Barefoot Wine: Bonnie Harvey and Michael Houlihan

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30:12Hey, welcome back to How I Built This. I'm Guy Raz. So it's 1985, and Bonnie and Michael are about to dive into the wine business without knowing much about wine. Fortunately, their business partner, Mark, is an expert. We were not wine aficionados, but Mark Lyon was. Yeah. And when we said, instead of us working for you, you work for us, we meant you work for us as not just the winemaker, but the wine designer. and this is something that Mark wanted to do for years and we provided a vehicle for him to actually do that. So we were not the wine people. As a matter of fact, as the business grew, we got excellent winemakers, some of the best.

31:00So really, he was going to help you kind of develop a flavor profile, but just out of curiosity, you already had the juice, right? The wine was in steel tanks waiting to be bottled. So presumably it was a matter of figuring out how to blend wine from the different tanks to find the right flavor profile? Yes. Our nickname for Mark was Mixmaster Deluxe because he had a way of looking at wine and fixing it. He could blend out the mistakes and he could accentuate the benefits. he's a top winemaker he still is today he's a fantastic artist at what he does alright so you're at this point Michael I think about 40 and Bonnie you're roughly 35 and you decide that you're going to take on this this debt right this wine and eventually pay back Mark once you got the wine bottled then you had to of course slap a label on it and then get it into stores That's much harder than just getting it bottled.

32:08Like, that's the challenge. You started to go and try and meet with potential buyers. And I think you, Michael, had met with this guy, Don Brown, right, from Lucky? Yeah. Lucky Supermarkets, which is a chain in California. What did he need from you in order to sell those wines and Luckys? Well, just to get the meeting with him was amazing. I called him up. I said, Don Brown, I said, I know you went to St. Mary's. I went to Bishop O'Dowd, and we cleaned your clock on the basketball field. I said, listen, I'd like to meet with you. I got something I want to talk to. He says, I don't have time to talk to you, Houlihan.

32:47I said, you know, I'm going to make it worth your while. Just give me 15 minutes, Don. And so it was luck that I knew this guy. And he went on in his career, and he became the buyer for one of the largest supermarkets in California. And so when I went to Don, in about 37 seconds, he gave me the equivalent of a college education in wine marketing and merchandising. He says, I've got room in the 1.5 liter section. Which is a magnum. That's a big bottle of wine. That's the big bottle of wine. Okay. He called it a pig, which is the industry jargon. Jargon. To quote his jargon, he said, look, Houlihan, he says, give me a salt and pepper act, make it better than Bob, cheaper than Bob and put it in a pig.

33:34Can you do that? And I'm writing down salt, pepper, Bob, pig. And I'm looking at it and I'm thinking, what language is this? You know? And then I thought, I better not ask. He says, can you do that? And I said, yeah, I can do it. He says, good, get out of my office. Well, I didn't know what it was. I wrote it down. I had to translate it. And what I found out was that the pig was the 1.5 liter magnum and that the Salt-N-Pepa Act was a red and a white wine under the same brand. And then Bob was Robert Mondavi. Robert Mondavi had a red and white in a magnum, so he wanted to have another alternative to Robert Mondavi on the shelf.

34:14Robert Mondavi, the most famous winemaker probably in American history, who kind of built modern Napa. The father of American wine, exactly. So, okay, so now here's my next question, right? So you needed to do a magnum, a big bottle, and what did you, tell me what you started to learn about who was buying wine at the stores. Don Brown said, make sure she can see the label from four feet away. I noticed he used the pronoun she. So I did some research and I found out that like 78 % of supermarket shoppers were women and that they were actually doing the buying, even though the men were the gatekeepers.

35:00So even though the supermarket wine buyer was a male, his customers were females for the most part. And it was a particular specific type of woman, like age or? 35 years old with two and a half kids pushing a cart. Yep. Got it. And she was buying the wine not to sit around and talk about, I guess, appellations or vintages, but just to have it on a Tuesday night after dinner or with dinner? She was buying it like a staple, like sugar, like bread, like meat. She was buying wine as one of the ingredients that she needed for her week's worth of food. And so we started to interview women and we found out that what they were looking for was wine that tasted the same from year to year to year, which was the opposite of the vintage wine idea.

35:56So at this point, most wine had a year on it. It would say 1983 or 1981. 95%, yeah. And also it would say where it's from, Sonoma County or Russian River or wherever it was from, right? What you're saying is that that only appealed to a very small percentage of consumers that actually most people who wanted to buy wine didn't care about any of that stuff? I would say that's technically correct. They cared about it on Saturday night. They cared about it when they brought a bottle of wine over to a friend's house. But if they were having hamburgers on Tuesday, they didn't care about it that much.

