Hard times at the winery? Not for everyone

Just south of the town of Napa sits a simple stucco building with quaint Italian touches -- red tile roofline, distressed oak doors, trellised patios. It appears to be a winery like any other in California’s premier wine region.

Napa vintners, however, describe this place as far more threatening than it appears because its owner, Fred Franzia, isn’t one of their own. Franzia is a Central Valley outsider who sends shivers of anxiety down the spines of many among Napa Valley’s elite.

Franzia is one of the wine industry’s wealthiest men, building his fortune by pushing the rules to the limit -- and, at times, beyond. “He sees what he wants and does it,” says Michael Mondavi, scion of the storied Mondavi clan.

And what Franzia wants these days, his competitors say, is to stake his claim on the Napa Valley name while exploiting the hard times of others to expand his empire.

Behind the faux-Tuscan facade of his Napa winery, Franzia does not crush grapes or ferment juice. Instead, he has built a high-speed bottling plant licensed to process 18 million cases of wine a year, roughly twice the annual production of the entire Napa Valley. And yet, Franzia doesn’t own a square foot of Napa vineyard land.

“There is only one reason he built it in Napa,” says Tom Shelton, chief executive of Joseph Phelps Winery. “He wanted a Napa address for his labels. Consumers don’t want to buy [Central Valley] wine. They want to buy Napa.”

A sudden folk hero to those lining up at Trader Joe’s stores to buy cases of his $1.99 Charles Shaw wine, Franzia is the rare vintner capitalizing on the current glut of grapes, outsmarting and outselling his competitors by making higher-quality, cheap wine just as the industry struggles through an economic downturn. In fact, Charles Shaw is the fastest-growing brand in the history of American wine, according to the Wine Market Report.

At the Napa facility, Franzia can process Charles Shaw, and any other wine from any other place in California, with labels that proclaim: “Cellared and bottled in Napa.”

It’s not a crime, says his spokesman. But the clubby Napa wine industry talks about him as if it is criminal to do what no other vintner has dared.

“He’s out there to shatter the icons of wine,” says Jack Stuart, general manager and wine master at Silverado Vineyards. “He has the wherewithal to flood the market with non-Napa wine carrying the Napa name. I don’t think he has any qualms about it.”

As for Franzia, he isn’t saying. The 59-year-old native of the San Joaquin Valley keeps his name off his labels and avoids the glamorous events that are so much a part of the wine business. He has never given an in-depth interview and declined to be interviewed for this story, although he did allow a tour of his Napa plant.

In January, he didn’t attend the annual Unified Wine and Grape Symposium, where industry analyst Jon Fredrikson named Franzia’s Bronco Wine Co. the “Winery of the Year,” the 20th annual award presented for outstanding wine sales. It’s the People’s Choice Award for wineries, and giving it to Bronco signals a dramatic downscale shift for an industry that has enjoyed its greatest recent growth in the sales of higher-priced wines.

“There were no boos, some groans, but it was pretty quiet,” Fredrikson recalls.

‘Wine people detest Fred’

In an industry fueled by elitism, the specter of a mass marketer expanding his empire in wine’s high-rent neighborhood makes for sour grapes.

“Wine people detest Fred,” says Richard Peterson, a veteran winemaker who now works for Franzia. “I mean they really hate him. Kind of taken on a life of its own at dinner parties all across the valley. Most of these people haven’t even ever met him.”

It’s mostly envy, says Mondavi, one of the rare Napa vintners willing to break ranks and call Franzia a friend. “Every time the industry has a down cycle, Fred comes out stronger, with more vineyards and less debt,” he says, noting that it wasn’t until the last wine recession in the late 1980s and early 1990s that Franzia built his Central Valley empire, picking up vineyards and wine labels at fire-sale prices.

More worrisome to the vintners than his Napa bottling plant are three of the wine brands Franzia bought during those years, labels bearing Napa appellations -- Napa Ridge, Napa Creek and Rutherford Vintners.

Because these labels were in use before July 1986, when federal law dictated that wine brand names not conflict with the regional origin of the wine in the bottle, they are exempt from the law. Franzia can and does use the labels on wine from grapes grown anywhere in California. It’s a loophole that no one else in the industry has used, despite the 30-some Napa labels grandfathered out of the federal law, according to the Napa Valley Vintners Assn.

“Wine is a product of place,” says Richard Mendelson, a lawyer for the association, and a place’s name can be destroyed. “Tarnish it, dilute it, and you lose it and never get it back.”

The Napa vintners are particularly sensitive to the value of their regional name. “We’ve paid dearly for this appellation,” Phelps’ Shelton says, noting that the price of being a vintner in Napa is among the highest in the world.

