"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.
Thanks to Two Buck Chuck, Bronco was named winery of the year at the 2003 United Wine and Grape Symposium. When the announcement was made, the Western Farm Press reported, "the ballroom literally erupted in disbelief and contempt."
Bronco, meanwhile, became embroiled in another dispute that went beyond taste. This time it centered on labeling laws.
During the years that Franzia was building his business in the San Joaquin Valley, Napa solidified a reputation as the mecca of American winemaking. It has almost 400 wineries, roughly one quarter of the total in California, and is by far the most recognized appellation in the USA. Napa Valley produces just 4 percent of California wine by volume but earns $2.3 billion in sales--about a quarter of the state total. On average, Napa labels are 61 percent more expensive than those with a generic California designation. The valley has become a magnet for business moguls and celebrities with aspirations--and money--for making great wine, including director Francis Ford Coppola, football star Joe Montana, and racecar driver Mario Andretti.
"They don't impress me one bit," Franzia says of the Napa winemakers. "You know, I've purchased a lot of wineries and products from people who pretended they were pretty rich. When they cash in their chips, we're there to buy them."
And therein lay the roots of the conflict. In 1993, Bronco bought the Napa Creek label. The following year, it acquired the Rutherford Vintners brand, named after a community in Napa Valley. In 2000, Bronco paid more than $40 million to buy Napa Ridge from Beringer Wine Estates.
Federal law requires that if a wine bears the name of a geographical place, at least 75 percent of the grapes in the wine must have been grown within that region--85 percent in the case of federally designated American viticultural areas. But a grandfather clause exempts labels that existed prior to 1986. This meant that Bronco could, and did, sell Napa-labeled wines using grapes grown elsewhere, a tactic already employed by Beringer. (Labels identify the source of the grapes in smaller print.) At the time, Napa Valley Cabernet Sauvignon grapes sold for about $2,600 a ton; grapes from the Central Valley sold for $600 a ton. According to court records, Bronco sold 300,000 cases of Rutherford, Napa Creek, and Napa Ridge wines--$17 million worth--per year.
Napa vintners saw this as an act of piracy. And they feared it was about to get worse. In the city of Napa, Bronco was building a massive bottling plant capable of churning out 216 million bottles a year--more than twice the output of all the Napa County wineries combined. The vintners lobbied state legislators to close the loophole, and in 2000, the California legislature passed a law requiring wines whose labels bore the name Napa or any federally recognized viticultural area within Napa County to contain at least 75 percent local grapes.
Bronco sued to stop the state from enforcing the law. The Napa Valley Vintners Association, which represents about 250 wineries, filed as an intervenor on behalf of the state. The case began a tortuous six-year legal odyssey through the state and federal courts.
"He's just an opportunist," says Tom Shelton, president and CEO of Joseph Phelps Vineyards. "I think he missed the ethics course in college--he was out that day. He doesn't understand what the hullabaloo is all about."
