November 2018 Issue of Wines & Vines

A Conversation with Jon Moramarco

The former winery CEO is now in pursuit of more complete and accurate market research on wine, beer and spirits

by Jim Gordon

Jon Moramarco was still in the corporate wine world, working as CEO of New Jersey-based importer Winebow, in 2010 when he started a side project. He intended that his new company, BW 166 LLC, would focus on beverage alcohol data collection, analysis and advisory services. Moramarco named the new company, of which he is managing director, for a winery his grandfather had bought in Los Angeles during Prohibition. It was Bonded Winery 166, known as California Mission Vintage Co. In 2014 Moramarco left Winebow and began building Santa Rosa, Calif.-based BW 166 in earnest. It’s just one of his current responsibilities, however. He is also editor and partner of Gomberg, Fredrikson & Associates, a wine industry market research firm that he co-owns with Wine Communications Group, the parent company of Wines & Vines.

Moramarco has worked in the beverage alcohol industry his entire career. He has operated as the CEO of companies including divisions of Constellation Brands and Hiram Walker / Allied Domecq for more than 20 years. He oversaw net sales spanning from $50 million to more than $1 billion and annual production of as much as 60 million cases. Moramarco earned a degree from the University of California, Davis with a mixed major in enology, viticulture and agricultural business. Before his executive roles, he had functional responsibility at various times for production, finance, administration, marketing and sales. He recounts that he started in the vineyards as a laborer and progressed through both vineyard and winery jobs until his graduation from UC Davis.

Q What’s wrong with being a winery CEO? Why did you want to become a data hound instead?

Jon Moramarco: Having run wine companies and having stepped away from the public corporate world and private equity, it was really saying that it’s been frustrating because there is always a lack of accurate data. How do we get to a point where people can actually rely on what they’re looking at? It’s still frustrating because there are so many bad numbers out there, and with the internet it’s increased the amount of inaccurate information. It’s not fake news; I think people actually believe what they say, but they’re just ill-informed. (One company) came out with a press release this week that said the U.S. market is now 350 million cases. They’re missing 50 million cases. People still depend and rely on inaccurate information.

Q What major trends are driving the wine market right now?

Moramarco: I think the biggest trend, believe it or not, is just a continuing of the market we’ve had. So there’s a stable base. Baby boomers continue to drive the market at the high end, and what’s going to happen to the high end as baby boomers retire and possibly reduce their wine consumption? The second piece is as I look at younger demographics and the growth of rosé and the growth of prosecco, I think those are similar in use to what the baby boomers did with white Zinfandel 30 years ago. It’s a light, approachable, drinkable wine.

I think the other key driver in the marketplace that hasn’t actually started showing itself is that the legal drinking age population in the last 25 years has grown about 1.2% a year, and 60% of that growth has been in ages 50-70. When you think about higher disposable income, peak earning years, other things, it’s been beneficial for the wine industry, luxury goods and a number of industries. You look at the next 25 years and the growth of legal drinking age population will slow to 0.9 percent based on Census Bureau estimates. That growth drives total beverage alcohol consumption. But the bigger impact is that 60% of the growth in legal drinking age population will be people age 70-plus. I can’t tell you what’s going to happen. We’ve never done geriatric studies on wine consumption.

Q So is it too soon for most wine marketers to give up on baby boomers?

Moramarco: I think it’s too soon. Honestly, I think that too many wine marketers especially at the high end are relying on baby boomers’ income, and I’m not sure if Gen Xers and Millennials are going to have comparable income levels. And are they going to choose to spend their money that way?

Q Are craft beer and craft spirits taking business away from wine?

Moramarco: I don’t think they’re taking business away from wine. They’re taking excitement from wine, and probably if they weren’t there, wine would be doing better. I also think, competitively, consumers want different things. As you go through the generations they become less brand loyal. And this is not just about beverage alcohol, it’s across all categories. But I also call the consumer more promiscuous. They want to try new things. They want to try different things. And it’s not good or bad, that’s just the reality.

Q How does wine’s performance in the marketplace compare to beer’s?