When Franzia bought the most valuable of his three Napa labels, Napa Ridge, in 2000 for $40 million, then-owner Beringer Vineyards wasn’t filling the bottles with Napa wine either, with the exception of a few specialty cases. But under pressure from other Napa vintners, Beringer had started phasing out production of the brand, going from 1 million cases a year in the mid-1980s to 300,000 cases when Franzia bought it.

That same year, the California legislature passed a law prohibiting the use of “Napa” or Napa regional appellations on wine that wasn’t at least 75% grown and produced in the Napa Valley. It was an effort by the Napa vintners to prohibit Franzia, or anyone else, from using these grandfathered labels, according to the vintners association.

After two years of legal wrangling, a California appeals court ruled in Franzia’s favor in December. The Napa Valley Vintners Assn. has appealed the case to the California Supreme Court, but in the meantime, Franzia is free to use his labels pretty much as he wishes.

“We’re pleased with the outcome,” Franzia said at the time of the ruling. “We will operate our business according to the law.... This doesn’t change the way we do business.”

At this point, according to Franzia’s Napa Ridge winemaker, Bob Stashak, some Napa Ridge labels do in fact carry Napa wine and some don’t. The difference is stated on the label, but consumers have to read carefully, as well as have a modest wine education, to tell the difference. He would not say how many of Napa Ridge’s 300,000 cases a year contain Napa wine, however.

“To the extent that those labels are being used on any wine not from Napa, it misleads people -- a great disservice to consumers that needs to be corrected,” says Mendelson, the Napa vintners’ lawyer. With Napa grape prices starting to rebound, there is no guarantee that Franzia won’t substitute lower-quality grapes from the Central Valley, he says.

In addition, Napa vintners are nervous that Franzia will buy more Napa brand names and use them on Central Valley wines, Mendelson says.

“Franzia has the financial might, and he’s shown he has the chutzpah to do it,” he says.

Franzia has a history of playing fast and loose with wine industry laws.

As recently as 1999, Franzia was cited by the federal Bureau of Alcohol, Tobacco and Firearms for using the Rutherford Vineyards label on wine from outside the Napa region. The name is close -- but not close enough -- to the Rutherford Vintners label Franzia is allowed to use in that way. The bureau threatened to suspend Bronco’s winery permit, relenting only after Franzia agreed to stop passing off non-Napa wine under the Rutherford Vineyards label and paid the government $750,000 to resolve this and other regulatory disputes.

In 1996, Franzia incensed the Joseph Phelps Winery when he used a picture of the Phelps Napa vineyards in ads for Rutherford Vineyards, implying that the Bronco wine came from those premier vineyards. “It was a picture taken off the back terrace of the winery in Spring Valley. Beautiful,” Shelton says.

When asked to stop running the ads, Shelton says he got an earful of profanity from Franzia. Franzia, through his spokesman, says he pulled the ads when he was asked.

Then, in 2000, as a bit of a joke on the Napa vintners, according to Franzia spokesman Harvey Posert, Franzia filed NVVA Ridge as a Bronco trademark, withdrawing the application only after the Napa Valley Vintners Assn. protested to the federal government.

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The Zin felony

The conflicts over the use of the Napa name, however, are minor compared with Franzia’s most serious run-in with the law. Convicted 10 years ago of flouting wine’s most basic labeling laws, Franzia and his company paid $3 million in a plea bargain.

In December 1993, Franzia pleaded guilty to mislabeling 5,000 tons of grapes over a five-year period, a felony. The amount of fruit was enough to make 1 million gallons of wine valued at $5 million.

Bronco paid a $2.5-million fine. Franzia personally paid a $500,000 fine, stepped down as Bronco’s chief executive to become the chief financial officer and removed himself from the board of directors for five years.

At the time, the industry couldn’t keep up with the soaring demand for white Zinfandel. Franzia acknowledged that he was aware that truckloads of grapes, reportedly inexpensive Grenache and Colombard, were being rolled into the Ceres plant and sprinkled with Zinfandel grape leaves to fool inspectors, according to court documents.

Franzia’s crime is known in the industry as “blessing the loads.”

He had planned to fight the charges, Mondavi says, but changed his tune when another established vintner, then 71-year-old Angelo Papagni, was found guilty of the same crime and sentenced to 18 months in prison. Then in January 1992, another vintner, Anthony Indelicato, owner of Delicato Vineyards, pleaded guilty to similar federal charges and paid a $1-million fine.

In a statement at the time of his conviction, Franzia said, “I accept responsibility for what happened six years ago.” The “irregularities” have not been repeated, he said.

What hasn’t changed is Franzia’s aggressiveness, industry insiders say.

