Saturday, December 20, 2014

Santa Karma is Sending You Money in 2015


Putin Claus
This is a wonderful time of year to be a banker in the wine business, or more specifically, it's a wonderful time to be me! ...... holiday parties, presents, my office filling with client wine gifts keeping me in a jolly mood through the holidays, and then my birthday  - which falls on Christmas Eve just in case that slipped your mind this year?
 
The birthday part was a mixed blessing growing up in a family of six kids, and that cost me years of therapy. But I'm better now. I've learned to be thankful for all things, and this year in particular I'm getting my birthday AND Christmas wish; about $2 trillion in stimulus from World Despots.

Saturday, October 18, 2014

Will Bottle Prices Increase in 2015?

 
The Annual Wine Conditions Survey will close this Friday. Thus far over 300 of your fellow wineries have participated from across the entire West Coast and Nation. It takes 12 minutes to complete and helps us all understand industry dynamics better. Participants are the ones who will most benefit for small time invested, as they are the only ones who will get the complete results and added analysis.
 
Please join your fellow wineries and participate in the survey before the close Friday [LINK].

Saturday, October 11, 2014

2015 Grape Purchases and 2014 Yields

 
 
I always love this time of year. Harvest is winding down for many and past mid-point for everyone. Fermentation is moving through the normal process with wine makers trying to control the pace as if they were trying to steer a stage coach careening down a hill. The smell of grape must littering the fields starts to intertwine with the smell of burning wood stoves as the temps start to cool toward the end of the month.
 
But the thing I like the most about this time of year is starting to work on the Annual State of the Industry Report and that always starts with the Annual Wine Conditions Survey which is now officially open [Link To Wine Conditions Survey]

Saturday, October 4, 2014

What is Important to Research for 2015?

 
I'd like to get your thoughts and comments on something.
 
As most know, each year I author the SVB State of the Wine Industry Report that is released in early January. Prior to writing the report, we run a survey of the wine industry that is supported by all the major AVA Associations in the country. The survey takes 5-10 minutes to respond, is open for two weeks. This year the survey starts October 8th.... that's this coming Wednesday already! 
 
For that small investment of time, participants receive the complete output along with custom charts and analysis that will help you prepare for 2015. Not even our clients receive that content if they don't participate in the survey.
 
If you would like to participate in this as well as the Annual Tasting Room survey we run in the spring, you can email me at rmcmillan@svb.com and I will add you to the invite list.

Sunday, September 28, 2014

Should You Enforce Your Wine Club Contract?

 
On occasion I get suggestions about something on which to blog. I really appreciate the ideas and use them when I can. This past week I got an email from a follower who suggested I post on their experience with a disgruntled wine club member. The review they got in YELP is a good place to start:
"The wine club is a total scam! I only wanted the wines that weren't in stores so I was told I had to join their club. I didn't want to but I got a discount on the wine. Once I got my first shipment which had all the wines I wanted, I just cancelled the club. Then the as*****s charged my credit card without even telling me! I was like, WTF? and was told by some bitchy tasting room person that I signed a contract that said I had to give back the discounts if I didn't take both shipments! Like who reads contracts? And just because I quit their winery, they didn't send me concert tickets they said they would."

ACME Winery


For the second week in a row I'm asked to anonymize the winery. So we officially have a trend keeping the semi-innocent anonymous to protect the wicked. But in this case, there are some things I can tell you about this winery to give you a flavor of their business model and their side of the situation:
  • They are 100% direct to consumer - nothing is sold wholesale
  • They sell less than 7,000 cases
  • Their average wine sells for $60 per bottle up to almost $400 per bottle
  • Half of their wines are completely allocated and in very high demand - selling for double the retail room price on the secondary market.
  • Their wine club contract requires a one-year commitment and if cancelled in the first year, the discounts have to be repaid to the winery. That part reminds me a little but like the old CD clubs.
  • They include concert tickets for new wine club sign ups but in this case the shipment was made and the customer quit before tickets could be sent.
 

