“The older I get, the more I see a straight path where I want to go. If you’re going to hunt elephants, don’t get off the trail for a rabbit.” … T. Boone Pickens
A significant portion of my current business life is involved in managing the art of conversation. I’m often talking with someone that a casual reader of the Wine Spectator or the Wine Enthusiast might consider a star in the world of wine. I don’t see this as interactions with celebrities du vin, but tend to view them as talks with friends, colleagues and/or possible business associates. These conversations often take the form of a verbal dance with the initiating party trying to elicit at no cost a magic bullet that will help their business, and I’m trying to extract what I call the ‘essential truths.’ One of my clients referred to this process as ‘dancing with the stars.’ The stars in this case are the workable ideas and probable solutions that are sometimes extracted in this dance process. It is likely that if these conversations were to be viewed by an uninterested third party, they would possibly be seen as some sort of Dos Passosian stream of consciousness dialog exercise at the Actors Studio. But, in fact, these oral exchanges of ideas are neither arcane nor obtuse but a defined process that has long been codified in the halls of serious business. Go back to those late night college ‘bull sessions,’ but add two decades of experience and an identifiable targeted outcome, and you’ll get the idea.
I’m not the contact at the top of most wineries CRM vendor contact lists. I’m the person that’s often called a little late to the party. Called to the party after the steam has gone out of the celebration, and the party is headed south. I’m not the expert, I’m listed after the expert. By the way, a wine business contact had a great comment in regards to ‘experts:’ “If someone tells you that they’re an expert, run the other way.” I’m the person who has gone through several business cycles. The ups, downs and the exigencies inherent in our complex and brand saturated corner of the greater CPG universe. My current conversations seem to reflect these difficult times. Often it’s about a decline in general revenues or net contribution, that’s most often attributable to increased discounting and or promotional expenditures necessitated by a soft market or aggressive competition. But becoming more common are conversations relating to a specific line item. And this is usually about a line item that was previously in balance with market demand, but production was dramatically increased on an aspirational or preferential whim. In the recent, but now past, halcyon days of conspicuous consumption, this ersatz strategy often worked, but those days are now a vague memory. This all too common wine business story never conformed to Consumer Packaged Goods marketing best practices, and has resulted to a lake of unconsumed wines. What? You hadn’t noticed. Well, vintages are starting to back-up, and your winery’s SIP (sales, inventory, production) report is starting to read like the fiction of Bernie Madoff’s trade confirmations. And, well like it or not, this is the lake in which we all now all find ourselves. There are obvious steps that can be taken, such as the movement of unbottled wine to bulk sales, consideration of significantly reduced FOB sales to developing markets such as China, a reduction in the amount of wine produced in the near term, lowering domestic FOB prices and increasing promotional spend, diversifying distribution channels or calling Paul Mabray at VinTank for help in focusing on effective DTC initiatives. But, the real challenge in this broad marketplace, one not only figuratively but literally flooded with wine choices, is how to create and maintain a viable wine brand given the realities of today’s economy or the new outlook for a reshaped business world. Sound business decisions are based on good market intelligence and not on whim. The attributes of passion and vision can be the fuel to start a business, but a sound, flexible business plan is the basis for ongoing viability.
A Brief Wine Marketing Focus Case Study
Most large wineries have highly diversified product portfolios, but a few of the largest built a foundation over time by focusing on a specific niche or even a single varietal. In 1982 San Francisco based land use attorney and part time Lake County grape grower Jess Jackson found that his long time Chardonnay buyer Fetzer Vineyards had no need for his grapes. The US economy had been in decline since the 1979 energy crisis, and a significant drop in real estate values driven by a banking crisis in the saving & loan sector hit home in this time frame. Interest rates topped out at 22% driving down the value of the dollar and making imports cheeper than ever. On top of that the 1982 California wine grape crop came in at record levels, creating an instant oversupply. Jess had no home for his grapes. Lake County based winemaker Jed Steele was contracted to make 2,000 cases of Chardonnay, but there were problems and the fermentation was stuck at .5% RS. Jess liked the wine and decided to sell it. The Chardonnay market was small at the time. Most consumers had little experience with California Chardonnay, but Jess felt that he could sell the 2,000 cases and recoup his cost. He came up with the name Chateau du Lac, but found little interest with his presell efforts, Wine Marketer Dennis Canning was brought on board and decided to use the last names of Jess and his then wife, ergo Kendall-Jackson. In a stroke of marketing kismet the modifier ‘Vintner’s Reserve’, was added to the label. Dennis & Jess took the now labeled Kendall-Jackson Chardonnay to the market, store by store, restaurant by restaurant and quickly sold the 2,000 cases. Jess was now in the wine business selling Chardonnay. By 1987 the winery was selling 57,000 cases of Chardonnay and Kendall Jackson was named the Wine & Spirits magazine Winery of the Year. By 1992 Kendall Jackson now one of Americas largest and most successful wine companies, sold more than one million cases of Chardonnay. The focus from the beginning was Chardonnay, and it remains the core of the current K-J driving acquisitions, growth, capital improvements line and brand expansions that were made possible by this laser-like focus on Chardonnay. This is a story that was preceded in time by Trinchero Family Estates basing it’s success on White Zinfandel, and Ridge, Ravenswood and Rosenblum’s focus on Zinfandel. Silver Oak set the mark with a focus on Cabernet Sauvignon, Dehlinger with Pinot Noir, Zaca Mesa with Syrah, ad infinitum. Focus works.
Order out of Chaos
“I don’t know the key to success, but the key to failure is trying to please everybody.” … Bill Cosby
Based on a significant number of wine business conversations over the last three months, permit me to suggest some topics for you to consider for your next management meeting. Some very difficult decisions likely have to be made by you and your team, now. These are decisions that will perhaps determine the long term viability of you wine business. It’s not the time to waffle. If you have to take a financial hit, take it now, and then stop the bleeding. First, a plan to move excess inventory should be developed and enacted. The wine business is now primarily a push market. The pull market that may have previously driven your brand no longer exists. General discount strategies employed by major regional and national retailers have put a semi-permanent kink in the idea of wine pricing elasticity, and removed the wine consumer’s sense of urgency in purchasing your brand now that every wine is on discount. Rethink your entire strategy. Rethink your varietal line-up. Understand the uniqueness of each channel. And don’t harbor the expectation that the broad market will absorb product from your softening DTC sales. And, look at what you do best. If you make really good Pinot Noir do you really need to make that Syrah? Build your brand strategy around a point of focus. Spend time in maximizing your brand reputation and sales around this varietal, and if you have the drive maybe, just maybe, you can be a financially successful wine business.
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