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October 23 2007
If you ever want to see drama in the wine industry separate from a grape cluster’s vigorous fight to ripen during veraison, then troll the businesswire occasionally. You’ll see the occasional scuffle that resembles a high school break-up between the quarterback and the homecoming queen.
In this case at least, the winery is prettier, more popular and has more friends.
I excerpt this story only because it highlights the occasional absurdity of the three-tier system in delivering wine to our store shelves … and it also highlights how ridiculous some of our human foibles are in the workplace …
Ahem, from the businesswire, I note that Michael-David winery won a lawsuit yesterday against their distributor, Frank-Lin, in a California judgment that validates the rights of wineries.
The press release says in part:
In a verdict that will reverberate through the California wine industry, a jury confirmed on Friday October 12th that California vintners have the right to terminate open-ended agreements with wine distributors at any time upon reasonable notice and for any reason - without the requirement of paying a “termination” fee or any other form of compensation. After an intensely contested trial which spanned five weeks, it took a Stockton jury less than two hours to deliver a verdict resoundingly rejecting distributor Frank-Lin Distiller’s claim that it was entitled to share in the value of the growth of the Michael-David brands because Frank-Lin had represented the winery in California.
Standard issue “We won,” language and I want to be extra careful because I have not been privy to any of the proceedings of the case, just the press release issued by the victors, but it notes further that:
Upon being told by the winery that its distribution agreement was being terminated upon reasonable notice in 2006, Frank-Lin withheld payments in excess of $350,000 for wine purchased. Frank-Lin later sued Michael-David Winery for $8.9 million in damages and asserted that a standard California wine industry practice binding wineries existed.
The standard practice Frank-Lin alleged was that an oral distribution agreement with goals could be terminated only for cause, and then only after written warnings and an opportunity to cure were given. This, Frank-Lin asserted, supported its claims and justified the enormous damages sought.
Frank-Lin also claimed that an “oral contract” was made, after the relationship commenced in 2002 and before it ended in 2006, because Michael-David Winery complimented Frank-Lin personnel from time to time, such as “thanks for the great work” and “we look forward to working with you” – common messages of encouragement. The jury found for the winery on all counts and rejected all of Frank-Lin’s oral contract and “industry practice” claims.
So, how did this thing break down? I’m speculating, but I don’t think I’m too far from the truth; it probably went a little something like this:
Michael-David Winery signs a contract with the distributor saying a bunch of legal stuff, but basically that either party can terminate the relationship at any time with written notice—probably 60 days.
Michael-David Winery, at the start of the year, has a yearly planning meeting with the distributor and they verbally discuss goals for the year—like, for example, the distributor will move 10,000 cases in a year.
This is a verbal conversation with many non-verbal cues exchanged between the winery and the distributor. They are sizing each other up. The distributor makes broad proclamations about how good their sales guys are and all of the accounts they sell to, while not completely committing to moving 10,000 cases. Meanwhile the winery bluffs the distributor, mentally earmarking them for 10,000 cases, while saying that other markets are anticipating doing 13,000 cases. It’s a shell game. But, frankly, the distributor is most worried about the cash they have tied up with the 1000 cases they initially bought. Why? Easy! Because Bob, the distributor’s accountant, is a jerk who’s always twisting a knife on the distributor VP of Sales for making too large of upfront buys, and the VP is cursing the wine’s ugly label that scuffs easily — based on comments that their best customer made to a sales guy, who relayed them to the sales manager, who relayed them up to the VP, who is the only guy in the meeting from the distributor side. The label scuff thing soon becomes “institutional fact” and the de facto knock against the brand at the distributor. But the distributor nods and smiles and says, “We’ll give it a shot.”
A couple of months later when sales velocity isn’t on a trajectory that comes near 10,000 cases, the winery National Sales Manager, who has a bonus closely tied to case load and can’t stomach any under-performance, because he doesn’t have a distributor in a different market doing significant upside to offset, gets antsy and compares the relationship to other distributors they have put in place in other markets, and they invoke their 60 day contract clause to move to another distributor who is willing to sign up for and commit to 8,000 cases, not the 10,000 originally intended, but better than the winery was going to get from the original distributor who was namby-pamby about actual annual performance, while underperforming in quarterly performance. This should preserve the National Sales Manager bonus, especially if the 4th quarter goes as planned.
