Once in a while, we're privy to the thought processes of a well-trained brain trust in the wine industry. Slap me down if you must, but I think that a peek inside the Harvard MBA thought process is highly instructive, especially when it comes to articulating what a collective of experienced executives in the wine industry consider to be the biggest challenges today.
On September 8 at Vineyard 29 in St Helena, owned by Harvard MBA Chuck McGinn (Class of 1978), 20 graduates from 1961 onward, met to discuss the following Business Challenges. Pulled together by Scott Becker of Global Wine Partners, the preparations included polling the group for the pressing questions of today... and tomorrow.
The resulting questions are below. In the next few posts, I'll give you a glimpse into the thought processes. The questions are tough, there may be no unequivocal answers, but there will be provoking opinions. Just like being back in the classrooms of Aldrich Hall! (Interested in the thinking of the person who posed a particular question? SEND ME A COMMENT WITH YOUR RETURN E-MAIL, and I will ask them directly)
1) The wine world is experiencing significant uncertainty about future growth due to deterioration in the macroeconomic fundamentals and a deleveraging credit environment. When will the market recover, what will the future growth environment look like, and how can prudent wine companies manage their way to future success?
2) Is the statement that more bottles of wine are being sold this year over last year true and that it is just the price that has dropped? If so, is this a permanent reduction in the value consumers place on wine or only a temporary aspect of the current economy?
3) When the crisis is over, will the consumer be the same?
4) We won't be in a recession forever; consumers will move up the value chain again; millenials with continue to respond to social media promotions and this is generating a huge base of new wine consumers (thank goodness!). HOWEVER what will be with all agribusiness-related companies forever is the challenge of water -- where to get it, who controls it, how to manage it, and technologies to conserve it. I'd like to hear how YOUR WINE-RELATED ENTERPRISE is weighing in on this issue and/or what you are in fact doing about it. How should we as "leaders" get involved? Or is it too hot to handle?
5) It is a common challenge to better understand customer behavior within the various levels of the market. For those of us with personal passion for the unique subtleties and complexities of world-class wine, should we be concerned that growth in consumption of $40+ / bottle appears to be increasingly attributable to luxury goods marketing rather than appreciation of quality and quality standards? Regarding quality, are consumer preferences dividing between wines characterized by power versus those characterized by nuance? If so, is demand in one category outpacing the other? How has culture shaped these preferences and does it differ in the US versus Europe and Asia?
6) The business challenges we're facing stem from the impact of current economic conditions for small wineries (4,000 to 50,000 cases). These wineries are our clients and target clients. They are facing price compression (higher priced brands lowering their prices to combat declining sales) and assortment "freezes" (distributors and retailers either reducing or eliminating the addition of new suppliers to their assortments). What can the small winery do to survive in this environment and how can we tailor our own services to better meet their needs?
7) How long will the expensive, inefficient, selective three-tier distribution system prevail against the rapidly accelerating consumer and trade (retail and restaurant) demand to seek their own options in the wine products they carry and/or consume?
8) How do wineries gain markets and access to consumers in an industry where Federal, state and local regulations have been established for decades favoring the xclusive three- tier distribution system?
9) Our wine company, celebrating it’s 5th year anniversary, is working diligently on its plan for the next 5 years. The company has grow from zero revenues to revenues north of seven figures in its first five years by focusing exclusively on wine quality by owning and controlling the key inputs of wine: vineyard, barrel, and winemaking. However, it does not own any winemaking assets such as a production facility and related equipment. Given the large capital outlays required for real estate and the increasing cost and sophistication of equipment, is (will) the production model for wines in the $25-50 price point continue to resemble the past whereby each winery has its own stand alone production facility? Or can winemakers and consumers accept that production assets will be shared across various wineries? Is now the time to lock in low cost production assets or do we remain capacity flexible and fixed cost free?
Who was in the group? The guest list includes wine businessmen from all walks of the industry -- grapegrowing, winemaking, distribution, marketing, finance, and organizations large and small, with current and past affiliations that represent the full spectrum of involvementLook at http://harvard-in-wine.blogspot.com/2009/09/hbs-in-wine-meets-in-napa-sept-8.html