Collaborative Leadership

By: Kim DeCoste Issue: Innovation, Growth, Job Creation Section: Business

All in the Family

fred franzia ICOSA seeks to inform, inspire and educate as it shares success stories from likely and sometimes unlikely angles. Such is the case here. This story of collaborative leadership and success is one that is overlooked by many because Fred Franzia is a bit of a lightening rod. However, there is another important take-away from the Bronco Wine Company and Franzias’ story. For business leaders, students, and politicians, the Franzia family story is a case study in entrepreneurism, innovation, growth and job creation, and risk management. It is a fascinating and complex glimpse into the true agrarian roots of California - one of the top ten world economies – and into one industry which boomed there, the American wine industry.

California has its challenges today, but looking back at the early history of the settlement of the state, the heart of its success and longevity lies in the fields. It was born on the backs of immigrants and the brave souls who wandered west in search of success, gold, or both. The Chinese and Irish who helped build so much of the infrastructure and the Italians and Latinos who made things grow are as deeply a part of the state today as they were then. And the Franzia family is one of those families.

BACKGROUND

Fred Franzia and his family, through Bronco Wine Company, are epic wine producers in California and are now partnered around the world. They are the 4th largest wine company in the U.S., behind Gallo, The Wine Group, and Constellation. The volume of wine they bring to the market is staggering. A recent subject of the History Channel’s Modern Marvels, Bronco has, for example, one 42-foot-high tank which holds the equivalent of 3,500 wine bottles per vertical inch. It is just one of 413 tanks of various sizes at the headquarters in Ceres, California. One journalist said the winery looked like a “tank factory” when she met with Franzia. Franzia is as unapologetic as he is determined and as such, he is revered, feared, and respected in equal measure by most around him. He may seem an unlikely CEO, managing a massive empire with his brother Joseph, and their cousin John (thus the name “Bronco” - the contraction of “brothers and cousin”) from a trailer parked across from the guard station in Ceres. His other office is the dusty old Jeep Cherokee he uses to oversee the vineyards he loves. Franzia is the face of Bronco. He is the heart and soul of Bronco and he is – just Fred.

It is an inspiring and complex story of third generation Italian-Americans, the current Bronco leadership, who have come from humble beginnings. Giuseppe Franzia, their grandfather, moved to central California in 1893 and settled in Ripon. His wife Teresa, came later from Italy – not having met Giuseppe before they married – and they raised five children. They produced wine until Prohibition in 1917 and then again after its repeal in 1933. It was one of their daughters, Amelia, who married Ernest Gallo, and thus the families remain connected.

The schism that began in 1971 is a tough chapter and one not often discussed. Fred’s father, Joseph, and Fred’s uncles sold the company, Franzia Brothers, to the Coca-Cola Bottling Company of New York for just under $50 million, and as part of the transaction, the next generations of Franzias were forbidden from ever using their own name again in any wine ventures. However, after many years, the brand shuffled back to a San Francisco organization which maintains the iconic white box brand.

ENTREPRENEURISM

This is where the lesson begins. Fred, born in 1943, was raised in the wine business as was his brother Joseph, and their cousin John. It was a foregone conclusion they would continue the family business. As a result of the sale of the brand to Coca-Cola, Franzia did not speak to his father for seven years. “I just didn’t feel selling was the right thing to do, and I told my dad,” said Franzia to an INC. reporter, Kermit Patterson, for his 2006 article entitled The Scourge of Napa Valley. It is that article’s title that serves as an example of the acrimonious feelings Franzia has towards the buyout. For anyone who has ever taken a concept, put it into a business plan and hung up a shingle or printed a business card for himself, the idea of being self-employed or building a business is a thrilling prospect. But it is daunting. Imagine what the Franzias must have gone through when they decided to recreate their forbearers’ success. Joseph had gone from Santa Clara University to become a Marine Corps officer in Vietnam and was awarded the Purple Heart. Cousin John gravitated toward the agricultural side of the business and had a true affinity for the land. Fred had been talking about wine since he could speak and had studied the business inside and out. From a young age, Fred had an intuitive understanding of matters that usually come with experience. He was known to discuss the business even as a youngster with his friends’ fathers. People with names like Mondavi and Sebastiani are his friends to this day.

