Duckhorn Vineyards Achieves New Growth with Decoy

FILED APRIL 19, 2012

Dear Client:

Duckhorn Wine Company tends to keep a relatively low profile, but its newest offering, Decoy, is garnering a lot of attention in the trade. Actually, the original Decoy Napa Valley Red, a Bordeaux blend, was established 20 years ago in the late 1980s. "Whatever we didn't use for the Duckhorn brand - for example, if we had an extract of one variety on one vineyard that we didn't need for our Duckhorn programs, it went into Decoy red wine," Carol Reber, chief marketing & business development officer at Duckhorn Wine Company told WSD.

The company decided "in the toughest part of the economy" to rollout new line extensions for Decoy, including Merlot, Cabernet Sauvignon, and Sauvignon Blanc from Napa Valley, a Pinot Noir from Anderson Valley, and Sauvignon Blanc, Chardonnay, Pinot Noir, Zinfandel and Merlot from Sonoma County. They hit shelves in September 2010 with suggested retail prices ranging from $18 to $25. "It was really timely because I think a lot of great brands are typically born out of tough economies or really tricky supply situations in the wine industry.. There was a situation with the economy at that time when people were still trading up, but they didn't want to take the risks that they might have taken a few years earlier in, say, 2005," said Carol. Treasure hunting scaled back, and so did many purchases in the $50-$60 range.

"So Decoy was born and much to our total surprise the embrace from the trade and our distributors could not have been stronger. It feels like fiction when I say that I don't think we were turned down in a single fine restaurant, regional restaurant or national retail account where we made a presentation."

THE GROWTH: Depletions (sales to retail) of Duckhorn Vineyards are up about +15%, and Decoy is up about +40%. The Decoy varieties in order of popularity are Cabernet, red Bordeaux blend, Pinot Noir, Merlot, Zinfandel, Chardonnay and Sauvignon Blanc, said Carol.

Based on SymphonyIRI data in food, drug and mass merchandise stores, dollar sales of the Decoy portfolio were up +107.8%, with the average price point down -$1.59 a bottle to $20.17 in the 52-weeks ending April 1. Chardonnay, Sauvignon Blanc, Red Blend, Pinot Noir and Cabernet all experienced triple-digit growth, led by Chardonnay. Merlot's dollar sales gained +47.2%, while Zinfandel climbed +41.4%. So the brand is clearly benefiting from promotions.

Namesake Duckhorn Vineyards, meanwhile, grew sales by +35.7% over the same period, with average prices up +15 cents a bottle to $36.39. Duckhorn Red Blend led growth by a long shot, up in the thousands. Cabernet (+44%), Merlot (+28.4%) and Sauvignon Blanc (+21.4%) followed. Other offerings posting impressive sales growth were the Merlot and Cabernet 1.5L magnums.

THE PRODUCTION SIDE: It was the strength of the Duckhorn brand, along with the economy, that helped push Decoy along, says Carol. "That speaks to what Dan and Margaret Duckhorn have been doing since 1976. That was the respect and the reverence for Duckhorn Vineyards and the quality that we've put into that wine and across our whole portfolio." Decoy is made by the company's four other winemakers who oversee Duckhorn, Paraduxx, Goldeneye and Migration. "I think the trade loves that and the distributors really, really like that investment of quality."

Moving forward Decoy is sourcing more from Sonoma. "We've increasingly looked to Sonoma and established a foothold there for some sort of varieties. In terms of Decoy's future positioning, we think it has a great home in Sonoma. So we're making considerable investments there with long-term grower contracts, grower relations people, sellers, etc. to really have a strong foothold there because we think there is tremendous fruit coming out of that region. It diversifies us into an appalachian that we really have a huge infinity and high regard for."

SUPPORT BEHIND THE BRAND: So how did they get sales to this point? "One really important thing for Decoy is getting it into the right accounts. Specifically on the retail side our promotional strategy is really important and at the same time pretty simple."

Timing is also important. "We definitely know that during the holiday season - October, November, December - there are a lot more wine consumers in the market than there are at other times in the year." So they offer more specials, like selling their Bordeaux reds that usually retail for $25 a bottle at a $19.99 price point "in hopes that people take us home and enjoy it with friends over the holidays and come back early next year when they're looking for more wine. So as simple as that is, it is a very important price point to hit in the retail world."

