The bulk wine broker

An interview with Greg Livengood by Robert Joseph

Greg Livengood
Photos: Henley Photography

After gaining a degree in international relations at the University of San Diego, Greg Livengood joined his stepfather, Joe Ciatti, in the family business in 1994 and became a partner three years later. After running Ciatti’s South American operations he returned to take over as president and CEO of the Ciatti Company, recognised as the largest grape and bulk wine brokerage in the US. 

MEININGER’S: Can you tell me something a little bit about Ciatti?

LIVENGOOD: Joe Ciatti purchased a very small domestic brokerage company in 1971. He had a strong business relationship with Julio Gallo, and a lot of what he did in the early days was find bulk wines throughout California for the Gallo brands. In the early 1980s, we began branching out into more North Coast, premium bulk brokerage, and in the late ‘80s we began to have a more international perspective. Today, our business is roughly 60/40 US domestic to international, but over the last eight years, we’ve seen a pretty big increase in bulk import.

MEININGER’S: What are the biggest changes you’ve seen? 

LIVENGOOD: Twenty years ago, when you traveled, you tasted bulk wine for export that was… not fantastic. Today, you’d be hard-pressed to find wines that weren’t, at some level, commercially acceptable. The other thing is flexitanks. They’ve changed the game. In the early 1990s, flexis had TCA and naphthalene issues and things like that. Then the producers really got it right and built flexitanks with real barriers that essentially eliminated those issues. In addition to the cost savings, not needing to position tanks all over the world just changed everything.
 
MEININGER’S: Do you see the bulk market growing much bigger?

LIVENGOOD: The question is, where’s the wine market going? An average crop in California today is about 4m US short tons. But if we go to US sales of 500m cases, a big part of that’s going to be imported by companies with distribution like Gallo and The Wine Group, Constellation, Delicato and Accolade. They are the ones in a position to import bulk into their brands and be a part of that growth. 

MEININGER’S: Presumably big companies set up long-term contracts that bypass the brokers.

LIVENGOOD: We do a lot of long-term contracts and continue to add value through the term of the entire contract. Those relationships ebb and flow. In a three- or four-year contract, it’s very common for the buyer, seller and broker to sit down and say, “Okay, we’re either a little bit long, or a little bit short, or pricing has moved this way or that way… ” The broker brings a lot of value in getting an agreement that works for both sides and extending the relationship.

MEININGER’S: Is everybody working on the same terms or is that negotiable?

LIVENGOOD: Our margin ranges from 2% to 4%, depending on the markets, but everything’s negotiable in bulk deals. For a California domestic buyer, the standard terms are probably 30 days from receipt of product or shipping of product. If you’re a European or US importer dealing in imports, they’re generally 60 days from the issuance of the bill of lading. A lot of times we make export contracts from places like Chile with shipping terms over the course of a year. It may be that nothing happens for six months and then they ship a whole bunch. 
 
MEININGER’S: The private label business is growing globally, thanks in part to discounters like Aldi and Lidl. I presume that’s good for your business.

LIVENGOOD: Private label deals in many cases involve bulk wine, so that certainly isn’t a bad thing for our customers such as bottlers in Germany. But when we try to grow our business, the first question we ask ourselves is, “Are we competing with our customers?” That’s why we’re not going to get into private label business directly with retailers. The branded business is also good for us. The US is still more brand-focused. That’s partly cultural and partly legislative because the three-tier system certainly helps the bigger brands.

MEININGER’S: Approximately how many litres do you handle a year, and what is your turnover?

LIVENGOOD: We don’t really share that information but it’s north of 500m L and $10m. Up to 20% of the business can be grape concentrate, but that business has taken some hits in the US with fruit juices coming under fire from a health perspective. But overall, it hasn’t taken a huge step back and we think with types of concentrates other than grape there’s a lot of potential out there for us with successful flavoured wines like Echo Falls.

MEININGER’S: What are the key differences between the US and other markets for bulk wine?

LIVENGOOD: Exporters outside the US are traditional bulk suppliers. That’s what they do day in, day out – making bulk wine for the purpose of exporting. In the coastal regions of California, there are a lot of branded companies that have excess wine they’re selling. It certainly helps with cash flow to turn over inventory in the same harvest year rather than sitting on it for three years. 

MEININGER’S: How is the business growing?

LIVENGOOD: It ebbs and flows with the value of the product we’re selling. We work on a percentage commission basis: as prices or markets rise and fall, our fortune’s going to go in the same direction as the market. In 2011 and ‘12 you had poor harvests so we saw a little bit of a downturn in volume. But prices were dramatically higher and from a revenue standpoint, we saw a spike. Then, in ‘13, we had a very big world harvest and a step back in pricing.

MEININGER’S: Who are your main competitors?

LIVENGOOD: We have a lot of competition but most of it is market by market, not global. We tend to compete against alliances of brokers rather than companies set up as we are. In the States what we fear the most, though, is consolidation. There are negociant-style companies that buy bulk wines to build a brand they can build to a certain level. Then they sell to the big guy who comes in with the distribution that will enable them to grow the brand at a lower cost. So, we’re seeing more and more of our clients disappear or become one big client that shifts from a bulk wine buyer to a grape buyer.

MEININGER’S: How are you planning to combat the threat of consolidation?

LIVENGOOD: Our first little step was establishing a company called John Fearless last year that essentially sells ingredients and services to craft brewers in the US. It’s not necessarily exactly what we’re doing in the wine business, as we are taking some positions on some of the products, but it’s a similar concept. We are out trying to help brand builders build their brands. And we already deal in bulk spirits as well. It’s a small part of the business but craft spirits are a possibility.

