In 1981, Bill Deutsch left a successful career as senior vice president of sales for Guinness PLC’s Somerset Importers and hung out his own shingle in White Plains, New York. The new company, W.J. Deutsch & Sons Ltd., made its mission marketing quality wines from family-owned wineries. Thirty-five years later, much has changed across the wine business and within the Deutsch portfolio, but the focus of the company—now based in Stamford, Connecticut, and known as Deutsch Family Wine & Spirits—remains the same.
Deutsch initially made its name importing French wines, including Les Vins Georges Duboeuf. In the 2000s, the company’s volume exploded as it built Australia’s Yellow Tail into the U.S. market’s top imported wine brand, a position the label still holds today. Lately, Deutsch has found a new growth engine in the California category, as Josh Cellars has risen to become one of the fastest premium wine brands to reach the 1 million–case mark. Deutsch’s revenues are now at $600 million on 8-percent growth.
“Today we sell in excess of 10 million cases of wine and spirits, and that volume is continuing to grow,” says Bill’s son, Peter Deutsch, who is CEO while Bill serves as chairman. “Our profitability has doubled in the last five years, even though we have nine fewer brands than we did previously. That’s proof positive that our strategy is working. We want to focus on scalable brands and add real and meaningful value to our distributors, retailers and on-premise customers. We actually track and measure the profit we’re creating for our distributors. It’s an important metric as we strive to have the best supplier-distributor partnerships in the country.”
As a family-owned company in an industry where consolidation has brought increasing domination by corporate entities, Deutsch confronts its own set of challenges and opportunities. Perhaps the biggest difficulty is navigating the transition process from one generation of family leadership to the next. With Peter taking over CEO duties from Bill in 2007, Deutsch has one generational transition in its rearview mirror, and it’s already laying the foundation for another. “During the last two summers we’ve employed four different grandchildren during their time off from school,” Bill notes. “Only time will tell whether or not they’ll represent the third generation at the company, but we whet their appetite here in various departments, and they’ve made contributions.”
California Calling
During its first quarter-century in business, Deutsch was known primarily as one of America’s top wine importers, having built first Georges Duboeuf—now handled by Quintessential Wines—and then Yellow Tail into dominant brands in their respective categories. But imported wine came under significant pressure during the economic downturn of 2008 to 2009, leading Deutsch to diversify into the California wine business—a bold move that continues to pay big dividends. In 2011, Deutsch began marketing Josh Cellars ($13 to $19 a 750-ml. bottle), created by former Mildara Blass USA president Joseph Carr, and a year later acquired full control of the California brand. When Deutsch purchased Josh Cellars, it was selling around 25,000 cases. Since then, the wine has surged to a projected volume of nearly 1.5 million cases this year, according to Impact Databank, and it’s become the linchpin in the company’s so-called “low lux” strategy, which focuses on the $10-to-$25 bracket at retail. “New drinkers are still discovering Josh Cellars,” Bill says. “We believe there are ongoing opportunities for further expansion, especially in the on-premise trade.”
Peter concurs, noting that Josh Cellars is entering new territory. “We’ve seen rapid growth brands at $10 and below in the industry,” he adds. “To see a wine above $10 that’s rising this dramatically—there’s something very special going on with the consumer. A number of varietals are taking part. Cabernet is the largest, but the Chardonnay, Merlot and Red Blend are the fastest-growing wines in their respective categories over $10. If we really put the pencil to it, we believe that Josh Cellars has the potential to be a 3 million–case brand in the United States.”
Looking ahead, Deutsch is angling to increase Josh Cellars’ presence in the on-premise, particularly in by-the-glass programs. Additionally, the company has high expectations for a new Josh Cellars rosé, which is currently being test-marketed, as well as a Reserve range. Slated to launch nationally during Deutsch’s next fiscal year, the Reserve tier includes two different Cabernet Sauvignons—one from Paso Robles and one from the North Coast—each retailing for around $17.99 a 750-ml. bottle.