Bronco is estimated to own 35,000 acres of vineyard land. But the Franzia family also controls thousands more acres through partnerships and lease arrangements, more than anyone else in the country, according to Franzia’s spokesman. Bronco keeps the Franzia family’s exact holdings a secret. “Fred talks about his vineyards in square miles, not acres -- that’s how much land he has,” says winemaker Richard Peterson, who works for Franzia.

Two years ago, when people first started to talk about the possibility that California was producing too many wine grapes, Franzia began allowing more of Bronco’s land to lie fallow, Peterson says. “He anticipated the glut.”

Then, with his storage tanks nearly empty, he bought all the cheap grapes on the market to create a higher-quality, rock-bottom-priced wine. “Charles Shaw was all his idea,” Peterson says. “He planned it all way ahead.”

Franzia expects to sell as many as 6 million cases of Charles Shaw in 2003, Peterson says, estimating that Franzia makes at least $2 a case on the wine.

“Fred challenges the industry in ways they have never been challenged before,” says Patrick Gleeson, executive director of the American Vineyard Foundation, an industry research organization of which Franzia is a board member. “He’s changed the public perception of what an introductory wine should taste like and cost.”

Franzia operates Bronco’s main facility, still working in the trailer he parked just inside the plant’s barbed-wire fence 20 years ago. The facility is a massive, fortress-like production plant outside Ceres, with scores of storage tanks the size of small grain silos. With a 62-million-gallon storage capacity, Bronco is the fourth-largest U.S. wine company, crushing 6,000 tons of grapes a day during harvest, according to the Wine Institute.

The 2-year-old Napa facility is only just powering up. Franzia’s fleet of steel tanker trucks hauls wine from Ceres to Napa, where each minute 250 bottles are pushed down a conveyor line that operates 24 hours a day, six days a week. Cases of Charles Shaw wine are stacked two stories high.

Franzia sold 2 million cases of Charles Shaw wine last year, as well as setting sales records with some of his other labels, says industry analyst Fredrikson, noting that ForestVille, Coastal Ridge and Crane Lake had “solid double-digit” increases in sales. Bronco does not release sales figures.

Franzia makes wine to sell in grocery stores. More often than not, his wine is shunned by high-toned wine shops. Of his 32 labels, Forest Glen, retailing at $8 to $10 a bottle, is his flagship wine, as well as one of his more expensive.

The Wine Institute’s president, John De Luca, who is trying to mediate between Franzia and the Napa vintners, says, “Fred sees the industry, and he’s been outspoken about it, that we’re removing ourselves from consumers. We are out-pricing ourselves, creating nothing more than a high-priced cottage industry.”

The divorced father of five adult children -- all of whom have worked or are working at Bronco -- Franzia never entertains at his home in Modesto, says Michael Mondavi, who thought his friend might be living alone in an apartment these days but wasn’t certain because he has never been to Franzia’s home. Neither had anyone else interviewed for this article.

“Fred has one life -- he sleeps, drinks, eats the wine business,” says Mondavi, who went to Santa Clara University with Franzia. “He doesn’t worry about yachting or golf, ‘cause he doesn’t do those things. Just business.”

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All business

Franzia’s office is nothing more than a desk, a phone, two chairs and a wall full of pictures of his children, Mondavi says. “It’s too early to say which one is the heir apparent,” he adds. “Fred will still be working 30 years from now, unless he’s hit by a Mack truck.”

When he visits Napa, Franzia usually stays in Mondavi’s guest house. But he doesn’t socialize with the rest of the valley residents, according to Mondavi.

Franzia hangs out with bankers. When a grower or vintner gets in trouble, “Fred is the first person the banks go to.... If it fills a niche for him, he’ll buy it,” Mondavi says.

At some point, most of the wine industry has had to come calling on Franzia for help, Phelps’ Shelton says. “A lot of guys in the industry are joined at the hip with Fred. He can supply you with the juice you need when you need it.”

Franzia produces wine for most of the big companies in California -- Robert Mondavi, Beringer Vineyards, E & J Gallo and Glen Ellen Winery, among others, Fredrikson says, and he has for decades. “Wineries didn’t want anyone to know their wine came from Bronco,” says a source who asked not to be identified, “but everyone used them.”

It wasn’t until the mid-1980s that Franzia expanded dramatically beyond the bulk wine business. With plenty of cash in a down market, he became a key buyer for the banks and insurance companies saddled with land from defaulted loans. Franzia bought the labels and the land, dismissing the bricks-and-mortar facilities as inefficient compared with his factory-style plant in Ceres. “He started out buying brands instead of building them himself,” De Luca says.

One of those brands was Charles Shaw.

“It’s extremely difficult for anyone else to [price wine this low],” Fredrikson says, “and make money.”