The Scourge of Napa Valley

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The admiration ran both ways. Don Sebastiani recalls how his father, August Sebastiani, enjoyed sparring with the young Franzia. "My father was stunned by Fred," he says. "The guy was born with amazing business acumen and personality. Fred would offer advice to my father almost like an older man would to a younger one."

Franzia went to work for the family company, assuming that one day his generation would take its turn at the helm. Then came a painful blow. In 1973, Fred's father and uncles sold the family winery to Coca Cola Bottling. (Coca Cola later sold the business to the Wine Group, a San Francisco company, which continues to sell Franzia wine as a bag in a box. The Franzia family has no connection with its namesake wine.) "I just didn't feel selling was the right thing to do and I told my dad," Franzia says. "I ended up not talking to him for seven years afterward because I thought he made a mistake."

Fred, Joseph, and John struck off on their own. Bronco incorporated on December 27, 1973. Fred serves as chairman and CEO, Joseph is co-president and runs the company's distribution arm, and John, also a co-president, oversees production. A dozen members of Fred's family now work for Bronco, including two of his five children (his other children are a doctor, an actress, and a Navy SEAL).

Franzia says he later reconciled with his father, but some friends believe the loss of the original family business stoked his ambition. "Let's face it, Fred's a driven man," says Marc Mondavi, president of Charles Krug Winery in Napa Valley. "I'm sure that had some influence on the three of them--we're going to start over and, by God, we're going to show everybody we can do it."

They did. And they collided with the law. In 1993, Franzia and Bronco were indicted on federal charges of conspiracy to defraud for misrepresenting cheap grapes worth $100 to $200 per ton as Zinfandel and Cabernet Sauvignon grapes worth five to 10 times as much. The indictment charged that Fred Franzia himself instructed others to sprinkle Zinfandel leaves on top of loads of cheaper grapes in what he called "the blessing of the loads"--a parody of the traditional blessing of the harvest. All told, prosecutors said, Bronco misrepresented 5,000 tons of grapes and one million gallons of wine that were sold on the wholesale market for $5 million.

"They tattooed me, so fine," Franzia says. "Do I look like I'm worried about it? Does it look like it's killed our company?"

The company pleaded no contest and paid a $2.5 million fine. Franzia pleaded guilty and agreed to pay a $500,000 fine. As part of the plea agreement, Franzia stepped down from the board of directors and as president and refrained from any involvement in grape purchasing or production for five years. The prosecutor agreed to a downward departure in sentencing and no prison time, saying that Franzia's absence might have resulted in the closure or sale of the company and would have unfairly punished his partners and hundreds of employees. "The safest guy to do business with is me because I have the most to lose," Franzia says. "I have no reason to cheat. I didn't have then either." He declines to explain further. "They tattooed me, so fine," he says. "Do I look like I'm worried about it? Does it look like it's killed our company? We've done quite well, thank you."

That is true in part because Franzia knows how to find a bargain. He snaps up wines, grapes, labels, and land when prices are low, often during foreclosures or bankruptcies. "Fred has got his ears to the ground," says Marc Mondavi. "He's always asking, always listening, What's going on? Anybody in trouble?" The wine industry is violently cyclical, and Bronco tends to emerge from each down cycle with more land, more labels, and less debt. "You know how they say buy low and sell high?" says Michael Mondavi. "He bought low and doesn't sell. He builds."

The most famous example of Franzia's savvy, the Two Buck Chuck story, has become an industry legend. In 1995, Franzia bought the Charles Shaw label from a Napa Valley winery that had gone into bankruptcy. The label sat in a drawer with dozens of others until 2002, when the wine market was flooded by excess inventory. Grape prices plunged and many wineries sold bulk wines at a loss. Bronco became one of the few success stories of the year when it struck a deal with the Trader Joe's chain to sell an ultravalue wine for $1.99. (It's generally $3.99 outside California.) With its own bottling facilities and distribution system, and with the market awash in cheap, decent wines, Bronco could produce an ultravalue wine and still make money. Bronco resurrected the Charles Shaw label, which soon picked up the nickname Two Buck Chuck. Critics pronounced it surprisingly drinkable; the editors of the trade publication Wines & Vines picked a Two Buck Chuck over a $67 Chardonnay. Two Buck Chuck became the fastest-growing wine label ever and Bronco now sells five million to six million cases of it annually in five varietals. Franzia dreams of repeating the coup on a larger scale by developing an ultravalue line for a major chain like Costco, Wal-Mart, or Target. But he says the big retailers remain unwilling to accept such a slim profit margin.

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