Then, the first distributor, the original guy, gets mad because he wasn’t made aware by the winery that the winery was mad in the first place, even though they are woefully behind the 10,000 case marker that the winery walked away from the January meeting thinking was a commitment and the distributor walked away from thinking, “If we’re lucky and the freaking labels don’t scuff.” And, even so, the distributor thinks, if the winery is mad, they should at least flag the situation so we can try and pacify them.
Despite these gyrations, the winery leaves Distributor A for Distributor B.
So, what does Distributor A do? He sues the winery because he got the rug pulled out from underneath him on a marquee brand that he passively over-committed to and undersold, and the entire sales team subsequently missed their bonuses because they couldn’t backfill the revenue. The VP had to use his savings instead of his bonus money to take his family on vacation, and he’s bitter at the winery for hosing him on 30% of his annual compensation by putting his numbers in the dumper. He convinces the principals to sue. They claim that they would have sold 18,000 cases a year for the winery if their contract hadn’t been broken and the distributor therefore should receive damages for the next 5 years worth of business plus some extra dough for damage of reputation in the marketplace. A lawyer decides that’s worth $8.9 million.
And, oh, by the way, the first distributor says, we had an oral contract because the winery gave some ‘atta boys’ to the sales guy that handles their premiere account, a retail customer who chronically grouses as a negotiation tactic (“Ah, the labels scuff on you and you can’t sell the damn stuff,” he says), but ended up taking 40 cases on sell-in, at which time the winery says to the distributor sales rep, “Mike, nice work. I’m looking forward to our ride-along.”
Meanwhile, the winery is galled because they just want somebody who will sell their wine and now they have to deal with a lawsuit from dudes that were buying them rounds of golf just six months ago.
Got all that?
What is the moral of the story?
Being a grape, struggling for nutrients, attempting to survive and thrive against a blazing sun, poor soil and no rain, generally harsh elements, to ripen during veraison, might be a touch easier than actually selling the stuff.
Posted in, Wine: A Business Doing Pleasure. Permalink | Comments (1) | Print |
August 30 2007
Some people are born on third base and think they hit a triple. In terms of my wine life here in Indiana, I sometimes feel like I bunted and legged out a single. But, no longer. A little ditty from my man Van Morrison … apropos to today …
When all the dark clouds roll away
And the sun begins to shine
I see my freedom from across the way
And it comes right in on time Well it shines so bright and it gives so much light
And it comes from the sky above
Makes me feel so free makes me feel like me
And lights my life with love
Chorus:
And it seems like and it feels like
And it seems like yes it feels like
A brand new day, yeah
A brand new day oh
I was lost and double crossed
With my hands behind my back
I was longtime hurt and thrown in the dirt
Shoved out on the railroad track
Ive been used, abused and so confused
And I had nowhere to run
But I stood and looked
And my eyes got hooked
On that beautiful morning sun
Chorus
And the sun shines down all on the ground
Yeah and the grass is oh so green
And my heart is still and Ive got the will
And I dont really feel so mean
Here it comes, here it comes
0 here it comes right now
And it comes right in on time
Well it eases me and it pleases me
And it satisfies my mind
Chorus
Why the joyfulness and bounce in my step? As reported by Tom from Fermentation, (who beat at least two major local news outlets to the punch, by the way) and numerous other local news outlets, Indiana is now opening up to winery consumer direct shipping. Doubtlessly, this will be challenged, but it’s a major step in the right direction to allow winery shipping to consumers, overturning the previous idiotic law put in place post-Granholm that said that a person could have wine shipped to him/her so long as he signed a waiver in-person at the winery. The only winery that I’ve ever talked to outside of Indiana that actually understood this was V. Sattui and that was actually just this past weekend.
Buying wine online from boutique wineries, wine club shipments … ah the possibilities … just like normal people …
Yes, it’s a Brand New Day for wine lovers in the great state of Indiana—we’ve never, ever had this access and in the words of my man Van, the “dark clouds roll away.”