While Josh Cellars keeps soaring, it’s not the only California arrow in Deutsch’s quiver. Sister brand Joseph Carr ($25 a 750-ml. bottle)—which offers a Napa Cabernet as well as a Chardonnay—has gained traction on-premise, as has The Calling ($30 to $65), a Sonoma County brand launched in partnership with sportscaster Jim Nantz in 2012. The Calling features a Chardonnay and a Pinot Noir from the Russian River Valley, a Sonoma Coast Pinot Noir, and an Alexander Valley Cabernet Sauvignon. Joseph Carr has expanded by 70 percent over the past two years to close in on 70,000 cases, while The Calling is now at around 25,000 cases. Deutsch’s California lineup also includes Napa Valley’s Girard and Sonoma Valley’s Kunde. “We have a good base of California jewels, and we’ll continue to look for more opportunities,” Peter notes. “We’ve also begun to open up a Washington state brand that we have in partnership with Precept Wine called Skyfall. We seeded it on-premise, and now with retail, it’s growing at 100 percent, with some tremendous interest from chains around the country. We think Skyfall has huge potential.”
Australia Awakening
Even with all the growth occurring in Deutsch’s domestic portfolio, Yellow Tail remains the company’s largest brand by far. A partnership with the Casella family, Yellow Tail ($6.99 a 750-ml. bottle) ranks as the fifth-largest wine brand in the United States at 8 million cases and the top imported wine in the industry by a margin of more than 4.3 million cases, according to Impact Databank. However, struggles at the lower tiers of the Australian import segment have recently impacted the brand, which has shed more than half a million cases over the past two years. In an effort to reverse the tide, Deutsch is planning to turn up the volume on Yellow Tail’s marketing in a big way in the months ahead. “Typically when brands in this category plateau, marketers begin to dump price and reduce their marketing budget,” Peter says. “We’re taking a contrarian approach. We’ve actually doubled down on the size of our marketing investment, and we’re excited to announce that we’ll be the first wine in 40 years to advertise during the Super Bowl in February. We want to remind consumers that wine can be fun and can be enjoyed during the same occasions as beer.”
Meanwhile Deutsch and Casella continue to seek ways to leverage the intriguing growth prospects for upscale Australian wines. According to Shanken News Daily, after years of decline, Australian wine’s shipment value to the United States grew 8 percent to $342 million in the 12 months through June 2016, driven by premium offerings. Deutsch relaunched Casella’s Peter Lehmann brand in the United States this year, focusing on its core blend Clancy’s Red ($16 a 750-ml. bottle), which accounts for about half of the wine’s volume, as well as Portrait Shiraz and Portrait Cabernet Sauvignon (both $19). “We’re excited about Peter Lehmann because that price segment of Australian wines is beginning to grow again,” Peter says. “Over the next few years, we’ll also begin to launch some very limited wines under the Casella brand name, which we’ll seed in various markets.”
Among other key brands in the Deutsch imported wine stable, Italy’s Barone Fini has emerged as a standout, averaging 20-percent annual growth over the past three years to reach 125,000 cases, according to Impact Databank. New Zealand–sourced The Crossings is taking part in the Kiwi category’s surge, rising 20 percent to 60,000 cases last year. The company has also been aggressive in the growing sangria segment, launching Yellow Tail Sangria—which is advancing at a double-digit pace—and acquiring the premium Eppa brand ($13.99 a 750-ml. bottle). Another label to watch in the years ahead is Sicily’s Villa Pozzi, which Peter believes has significant upside.
Spirited Push
Over the past decade, nearly all of America’s major wine marketers have looked to expand into the spirits category, lured by impressive growth rates—particularly for brown spirits—and exposure to a market less vulnerable to agricultural fluctuation. Deutsch has been no exception. “We’re very committed to scaling our spirits business—it’s a real pillar in our strategy,” Peter says. Last year, the company acquired Redemption whiskey, founded by industry veterans Dave Schmier and Michael Kanbar. Sourced from the MGP distillery in Lawrenceburg, Indiana, Redemption’s core rye whiskey, Bourbon and High Rye Bourbon retail around $30 a 750-ml. bottle, and Deutsch extended the range this summer with an Aged Barrel Proof Collection of high-end whiskies positioned at $100 a 750-ml. bottle. “Few of our competitors have been able to get a deal done in this space—it’s been challenging,” Peter notes, referring to top wine and spirits players’ race to expand in craft whiskey via acquisition. “American craft rye and Bourbon are hot segments, and we’re very optimistic about Redemption. We spent our first year building stocks, but now supply has loosened up. In November, we’ll unveil new packaging—including a proprietary bottle—which we think will be a big boost for the brand.”
Deutsch is also bullish on Luksusowa, a Polish potato vodka that’s quietly approaching 300,000 cases in annual volume on double-digit growth. “Luksusowa is gluten-free, which appeals to so many consumers these days, and we’ve had very positive feedback from retailers,” Bill explains. The company also predicts a bright future for Spanish citrus-vanilla liqueur import Licor 43, which is now at around 70,000 cases and geared to capitalize on the cocktail craze.