On December 27, 1973, the young Franzia men started doing things their way. Fred would be chairman and CEO, Joseph co-president responsible for distribution and John co-president for production. From scratch, on 40 acres, they have built an empire that few, if any, will ever rival. The strategy was straightforward, even if the business itself was complex. The Franzia’s controlled their own distribution in California which has served them well over time. Today, Classic Wines of California handles Bronco’s main distribution; however, they also distribute others’ products. And along the way they came to understand that the more aspects of the production they could control, the better off they would be. To succeed, they had to be willing to take extraordinary risks, and they had to look at an industry rooted in tradition to figure out how to do things more effectively and drive profit.

INNOVATION

Though Franzia is famous for saying, “Nobody should pay more than $10 for a bottle of wine,” Ron Russell pointed out in San Francisco Weekly, “He speaks not as a connoisseur, but as a businessman who takes delight in knowing the precise cost of juice, glass, cork and label.” To those most frustrated by Franzia, those who criticize his “Two Buck Chuck,” he stands firm. Critics say he’s charging less for wine than some charge for bottled water. Franzia’s response? “They overcharge for water.”

In fact, nobody appreciates water more than those who rely upon it for their business. Grapes need water to grow and water to become wine. And, California’s unique culture has kept water scarcity issues on the forefront of the discussion since the early seventies. Bronco handles irrigation and water management with cutting edge attention to detail. Real-time soil moisture monitoring is essential. Vineyards are on drip irrigation so that fertilizer is precisely applied only when needed. Weather stations calculate needs and stream in real-time to a web-enabled feed that the vineyard managers and wine makers can monitor. Bronco even grows its own beneficial algae to keep reservoir and drip lines clean and to consume damaging soil salts to protect the vines. High tech tools with soil maps, aerial photos, variable rate fertilizers, and targeted sample sites are loaded into handheld GPS devices for those who must constantly scout the vineyards. Bronco’s Napa Valley Distribution Center (NVDC) uses Unisolar technology, a thin film laminate on photovoltaic panels that is flexible and light. It does not negatively impact building structures by adding significant weight, and it is tremendously efficient for the purposes of climate control within the warehouse and offices. Careful attention to the deployment of this clean technology innovation allows the building to have an “ice chest” effect, keeping heat out and cool air in. Reduced refrigeration means reduced energy consumption and lower greenhouse gas emissions.

Collaborative innovation is evidenced by Bronco’s partnership with Verallia for the use of ECO Series™ glass for its bottles. Bronco is the largest U.S. user of the Verallia ECO Series™ which is lighter, less costly to ship — both empty and filled, takes less energy to produce, creates less landfill waste, and is 100 percent recyclable. Verallia’s wine sector uses 100 percent of the recycled glass it collects. One of Bronco’s brands, Down Under Cellars, won the prestigious Clear Choice Award in 2010 its the super lightweight packaging. This industry honor is bestowed by the Consumer Product Goods Manufacturers and sponsored by the Glass Packaging Institute. These and other measures have enabled Bronco to continue to prosper, and Franzias formula for success seems to remain, “Deliver value, reinvest in the business, and screw the pretense.”

GROWTH AND JOB CREATION

It is impossible to capture the pace and scope of Bronco’s growth in the constraints of this article. The success has been astronomical and few people are privy to the true bottom line. They do say publically that they own 40,000+ acres of vineyards in California, and they are the state’s largest grape grower. Their reach stretches from the Sacramento area to the edge of the Tehachapi Mountains, which are about an hour north of Los Angeles. Despite the company’s size, much data still remains “all in the family” and it most likely will. There are trusted leaders within the organization — lifers, many. The winemakers, like Ed Moody and Bob Stashak have remained loyal to the Franzia’s for years. Dan Leonard, vice president and treasurer is “like” family from an organizational standpoint. But, there are others, too. Throughout the United States, there are employees managing multi-state regions for the family; some are nearing 15-20 years of tenure. Many ask why they stay with Bronco in such a competitive and dynamic industry. Most say, “Leaving is hard to imagine.”