Posted in, Wine: A Business Doing Pleasure. Permalink | Comments (3) | Print |
August 16 2007
When is Amazon.com going to tilt the wine industry? It might only be a matter of time.
Some background: Like most readers of Fermentation, I read Tom’s posts on the state of wine shipping in general and wine retail shipping in particular with a mixture of curiousness and fascination. Tom, by virtue of his post as Executive Director of The Specialty Wine Retailer’s Association, has an opportunity to see with a level of depth and insight both the intriguing ongoing changes in wine shipping laws as well as the complete and utter confusion when lawmakers and subsequently regulators don’t seem to “get” the same things from the Granholm rulings that the rest of us have come to understand.
But, like a lot of my wine blogging brethren I’m sure, I’ve looked at a lot of this purely from the winery perspective—if the winery can ship to a consumer and that wasn’t possible before, that must be a good thing. I kind of lumped Tom’s perspective in advocating for retailers into a separate mental category—something along the lines of “too bad for them, but my own interests are served so I don’t care too much.”
Anybody with a blog, or that reads a blog, or that has ever bought wine online should care about the ability for retailers to ship wine just as wineries and here’s how I came to this conclusion and why you should care, too:
First, let me say that all of the conversation online about Winelibrary.tv and Cork’d, tasting note sites and online wine commerce pales in comparison to the opportunity that exists for an 800 lb gorilla to enter the market—the proverbial rising tide that raises all ships. That gorilla or the rising tide is Amazon.com, and anybody with a blog is the ship, but I’ll get to that in a second.
Lenn at Lenndevours has a New York Cork Club wine club that he does in conjunction with a retailer—Lenn picks the wines and The Greene Grape Company does the logistics and the shipping. It’s unfortunate that Lenn couldn’t secure his own wine retailing permit and run this enterprise himself. He has cultivated a following, people trust his opinion related to New York wines and there’s nothing wrong with providing a good service to paying customers. And, besides, this blogging thing is going to merge with commerce sooner rather than later, it just makes good sense. You have a niche book seller for every genre and soon, perhaps, there will be the wine equivalent. Gruner Veltliner aficionado’s rejoice.
If you’ve poked around this site you’ll note that I have a super-charged Amazon.com store embedded in my site. I use a little bit of programming help from a third-party, but Amazon.com also offers this same ability with an affiliate program called aStore.
So, imagine if Amazon.com got into the wine game—every wine blogger, easily and simply, would have the ability to create a wine shop, specify the wines they want to focus on based on available inventory from Amazon.com and tailor their offering to their audience—Perhaps I might focus on Midwest wines—those from Michigan, for example. It’s no skin off my nose, I don’t have to own the inventory, and I just take a small commission for bringing the customer to Amazon.com.
This is the easy entry way for Amazon.com—perhaps they overlay or acquire a wine retail company, don’t manage any inventory and just pass the order down the chain to a company or subsidiary that owns the logistics for a good number of states—there a lot of these guys out there, by the way—Geerlings and Wade comes to mind.
Or, perhaps, even more intriguing is the fact that Amazon.com, according to this recent New York Times article, is continuing to expand its “Fulfillment by Amazon” program—a program whereby:
(the) program is designed to allow independent sellers to use its network of distribution centers to store and ship their products, according to Jeffrey P. Bezos, Amazon’s founder and chief executive.
Since last fall, the program, Fulfillment by Amazon, has allowed independent sellers who list their goods on Amazon.com to use its network of more than 20 distribution centers around the world to fill orders. Now Amazon, which is based in Seattle, is opening the program to vendors who list their items elsewhere on the Web — on their own site, through Google, or even on Amazon’s e-commerce rival, eBay.
The program is part of a broader set of tools called Amazon Web Services, an effort by the e-commerce pioneer to rent out complicated parts of its infrastructure to smaller companies that might benefit from its hard-earned expertise, and who will pay for the privilege of lightening their workload.
Simply put, with distribution centers across the country and more likely to come in ongoing expansion, Amazon.com could, with some marginal effort, turn itself into one of the largest wine distributors in the country present in twenty states, selling through a band of online wine shops—you, me, the next guy with any fecundity. Presuming I can be licensed as a wine retailer in my town, I could be in business with Amazon.com managing all of my logistics.