MEININGER’S: Which countries dominate the supply of bulk wine?

LIVENGOOD: That depends from year to year but Spain obviously leads the charge in Europe. In the New World, Chile has to be the market definer. You have so many buyers going to Chile specifically for Merlot, Cabernet, generic reds and some Syrah. If they have a – we’ll call it supply disruption – like this year because of the rains, the ripples go throughout the world bulk market. Australia is quickly becoming more important, especially with China, because they have a free trade agreement. If a US bulk buyer’s looking for Chardonnay, the first place you look is Australia.

MEININGER’S: What gives Chile its strength as a bulk supplier to the US?

LIVENGOOD: The buyers here tend to buy in big volume – these are big brands they’re filling. They want to be sure of getting a lot of wine that will be consistent. Does Spain have 10m-L and 20m-L Cabernet producers like there are in Chile? The same applies to South Africa. A lot of good wine, but it’s in a lot of hands. Logistics is also important. If the buyer can find a simpler way to get their wine, they’re going to go that route, and that’s what Australia and Chile have really provided for these buyers over the last five years. But when Chile has a short harvest, buyers have to look elsewhere. For the first time since 2012, I have US buyers asking, “Hey, what’s going on in Spain? What’s happening in other parts of the world?” For the last five years, they had no reason to ask.

MEININGER’S: There are countries in Eastern Europe promoting themselves at the Amsterdam bulk wine show. How do they compete with Chile?

LIVENGOOD: Here in the US or Canada, those options only become interesting if there’s a big issue in Chile or Australia or South Africa. Those trade lanes are very well established and those partnerships are very well established. It isn’t just that it’s a good Pinot Noir or Merlot. The style has to be very similar to the style that’s popular in the country where the wine is going. If an Eastern European producer, for example, wanted to sell a Merlot in the US, we’d probably show them the wines that are being sold here today. Then you start looking at the pricing to figure out where it fits in the world market, then you start looking at the duty structure and the shipping costs. Stuff that always gets overlooked but is a big part of the game.

Chile was delivering at 45 cents a litre for high-quality Cabernet for several years here. So, with zero duty and a freight advantage, it’s how low can you go? At that time a euro was $1.30 – it made it really tough to come here at any price. Generally, European wines have a shipping cost disadvantage of perhaps five to eight cents a litre, and in a lot of cases the European wines are harder to work with due to the way that the wine laws are set up. So, lots of different things come into play other than the quality or ex-winery price. As the Euro has become closer to par with the dollar, it makes European wines much more attractive, but they still have a 14 cent duty disadvantage compared with Chile, Australia and South Africa, which don’t pay duty here.

MEININGER’S: Which styles are most popular right now?

 
LIVENGOOD: Everyone is always looking for that next big thing. For a while it was Muscat. And Argentine Malbec. When it comes to white wine in this country, it’s Chardonnay, Chardonnay, Chardonnay and then Pinot Grigio. You don’t see a huge market for bulk Pinot Grigio from Italy here. Apart from Santa Margherita, the vast majority is under $10.00, and the origin is not necessarily as important. Australia and Chile have been very strong players in the bulk side. The only potential competitor Pinot Grigio sees in this market is this emergence of Sauvignon Blanc.

At the moment Sauvignon Blanc continues to be New Zealand. Everyone is chasing that style. The bulk trade is kind of dominated by US, Canadian and UK buyers. Those are the markets where we see most of the opportunity. Chile and South Africa both make very good quality Sauvignon Blanc at very reasonable pricing, but in the US, they haven’t been able to break in and take some of that shelf space at a lower price, which you would think would be the goal.

Prosecco has become hot and Provence rosé is hot. Our buyers are starting to ask questions about rosé beyond Provence, but from an import perspective, France is all they seem to be interested in. Pinot Noir is still strong, but the preferred style comes from Chile. And, on the negative side, our Moscato import business is virtually gone. The entire segment dramatically shifted downward, and lots of California growers planted it. So, there’s plenty of Muscat to buy in California and we see Moscato wines in the market that are a vintage or two old.

MEININGER’S: What about red blends? Could non-US producers compete with successful wines like Apothic?

LIVENGOOD: Those wines are a little higher priced, and a California location or region matters at that level more than it does at $4.00. I don’t know exactly how those wines are made, but to replicate them at a lower price point may be difficult, because a lot of those wines are Zinfandel-based. But it’s reasonable to think that you could do something like that.

Whatever the style, though, you’d need distribution. That’s the strength of the big companies. They see a little blip somewhere on the radar and they are already set up to attack and be the dominant players, whatever the trend. So, all day long, we get a lot of requests for odd things. Everybody else is seeing the same numbers and saying, “I’d better try to jump on this thing,” so the requests come in flurries.

MEININGER’S: What are you seeing happening with China at the moment?

LIVENGOOD: For Ciatti, China has not been a big focus. The Chinese game is much more focused on what is sold as Chinese wine, but which has a large portion of Chilean or Australian or Spanish wine in it. The wine brokerage model has not been widely accepted in that market. For them, the broker is, “Okay, you make the introduction, we’ll do this first deal, but after that we’re not looking to use the broker,” because they view us as a middleman that’s just adding margin to the game. But we see China as a major piece of the bulk puzzle. Even though we are hearing there’s quite a bit of planting, there’s still going to be a need for a lot of international wine.

MEININGER’S: And finally, what’s next for Ciatti?

LIVENGOOD: We really haven’t focused on Europe yet and there are other places such as South America – big beverage markets we haven’t even focused on yet – and I think in the future you’ll probably see much more of that coming from our company. 

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