This post was originally going to be a literature review of the impact that legalized marijuana (both medical and recreational) had on wine sales. As you will likely remember from class, the wine industry considers the legalization and increased acceptance of marijuana as a significant headwind as the two products compete for "share of buzz". TL;DR: the studies reach inconclusive results and we're likely too early in the legalization period to fully understand the impact.
Through this, I found a way to kill two birds with one stone: marijuana-infused wine. Aromatic wines actually aren't a new concept, and the practice of including marijuana, along with other herbs and spices, in wine dates back to ancient times. However, its prevalence has increased in California since the legalization of medical marijuana in 1996 (the state legalized recreational use in 2016), particularly as a mix with white wines. Its current legality, however, is a bit suspect: in June 2018, California's Alcohol Beverage Control issued an industry advisory that effectively banning the mix of alcohol and marijuana (across all stages of the three-tier distribution system). Best I can tell, the other states with legalized marijuana, too, have banned the mixing of the two substances.
If you're hoping to avoid the DIY option, there's CannaWine in Europe.
Sources:
https://californiawineryadvisor.com/weed-wine-what-know-cannabis-wine/
https://www.forbes.com/sites/thomaspellechia/2018/11/01/alcohol-and-cannabis-dont-mix-says-california-alcohol-beverage-control/#689c69475e78
Monday, March 11, 2019
WIS
Given the personal factors at play, I would sell if I were Eberhardt, but not to this group without first seeing the certification. Regardless of how the certification turns out, I would want to generate a more competitive sale process. The business is fundamentally sound; it just has poor cash and working capital management. There are both banks and PE funds that specializes in these types of infusions and probably on better terms than what he was offered. Further, private equity funds adore "hourglass" models like distribution which connect many sellers to many buyers. If he can afford to wait 4-6 months for a full process, I think it would pay off nicely. Given the slow growth and difficult (illegal) competitive practices, I would not want to stay in the business longer than absolutely necessary. With hindsight, which is of course unfair, Japan's subsequent macro performance underscores this decision to exit.
Wine Spectator Scores
The other day, I was working with my D&D group to perform a regression analysis on Wine Spectator scores. In order to select the variables (i.e. price, region, specific tasting notes) that were most relevant/important in determining the final rating, I had to understand the score structure. I thought I would share some of these learnings - all of which were new to me.
There are many different types of wine scores available - Wine Spectator, Wine Advocate, and Wine Enthusiast. Wine Spectator, whose data I used, notoriously gives out the lowest ratings.
Diving into historical Wine Spectator scores from 2009-2013, Wine Spectator gave out an average score of 88. Few wines scored below 81 and very few wine scored above 94. That means that the “average” 88-point wine is considered “good to very good,” and few wines are “flawed and taste average” (a score below 80) and “benchmark examples or classic (a score above 94). One critic writes that wines scoring below 70 simply wouldn’t be reviewed at all.
When looking at the specific score rubric for Wine Spectator, almost all wines immediately get 50 out of 100 points for simply being wine. From there, a variety of factors, listed in order of most important to least important, affect the score in the following ways; “flavor and finish” taste of wine adds up to 20 points, "aroma and bouquet” adds up to 15 points, "overall quality" adds up to 10 points, and "color and appearance" adds up to 5 points.
In addition, many wine industry experts write that the scores are specific to wines of a certain varietal. For instance, a 90-point score for a Cabernet Sauvignon wine will not necessarily correlate to the same quality experience for a 90-point Riesling wine.
Most interestingly, however, was the fact that wineries specifically create wines based on the taste profiles of famous tasters. “Parkerization” is a phenomenon where “wines [are created] to match the preferences of famed wine critic Robert Parker” (Inc). And, when we compared our data results to the reviews of specific tasters, our group noticed trend correlations to specific reviewers, as well.
And last but not least, some of the key words that are important in terms of determining scores were “complex,” “balanced,” and “structured.” The appearance of the word "fruit" is so far, insignificant, in terms of the overall score.
Sources Used:
WineInStyle
Eberhart should sell the business as soon as possible. It's been a ~9 year climb to $4.1M in revenue, so is still a relatively small business with no meaningful macro tailwinds (beyond what the company has been capitalizing on for years) to accelerate growth beyond the ~20% CAGR the business is growing at today; further, the business doesn't seem to have carved out a true differentiated moat or value prop, and, given the details of the case, will continue to face intense competition from relatively undifferentiated competitors - meaning potential margin compression, especially since the business likely isn't going to achieve economies of scale anytime soon. Also, Eberhart's equity stake will likely face further dilution if the business is to pursue additional venture funding (it's not clear to me why the business was venture-backed in the first place). Lastly, Eberhart's heart and focus no longer seems to be in the business or in Japan - and yes, while he should leave the business in "good hands", Eberhart's focus should be on the business' long-term survival by finding its 23 employees a home in an organization that can mitigate the issue of WineInStyle's continued cash troubles.
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