Business Would Be Fine Except for the Employees and Customers

 
So how do you handle a consumer like this who games your wine club agreement? My response is to change your system.

Over the years I've talked to numerous wineries who tried to sell a wine in lower demand in exchange for a consumer getting their hands on an allocated or high scoring wine that was in high demand.

To my thinking in brand building, you really want to make wines that are in demand, and build demand for all your SKUs. Getting a consumer to take a wine they don't really want doesn't build demand for that wine. It may even have a negative impact on how your overall brand is perceived.

Think of this analogy: You find a really awesome pair of custom made Italian shoes in your size, but to get them from the manufacturer, you have to buy a second pair of shoes that are ugly and don't fit.

If you are the buyer, you give zero value to the ugly shoes that don't fit. That means for you to feel like you received fair value for the purchase, you had to feel the price you paid for the package of shoes would be fair either with or without the second pair of shoes.

To go a step further, you may feel that the second pair of shoes has negative value because you now have to go find someone who likes the style of the second pair and has the right size foot. That's going to cost time and effort. If you are making those shoes, what you really want to do is identify a consumer who values ugly shoes in that size. ( .... hope that didn't take analogy too far ... )
 

Is the Contract Legal?

 
I can totally relate to this frustrated winery owner. I didn't mention it, but they did in fact send the concert tickets to the consumer too. So they totally lived up to their side of the deal and got hammered in a review for their trouble. Was their contract legal? Could they charge back the customers credit card for the discounts?

A wine club contract can be a legally binding agreement but that's really a red herring. The practical reality is if you are talking about contract rights to a wine consumer, you are well past building your brand and off topic.

I'll probably get kicked out of the Bankers Union for saying this, but I don't think contracts matter that much. You can have a legal right to something, but in the end what really matters is how you do business, no matter what a contract says.
 
If a social media review is unfair, shake it off. You wont please everyone. Some people are just unhappy and carry a chip on their shoulder. But negative truthful reviews are an opportunity to check on how your business is done and improve. Is compensation motivating the right things? In this case, is the tasting room staff messaging the club program effectively so their are no surprises.
 

Responding To YELP Reviews

 
I feel as though the question of what to do with a negative YELP review has been discussed sufficiently in the blogosphere, but the short treatment is: 1) You can respond as a business owner to a negative review. 2) You can't have a review removed unless the post was a violation of YELP's user agreement but good luck with that. 3) You have no right to have your brand removed from YELP. 4) Don't pay a company who says they can remove negative reviews. They can't.
 
If the reviewer seems crazy, ignore it but if the reviewer sounds reasonable respond to it and show you really do care about providing good service. Interestingly though, for some unknown reason most wineries I checked this week don't respond to reviews at all. You can also encourage people to write reviews which will push the negative review from the front page at least.
 
Finally - thanks to the anonymous winery for suggesting the topic. Hopefully they will get some good thoughts from the community.
 
------------------------------------< ||o|| >---------------------------------
 
What are your thoughts about wine club contracts? What advice can you offer this winery regarding their approach? Do you have any similar customer service stories to share and if so, how did you handle it"
 
Please join this site at the top right of this page for updates and new posts, sign in and offer your perspectives for the benefit of the community.
 

If you think this information and discussion is valuable and want to spur additional discussion, please share this post on your favorite social media platform.

Saturday, September 20, 2014

What to do When You find YOU are the Problem

The Reward of Struggle

"What is worth savoring that isn't worth toil.
Is gain satisfying without cost?
Without darkness can we explain light?
Our teacher is pain, our brother the fight.
Our effort is gain but our pride the price.
No bliss in bereavement but strength through the test.
Reward through trial: That is wisdom expressed." - Unknown author
 
<~~~~~~~~~~~~~~~~~~~~~~~~~~~~||||~~~~~~~~~~~~~~~~~~~~~~~~~~>
 
Poetry? No this isn't Deep Thoughts by Jack Handy but I have a management philosophy supported with  recent story to share that I hope inspires you in a way that might dramatically improve your business. 
 
