Duckhorn CEO Touts Quality as Popular Wine Brand's Key Driver

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00:00We're going to taste the Decoy Featherweight Cabernet Sauvignon. It's the recent launch,

00:06most recent innovation in our Decoy Featherweight offering, which is the largest and fastest growing

00:11lower alcohol, lower calorie offering within the wine category. The Cabernet is really unique.

00:17It's about 9% alcohol, about 80 calories per serving. That's about a third less alcohol than

00:23a typical Cabernet and about 50% the calories. It's tough to achieve a great tasting Cabernet

00:29Sauvignon. That's low alk and low cow. So give it a taste and tell us what you think.

00:33All right. Here we go. It smells delicious.

00:39Uh-oh. Dead air on radio. It's okay. We're drinking wine.

00:42We're just drinking wine over here.

00:43We'll talk. Let's talk some more.

00:44We're still here. We're just drinking.

00:45That's really smooth. And you know what? I don't need to necessarily have it with food. It's just

00:51like good straight up on its own.

00:52Yeah. It's addressing, you know, there's a lot that's been reported about the dislocation of

00:57the wine market. You know, we're excited about what we've achieved this year. We're excited

01:02about 2026. 2026 is the 50th anniversary of the founding of the company. Dan and Margaret

01:07Duckhorn founded the company 50 years ago on Merlot, which we're going to taste as well

01:11at the different end of the market. The one we just tasted about $25 a bottle. The Merlot will

01:17taste as one of our high-end luxury estate Merlots. But we're excited about what's happening.

01:22This wine we just tasted is leaning into one of the trends that's impacting especially

01:28younger consumers' consumption in the category. Younger consumers are looking for value.

01:33Pricing matters a lot. They're looking for, they're very conscious about consuming things

01:37that are better for them. So having a better mint introduction and innovation in the category

01:41is important. We're about to celebrate the first year anniversary of taking the company

01:46private with Butterfly Equity, our sponsor. They only invest in food and beverage. They

01:52understand craftsmanship. You know, if you're going to put it across your lips, it's got

01:55to taste yummy. And we've got a strategy of competing in the best neighborhood, the best

02:02street in the neighborhood, and the best house on the street.

02:04So that was about a year ago that they came in. And this company has been public. It's been

02:09taken private a couple of times, a few times. What changes have happened? I mean, you actually

02:13started with the company earlier this year in February. But what changes have been made now

02:18that this private equity company has come in and just used this past year?

02:21Yeah. Well, look, we, for the reasons I've just explained, we think Butterfly Equity is a great

02:26sponsor, a great partner for us. What I would say is one of the superpowers of the company I respected

02:31when I first got to know it is the agility, the ability to innovate at the pace of the consumer

02:36marketplace. And the market is demanding and consumers expect you to meet them on their playing

02:40field, on their terms. That's how Butterfly thinks. What's changed? I would say the agility

02:46is, the pace of the agility of the company has picked up. We've made some significant progress

02:52in a very short period of time. If I, you know, reflect upon the analogy I just provided,

02:58neighborhood, street, house, we compete in the 15 and above price segment. The market's been

03:03dislocated a bit. We can talk about that. But that's been driven by below 15 and especially

03:07below 10. So we compete in the right neighborhood. One of the best examples of what's changed,

03:12we did a portfolio construction exercise over the past nine months, where we looked at our whole

03:18portfolio, 11 brands, we've concentrated on seven, and four are really high growth core brands,

03:23because we're winning with fewer things and focusing on the winners that matter, big, clear lanes of

03:30competition, exceptional wines that compete against the best in the category. And we've actually

03:37increased our addressable market by almost $2 billion from $2 billion to $4 billion in that

03:42exercise. And then the proof's in the pudding. So best house on the street. The team, I'm really

03:48proud of them, have grown our market share from 10.4% to 11.7% during our hold period. So it's been

03:55a busy, busy year. We've got a lot of air to travel. You'll hear duck analogies. We don't talk

04:01ground. We talk air. You'll hear duck analogies when we talk a lot. We have a lot of air to cover,

04:07but we're excited about what we've accomplished so far. I just want to ask before I get ready to

04:11pour the Merlot, when you think about kind of the recovery, we have so much. Bailey likes this part.

04:15He likes pouring. This is the best. But when you think about kind of the state of the economy,

04:20it does seem like the upper 5, 10% of the U.S. consumer is better off than really the bottom 90%.

04:27Thinking about higher price wine, better wine, as you mentioned, best house on the best block,

04:32how do you think about attacking that consumer and whether you're seeing growth from them?

04:36Yeah, great question, Bailey. We're very conscious of it. Our intention is to remain a premium,

04:42fine, and luxury still wine competitor. However, and I'll give you two examples specifically on price.