36:39So there was a market that we saw that had been unaddressed, the everyday drinking wine market. So what are people drinking every day, not Saturday night, but Tuesday night? Okay, so Tuesday Night Wine, which meant that you didn't have to create a vintage. You didn't need to use grapes from a specific year. You could just use whatever pressed juice was available and blend it, and presumably that would give you an opportunity to get really inexpensive bulk wine. That's absolutely correct. The profile was fruit forward, low acid, easy drinking, soft on the palate, and mimicked the taste of the grape.

37:25So when you taste the Cabernet Sauvignon, it tasted like the Cabernet Sauvignon grape. Yeah. But it sounds like, Michael, what the insight you had was we need to focus on making a consistent flavor no matter what year the grapes are grown, no matter what the weather was like that year, what the wind was like or when the grapes were harvested. Like, it doesn't matter. All we're going to focus on is a consistent flavor every time you buy this wine. Was anyone else doing that at the time at all? Nobody was doing it on the scale that we were imagining. We didn't have any real competition other than Robert Mondavi, but his had an appellation on it and it had a date on it.

38:10Yeah, I mean, why do you think the industry was resistant to doing that at the time? Was it out of pride? Was it like, well, that's not real wine. You have to taste a terroir. It's got to be of a place. I think the reason was because they were worshiping the French pretty hard. They thought they were second-rate winemakers to the French. And the French were the ones, if you wanted wine, you had to get French wine. And so it took Americans a long time to develop their own pride in what they were doing. And in those days, they were trying to copy the French as much as they could. And so the idea of a wine that didn't have a number on it was just unheard of.

38:56You know, that was just sacrilege. You couldn't do that. Yeah. Okay, so you're doing all this research. Meanwhile, Bonnie, you also are trying to figure out a name for this wine. And from what I understand, there's a guy that was living pretty close by to you named Davis Bynum. And I guess, Michael, you had known his son. And this guy, Davis Bynum, back in the 70s, had made his own wine for a couple years that petered out. And he called it Barefoot Bynum or something like that. That's correct. He had been a reporter in San Francisco, and he made wine in his garage in Albany. And this is in like the mid-70s, I think, like 74 or 75.

39:40Early 70s. Yeah. And he put it in a big jug and put a screw top on it. And there were some people in the Bay Area that enjoyed his wines. And it had been off the market for 12 years when Michael and I had started. And we thought this was a nice, friendly name, Barefoot. And, of course, Barefoot is the way that grapes were originally crushed. So it definitely had something to do with grapes. So we purchased the rights to use the name Barefoot Bynum, and we bottled under that name for the first year. Then we dropped the name Bynum. It was too confusing for everyone, of course. So then we just called it Barefoot Wines.

40:22Do you remember how much you paid for the name? $30 ,000. Okay, so that was not cheap at that time. Correct. That was quite expensive to buy that. Yes, it was. But why were you convinced that was the name you wanted to go with? It was chosen because another thing that Don Brown had said during Michael's meeting was that he wanted to see the label with the name the same as the logo. And he wanted her to see it, the shopper, when she was four feet away. And I had an inspiration of what the label would look like. Tell me about that inspiration. Michael and I'd been out at a late dinner, came home and walked in the door.

41:07And I said, Michael, I know what the label looks like. And I said, quick, I want you to go to the blackboard that we had in the kitchen where we'd walked in. And I said, you've got to draw a foot. And I said, I can see this big red or green gold foot on the label would certainly get people's attention. It doesn't look like anything else out there on the shelf. and it's easy to remember. Barefoot's the name of the wine. It's also the name of the logo. And I was so excited. I was just bouncing around and I said, I can see this stacked in the chains. This is going to sell a lot of wine. Why did you think that that, I mean, again, like barefoot, I mean, it was risky, right?

41:54Like some Some people might think, oh, I don't want feet in my wine. Yes. I don't want toe, I don't want sticky toes touching my wine. Like there might have been pushback. Did you run this by anybody at all before you decided to stick with Barefoot? No, it was too much of an inspiration. When you get those kind of flashes of inspiration, it's kind of hard to question where they came from. or everybody's going to have complaints no matter what you do. So I knew that there was going to be a big foot on the label. I had no idea how you knew that, but somehow you knew it. I don't either. And in your brain you saw a foot on a bottle of wine called Barefoot, and it's now early 1986, right?

