Cameron Hughes’ early jobs in the California wine industry were as a cellar rat at Corbett Canyon and in sales for The Wine Group. But the Modesto, Calif., native wanted to run his own show and came up with a brand called Cinergi: kitchen-sink blends made from bulk wines. The venture ultimately was unsuccessful, in large part because he was buying inventory before he could sell it.
Hughes went back to the drawing board and came up with the Cameron Hughes Lot Series. The idea was to find good buys on the bulk market and present them to a retail partner (Costco) so he knew he had a buyer before he had to lay out any cash. The Lot Series was launched in 2004 with a 2002 Lodi Syrah.
Ten years later, Cameron Hughes Wines is selling about 400,000 cases per year. Lot Series wines are being sourced globally, and retail channels have expanded. At the time of this writing the Lot numbers had reached the mid-400s, and other brands have been added, including the recently introduced CAM Collection.
Wines & Vines: You started out buying bottle-ready bulk wines for the Cameron Hughes Lot Series wines, but your business model has evolved over the years. How has your business changed?
Cameron Hughes: I started out buying ready-to-bottle bulk wines and bottling them for Costco. At the time, I outsourced the winemaking to someone who could assemble the blends and bottle the wines for me.
This worked well for us for a couple of years, but we quickly learned we could manage the evaluation and purchase of the bulk wine and blend it ourselves at dramatically lower cost. We had a steep learning curve and made a few mistakes along the way. For instance, in 2007 a large Russian River Valley producer, having over-contracted grapes, came to us with a grapes-to-wine production contract for 100,000 gallons of RRV Chard. We just trusted them to make us some great wine. Unfortunately, they picked early and made us a partial malo, 3.1 pH Chardonnay that took 15 months to settle into the bottle, it was so acidic. In not having a hand in the production processes we lost the style, direction and overall quality of the wines and ended up with a cash-flow disaster. We learned from our mistakes, put vineyard protocols in place including clusters per shoot and pick decisions, fermentation and oak protocols.
Over the years our model has changed to adjust to changing market conditions. We still buy ready-to-bottle bulk wine, but the majority of our wine is produced with grower and winery partners to our specifications. In the past few years we have purchased grapes, but only for our high-end Napa projects.
One thing that distinguishes Cameron Hughes wine is our willingness to tailor our deals to the needs of the producing vineyard or winery. Literally every deal is different in its structure. Sometimes the winery has vineyards and would rather put the grapes through their facility for the throughput aspect. Oftentimes we supply barrels (we have about 8,000 barrels), but when they have a formula where they are simply adding our production onto theirs, maybe they’ll buy the barrels and build them into the price, and we take the finished bulk wine and bottle it at a separate facility. Sometimes the winery contracts for the fruit, handles the fermentation through to finished wine and sells us bottled wine out the other end.
Overseeing all of this is a team of two winemakers and a viticulturist. In 2012
we managed the crush of about 5,000 tons of fruit at seven different wineries on the West Coast. Managing wine through that number of facilities really stressed our organization, so we are consolidating into three facilities for 2014. We contracted in advance and managed the production of 75% to 80% of our production out of the ’12 vintage but have backed off considerably for ’13 and ’14, expecting the bulk market and key winery partnerships to supply most of our needs.
As well, our business model has moved beyond Costco. They are still an important partner, but in 2007 we realized we had all of our eggs in one basket and began a steady push toward diversifying our customer portfolio. We now sell our wines through multiple channels including national grocery and independent retailers in all major markets and all 50 states with major distributors partners such as Southern Wine & Spirits, Glazers, Baystate in New England and Johnson Brothers. Our website, responsible for 35% of our bottom line, has grown by leaps and bounds and shows no signs of slowing down.
W&V: You still depend some on the bulk wine market. What’s happening with supplies and prices these days?
Hughes: Bulk supply is rapidly expanding, and prices have definitely moderated from this time last year, but it varies greatly by appellation and variety. North Coast Bordelaise varietals are still holding fairly strong considering the size of the harvests, but that’s due in large part to big strategic players making moves up there to lock up inventories and lock out other players. Large positions, such as a blanket offer for ’13 Alexander Valley Cabernet at $25 a gallon, to the tune of 500,000 gallons, can only be explained
as such in my mind. Pinot Noir and Chardonnay statewide are moving through the system, but at lower prices than growers and wineries saw in the past two to three years. Zinfandel (particularly Lodi) is slow to dead in the water.
