Thomas and Kristin Vogele don’t own a vineyard, fermenting tanks or a tasting room, but they still created one of Washington’s top wine brands.

The Redmond, Wash., couple buys grapes and contracts with a winery to produce their Luke label — named for the Wahluke Slope American Viticultural Area along the Columbia River.

Last year, they bottled 28,000 cases, and their wines are sold across the country and internationally.

“We’re very happy with how it’s worked out for us,” Thomas Vogele said.

He said “virtual wineries” such as Luke bring advantages to business owners.

With a virtual winery, barriers to entering the industry and risks are low, since money isn’t tied up in buying fermenting tanks and other equipment.

“You can focus your energy on building your inventory,” Vogele said.

With no equipment expenses, value can also be passed along to consumers.

Though Luke wines consistently score in the 90s from critics — the highest score is 100 — they typically sell for $20 to $25.

Business model

Industry experts said virtual wineries might sound unusual to the public, but they’re relatively common.

“It’s more than people would think,” said Erik McLaughlin, CEO of Metis, a Pacific Northwest mergers and acquisitions firm that specializes in the adult beverage industry.

Adam Schulz, owner of Incredible Bulk Wine Co., estimated that 20-30% of the wine from Washington and Oregon goes to virtual brands.

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Marketing companies or wineries outside growing regions use the practice to create wine without having a dedicated staff or the overhead of brick and mortar operations.

Instead, efforts can be directed toward sales and marketing, Schulz said.

Sometimes, virtual winery owners have connections with wineries that have extra fermentation space.

In most instances, they hire custom crush houses to make the wine, said Celine Fauveau, director of insights and industry relations for the Oregon Wine Board.

A similar practice exists in the beer world with contract brewing, said Jeff Alworth of Portland, author of “The Beer Bible” and creator of the Beervana website.

Contract brewing, however, is relatively rare because of the difficulty.

“This model exists, but it’s not an easy one,” Alworth said.

Secretive segment

Hard data doesn’t exist on virtual wineries in the Northwest, and neither does a concrete business model.

Large wineries with sprawling vineyard acreage also own virtual labels — in some cases several — that aren’t offered in their tasting rooms, complicating matters, experts said.

The uncertainty about virtual wineries also stems in part from the stigma traditionally associated with the category in the U.S.

“I’d imagine that most wineries that do this would prefer not to make it public knowledge,” Schulz said.

The practice doesn’t possess the allure the public associates with the industry.

“Everyone assumes that everyone has their own vineyard, everyone assumes that everyone has their own production space,” said Lois Cho, CEO and cofounder of CHO wines, the first Korean American winery in Oregon, and a brand that started virtually.

That romanticized version of the wine world often isn’t reality, though.

In Washington, for example, there are roughly 1,050 wineries and more than 400 grape growers — most wineries in the Evergreen State don’t own vineyards.

Wine oversupply

Virtual wineries also are common around the world and include well-known and respected brands such as Nicolas Feuillatte champagne, Vogele said.

“The French have done it for a long time, the French “negociant” system. … It’s a vehicle for wineries in every country to offload excess juice,” he added.

And oversupply is a huge problem for the industry around the globe due to a drop in wine consumption.

Washington has a 20 million-gallon oversupply of bulk wine, representing an excess of 20%, Schulz said.

California is in the same boat, and Australia has a lake — if not a sea — of wine oversupply, experts said.

At WineVit, the Washington’s wine conference held in February, Schulz said some wineries were having problems giving away wine to clear tank space. “People literally aren’t taking wine for free,” he said.

Vogele said he expects pricing benchmarks for all grape varietals to come down this season and to stay low for the next few years, which should benefit virtual wineries.

Business opportunity

Nearly 23 years ago, in the aftermath of the Sept. 11, 2001, terrorist attacks, restaurant sales and travel were down. Wineries were overflowing with their products.

Roger Scommegna and two friends bought some wine at a steep discount and developed a cool logo and name — Three Thieves. Audaciously, they bottled their wine in jugs, which drew plenty of attention.

“We became really good marketers,” Scommegna said.

Their virtual winery eventually produced 750,000 cases a year.

Scommegna, CEO of Flying Blue Imports, said a similar scenario is unfolding now, presenting opportunities for entrepreneurs. “When the industry is upside down, the negociants are in really good position,” Scommegna said.