Wholesale Changes
Looking back on the company’s three decades in operation, Bill and Peter both cite the wine and spirits market’s ongoing consolidation drive across all three tiers as fomenting seismic change across the business. “Over the last 10 years or so, we’ve seen a rapid increase in consolidation at all three levels,” Peter says. “We’ve had to adapt, but I think it’s actually made us a better company.” Specifically, Deutsch has worked to forge closer ties with its distributors over the past decade, seeking to nurture truly collaborative relationships. “The days of a supplier going in and giving wholesalers objectives are over for us,” Peter notes, adding that Deutsch and its distributors now build growth plans together with a “bottom-up approach” to consumer needs, in which both sides of the table must agree on the key areas of opportunity.
One example of a significant consolidation-driven change in Deutsch’s modus operandi occurred earlier this year when the company reformed its sales organization into two new units: the Zenith zone, comprising the more than half the country where Deutsch is partnered with Southern Glazer’s Wine & Spirits, and the Apex zone, which covers all remaining markets. Besides Southern Glazer’s, Deutsch’s other multistate distributors include Breakthru Beverage Group, Allied Beverage Group, Martignetti Cos. and Johnson Bros. Liquor Co.
Peter believes the recent blockbuster merger of Southern Glazer’s—which now accounts for 58 percent of Deutsch’s business—has created a formidable new player that could set itself apart from the rest of the middle tier. “Southern and Glazer’s were our two biggest multistate partners,” he says. “They found a way to get together and create the first real national system. I’ve been unbelievably impressed with the Chaplin and Glazer families in their integration and in the early decisions they’ve made along the lines of people, structure and systems. They have the potential to create some real distance between themselves and their competitors. They’re making all the right moves.”
Family Dynamic
As Deutsch and its competitors adapt to a new landscape in which increasingly larger suppliers, wholesalers and retailers hold sway, the company says family ownership still confers a number of advantages—among them a more nimble decision-making process than those of corporate players. “Cohesive family companies working together to think through and discuss important ideas can come to a resolution fairly quickly and are able to implement decisions through the family company structure,” Bill says. “Big national and international companies take months to make a decision—sometimes longer. By speeding up the process, we’re indirectly helping both our distributors and retailers.”
Peter agrees. “The lack of red tape is clearly a huge advantage for us,” he says, noting that another benefit is the company’s ability to guarantee a consistent strategy over the long haul. “As a two-generation company that’s made the transition effectively, we can provide distributors, retailers and restaurateurs with great consistency in our approach and long-term strategy. Rather than revamping our vision every few years, which causes disruption, our consistency has really opened up opportunities for us to develop great partnerships.”
Deutsch is applying that same concept of continuity within its own ranks. “The big firms often have a revolving door of executives either leaving the company or being transferred to another part of the world,” Bill says. “A family company like ours doesn’t work that way. We have many valued employees who’ve been with the company for years and have grown with it.”
With the rapid pace of change in the industry, anticipating trends is one of the key challenges facing all drinks marketers. “Whatever you’re dealing with today, I guarantee you’ll be looking at a different map three or five years from now,” Peter says. But as the company sits down to plan its next phase of growth, he remains confident in the ongoing progress of the “low lux” retail segment for wine, which will remain a core focus. “That segment is really firing on all cylinders with the consumer, and our wholesalers and retailers recognize that it’s been driving their growth,” Peter adds. “We think it will continue to grow for a long time.”
Meanwhile, Deutsch plans to leverage the contributions of the three generations currently involved in the business. “It means bringing along all the principles and ways of working established by my father, and all the experience that he’s been able to impart,” Peter explains. “My job has been complementing that experience with new ideas and approaches that tackle a different industry today while addressing the innovation and technology aspects to help take us into the future.”
Looking back on his bold move of 35 years ago, Bill remembers when independent, family-owned companies made up a bigger part of the wine and spirits business. Even if their ranks have thinned, these companies are still making a lasting mark on the industry. “Many years ago, Market Watch did a story on entrepreneurial family-owned businesses, and Marvin Shanken put a picture of each of the families on the cover,” he recalls. “A few of those entrepreneurs remain—but only a few. Since then, a few more have come along and joined our industry. We believe that the distributors throughout the country truly enjoy working with family companies where they see one, two, three generations becoming involved. They know those companies are here for the long term—not here today and gone tomorrow.”