42:44Right. And you've got all this juice ready to be bottled, and you start the process of just getting it bottled, right? By the way, how many cases of wine was this going to produce? 18 ,000. 18 ,000 cases of wine. And a case is 12 bottles of wine, right? Well, in this case, it was six. Six, okay. Because it was the big bottles. Right. All right. So from what I read, the bottling starts around March of 1986. Yes. And you, Michael, had met with this guy, Don Brown, right, from Lucky? I'm assuming you go back to him and you're like, okay, we're ready to go, Don. What did you say to him when you came to see him?

43:27I said, here you go, Don. Everything you asked for, you know, it's a salt and pepper act. It's as good as Bob and it's in a pig. You know, how many truckloads do you want? I love all the language. Isn't a pig, salt and pepper, Bob? You're basically saying I've got a liter and a half bottle. I've got it. It's red and a white version. and, you know, it's high quality. Good to go. And he takes the bottle in his hand and he spins it around a couple times and he looks at me and he goes, are you crazy? He says, I can't put this in. You put a foot on it. You can't put a foot on wine. He says, no box store, no chain store in the country is going to take this.

44:11Because why? You've done everything he asked you to do. Exactly. And he says, well, because nobody knows the name. He wants me to advertise it. And if I don't advertise it, he won't put it in. He says, you know, so what? Are you going to put a million dollars into advertising? And I said, million dollars? I said, I don't have a million dollars. I don't know how to do that. So I have to back off. And I say, OK, well, you know, what am I going to do, Don? We bottled it all up for you. He says, well, I guess you're going to have to sell this to every independent, every mama, papa, every corner grocery store, every restaurant until it becomes a household name.

44:48When that happens, I'll put it in. And I said, but that's going to take years, Don. He says, that's right. You better get started. So he kicks me out the office. So you had gone back just assuming he was going to say, yep, let's do it, right? Oh, yeah. Well, you know, I was rather naive. You're like a kid with a straight A report card showing it to his dad, right? Yeah. Here you go. Everything you asked for, you know, how many truckloads do you want? You know, talk about chutzpah. So when he shut me down, I was like really shocked. And my mind was racing. What does this mean? You know, I've got all this wine bottled up.

45:26We took this big risk. We got Mark Lyon behind us. And we're facing a real traumatic situation at this point. And the idea of going out on the street, see, because our plan A was, you know, sell it to a supermarket, right? How hard could it be? I wonder when he said to you, you know, you've got to spend a million dollars in advertising. If not, then go start selling store to store. Did you respond? Did you say, hey, man, you're screwing me over here? Or were you just kind of stunned and flabbergasted and just kind of shocked? I didn't want to put him off and say, hey, man, you know, I did exactly what you say.

46:10owe it to me because I knew that I'd be back in there within a year or two asking him to put it in again. And whatever hoops I had to jump through, I figured I would jump through them. You know, you don't swim halfway across the English Channel and get tired and swim back. So I think the thing that saved me was I was not from the industry. I was from the business industry. And I'd worked with lots of businesses and many of my clients had the same problem starting off. It took a them a long time to get traction. They had to eat humble pie for a long time. But it's sort of like, yes, you want to show them, but it's not so much you want to show them, you want to show yourself.

46:54Now I'm out there on the street and I'm trying to sell it in San Francisco to little stores, little bodegas, independents and whatnot. You're just walking in with his magnum and saying, Hey, can I sample some wine for you? Exactly. And they say the same thing. They say, well, are you going to advertise it? Nobody's ever heard of barefoot. You put a foot on it, it's pretty radical. I said, yeah, well, people will remember it this way and it's fun. They said, well, tell you what, we'll put it in, but if it doesn't sell in three months, we're going to discontinue it. And so you would do this store by store, liquor store by wine store.

47:32But still, the pushback was, are you going to advertise it? Well, that's a chicken and egg problem. You have no money to advertise it. That's right. Tell me what your pitch was. Were you literally saying, look, we're going after a different wine drinker here? Is that what you were saying or not quite? Well, the pitch was really threefold. Number one, we are going after a wine drinker that has not been properly addressed. The second pitch was, interestingly, we're not in the supermarket. This is something you as an independent can have that they don't have in the supermarkets. And then the third thing that we said is this is a transition.