This is truly the Longtail theory come to life. Amazon.com could pick up inventory from any winery or importer and be in complete business, allowing me to craft an online sales presence around any niche in the wine industry in a heartbeat.
You could, too.
So, why do you care about retailers being able to ship wine? You care because Amazon.com (and others) have the infrastructure and wherewithal to turn the three-tier system upside down. No longer will we be lamenting the availability of wines in our states, we’ll be busy buying wine that was previously unavailable and also, and more importantly trying to sell wine to a growing audience into an ever growing expansion of niches. Next to wine porn is the only other thing I can think of with as large of an expansion of individual specificity and, well, we know how well porn does on the Internet.
The clock starts now. I give Amazon.com less than two years before they jump into the fray and when they do the game immediately changes. Because of this, I now care deeply about Tom and the Specialty Wine Retailers Association fighting the good fight allowing wine retailers the ability to sell and ship into as many states as possible. You should, too.
Posted in, Wine: A Business Doing Pleasure. Permalink | Comments (4) | Print |
August 13 2007
I’m envisioning a Saturday Night Live Weekend Update report here with something snarky as the punch line to the “new” research that indicates young consumers think there is snobbery in wine. Maybe a quick pan to Seth Meyers and he says, “In other research, college students are alleged to drink too much at keg parties.”
On August 9th, I read an article from Beverageworld.com about research that VinExpo released on consumers aged 20 to 25 and their perceptions of wine. I have to hand it to Beverageworld.com—better late than never.
For some reason, this “news” seemed like I had read it before, despite its publication on August 9th.
After racking my brain and doing some research on Google I found that, lo and behold, the same study was released in the same issue of Wine Business Insider that my company announced a capital investment—in April of this year.
Can a press release from April be propped up as news in August? If so, call this Wine Business Insider article the “exclusive” of the century. If only Lindsay Lohan news could be kept under wraps for several months while “People” magazine mines the information, getting a head start on “Us” and the rest of the scandal rags.
Not only did Wine Business Insider get first access at the story, they got it all to themselves for a whopping four months.
Speaking seriously, I’m not sure if a lazy editor is at work here and the press release surfaced from underneath a pile, or if VinExpo is guilty of sending the same press release out twice, four or five months apart; both are egregiously bad form. And, on top of that, here’s the kicker—there’s no news here. See the headline for this post—this Millenial research breaks exactly zero ground or new information. In fact, Sonoma State University released essentially the same findings two years ago.
A couple of nuggets from the article: transport yourself to 1970 or 1950 for that matter and tell me where the groundbreaking information is:
• “Drinking wine is a part of the new identity that young people create for themselves. Drinking wine is a ‘marker’ of adulthood
• The perception that good wine is expensive and confusion about how to select a wine with so many brands and varieties available continues to be a hindrance to many young people drinking wine more frequently
• There’s a lot of snobbery and pompousness around … An impression that it takes years of experience to learn
The Wine Business Insider article summarized the VinExpo four recommendations as:
• Make wine’s image younger
• Make it more accessible and less elitist
• Take the myth out of wine culture, but keep the magic
• Give more guidance in getting to know wine
I’m reminded that in a current Fast Company article that Al Gore’s resurgence in popular culture is based off of environmental research and a presentation he was giving in the first term of the Clinton presidential years. Just now has it resonated, 12 or 13 years later.
Here’s the bone I have to pick with the wine industry: none of this Millenial research stuff is a revelation. Neither is it a revelation is how quickly wine folks react to the news to make changes to target an emerging market—which is slooooooowly, molasses in January slow. In a business world that reacts in quarterly increments and an online world that deems this stuff old news inside of 72 hours, maybe four months time isn’t so bad for the wine industry that reacts in yearly swaths of time and an International market that works slower than that. Maybe this article is right on time with the pulse of the industry. Regardless, hopefully the Internet is bringing to bear a greater sense of urgency, even if our research reports aren’t.
For more information on Millenials and wine, additional research below from Liz Thach from Sonoma State University—these findings are from 2005. Undoubtedly, there will be an updated research report in 2008 that confirms, yes, what we knew in 2005 is true, yet; still, not much has been done about it. Beverageworld.com will update this story sometime in ‘09.
