Lovely to see a guy who actually made his fortune in the wine biz out-dazzling all those Napa folks who made theirs in high-tech.

Background Wine Education

     Definition: three-tiered distribution system = winery sells to a distributor, who in turn sells to a restaurant or retail store, who in turn sells to the consumer. Three transactions = three tiers. Federal Excise Tax is collected from the winery at the first transaction; State Excise Tax is collected from the distributor at the second transaction; Sales Tax is collected from the restaurant or retail store at the third transaction; Bob’s your uncle.
     Tied-House-Laws, enacted by various states right as Prohibition ended in 1933, prohibit a single entity from holding both a distributor license and a retail license at the same time. Almost all of these states require that alcohol-for-sale go through all three transactions in their state. During Prohibition the Mob was very well vertically integrated: they produced the booze, and distributed it themselves to their own retail outlets. So the goal of Tied-House-Laws was to dis-enfranchise the Mob. No problem. The Mob said, “We’ll just hold the distributor license, and thus control a primary choke-point on the pipe bringing alcohol-for-sale into the state.” California is fairly unique in that it does not have Tied-House-Laws.
     Selling wine direct-to-consumers is often a very important strategy for small wineries. It makes tremendously good sense on several levels. First, the winery gets to keep all the retail dollars. That means they only have to make half as much wine per dollar of revenue compared to a winery selling through the three-tiered distribution system. Second, because they get to communicate directly with each customer, the winery can impart much more information about their wine. This story is at least half of the total package when it comes to a customer’s enjoyment of the product. And finally, wineries selling direct-to-consumer get the opportunity to contact a customer several months after that customer has made a purchase to ask, “Would you like to buy another bottle?”

Top Winery Descriptions

     Historically there are three really impressive direct-to-consumer winery operations in California, all using different techniques, and all aimed at separate slices of the market. Windsor Vyds features a very aggressive telemarketing program. Their hook is you can get your name on the label if you buy two cases. Clearly their target market is businesses looking to give a bottle of wine as a gift to clients. Windsor is just south of Healdsburg in northern Sonoma County. Navarro Winery is in the Anderson Valley, on the ocean side of the mountains, in Mendocino County. Run by a husband and wife team with extensive advertising experience (she a former copywriter; he the former owner of Pacific Stereo), they have always aimed higher up the wine-knowledge pyramid using a sophisticated direct-mail program. Their short postal mailings are masterpieces of homespun, intelligent information with an understated, one-color, New England seed catalogue look to them. For example, a picture of a young cat tentatively picking its way amongst bottles and glasses, with a caption which reads,”Don’t pussyfoot around. These bargains won’t last.”
     Sattui Winery is in Napa Valley, just south of St. Helena. Certainly the biggest financial success of the three, Sattui has always aimed at the mid-section of the consumer pyramid. Started in the early 1970’s, Sattui’s first loan application to Napa Valley Bank based his business model on a simple, yet brilliant concept. “We will be the first property with picnic facilities on the right-hand side of Hwy 29 as people drive north into St. Helena,” the paperwork said. Customers could buy a bottle of wine, a sandwich, and sit under a shady tree. The wines were all from Sattui. So Dario (nee Daryl) got 100% of retail on the wine, plus full retail on the sandwich. Heavy traffic on Hwy 29 paid dividends ~ it has always been a nightmare to turn left across Hwy 29. And it keeps on giving. Today there is a large branch of the famous New York delicatessen Dean & DeLuca right across Hwy 29 from Sattui. But Dario posts conspicuous signs saying, “No pedestrian traffic across the roadway.” He’s right. It is mildly dangerous. But his self-interest couldn’t be more obvious.

The Wine Story

     A couple weeks ago I went to a ‘futures’ celebration at Sattui. I’ve always been a fan of his Preston Vyd Cabernet Sauvignon, but I’d never actually toured the facilities, choosing instead to shop for deli supplies at the Napa Valley Olive Oil Mfg. Co. on Charter Oak St, and to picnic in a small park by the Napa River. For some reason I assumed the Sattui event would be a sit-down meal with a thorough (call it ‘tutored’) explanation of the wines. Wrong. That’s not his clientele. My first ah-hah moment came as I drove into the winery. His guests were tailgating with bottles of beer in the parking lot. Okay. Good time crowd. Sattui had more than 50 wines on offer, with buffet-style food service. Fifty seems like a lot of wines, but consider the business model. It is like an extensive delicatessen, restaurant, souvenir shop and wine store all mushed up together. Only every wine is a Sattui wine, so they produce one (or seven) of every category imaginable.
     The game with this loyal clientele is discounts. If one purchased multiple mixed cases, one could realize 25% to 30% off the stated retail prices. And Dario himself was on-hand to strongly urge immediate purchases. “Tomorrow prices go back to normal,” he cautioned the crowd. I‘m a little skeptical. Twenty-five percent off a mediocre California Riesling priced at $20 doesn’t seem a huge savings to me. Nor does 25% off a 2009 Merlot priced at $45 when you pay now, but don’t take possession of the wine for another two years. As with most large, walk-around ‘tastings’ careful comparison of the wines was not the order of the day. Spittoons were everywhere, but for the most part unused. The pour staff was friendly, good-looking, and largely ignorant of where half the single vineyards were located. That said, they did gamely make up plausible fictions to cover their lack of background. A good time was had by everyone. And the cash registers sizzled amidst lively debate about which combinations would result in the deepest ‘discount.’ I met several charming people, enjoyed myself thoroughly, but went home empty-handed. Next time perhaps I’ll wear an athletic mouthpiece, artistically enhanced so my teeth announce, “Let’s party” when I smile.
     Dario Sattui meanwhile has earned enough money over 35 years at this game to build a separate venture called Castello di Amorosa further north on a hillside in Napa Valley. It is modeled on a 12th century Italian castle. See picture below. Pretty good biz, especially for one built on the concept of the picnic.