“Washington is a mess right now. We are in the process of buying lots of Washington bulk wine that has cost the producers $15 to make, and we’re coming in at $3 to $5 a gallon. There’s never enough ultra premium, but the everyday drinking wine, the wine that’s in the $12 to $17 range point, there’s a lot of that in Washington and nobody knows what to do with it,” he added.

Costco’s brand

Scommegna’s best known virtual winery product may be the Wine Advent Calendar sold at Costco and other stores.

He said that in the last five years, Flying Blue Imports sold roughly 4 million boxes, which include 24 half-bottles from 20 countries.

Scommegna travels to wineries and co-ops around the world, buying wine and having it bottled with labels.

“It’s a frickin’ nightmare,” Scommengna said. But no one else was willing to do it, and the wines are interesting and taste wonderful, he added.

Costco itself over-delivers with its Kirkland Signature label, Scommegna said.

“If you want a virtual winery that’s probably the most successful one in the United States, it’s Kirkland Signature. Go buy their chablis, it’s delicious. Go buy their champagne,” he added.

Costco Wholesale Corp, headquartered in Issaquah, Wash., didn’t respond to requests for an interview.

Virtual wineries provide some of the best deals, not that customers in supermarkets will notice.

“People in the grocery store look for labels, find one they like and then stick with it,” Scommegna said, as he drove to the airport to fly to Germany for the ProWein Trade Show.

Some “6,000 wineries from all over the world dying to sell me bulk wine. We go shopping,” he said.

Virtual start

Sometimes, virtual wineries act as incubators.

Lois Cho’s husband, Dave, had worked in Oregon wineries for years, moving up through the ranks. Like many winery employees, he wanted his own label.

But in early 2020, he and his family moved to California as the pandemic hit.

With Lois Cho working as a nurse and Dave Cho staying at home watching their children, they decided to launch their brand.

Dave Cho made a few phone calls and bought fruit and tank space from a friend who owned an Oregon winery.

And CHO Wines was born.

“We didn’t have huge expectations, let’s just start this virtual and see where it goes,” Lois Cho said.

She worked hard on social media, sharing their story, and messaging people to network and build demand.

Half of CHO’s initial production of 700 cases sold without a person tasting a drop of wine, and wholesalers started reaching out to the couple.

“I think we hit this very special pocket of time where people were very engaged online,” she said.

With premium to ultra premium wines, the Chos weren’t buying oversupply, and direct-to-consumer sales would drive their success, Lois Cho said.

The couple bounced back and forth between Oregon and California before buying a 77-acre parcel in 2021 near Hillsboro, Ore. They moved north and started planting vines in the Chehalem Mountains AVA, which is nested within the Willamette Valley AVA.

The Chos held events in a tent on the property during the past year, and now are bottling 3,500 cases of wine.

On March 22, CHO Wines will open a tasting room.

Wahluke Slope AVA

The Vogeles have worked in the wine industry 30 years, and their first virtual winery was Zero 1, established in 2006, which makes about 1,500 cases a year.

Zero 1’s Cabernet sauvignon was transformed into Luke’s first offering and took off after an initial run of 790 cases in 2012.

“We did everything right. We reverse engineered the brand,” Vogele said.

They studied categories of wine and price points to connect with consumers.

Critically, the Vogeles purchased grapes from the Wahluke Slope AVA, within the Columbia Valley AVA.

That area has conditions and grapes similar to the Red Mountain AVA in Washington, but the fruit is less expensive, Vogele said.

“That appellation deserved better storytelling and a brand that would help evangelize the growing region,” he added.

Many great Cabernet wines have boy names, and the Vogeles realized Wahluke included Luke.

So the Vogeles created the persona of Luke, a hard-working rancher type in the mold of great American heroes.

The label resonated, perhaps because of “Cool Hand Luke,” Luke Skywalker, Luke the Evangelist, or the “amazing” number of men named Luke in the U.S., Vogele said.

Luke’s future

Vogele said Luke is about 10,000 cases away from where he and his wife would like to plateau. At that level, they still wouldn’t have to worry about overproduction or start considering discounting bottles.

International sales represent less than 1% of Luke’s volume, and that could become an area for growth.

One of the next steps likely will be building a Luke tasting room near Seattle to showcase the wines and brand.

And though it isn’t necessary, Vogele still dreams of having a showcase vineyard and winery property.

“If we grew up, it would be nice to find a place to call home,” Vogele said.