48:12You know, barefoot is a bridge between beer and wine. And if we want to increase the size of the wine industry, we have to have inexpensive, easy drinking wine so that people's first experience with wine will be a good one. And they're not going to get introduced to wine by having a$40 Pinot Noir as their first try. This will increase the amount of business that you have for your upscale wines because now you're going to get more people who try wine at all. And they're going to say, oh, this is wine. Gee, I can drink this. I mean, you had, if my math is right, 108 ,000 bottles of wine. Okay, now some of that you were going to pour for sampling and so on.

48:58So let's say roughly, I don't know, 105 ,000 bottles of wine. Because you're not selling the wine by the case. I mean, you weren't selling it to restaurants. You were trying to sell this to wine shops and liquor stores and corner stores that were going to sell one bottle of wine at a time. And to sell 100 ,000 of them, that's kind of – I mean, once a store agreed to take the wine, And it doesn't guarantee it's going to sell because there's 100 bottles of wine in that store. So how did you even get people to notice your wine? Well, what we did was convince the store owner that if he was going to introduce our product, that people had to stumble over it.

49:43And so he needed to buy several cases of wine to build a display. and we would show him a couple on the beach going out at sunset, a very romantic picture that we would put on top of the stack. Okay, so if the store agreed to a display, because a display is not that complicated with wine, right? It's just you're stacking a couple of cases and then you're opening one case up and then you put a little sign up, but you put a photograph of a couple on the beach and I guess the message you're telegraphing there is, hey, this is a fun wine you can bring with you to the beach and crack open on the sand.

50:20And that's what you're essentially saying. This is a casual, fun wine. We were selling the sizzle and not the steak, as they used to say. We were selling the idea of a romantic place that you could go to in your mind. Later on, that poster became really popular in places like Iceland and Canada, where they don't even see the sun because they had this California vision of the beach. But when we did it in San Francisco and in Santa Barbara and up and down the coast of California, people identified with it right away. We got a younger crowd. We got a predominantly female crowd. They said, OK, this is our wine.

51:02OK, summer of 86, you're starting to sell in a couple of stores. And what started to change? I mean, I know by the end of that year, by 1986, you did manage to sell virtually all those cases to wine stores. So you got those cases sold. But what was it that started to move things? One day we get a telephone call. It's a guy in San Francisco from kind of a neighborhood group. They want to build a kids after school park. He says, oh, you know, you're a very wealthy winemaker up in Sonoma County. We only need$30 ,000 to build this park. You know, won't you donate$30 ,000 to our cause? And I said, well, I really appreciate what you're doing, you know, keeping the kids off the street is great.

51:58I said, but, you know, I don't have 30 ,000. I said, I don't even think I have five at this point, but I do have all this wine and I would be happy to donate some of this wine to your fundraiser. And he says, okay, well, he wasn't very happy because he wanted to get the check, but he took the wine begrudgingly. About three weeks later, we see a big upsurge in the three or four accounts that were in the same neighborhood as the neighborhood organization. And so I looked at Bonnie and I said, look at these sales. I said, something's happening here. It was basically because they saw, they drank it at the fundraiser.

52:39That's right. And more importantly, I think, we gave them a social reason to buy our product and to advocate for it. They said, oh, these guys are on our side. You know, these guys are trying to help us achieve our goal here. And so we said, well, heck, if it works with that neighborhood, let's try another neighborhood. So we tried another neighborhood in San Francisco. We went to a group that was trying to clean up a stream, and they had a big fundraiser, and we provided all the wine and whatnot. But this time, we got smarter about it. We actually said where they could buy it and put our name up and got them to announce us from the podium and a bunch of other stuff.

53:20Sales took off in that neighborhood. And so we thought, gee, maybe we've learned something. Maybe we've discovered an alternative to advertising. Okay. And I guess, and I don't know if it's still the slogan for the company today, for the brand, but the original slogan was get barefoot and have a great time. Exactly. Which sounds nice. Get barefoot, which means go to the beach, go to a park, You know, hanging around the pool. But from what I read, this was like controversial in, you know, that some people, many people who sold wine didn't like it. They thought that was more like a beer slogan. It was like a beer slogan.

53:56Beer was outselling wine by far. And the posters were a little more like beer ads. And so we took a lot from the successful beer industry and used it in the wine industry. Again, we were business people. We were not wine people. So when we looked at the business, we didn't say it's the wine business. We said it's the alcohol beverage business. And we said, OK, what's selling? The answer is beer. What are they doing right? And we saw how beer was being marketed. And we said, let's apply beer selling concepts to the wine industry. It had never been done before. But still, even with some of that, right, I have to imagine that first year, 86, 86, seven even.