Decoy is still "getting going" with national retail chains. "Two years into the real brand launch with Decoy as we know it today with seven varieties, we're really at just the beginning stage." HEB is one example, so is Target, Whole Foods and Safeway.

Meanwhile, having a strong by-the-glass program is important at the on-premise. Decoy sales in the $12-$15 BTG range "at really key accounts where you can also access those high-end consumers looking for high quality wines," said Carol. They have a presence in Oceanaire, Marriot Renaissance, The Palm and Landry's.

"There's still so much opportunity out there. We are by no means widely distributed by any stretch of the imagination. Wherever there is a high concentration of fine wine drinkers who are looking for an entry-level luxury wine from fabulous producers is where we want to be."

HALO EFFECT: "The number one fear when you go to a lower price point, albeit a decidedly luxury price point at $20 and up, is always cannibalization. You don't want to trade your existing consumers down."

Luckily, they've had the opposite effect as the rest of the company's portfolio is benefitting from the Decoy launch. "Not only have we seen very little if any cannibalization, but we had something to go into distributors and national accounts to talk about. We might present Decoy Chardonnay at, say, Oceanaire and they may ask about Goldeneye or Duckhorn Sauvignon Blanc, for example. So really you couldn't have scripted it better in your wildest dreams."

THEORIES BEHIND TRADING UP: Retail scan data has indicated that $20-plus wines are posting the most growth, often boosted by discounting and promotions. Carol, however, thinks there is more to the story. "I know that it's the Nielsen theory that the $20 and up wines are being driven hard because it's the $50 wines selling at $30, etc. but that's not what we're seeing. As you see per capita wine consumption going up in the United States, there have got to be people drinking at various price points. We're also seeing luxury consumers across all sectors coming back. So I think there are a couple of stories. I'm sure it has been driven by some discounting, but that's not the whole picture."

For one thing, Carol believes consumers understand that shortened supply means they must act fast. "We've gone from a situation of extremely long supply in Napa Valley to very, very short supply that we haven't seen for the last, gosh, ten to twelve years. And it's going take us four to six years to get back in balance. People know that these wines are highly sought after and harder to get."

EXPECTED PRICE INCREASES: That shortened supply will also likely cause some wineries to take price increases. "I think you'll see tons of Napa Valley Cabernets take price increases. There have been a lot of people who haven't been able to take any significant price increases for a long time. So I think you'll see a pullback in trade spending that will equate to a price increase. You'll also see out in out price increases. Some of the price increases will be out of necessity because producers will need to raise the price to make it through the vintage. When you've got all these customers that are counting on you to get through the vintage, you can't run out halfway through. Once they've printed their menu nationally and you're on there for wine by the glass for the year, they don't want you to run out."

MOVING FORWARD: Decoy's strategy moving forward is to do more of the same. "Making an incredible wine for consumers and trade at that price point is absolutely job number one. Sticking with our pricing strategy and really using the holidays to introduce ourselves to high-end wine drinkers, whether they've been wine consumers for a long time or a short time," said Carol. "It's a big part of our strategy investing in our sales team and engaging our distributors and distributor salespeople. And using social media to talk to our consumers, engage with them, find out what they're excited about and interested in is on the plate as well."

WSD BRIEFS:

GLAZER'S SIGNS MEIER'S IN OHIO. Glazer's has acquired the statewide distribution rights for Meier's Wine Cellars in Ohio, effective immediately. Heidelberg was the primary Meier's distributor in the state previously. Recall that in September 2011 Luxco acquired the outstanding stock of Paramount Distillers of Cleveland and its Meier's Wine Cellars subsidiary in Cincinnati. Meier's is the oldest winery in Ohio, and also sources branded and private label products. Glazer's and Luxco currently do business together in 11 states.

TOTAL WINE OPENS NEW STORE IN HUNTINGTON BEACH. Total Wine & More's third location in Orange County will feature over 8,000 varieties of wine, 3,000 spirits and 2,500 kinds of beer. The 22,000-square-foot store will open April 19.

TERLATO WINE GROUP has appointed Pina Fujihara to manage retail operations. Pina will oversee the operations of the Rutherford Hill Winery Tasting Room and operate as a brand ambassador for the Terlato Family and the winery.


Until tomorrow, Megan

"I can't give you a sure-fire formula for success, but I can give you a formula for failure: try to please everybody all the time."
Herbert Bayard Swope

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