Sonoma State University Sonoma Insights
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July 13 2007
Change is constant, as is call for change—the wine industry is no different, perhaps even more so than in other areas of industry, particularly other areas of manufacturing, where the tugs of progress against legacy ways of doing business aren’t as consumer-facing or as demanding.
In the world of wine, especially the domestic i.e. US wine industry, there are so many competing dynamics creating change in the industry—from imports to technology to generational divides to name but a few of the dozens of factors that are constantly evolving.
Being an information hound for new ideas, I was pleasantly surprised to find a web site called “Change This.” Their mission is to bring careful thought leadership back to the landscape of our information consumption. Summarizing the current state of affairs on their web site, they say:
In the old days, we had the time and inclination to consider the implications of a decision. Everyone wasn’t in quite so much of a hurry. At the same time, most conversations (and most arguments) were local ones, conducted between people who knew each other.
Today, it’s very different. Television demands a sound bite. A one hundred word letter to the editor is a long one. Radio has become a jingoistic wasteland, a series of thoughtless mantras, repeated over and over and designed to fit into a typical commute.
Read the whole Change This manifesto at this link.
Part and parcel with this is a slight change on Good Grape—I’ve changed the masthead to read Good Grape: A Wine Manifesto, going back to my original moniker when I started the blog and away from the confusing and inaccurate “Good Grape Wine Company.”
Wine is represented on the Change This site, too. Besides Hugh Macleod, the marketing guy for Stormhoek wine and the author of http://www.gapingvoid.com having published on this site, there is a slew of other insightful papers covering a range of topics, most of which would be interesting to anybody that works in and around the wine industry, or is a passionate enthusiast.
I read a paper called “Turning the Generational Dial: A Plea to Boomers, Gen X and Gen Y” by Carol Osbourn, PhD that was particularly insightful and starts off with an anecdote about Italian Swiss Colony to boot. The author notes that in the 80s when she was part of a team that “retired” Swiss Colony’s trademark “Little Old Winemaker” it was then a move to appeal to the yuppies of the day; those over 40 were not seen as a market force.
Fast forward to today where the Yuppies of then, the Boomers of today, have done little to yield their power as a market force to be reckoned with.
The authors general theme is that the generational passing of the torch from a marketing perspective is always inevitable, but there’s something different about the aging of Baby Boomers—who have pioneered a non-hierarchical approach to marketing, mostly because they haven’t allowed themselves to be usurped by younger generations.
Coincidentally, earlier this week, I was visiting a winery; the General Manager is a sharp, bright 29 year old female. I asked who their p.r. representative was because they seemed to have a knack for earning cover shots on magazines of the General Manager. She replied that she was her own representation, deferring credit not to her ability, but simply to the fact that she wasn’t in her mid-50s and a male, a dominant representative in the wine industry.
We laughed and I thought fleetingly about the mass of Boomers in the wine industry, alongside a healthy dose of those in their twenties and thirties.
Osbourn notes in her paper that,
This is the first time in our history when multiple generations are simultaneously competent to handle the business of running our society.
This has interesting merit for the wine industry as we see the fragmentation in wine labels—the Boomers occupying the high-end markets worldwide while Gen. Y has shown a propensity for imports at a much lower price point, not too mention the “critter” labels which sell at supermarkets, to whom I’m not quite sure.
Osbourn ends her paper with the following:
The truth is that the generational dial will flip to a new channel soon enough. And when it does, there will be something society has never before witnessed: generations in power who will not have grown into adulthood anticipating the marginalized, invisible, powerless future boomers once expected to have—but rather, the promise of a lifelong vitality, relevant entertainment and the thriving careers at midlife and beyond that boomers pioneered.
What does this mean for the wine industry? Change is constant. And any winery interested in the business of not only making wine, but also selling wine is going to increasingly have to be versed in knowing their audience in great depth—and tailoring their product to that audience—age, demographics, social segments, etc. And, they’ll have to do this to a degree that is currently just a niggling notion, not a need.
Change This is a good thought-provoking site and worthy bookmark for those that call progress a good thing and recognize it as a necessity.
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