54:43I mean, it's a grind because you're going store to store, making the same sales pitch, answering the same questions, getting the same pushback, repeating yourself a thousand times a week. Am I right? Was that your life? What happened is instead of selling the wine based on its benefits or its pricing or its profitability, we started to find out what the retailer really needed. They wanted help decorating their store for events that happened during the year. So products that had marketing material that, for instance, celebrated autumn or celebrated Mother's Day or whatever. And if it was the summertime, you know, we would have, say, something to do with the barbecue or with the Fourth of July or fireworks.

55:35And we would show pictures of what our displays look like and say, you know, you can do a Fourth of July display right here in your store, right on that corner. And this will put people in the right mood. By the way, what was the price of a bottle of like a, were you only doing it in Magnums? Yeah. When we started, the Magnum was$4.99. $4.99 for a one and a half liter bottle of wine. That's correct. Okay. Wow. It'd be about$10 today. Yeah. So in 1985, that was not a cheap, not a, it was an affordable, right? Because I think today, anything between sort of$8 and$20 is considered the sweet spot.

56:18Yeah. And what were your margins on the wine at that time? I mean, you guys had, if you're selling a bottle for$4.99, what were you guys making on it? I would say nothing or less than nothing. But if you took the debt away and you took some of the other costs away and you took the cost of expansion away, we were probably making about 10%. Well, but you can't take all that other stuff away because those are liabilities. Oh, there you go. There you go. You can't take it away. Got it. Okay. So the idea was you were not going to pay this debt off quickly. It was going to take time because it sounds like, you know, I'm sort of jumping a little bit ahead here, but we're in the summer of 1988.

57:03This is two years, really a little over two years in because I think you first bottled it in March of 86. And you're far from profitable at this point, right? And probably still far from paying off the debt. We hadn't touched the debt at that time. Mark had continued to help us with winemaking and fronting us grapes. You know, we were slowly growing. One of the problems that we had was in some accounts, the brand was so popular it would run out on the shelf. So that was a big problem, being so popular that you ran out of product on the shelf. So, of course, all sales stopped at that point. So we were learning our lessons well, and Michael was continuing to go back to Don Brown to see if he could get an order.

57:54All right, so let's go back to Don Brown, the buyer from Lucky. Now you're two years after your initial meeting with him and he takes another meeting with you. This is summer of 88. I mean, you had to make a case to him or show him that you had some traction. What did you do at that point? Well, there's something that happens before I go in to talk to Don that I want to say. I was advised to go talk to these people in Southern California who they said were just as crazy as we were. And they had three stores and everybody thought they were going to fail. It was called Trader Joe's. They had one in Pasadena and they had a couple of others in L.A.

58:36And I mean, the guy who was the head of the store was the captain. And, you know, the clerk was the first mate. And they had a big, you know, net on the wall with a lot of things. And we went to Trader Joe's. And we said, look, you're crazy. We're crazy. We've got something here that we think we can work together on. What do you think about putting Barefoot in? So they put Barefoot in their three stores and they expanded rapidly. I mean, within a year, they had like 27 stores or something in California. It was just amazing. And they put barefoot in all of them. So that was one of the things that pushed Don Brown over the hump.

59:14He saw it at Trader Joe's, and he's like, well, we want it too. That's right. Always works that way. Oh, yeah. It's like you were saying, you know, it's the cart and the horse. We finally had a horse.

59:27When we come back in just a moment, Michael and Bonnie launch a brilliant publicity stunt by poking fun at a very fancy winery. Chateau La... well, we'll get there. Stay with us. I'm Guy Raz, and you're listening to How I Built This.

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1:01:32Hey, welcome back to How I Built This. I'm Guy Raz. So it's 1988, and after doing pretty well at Trader Joe's, Bonnie and Michael finally convinced Don Brown of Lucky Supermarkets to start selling Barefoot Wine. He decided to give us a test market only in the Bay Area, which was where we were strong. And we executed that very well. And then he went to all his 225 stores in Northern California. Presumably, overnight, they become easily your biggest your biggest retail partner. Absolutely. Overnight. Okay. Now here's my question. This is the late 80s. Wine is really starting to kind of gain more and more traction.

1:02:19I mean, more and more people are drinking wine. It's becoming more mainstream in the U.S. And how was the health of the business? I mean, were you still losing money on every bottle of wine you were selling? We started making a little profit here and there. We increased our line. We put the wines into the smaller bottles, the 750 milliliter bottles. The regular size bottles. Exactly. Still one red, one white, that was it? At first, yes. And then we produced what was called the thyme blush or white Zinfandel. Rosé. Which is now called rosé. And we started expanding into different states. And because we weren't able to be there or keep track of the salespeople that we'd hired for those states or the distributors, it didn't do very well.