While the size of the organization has grown, so has its scope. Partnerships and investment relationships with up-and-coming brands, as well as with other storied families around the world, are starting to give Bronco the new and old world credentials many hoped they would develop. From Argentina to Chile, France, Spain, and Italy to South Africa, the Franzias have established trusted relationships with peers in order to expand their portfolio of products. All the while they remain the thorn in the side of many in California who begrudgingly come to Franzia to sell surplus grapes and juice at deep discounts, to bottle their products, and in some cases to manage their portfolios in their entirety. The Bronco portfolio is vast, but many “everyday” brands such as Fat Cat, Napa Ridge, Salmon Creek, Crane Lake, and Douglass Hill are common and are leading brands in their respective categories. The tagline they use in the Antares Wine Division, which represents about half of their wines, is “Wines for the American Table™.” That is the goal — everyday wines for everyday folks. Nothing fussy. Just good wine people can afford. Franzia says, “I don’t make wines to stick in a closet. I make wines to drink.” Terroir? Well, Harlow Ridge is named after the street in Napa where the bottling facility is located. It can deliver 18 million cases of wine a year. That is double the annual production of all of the Napa Valley! No pretense there.

Officially, Bronco does say that they bottle for other Napa wineries, but they decline to mention brands. Wine maker Bob Stashak explains, “This [bottling] line will put out about 240 bottles per minute. There are three lines. They run 24 hours a day, five days a week. When we get to the holiday, we kick in with a sixth and seventh day.” It’s certainly a far cry from the first 40 acres back in 1973.

The story of the evolution of the brand most know as Two Buck Chuck is interesting because that obscure label was acquired, with rights to the name, after the fallout of a broken marriage. The gentleman who is the namesake had to liquidate his assets, so Franzia picked up the name for $18,000. Then he sat on it for nearly 10 years. The real “gasoline” on the Franzia family’s “fire” was the partnership with regional grocery chain, Trader Joe’s, to create Charles Shaw Wines. Trader Joe’s selected the label out of several, and Franzia agreed to make a good bottle of wine exclusively for them which would retail for less than $2 — thus the moniker Two Buck Chuck. It has become the fastest-growing wine brand in history, and in its own way, has elevated Bronco even further. Critics are abundant, but in 2007, Charles Shaw Chardonnay beat 350 other California chardonnays to win Double Gold at the State Fair Commercial Wine Competition.

THE LAST LAUGH

To say Franzia has had the last laugh would imply that he’s nearing the end or that he has experienced the pinnacle of his success. Neither could be further from the truth for him or for Bronco. Franzia “charges on” daily with a regimen few could maintain. Seven days a week of work — most of the time starting at 5:30 a.m. and going well past 9 p.m. — often ends with a simple dinner at a local restaurant where he’s greeted by regulars on a first name basis despite his personal and financial standing. Have there been glitches? Yes. No success story is complete without chapters that reflect false steps. Franzia’s legal battles are the stuff of legend. He has appealed a judgment he thought was unfair to the U.S. Supreme Court where judges declined to hear his final appeal. When that happened, many celebrated while Franzia accepted the consequences. That is also a measure of a leader, by the way. Accepting responsibility on behalf of an organization when it fails is a trait many would argue has been missing in corporate culture. Franzia did, calling it “a business decision” and noting “someone had to take the fall.” Today, many wonder what Bronco’s next steps might be. Nearly all 13 of the next generation of Franzias are employed by the company in one way or another, including two of his children, one a retired Navy SEAL. His son Joey Franzia is assuming greater leadership roles — managing national distribution and brand acquisition — while his cousin Damon, Joseph’s son, deals with brand acquisition and distribution within California. Fred, Joseph and John continue to navigate the challenges of a tough economy, stiff competition, and eager critics. All the while, those connected to the company stand by waiting with eager anticipation to see when, if any, of the original founders will “retire.” One could only guess, but my money stays in the camp that says Fred will be in that trailer across from the guardhouse in Ceres until he can’t be anymore. His family and his company are his life.

Kim DeCoste is the Director of Career Services for Colorado Technical University and President of DeCoste & Associates, LLC. She can be reached at: kdecoste@colroadotech.edu or 303.362.2948.