I am uncomfortable naming prices but can tell you that in the past four months, we are buying at or below tonnage cost plus processing. That said, we are confident wine and grape prices are going to moderate. Judging by the samples on wine brokers’ shelves, and having just been privy to two major lenders fretting about inventory builds in their wine clients both large and small (they are already worried about oversupply and asking their wineries for plans on how they are going to deal with excess inventories), we believe strongly that we are back in an oversupply situation. This includes Napa and Sonoma counties.
We think the 2014 harvest will come in bigger than growers are currently predicting. The state of California underreports actual acreage significantly, and we believe the California Department of Pesticide Regulation is a far more accurate barometer of actual acreage, along with the report by Nat DiBuduo of Allied Grape Growers, to the tune of 70,000 acres, with another 90,000 to come on line over the next few years. (Read more on page 17.)
The bulk market is trending long, and prices will continue to moderate—they have to, in my opinion. Fruit is overpriced in this state. This is just big picture, of course; obviously further analysis district by district and varietal by varietal will be more nuanced.
W&V: How do you determine what you’ll pay for bulk wine or whether it’s correctly priced?
Hughes: It depends on the situation, but for the most part we look at what price the wine will be sold for and then does the bulk wine in question allow us to outperform the category in price and quality. When launching 50 wines per year, many of which are completely new offerings, you have to be able to outperform the category; otherwise, what is our reason for being? I always say we are only as good as our last Lot wine, because retailers and consumers expect the highest quality-to-price ratios from us and will only continue on our “treasure hunt” as long as we outperform expectations. We bought very little bulk wine out of California in 2011 because it was overpriced for our customers and lower quality than our customers had come to expect. We did purchase bulk wines from France and Italy.
W&V: Where are you finding the best values these days?
Hughes: I think we are about to get pretty long here in California for Pinot Noir and Chardonnay, and hopefully Cabernet will moderate as well. Spain is showing us amazing wines right now. We just saw a 2007 Gran Reserva from Rioja (three years in wood, two years in the bottle) that could retail for $9.99-$11.99 and is every bit as good as $30-$50 California Pinots and Cabernets. There are delicious, modern-style Garnachas and Tempranillos with $6.99-$7.99 retails that, with the right packaging, could be quite successful. Italy also has some delicious bulk wine available for about 1.25 euros per liter (with current exchange rates, about $7 a gallon, including shipping to the U.S.) that land somewhere between Lodi/Central Coast and Sonoma County in terms of quality. Argentine Malbec is about to become dirt cheap here with their currency devaluation, but we have not been as successful with Malbec under our label as we would have liked.
W&V: Part of your business is direct to consumer. What sort of marketing strategies are you using?
Hughes: I like to think we were one of the first—if not the first—flash wine sites. We offered up each of our Lot wines as they were released to Costco, then when they were gone, they were gone. Some, like Lot 17 Sierra Foothills Barbera, were gone in a day. The “flash” or treasure hunt aspect to what we do has always been successful on the Internet and through email marketing.
We now have around 40-50 SKUs available on a daily basis. We run sales and promotions, do marketing partnerships with brands such as Pottery Barn, Banana Republic and Room and Board, and update content constantly to make the site stickier.
W&V: You recently added a new brand, CAM Collection, to your lineup. Why?
Hughes: The dynamic, in-and-out nature of the Lot program is tough for some retailers, most notably the grocery channel. We developed the CAM Collection to take advantage of our brand equity and consumer base to deliver consistently available wines (vintage to vintage, varietal to varietal, like traditional brands) from regions we believe deliver the nexus of quality and value for a particular varietal. For instance, we think the best bang for your buck for Chardonnay comes from Monterey County, and Cabernet from Lake County (though we’ll see what happens with Lake County—I think we are being priced out of that appellation right now). We oversee the production of all the wines for the program and are adding a Central Coast Pinot Noir out of 2013. More varietals will be added down the road.
A resident of the Santa Cruz Mountains, Laurie Daniel has been a journalist for more than 25 years. She has been writing about wine for publications for nearly 15 years and has been a Wines & Vines contributor since 2006.
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