1:03:12They just didn't get the concept. Well, one quick story. I was told that one of the main stores in the Minneapolis-St. Paul area was not selling barefoot. And I was told by the distributor, well, you can't expect to sell it everywhere. I got on a plane the next day and I went there. And what did I find? I found that the potato chips were in front of the barefoot. And they'd been there for two weeks. Just stopped the sales. So rather than the distributor seeing that and doing something because they're selling thousands of brands, what do they care? This is just one of them. They let the potato chips stay there.

1:03:51So it physically blocked the customer from seeing the product. So I removed the potato chips, you know? But what really did it for us was when we began to realize that it wasn't that the product was not popular, which it was. It was selling so fast that it wasn't getting replaced. And the distributors were not replacing it. And Even the retailers were not replacing it. So we had to have wine cops in every market that would be policing the back rooms of the world and pulling the wines out of the back room and putting it on the shelf for the retailer. They were pricing items on their hands and knees on the linoleum and stores in places like Tallahassee, Florida, that you never heard of, just to keep it scanning on the gatekeeper screen.

1:04:45So we wound up creating jobs for people to do things like call the distributor up, you know, every week to stay on top of their inventory. Because if they ran out, we'd be out for two weeks. If we were out for two weeks, there was no sales for two weeks. And we would lose our shelf position, which means that in some stores there'd be no sales forever. But just on that point, I mean, that would mean you'd have to hire a lot of people. Yes. How were you going to pay them and afford to pay them? How did you make it so you could actually manage the costs? We did eventually come up with a commission and salary combo for the salespeople.

1:05:29And they had to make sales in order to make the money that they wanted to have in their pocket. So that helped us a lot in our hiring efforts. we also had to expand only as quickly as we financially were able to. So we had to make some profits along the way so we could hold these profits aside and say, what is the next state or territory that we can open up and hire a salesperson who does know the market and does know the buyers and is incentivized by the large commission? There was no limit on the commission. The more they sold, the more they made. The brand, you know, by 1990, now you're four years in, you're growing steadily.

1:06:18Do you remember, either of you remember roughly what your annual revenue was by 1990? Had you broken a million dollars in sales? Probably half a million bucks. Half a million bucks. Okay. So you're doing okay, but you're still a small brand, comparatively small brand. Mm-hmm. We had a report. We called it the Cliff Report. We finally got an account. We said, look, we want a report that tells us how long we have before we can't pay our bills. We'll call it the cliff report because we're going to fall off the cliff. How far is the cliff away? Is it a week away? Is it a month away? Is it three months away?

1:06:56Okay. So the whole time we had the business, I mean, if it was three months away, we were smoking cigars. But the fact of the matter was most of the time it was between a week and two weeks away because we threw everything right back into it. By the way, how long did it take you to pay Mark Lyon back the loan? I think it was about six years. We might have made a first payment in the fifth year. Yeah. And it probably was over a period of those fifth, sixth, and seventh year. Okay, I think 1993 was a pretty important year because I read that that year you sold 100 ,000 cases that year for the first time, which is a, that's a lot of wine.

1:07:45I mean, that's much more than$500 ,000 worth of wine. But I want to talk about something else that happened that year because I think this is interesting. It reminds me a little bit of Clif Bar. I know that back in the early days, Gary Erickson ran ads for Clif Bar that basically took on Power Bar. Power Bar went and threatened to sue Clif Bar. They sent a cease and desist, and that actually generated a lot of interest in Clif Bar. People are like, what is this? You guys did something similar. What did you do? What happened? Well, we always like to use humor when we're selling the product. And I think it was one of our buyers that said, oh, barefoot, like Lafitte, Chateau Lafitte, huh?

1:08:31And we said, yeah, that's right. One of the most expensive and prestigious wines in the world, right? Chateau Lafitte. Exactly. Unless you spell it F-E-E-T. Oh, Chateau Lafitte, not F-I-T-E, right? Okay. That's right. So we were bold enough to print up T-shirts that said, Barefoot, Chateau Lafite of California Wine. And Michael was giving a talk to UC Davis to their oenologist convention, which was really throughout the world. Students would come in and winemakers throughout the nation would come in. So we're passing out these shirts and they were very popular. Michael loved to throw him out into the audience, said Chateau Lafitte.