04:49We've talked about the better example, and then I want to talk to you about consumer experiences.

04:53With the focus, especially for younger consumers, on purchasing power, there's a little nervousness

05:00around the socio-political and kind of economic environment. We're conscious of that. So two

05:08ways we've reacted. One, we introduced an amazing new brand called Green Wing, which is a $15 to $20

05:14a bottle winery brand with amazing Cabernet from Washington and a Pinot Noir and Pinot Grigio from

05:21Willamette Valley in Oregon. That $15 to $20 bottle of wine can translate into a $12 by the glass program

05:28if you're at a restaurant. A lot of younger consumers say they get more value out of spirits

05:33or other categories. This is providing them an entry point into the wine category, kind of not

05:38telling them what to drink, but inviting them into our portfolio and into the wine category

05:42based on value. And on the higher end of the market, we made a price adjustment on our

05:50Duckhorn Vineyards, Napa Valley Cabernet. It was priced at $72. We took the price down to $60

05:58because it's a larger addressable market. And frankly, even for a fine wine consumer that can buy

06:04wine at that level, recognizing we could produce the same or better quality, maintain or really,

06:09we've got a structurally advantaged operating model with great margins. We could maintain

06:13our margins and put out a more sharp price point for them. We're just meeting people on their terms

06:18in this economic environment and growing as a result.

06:22If you heard the pouring behind us and the popcorn, the corn popping is because we are having

06:26some Duckhorn Portfolio wine, right?

06:29If you're watching on YouTube, this is what we're about to taste is the 22 Merlot. And remind me,

06:36why is this a particularly nice Merlot?

06:38This is an exceptional Merlot. Now, I'm going to tell you, I've got a personal bias. I'm a Merlot fan.

06:45Not everyone can remember, but I remember sideways.

06:47I was going to make the joke.

06:49A film from 20 years ago that said you shouldn't drink Merlot. Completely wrong. Merlot,

06:53in my opinion, is the best varietal.

06:55Loved that movie.

06:57Loved the movie. Didn't love what it did for Merlot. Merlot is the easiest drinking wine.

07:03It's super great to pair with lots of different food choices. It's an easy drinking varietal.

07:09This wine is my favorite in our entire portfolio for two reasons. One, Dan and Margaret Duckhorn,

07:15who respected nature, the craft of winemaking and hospitality, introduced this wine as their

07:20first introduction 50 years ago. And we're celebrating our 50th anniversary next year and

07:25feel really good about the momentum of the company. It's an estate wine. It's a blend of 92% Merlot,

07:327% Cab, and 1% Cabernet Franc. It is a luxury wine, so it trades for between $120 and $150 a bottle,

07:40but it's a beautiful wine. And I encourage all of your audience to drink Merlot.

07:44Ryan is nodding profusely. Yes, it is.

07:48It is a great wine, right? It's yours.

07:50Well, all right. For our audience who are just joining us right now, we are here in the studio

07:55talking wine and drinking wine with our guests here. Robert Hansen, CEO of the Duckhorn Portfolio,

08:02as well as Bloomer News Equities reporter Bailey Lipschel. So, Robert, you know, I want to touch on

08:07what you said earlier, right, about the process of kind of going public, then private, and then

08:12back again. And so, you know, you mentioned agility was one thing that really kind of was sustained in

08:19a company throughout those changes. And, you know, talk to us about how that's serving you now that

08:25the market is changing so rapidly. We have, on the one hand, Gen Z drinkers who just consume less

08:31alcohol overall. And it seems like that's something that is maybe permeating throughout the broader

08:35American public, right? I think Gallup was saying that just 54% of Americans in general say they drink

08:41alcohol. That's a record load. How is the company thinking about these kind of structural changes

08:46among consumers? Yeah. Well, I mean, great, great question. And as I mentioned earlier,

08:51it's true, as reported, that the market's been dislocated. That being said, we compete in the

08:56segment of the market that has tailwinds 15 and above. And we're segmented from $15 a bottle up to

09:01$300 a bottle. So in Stillwine, we are the, like, best house on the street. And we're growing

09:10because we're competing from $15 to $300. We've got a segmentation of our portfolio that meets most

09:16consumers' needs. More specifically, though, you know, a lot's been written about the betterment

09:22trend, about drinking less but better quality. That is the focus of this portfolio. So you ask the

09:27question, what's different? We've got our eye on the horizon. We're very much focused on meeting the

09:33consumer on their playing field on their terms. They want to buy great value. They want to buy great

09:39quality. They want lower alcohol content. In some cases, they want to drink less but better quality.

09:44Our whole portfolio is about that.

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