Charles Krug Back to Pre-Recession Levels without Print Advertising, Breaks Ground Today for New Visitor Center, Tasting Room

Like many luxury wine producers, Charles Krug Winery found the Great Recession to be “very challenging,” Peter Mondavi Jr., co-proprietor, told Kane’s Beverage News Daily.  “But because of its strong branding, it turned around quickly and now we’re back to pre-recession levels, and still growing on the Family Reserve end.”

That turnaround was accomplished with a fair amount of hand-selling, he said, but without any print advertising, except for a few ads in regional and wine country magazines promoting the winery’s tasting room.

Mondavi, his brother Marc and his 97-year-old father, Peter Sr., will take part in a groundbreaking today (8/7) for a new hospitality center.  It will be housed within a redwood cellar built by the winery’s founder, Charles Krug, in 1874.

Three years ago, the unfinished masonry building, which is used to store barrels with the winery’s Family Reserve range, was refurbished to bring it up to earthquake codes.  About one-third of the lower floor has been dedicated to the hospitality center, which will have a tasting bar, deli and private rooms for wine club members and events.

Oldest in Napa

The winery is the oldest commercial winery in Napa Valley, tracing its roots back to Charles Krug, a Prussian immigrant born in 1825 who immigrated to San Francisco in the 1850s where he was an ink-stained wretch, editing the first West Coast German-language newspaper.  He married, received a dowry of 540 acres in the heart of Napa Valley, and begins to pursue his new love — winemaking, establishing the Charles Krug Winery in 1861.

Krug became very influential in the industry, and lobbied for the industry in both Sacramento and Washington, D.C.  He passed away around the turn of the century.  James Moffitt, a financier in San Francisco, took possession of the property and leased out the winery operations.

Cesare and Rosa Mondavi bought the Krug Winery in 1943.  They had immigrated from Italy in 1908, having just gotten married.  They both had a grade school education.  Rosa was 18 years old when they landed at Ellis Island in December. They went to Virginia, Minn., because that’s where they had family and friends who sponsored their entry into the U.S.  They operated a boarding house and saloon.

A Prohibition Loophole

When Prohibition became the law it contained several loopholes, one of which allowed families to produce about four barrels of wine at home each year.  Cesare started a business of shipping fresh wine grapes from California back to Virginia, Minn.

“They came to California to further that business,” Peter told us, and bought the historic Charles Krug Winery in 1943.  It’s been in the family ever since.

For the first 20-plus years of Mondavi ownership, Peter’s father, Peter Sr. and his uncle, Robert, were both involved in the winery.  They split in 1965 after a number of clashes over wine and marketing.  Robert moved to Oakville, where he established the Robert Mondavi Winery.  Peter Sr. bought out Robert’s interest in Charles Krug shortly thereafter.

The Peter Mondavi Sr. family is the sole owner of the Krug Winery today.  It has about 850 acres, which Peter Jr. described as a medium-size operation, producing 70,000 cases a year.  About 500 of the 850 acres are in vine.

Bordeaux Reds Major Focus

The major focus is Bordeaux Reds — cabernet, merlot, blenders, Bordeaux White, mainly sauvignon blanc.  That accounts for about three-quarters of Krug’s portfolio.

That focus is a change from 25 years ago, “when we were producing numerous varieties.  Now we focus our production and selling efforts on those wines.”

Peter Mondavi Sr. is 97.  The family’s main office is on the second floor.  “There’s no elevator.  He goes up those stairs every day, back home for lunch and then back up the stairs again,” Peter Jr. told us.  “He’s doing quite well,” he added.

Long-Term Distributor Relationships

We asked whether the Mondavi’s are happy with their distributors.  They are, Peter Jr. told us, adding:  “Some require a little more work, a little more attention that others.  We look at distributor changes very carefully.  A distributor has to earn the right through poor performance not to sell the wine.  As a family-owned business, we can take a longer view and make changes very carefully, very cautiously over time.  We have the patience and we do cherish long-term relationships with distributors.”

We regularly hear people lament the passage of handshake relationships  between suppliers and wholesalers, but Peter Jr. said “it’s still largely handshake and relationship-based as opposed to contractually based.  We don’t have extensive agreements; we might have a letter that says someone will represent wine in a country or state.

Planting and Replanting

The Mondavis don’t expect to be acquiring additional acreage, but will be planting and replanting vineyards.  The average lifespan of a vineyard is about 30 years, and Peter told us that in a vine’s “sunset years, the yield goes down.  So, when you replanting you get back up to a normal yield.”

Mondavi targets a yield of 3.5 to 4 tons an acre, less than the 4.5 to 5 tons an acre that is possible.  The lower yield helps flavor develop well, become more intense.  “If you use excessive irrigation, you can get more tonnage, but your fruit is literally diluted.  You don’t get the same intensity.”

At the end of a vine’s life, that yield might be down to perhaps 2.5 tons an acre.  After replanting, it will take four years to get a reasonable amount out of it.

Biggest Challenge: Distribution

Peter Jr. said the biggest change facing Krug is distribution.  He noted there are about 6,000 wineries in the U.S. currently, and that number is increasing.  Napa alone has 400 brands.

But even as the number of wineries and brands has exploded, “distribution has dramatically consolidated.  Major markets have two major distributors, another half their size and a smattering of smaller one.  The major distributors handles 10s of thousands of SKUs.  Trying to get attention at the distribution level is increasingly challenging,” he said, adding:

“Premium wine divisions focus on the right accounts, with smaller sales forces, smaller portfolios.  The bigger divisions cover many more restaurants, some of which are quite valid for us to be in.  You get more focus with the elite division, but you lose the depth and breadth of coverage.”

It appears Charles Krug Winery will remain a family business.  Peter’s children are still in high school, but two of his brother’s children are involved in the business, one handling sales in the Pacific Northwest, and the other in the marketing department at Krug’s St. Helena headquarters.

You can hear the full interview here.

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