that would otherwise go unsold?

“Maybe that’s the strength of the idea,” says Wes Risdon, now retired but a long-time retailer who worked for Liquor Barn, Sam’s Club, and Lucky’s on the West Coast. “Maybe there are enough wine drinkers who want something different. When I was buying, I would have to send the wholesalers notes asking them to show me wines that my customers would buy. Otherwise, they showed me the same wines they showed everybody else. It’s tough to have something different in your store when they want to show you the same wines they show the supermarkets.”

That’s because, says Risdon, the biggest wholesalers are under pressure from the biggest producers to sell more product in one of those vicious circles where selling more is never enough. If the wine is good enough for the big boxes and the super stores, then it’s good enough for everyone else. And maybe, says Risdon, there’s a big enough group of consumers who understand that process and want to drink something else. And maybe there are enough of them to allow de Négoce to fill a niche and succeed.

That’s what Hughes is counting on, and what – through a year or so – his company has been able to do. He has seen a market for quality wine, priced at a legitimate discount, and sold to wine drinkers who are tired of cute labels; bland, flabby wines; and premiumized pricing.

“Some of the high-end Napa guys tried to do something like this in the 1990s,” says Hughes, “but they were afraid that if they had been successful – since it involved discounting – it would have been death to their brand. That’s the one thing no one in Napa ever wants to do – discount their pricing.”

Understanding the maths

Because discounting is the key to making de Négoce successful. In a group of a dozen wines released last fall, all but one from Napa and Sonoma, only two cost more than $200 a case. One – a Dry Creek Zinfandel – was $96, and two were $108. Those prices are unheard of in a US retail market where even Big Wine supermarket labels cost $15 a bottle.

Typically, de Négoce sells the wine in two or three stages. First, it offers the wine at its most discounted, four or five months before it’s released. Customers have to buy a case, pay for it, and wait for delivery. Then, just before the wine is released, it may be offered as a case future again, but at a less discounted price. Finally, when the wine is released, it’s sold as bottles or cases at its “full” price. 

The discounts are staggering. The initial case price may be as little as one-third of ordinary retail, while even the “full” price is about one-half. Is it any wonder that Hughes sold 1,300 cases of a 2018 Napa Cabernet in two stages, at $12 and $15 a bottle for a case, before it was released?

“Cam is a scrappy, tenacious wine guy, and value is everything to him,” says Tim McDonald, a wine marketer who has known Hughes for years, and whose company has represented several of his ventures, including de Négoce.  “He truly believes that you shouldn't have to spend a lot on wine to get a lot in wine. He is persistent and enjoys the ‘hunt’.”

So how does Hughes make his value-oriented approach work? First, he doesn’t have the overhead others do, and he especially doesn’t have to factor in the wholesaler’s share, which can add as much as one-third to typical retail prices. Second, the two-year glut of California wine has dampened prices up and down the quality scale. Combine that with the pandemic, which further deflated prices when tasting rooms and restaurants closed and threw more wine into the glut. Hughes says top-notch California cabernet was selling for as little as $20 a gallon in spring 2020, about one-third of the price in 2019.

Third, he is buying wine that is all but finished and sitting in tanks – only 5% of de Négoce’s product have been shiners. Hughes says he may do a little more blending to the tank wine, but most of the costly effort has been completed by the time he gets the product.

Finally, there is the Hughes e-mail list – which is approaching legendary status among California producers and marketers. McDonald says the mailing list’s 15,000 names so trust Hughes that they will buy his wine sight unseen, cash up front, just because they believe in his wine acumen. And this is just not marketing blather. 

“We had previously been customers of CH Wines,” says Michael Hensley, who lives in West Virginia and has bought 12 cases from de Négoce. “Unknowing that he had sold and was restructuring his enterprise, one day we received an e-mail describing his new venture, de Négoce. We signed on and have been very satisfied.”

Hughes says, de Négoce sales approached $10m in 2020, and it’s possible they could double in 2021. And those sales figures come with margins he carefully describes as not as much as 30 points.

So, what’s the catch?

If this sort of approach seems to be so profitable, why is Hughes the only one doing it? 

First, few others have Hughes’ mailing list, built over his two-plus decades selling this kind of wine. In addition, he has been experimenting with this modified futures approach almost since he began his wine career as a sales rep for The Wine Group in the mid-1990s. Before starting CH Wine in 2001, he worked with a French and a South American importer who wanted to try the same sort of thing (both of which failed).

There is also the grape glut, and no one is sure if this business model will work without it. What happens if grape prices return to normal? That’s one reason CH Wine failed – it wasn’t designed to work unless grape prices remained depressed.

Then there’s the de Négoce customer demographic, which mirrors the larger fine wine demographic in the US – older white men who think Napa Cabernet is the be all and end all. Somehow, de Négoce must find a way to attract more younger and women wine drinkers, something that everyone in wine is trying to figure out with little success.

Finally, there is the US wine business itself. It’s worth about $70bn, including imports, and about 95% of that goes through the three-tier system – producer to wholesaler to retail shop and restaurant. What’s the incentive to change?

Still, Hughes is optimistic. He says he understands the grape glut trap and sees a way to keep de Négoce’s prices low even if the glut isn’t as big or as widespread. That means looking for regions with excess wine outside of California, like Washington state and parts of Europe. And he thinks younger consumers not only want the value he can deliver, but like the adventure associated with de Négoce.

“There are wine drinkers out there who want me to find them needles in a haystack,” he says. “And that’s what I want to do.”

And, so far, with a lot of success.

Jeff Siegel

 

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