While the Napa quake was more than a bummer for many, it produced some really interesting positive results such as creeks that started flowing in the middle of a three year drought
 
Another positive from the quake and the work I did talking to wineries to determine a damage estimate: I've now heard four separate stories about wineries who found something during the clean up - and one CEO in particular who found something he had lost for some time in the clutter and din of repetitive work. He found his well-intended efforts were to blame for the problems his winery faced.

Saturday, September 13, 2014

The Crazy Path to Get Federal Aid for Napa

 
 
I had a request from an industry friend who asked me to talk on this blog about the thought process I went through last week - agreeing to something that was crazy, and outlining my philosophy that trumped common sense. It's a little uncomfortable for me but I'll give it a try and hope you find something positive in the thoughts and updates on the process at the end.
 

Thursday, September 4, 2014

Can You Help Me With A Damage Estimate for Napa?

 
I've been asked to help calculate a damage estimate of the losses of the Napa Wine Business Community which will then be used to support the request for Federal Assistance to President Obama. [articleWhile I have several sources of information available to make good estimates, I'd like to be as inclusive as possible. Can you help and send me your best guess on your loss estimates?
 
The timeline is crazy tight. I've been asked to have the estimate completed by Friday evening  - so doing this now would be good. (I'm sorry) I promise I'll not use the information for anything other than this purpose and will not use names in any document I prepare.
 
This isn't a commercial endeavor. We're trying to help and we are donating all our time and resources in that effort. Please send your basic guestimates to my work email: rmcmillan@svb.com and include the business name in something resembling the following format if possible.
 
 
Please make your industry colleagues aware of this need by forwarding this post on social media.
 
Thanks again for your help - Rob

Monday, September 1, 2014

Should You Push Brand PR in a Natural Disaster?

The answer to the title this week is: It depends on how its done because the stakes are raised and if you screw up the message, there's a larger opportunity to end up with scrambled egg on your face.
 
This past week has been pretty hectic for me and all my neighbors who live near Hess Winery. Early Sunday morning I woke to my fiancĂ©e screaming in my ear and the bed jumping like ping pong balls in a bingo parlor. Pitch black since there was no moon, I jumped up but couldn't find shoes or a flashlight. No matter, I had to move alacritously to see if my mom was alive in the back 40. With nothing to illuminate my path, I slid barefooted through all my shattered Riedel stemware - brail style, then maneuvered my way through the maze of furniture which had moved around like Tetris blocks.
 

Saturday, August 23, 2014

Oversupply and a Bubble Forming. Now What?

Somewhere early in the year 2000 my mother-in-law was moving things out of a vacation home in Mariposa CA. I volunteered my help. So together with Anthony; a young and fit assistant from the Starving Students Movers we started lumping furniture. During a coffee break where we enjoyed delicious Starbucks Latte, Anthony started sharing his stock investment strategy. Wait...what? Investment strategy? (Disclaimer: I'm invested in Starbucks at this moment.)
Anthony couldn't have been much more than 21 and it turns out he really was a student - a student taking a videotape course in "How To Retire BeforeYou're Thirty" and was day trading. He explained his trading philosophy: high growth Internet stocks. He had amassed a small fortune already and he did it all with credit cards and margin debt.
I started to wonder if I was missing out and perhaps being too cautious with my own investments. After a little more thought on my drive home, I called my broker and cashed completely out of the market. With the Tech Crash hitting just weeks later, I had discovered a new technical indicator that would define my investing strategy from then on. I called it, "the Starving Students Bubble Indicator (SSBI):
"When a Starving Student gives you stock tips, get the hell out of the market because it’s overbought."

Sunday, August 17, 2014

Do Tasting Rooms Take Away Sales from Distributors?