1:09:15Well, what do you know, Michael, who was in the class? Well, we heard secondhand that one of the baron's relatives was in the class and took the T-shirt back to France. We get a call from a very expensive attorney in New York. He says, I represent the Baron Rothschild, and he's taking umbarged to use of the term Chateau Lafitte of California wine. He thinks that it would cause confusion. And so I said, well, if you're going to threaten me, you've got to threaten me in writing. You can't just call me up on the phone. And in those days, we had fax machines. I said, you type it up, and I'll go stand by the fax.

1:10:04He does. I immediately take it out of the fax machine and I put it right back in the fax machine. And I send it to, we had a friend who was a writer for the LA Times. And we sent it down to him because he, you know, I would bug him all the time and say, you got to write about barefoot. You got to write about barefoot. He said, Houlahan, don't call me unless you've got some real news. So I sent it to him and it was real news. You know, this thing with barefoot. He writes it up. and oh my gosh, it like hit the AP, the UPI, the phone blew up. It was over the Thanksgiving weekend and they wanted to know what I was going to do about the potential of being sued by the Baron, one of the richest guys in Europe.

1:10:51We said, you know, this is what we've been waiting for because Americans don't like the idea of snobbery really. Really, Americans always pull for the underdog. And so I said, well, we agree with the Baron. There might be some confusion. And if there was confusion between his wines, which are like$150 a bottle, and our wines, which are$5 a bottle, we'd be ruined. Yeah. So we're going to change it. We're not going to use that term anymore. And thanks for pointing it out, Baron. and they said, well, what are you going to call it? And I said, well, I guess we're going to call it Chateau La Something of the Lower Lake.

1:11:34Chateau La Toe. It went out. It was in the London Times. It was all over Europe. Thank God, you know, it was a slow news day, right? Yeah. For them to take something that corny and make a big deal about it. But we took copies of that and said, you know, let's put this article up on the shelf next to our bottles. I'm curious about at what point, at a certain point, did you think about creating a legacy brand that you would run for 40 or 50 years? Or did you guys know pretty early on that you wanted to get this to a certain level and then sell it? We intended to bottle it up and sell it all to a chain store, put a couple bucks in our pocket and move on and decide what else we wanted to do.

1:12:22That was the plan to just kind of get it to a certain point, sell it and move on. So were you constantly looking for buyers all the time? No, it took us a few years to realize that it had to reach a certain volume in order to be attractive to anybody else. I mean, we knew that we weren't making much profit and we were trying to build the volume. So our real goal was to open more territories so we'd have a higher volume and become more important to our potential buyer. You know, we actually went to lunch with a broker and we asked the broker, have you sold any wine brands that are at our price point for what we're doing?

1:13:08What does that look like? What is sold recently? In other words, what are the comps? And what we found out was not just what sold and how much it sold for, but how big they were when they sold in terms of volume. And that's when we realized that we had to be selling over a half a million cases a year before any serious acquirer would even look at us. Half a million cases. Wow. OK, so a lot of wine. That's right. So all of a sudden we had our marching orders. We knew we had to achieve the 500 ,000 case level before we would start. Before anybody would be interested. That's right. Yeah. That's right.

1:13:49And when did you hit that milestone? When did you sell half a million cases? I think we probably 2003, 2002, 2003, we hit it. And by 2004, we were pushing 600 ,000. Wow. Okay, so 2004, you knew that it was the right time to kind of seek out a buyer, and you did, but not just any buyer. You were approached by the largest wine producer in the entire world, Gallo, which is incredible. So how did that come about? Well, first we got into the same distributorships, a couple of them, that Gallo had pretty much monopolized. Right. By doing that, they became more aware of Barefoot and the fact that it was selling.

1:14:37Some of their brands were being outsold by Barefoot. And I understand now that some of the distributors were saying, hey, you ought to take a look at this brand because they're growing. They could be a serious competition for you. So by being in those two or three distributorships, the word kind of got back to the company. And so 2004, you start to talk about an acquisition with them, quietly, I imagine. Yes, very quietly, yes. Yeah. And from what I understand, you guys are selling over half a million cases, and you had, what, about 30, 40 employees on payroll? Right. Yeah, 42, including us. And so just kind of doing back-of-the-envelope math here, I mean, I'm thinking your revenue is over$25 million at that point.

1:15:30Probably. Yeah, that sounds about right. So that's a very, I mean, were you profitable at that point? Yes, we were profitable. Yes, we were. I mean, it seems like a pretty, I mean, 40 employees, you know, you're doing 25 million at least a year. Seems like things are going pretty well. I mean, was there any part of you that thought, let's just keep this going? Let's just grow and grow. Or did it feel like, you know, we're just not going to be able to scale because I compete against the big, big guys because we don't have the resources to do that? I think it's choice two. Once we realized that the key to consumer packaged goods is staying in stock on the shelf and that that's more important than anything, because if you're not there, they can't buy it.

