Two-Buck-Chuck Wine: Are Volume-selling and Exclusives Still Relevant Channel Strategies?

January 11, 2010 at 9:23 pm Leave a comment

By Beth Vanni, Director, Market Intelligence

I have had the good fortune to marry into a large Italian family — a family of fantastic cooks with very sophisticated palates and a great appetite for good wine. During a conversation with my father-in-law over the Christmas holidays, we discussed what constitutes a good table wine. He reminisced about how his father and grandfather always had a big jug of a (mediocre) Cabernet and drank two glasses with every meal. He lamented, despite his current financially comfortable position, how most families can’t afford a good $25-30 bottle of wine at every meal and how there’s a great market to be had for affordable daily wine. The conversation then led to a retailing phenomenon in the wine business that had caught his attention, and the attention of his other wine-purist (dare I say “snob”) friends.

He called it “Two Buck Chuck” wine, available at Trader Joe’s (a west coast specialty grocery chain). The real wine label is Charles Shaw, a label owned by Bronco Wine Co., currently the 8th biggest wine producer in California. Fred Franzia, the company’s President and a shrewd entrepreneur, has the west coast Napa Valley wine vintners up in arms selling a case of his signature Merlot or Syrah for $1.99 per bottle.. yes, $2.00 per bottle. Under $25.00 for a full case. The Charles Shaw label is sold exclusively by Trader Joe’s stores. Bronco sells 72 million bottles of Charles Shaw label wine every year. Says Frazia, “we had the brand, and the other growers had a huge supply of high-quality wine.” And consumers LOVE it — it’s flying off the shelves at Trader Joe’s by the case. The quality is consistent and more than palatable for non-snob wine consumer, and it’s getting strong ratings including a 10/10 rating from So, what’s the relevance of all this to IT products being sold through indirect channels? A fair question… let me explain.

Bronco Wine Co. made a conscious decision to do a channel exclusive on this label — through a well known, high growth local retailer, Trader Joe’s. TJ’s (as they’re known to locals) has got the perfect demographic for the label, and the wine sits among a very broad selection of the grocer’s extensive and diverse wine collection. Many speculate that the margins Bronco Wine Co. makes on the wine must be razor thin, given the cost of just pressing, bottling, labeling, etc. — not to mention the discount the label gives to Trader Joe’s for resale. But regardless of whether the retail price point is achieved based on the grapes being from the central valley vs. Napa or because there’s a “wine glut” in the market right now, Charles Shaw is absolutely being sold as a volume loss-leader. And very effectively. At first, the wine was stocked at the back of the Trader Joe stores near the coolers in an unassuming, obscure floor stack. But, as word of mouth and TJ’s advertising became more broad, you’ll now see Two Buck Chuck wine stacked right near the entrance of many stores, at least those in California. In fact, the LA Times noted in a recent article that wine drinkers are backing their cars up to the loading dock of the LA-based discounter to lay in a supply of the Trader Joe’s exclusive.

So what makes this vendor/channel relationship work? Well, first a product priced at or below the target market’s needs drives high volume sales. Trader Joe’s features the wine in many radio and print advertisements and inevitably has a nice cross-sale attach rate to cheese, fruit and other products once consumers are in the store (at least this is what I hear from family and friends who’ve bought the wine there). Second, the partnership represents a limited, focused distribution relationship with lots of local points of presence — right in the backyard of most of the label’s biggest competitors. (Trader Joe’s has 338 stores, more than half of which are in California.) Bronco is saving its meager margins to gain focus and leverage from one core retailer, rather than trying to compete with inexpensive jug and box wines in every grocery store nationally. Third, nearly all the co-marketing and advertising is done by Trader Joe’s, so the messaging and feel are very local, neighborhood-oriented — not that of a big, premium Napa wine label. We have no idea what kind of margins or co-marketing provisions this exclusive channel relationship has involved. But, we do know that it wasn’t big glossy ads in Wine Connoisseur magazine or free samples served out of Dixie cups at Costco that helped this brand’s word of mouth spread like wild-fire. A tight, focused, mutually-beneficial vendor/channel relationship based on a solid product that met 75-80% of the needs of a very large target market is at the core of this success story.

Is there room in your channel segmentation and go-to-market model for this kind of partnership? Is there a part of your product line that needs the kind of break-through market adoption that a highly focused (or exclusive) set of channel partnerships might promote? Have you considered conserving your variable channel expenses (discount, MDF, performance incentives, merchandising fees) and funneling them all through one distributor? One LAR/DMR volume seller? One retailer? In a world where everyone’s competing for channel mindshare and a higher level of service investment showered on the ultimate customer, I suggest channel exclusives might be back in vogue. Just like two-buck chuck wine…

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