Procter & Gamble has long been respected for it's integrated product development, integration of acquisitions, and brand marketing. Consider the number of iconic brands they hold like Ivory soap, Pampers diapers, Duracell batteries, Gillette razors, Tampax feminine care products, Crest toothpaste, Tide detergent, and the list goes well beyond that. P&G has more billion dollar brands than any company in the world ... but they don't sell wine. If P&G sold wine people would be running to their mailboxes for free samples and the TTB would not be happy about that.

Sunday, August 10, 2014

Wine Distributors: Legalized Pot vs Prohibition

 
Thirty-seven states have liberalized the 1970 Federal Controlled Substance Act with respect to marijuana use. Thirty-five now allow medical marijuana. Two states; Colorado and Washington have fully legalized recreational and medical marijuana use. Oregon, Alaska, and Washington D.C. are expected to do so in 2014.
 
Two weeks ago I spoke to a large group of high-level sales people and distributors. I enjoy talking to this particular group because I get real-time unfiltered intelligence from very experienced business people. Outside of all the expected discussion of supply, demand, sales tactics, competition, pricing and the like, there was a surprise discussion on the impact of legalized marijuana on wine sales.

Saturday, July 26, 2014

Is it the Right Time to Start a Second Label?

 

Can I have Seconds?

 
It's that time in the cycle again. We are between balanced and long on grape supply in certain varietals and regions and we're facing an unprecedented 'three-peat' of great yields and quality in California after the upcoming harvest. The dearth of balanced supply with inevitably be the dearth of some business models over the next several years.
 
One consequence of these types of atmospherics is that clients start calling to ask me about the availability of financing and want my thoughts on the wisdom of starting a second label. That's an idea on its surface that might seem to be a low-risk proposition - after all, you have been blessed with inexpensive grapes or available bulk - but building a business strategy on a temporary supply issue can make an already bad situation worse in most cases - but not all.
 
There are some instances where starting a second label makes a lot of sense, so please email me if you're a client and want to talk about your specific case. But for the benefit of others in the wine community to spur a little discussion hopefully, here are several real stories of wineries who faced the decision to start a second label in the last 15 years and some examples of success:

Sunday, July 20, 2014

The Easiest Way to Improve Club Profitability

 
While away on vacation the past few weeks, I've had some time to catch up on Dilbert which is a muse for all business revelation. The above comic got me thinking about Tasting Room compensation and specifically how staff are rewarded for new club member signups.

Of course paying for new club members makes sense because you need new members. Asking the next obvious question then .... why do you need new club members? You might think the answer is to increase your direct sales but for many the real answer is, you need new club members just to keep your wine club from shrinking.

Wednesday, June 11, 2014

Anti-Winery Sentiment is Building


 

The Winter of Our Public Discontent

 
 
John Steinbeck
Consistent with the farming traditions of the past, the wine business has long been known for its collegial, collaborative and giving ways. There are always exceptions but people in the wine business historically have worked together for the common good of all.

Saturday, May 31, 2014

What Will The Wine Business Be in 20 Years?


 
Its been pretty amazing to see the changes in the wine business in the past 20 or so years. The ways in which the business is different today would make today's business unrecognizable to someone pulling a Rip Van Winkle and waking to see what the business has become. No longer the pioneering slow-moving cottage industry, today the business is moving forward at an ever quickening pace.
 
One thing that was unimaginable even a decade ago would have been 'for sale' signs on a winery. Today its not that uncommon to find real estate professionals handling smaller winery and estate transactions, or straight vineyard sales. Similarly, a decade ago there wasn't much in the way of dedicated M&A advisors handling winery transactions. Silicon Valley Bank made an early attempt at it but couldn't really make it into a business. Today depending on how you count, there are between 3 - 5 dedicated practices selling winery properties. Makes you wonder where the business will be twenty years from now?