Moramarco: Everybody’s been concerned about craft beer. And is that going to take wine’s place. I think that’s actually moderated. What you’re seeing in the beer category today is that total beer is actually down over 10 years, 20 years, and wine and spirits have been taking share from beer. I think wine fills a niche, but wine compared to craft beer has kind of lost the allure for younger consumers that it had for baby boomers in the past. And what I mean by that is I walk into restaurants and sit at the bar and ask what kind of wine do you have by the glass, and they have Cabernet, Chardonnay and maybe Pinot Noir. You ask what kind of craft beer do they have, and they start talking about the hops and the this and the that. I think that comparing volumes, wine is doing better than beer, but comparing probably trade interest, I think wine is losing to craft beer.

Q How about compared to spirits?

Moramarco: I think spirits have kind of regained ground they lost 30 years ago. There is a cocktail culture out there. It’s not dominant, but more people are interested in cocktails, and more people are interested in brown goods today. Right now, if anything I’d say spirits are actually growing and getting slightly more attention than wine is, even though both categories are growing. But spirits just seem to have a little bit more excitement.

Q A few wineries are taking a page from the craft brewers or the craft distillers and using flavorings or aging their wines in bourbon barrels. Do you have any sense that those innovative attempts are working?

Moramarco: I think in some cases they’re working, like the bourbon barrels. The problem with a number of these products are they don’t really drive premium pricing. It seems in the wine category, you have to be looking at terroir and truly traditional winemaking to drive true premium pricing. Most bourbon-barrel aged Cabernets are $8 to $12, so it’s not a premium item. The other interesting thing is that if you look at good craft beer, a really exciting one may be $12 a six-pack. That translates to $2 a drink. That $10 bottle of wine is $2 a drink. But a $100 bottle of wine is $20 a glass and premium craft beer is $2.

Q Are imports gaining on domestic wines?

Moramarco: I think you have to look at the import market in two pieces. You have packaged imports, and you have bulk imports. When you put the two together they have been gaining on the domestic business. But in a lot of cases bulk imports are just an alternative for lower-priced wines under traditional California or domestic labels. So, if you look at Franzia box wine, 15 years ago, it had all California wine in it. Now it’s probably 60% or 70% California and 30% import. It’s all about cost of products, and problems in the Central Valley, and what can you grow overseas. I look at that as a mishmash of import and domestic. You look at packaged imports, the differential in growth has not been as dramatic. Italian table wines have been flat for three or four or five years. The big drivers in imports today are French rosé primarily from Provence and Italian prosecco. You take those two out and imports aren’t very exciting.

Q Is the rosé trend broadening beyond French wine?

Moramarco: When you look at buying French rosé, people want Provence, and that’s still driving it. Look at imports of rosé, and 70% of imported rosé is from France. Italy and Spain and everybody else is trying to jump on the rosé bandwagon, and it’s really not growing that much for them. Domestically, a lot of people have jumped in on rosé, and it’s a harder market to track. You’ll look at the Nielsen markets (of major supermarkets and liquor stores), it seems the French rosés are still growing faster than the domestic rosés.

Q On-premise has been a challenging channel for which to find good data. How is wine doing on-premise?

Moramarco: Generally everything I look at and everybody I talk to, they’re doing comparable in volume to what’s going on in off-premise. Let’s just say 1.5% to 2.5% growth. People talk about the on-premise being soft, but a lot of that talk is driven by the analysts who cover the on-premise chain restaurant business. They mainly focus on public companies, and a lot of them are more multi-unit operators. Whether it’s Olive Garden, Ruth’s Chris, Morton’s. At the higher end those seem to be doing OK, but the mass-market casual dining establishments are soft. I think if you look at the total restaurant business it’s healthier, but the chains are not as healthy. And I think it’s consumers saying I’d rather go to the local guy that’s a little more attuned to what I want than the chain restaurant that I grew up with.

Q To sum up, is the wine business good today?

Moramarco: The wine business is good, it’s not great. My own assumption is that if you go back over time and we’ve been growing 3% to 4% a year on average, we may be looking at a future of growing 1.5% to 2% a year. It’s not quite as much the case that a rising tide lifts all ships, as we used to talk about in the ‘90s. The only way I can explain this is to say that Bill Clinton had the line, “It’s the economy, stupid,” about what to focus on, and I think for wineries it’s going to be “It’s market share, stupid.” You’ve got to focus on market share in the category you compete in. Focus on how you are going to win.

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