1:16:19And then we realized what that physically took to police it and to oversee it and to do everybody's job for them. Once we realized that, we said, no, this is not what we want to do with our life. We're looking at an exit. And now's the time to do it. You guys finalized this deal in January of 2005. Some was undisclosed. I think contractually neither of you are allowed to disclose it. But I imagine both – you certainly did well out of it and well enough to live a comfortable life. Is that fair to say? That's very fair. That's very fair to say, yes. What's amazing is I read that that year – OK, the year the deal was finalized, you sold 600 ,000 cases.

1:17:10The next year – and you guys stayed on as consultants. This just shows the power of Gallo and their distribution network. One year later, they sell four million cases. Yes. Seven times the number. Yeah. And today, I mean, do you even know, it's got to be one of the top three selling labels. It's got to be up there. Well, according to Drinks Magazine out of London, it's the top wine brand in the world today. Wow. Even bigger than Yellowtail. Oh, much bigger. I mean, it just shows you the power of a really well-capitalized, well-oiled machine like Gallo. Because it's not like the quality of the wine changed or the price point changed.

1:17:57It's just that they were able to take exactly what they bought and really scale it and do what they intended to do with it. Yes, that's exactly what we were looking for, Guy. We were very happy to have brought it to life, but we knew we weren't the people to bring it to the success that it was capable of. It had the capacity. It just didn't have the manpower. And you felt like it wasn't worth it trying to raise the money from investors and to try to scale it and do it on your own? We were tired, Guy. We worked for 20 years at this. Fair enough. so you stayed on for another year's consultants and then that was it you were free and clear you are today of course we're talking 2024 you have no connection to barefoot wines the only connection you have is that you you created it but you have no financial relationship with gallo you've got no stock in the company as its family owns there's no stock but you've got no equity that's it you're out of it, right?

1:19:00That's true. And we do see the wine everywhere. We get pictures of barefoot wines throughout the world that people send us, that we've made friends with, say, hey, look where we saw your wine. They still call it our wine, but it's not a part of our lives in any way any longer. We're just glad it's on the shelf. We're just glad that they have been successful with this brand and that it kind of goes ahead of us. So for that, we're happy for Gallo's success. It's amazing. When you guys think about this incredible journey you took, right, even sort of just the chance meeting at that bar and then asking Michael to go collect the money and then how really that was a one-off job and how it led to all this, How much of it do you attribute to the grind and the work, and how much do you think it had to do with luck?

1:19:58Well, first of all, I believe in luck. I believe in good luck. Everyone has good luck every day, but they have to move and take action on it. So that's where the hard work comes in. It's not just a pile of gold that you stumble over. you might have to dig up that treasure chest. So yes, it was very fortunate that I met Michael that day, and it was fortunate that he was able to make a trade. But that's because of the actions that we both took and the decisions that we made after that. Michael? Well, I kind of second what Bonnie says. You know, if you're looking for things that are solutions and you believe that there's a solution, you're more likely to find them.

1:20:49So preparation is the greater part of luck, in my view. Chance favors those who work. That's Michael Houlihan and Bonnie Harvey, co-founders of Barefoot Wine. By the way, the drawing on the wine label, that naked foot, that's Bonnie's design. and it's my foot. It's my shape. That's a famous foot. Yeah. I sent Michael out to get the largest ink pad he could find. I put my foot in there and on some artist paper and I sent that off and that's how my foot got on the label. That foot on barefoot wine is your foot. Yeah. I say I like, I want to dance on everyone's table. So that's how I did it.

1:21:41Hey, thanks so much for listening to the show this week. Please make sure to click the follow button on your podcast app so you never miss a new episode of the show. And of course, it's free. And if you're interested in insights, ideas and lessons from some of the world's greatest entrepreneurs, sign up for my newsletter at GuyRoz.com. This episode was produced by J.C. Howard with music composed by Ramtin Ereblui. It was edited by Neva Grant with research by Olivia Rockman. Our audio engineers were Robert Rodriguez and Kweisi Lee. Our production staff also includes Keri Thompson, Alex Chung, John Isabella, Chris Messini, Carla Estevez, Sam Paulson, Devin Schwartz, and Elaine Coates.

1:22:21I'm Guy Raz, and you've been listening to How I Built This.

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