Wednesday, May 21, 2014

2014 Secrets of A Successful Tasting Room

 
 
Over the last couple of months we've discussed some of the results from the SVB/WBM tasting room survey. There have been some fascinating discoveries and the ensuing discussion has been equally rich and enlightening. Wine Business Monthly published an article in the May Edition of their publication discussing some of the findings.
 
To finish that up, On May 15th we presented a live video telecast from the SVB Studios in Santa Clara California discussing findings of the survey. To improve the dialogue and give it added color, in addition to me and Cyril Penn, Sr. Editor of Wine Business Monthly, we also included two front line people: Mary Jo "M.J." Dale, VP of Marketing and Consumer Sales at Crimson Wine Group, along with Lesley Berglund, Co-Founder and Chairwoman of WISE Academy.
 
While biased, I think you'll agree the added content of the live video chat presented a wealth of current information and advice for the direct wine business. If you're interested, a reply of that event is available by pressing play in the above widow.
 
There we're a lot of questions from the 650 people who tuned into the event. The chat also contained a lot of exchanges between people who attended the live event. As is common in the wine business, there was a lot of winery helping winery. The full version of that chat can be found [here].
 
As promised, the panel took on many of those questions in the following redacted transcript. We hope you find the Replay, Tasting Room Slide deck, and the follow up questions below helpful in developing your own club and direct programs.

Monday, May 12, 2014

Supply 2014: Is it Too Much or Not Enough?


This is the time of year when we all hold our breath. In California, some vines are flowering and some are about to. We are mostly out of from the threat of frost but not entirely, and clearly we are not out of a threat from rain in this era of seemingly increasingly unpredictable weather patterns. Nobody likes to see their crop impaired or ruined but this is a year in a macro way, we really wouldn't mind seeing a reduced crop load, as long as it doesn't come in our own vineyard holdings. It depends who you read these days in getting a read on the grape markets.




Sunday, April 13, 2014

Fraud In the Wine Business: A Repeating Story

Is Anyone Looking?
The wine business is filled with hard-working owners who are passionate about their craft. Never has there been an industry who's owners are more willing to work for almost nothing, just to be in the winery club. No matter if you came in as a farmer, financier, film-maker, or from family money - if you are in the wine business you are accepted with open arms into the brother/sisterhood of the business. Everyone is willing to share and trust their neighbor. It is a hospitality industry and all our instincts are open and accepting, really as a normal reflex to see the wine business as we all want.

All those thoughts seem wrapped up in the romance and feel of our business and makes this such a cool place in which to work. Then this past week I saw the following news report:
  • Xandria Roxanne Neal, 44, of Hidden Valley Lake, CA plead not guilty today to 29 counts of embezzlement of more than $300,000 from from St. Helena's Rutherford Wine Company, where she had been an accounting clerk since 2009. The incidents occurred between September 2011 and January 2014. She allegedly used gift cards with a company credit card and used the money for personal purchases. 

Saturday, April 5, 2014

The Most Important Factor In Wine Club Success



The psychology and dynamics of consumer choice is complex. Economists can make it even more complex but one of the theories that I've always liked is the concept of marginal utility, and if you can hang with me a bit, I want to use it as a backdrop in discussing the single most important metric to track and drive wine club success.

Saturday, March 29, 2014

How Much is Your Winery Worth Today?


The Alcohol Beverage Market


Probably once a week someone asks me, what are multiples doing. What they are really asking is "are sales prices going up or down." As a banker I love that question because it means there might be a financing opportunity and a way I can help in an acquisition (...yes I do have a day job making loans as boring as that might sound.)  If you understand valuation theory and want to go straight to the answer to the question, skip down the page to the Current Public Company Multiples section.

Still with me? The answer for alcohol beverage companies is that multiples for craft breweries are at the top of the list, large breweries are at the bottom and wine multiples are in the middle. That makes sense because craft brew is the rage with strong growth. Both spirit producers and craft brewers are cutting into the market share of the traditional beer producers. That reflects in the valuation growth of publicly traded companies as seen in the chart following.

How does the growth rate in an industry segment impact the value of a company? A buyer of any company wants to be in a high demand-driven market because that spells opportunity. If you are buying a stock, you are betting that will go up in value and its the same thing with the buyer of a company. Wineries have been in a strong growth phase for more than 20 years now but we don't see public companies gobbling up wineries and driving up valuations.

Sunday, March 23, 2014

Are Standing Tasting Bars Better than Seated?


“Today, our bodies are breaking down from obesity, high blood pressure, diabetes, cancer, depression and the cascade of health ills and everyday malaise that come from what scientists have named sitting disease.”~ James Levine, MD, PhD

The votes are in and the reality is even with exercise and moderate wine consumption, the cumulative negative impacts of sitting behind a computer or gaming station can't be overcome by drinking more wine or with normal exercise regimens. That is really scary for people like me who work in an office. On the other hand, there is growing agreement that employees who work standing are not only more healthy, but they are more productive and creative than those who sit. That being the case, you would all of course naturally conclude that retail room sales people working in a standing bar should have a higher success rate converting visitors to buyers compared to sales people working in a seated venue. Of course you would conclude that ....

Sunday, March 16, 2014

What Percent of Tasting Room Visitors Buy Nothing?

Ridding the World of Melon Squeezers
One dark and stormy night (yes I used that one) ...early in my banking career in Mendocino County, I attended an internal banking event where Jim Miscol; one of our senior executives would speak. He told us what a great a job we were all doing then asked us to help change the culture of the Bank. He said we needed to "get rid of melon squeezers." What in the heck was he talking about? I had no idea where he was going but my mind started racing to possibilities.

He went on to explain his comment by talking about a grocery store he banked in a retirement community. The store was carrying too large a waste/spoilage factor in the produce section. As it turned out, the store had evolved into a social gathering place for seniors who would walk the isles with an RC Cola, freely sampling grapes and nuts like it was a smorgasbord, and squeezing melons and peaches while talking to friends. It was the analog prequel to SeniorMatch.com. The store owner was at a loss how to address the problem without chasing away his customers. How would you handle that situation?

Monday, January 27, 2014

2014 SVB Wine Report Producers Cut


Another year of the SVB Wine Conditions Survey, the Annual State of the Industry Report, and the live video cast is complete. For those of us involved in the production - from my St. Helena Banking Team, the SVB Marketing & PR folks and the Video crew, it’s a labor of love but its also a real grind.

The report starts in late October with planning for the survey, and finishing in middle January with the release of the report and live video cast. The final piece of the report is publishing the transcript from the videocast chat, and answering some of the questions posed which we are doing below. At the end of the transcript, I have posted answers to many of the questions. You are welcome to comment here on anyone's post by logging in and noting the time of the post. You are also welcome to ask new questions and I will do my best to get you the answers. Please forgive transcript errors and double posts which appear often. That’s part of the chat landscape.

Monday, January 13, 2014

Questions You want Answered

 
The Annual State of the Industry report that Silicon Valley Bank produces takes a shrimp load of work to pull off and a lot more assistance than First Mate Dan. That’s why I stop writing the weekly blog in November. I have to dedicate my copious free time to research, composition, then production. Fortunately I have great people around me or I would drive my customers financial ships straight into the dock without their help.
 
I've been done writing since before Christmas, but the draft at this point has gone through 12 iterations. I know there are still going to be some tie-pos, ghrammaer and speeling mistakes in the 34 page report but all the read-throughs make me want to make me gouge out my eyes at this point. That's a clear sign that its ready for release.

Wednesday, January 8, 2014

What's Going to Happen Next?


Right about this time of the new year we're wiping off the gravy from the corners of our mouths, sending thank-you notes to those who sent us Holiday Gifts[i], trying to figure out how to quickly get rid of the dry tree on the side yard that's become a fire hazard, and feeling guilty about the fact the outside lights are still up on the house. You at least turned them off on January 2nd so that’s something I guess.