I was chatting a Boston-born & bred classmate today, and he was telling me about the mafia's connection to wine and alcohol-distribution in the Eastern US post-prohibition ("you don't get that contract without spilling some blood").
Upon further review, it looks like the mafia has been spilling some wine as well, with some stories coming to light - such as the 400K bottles of wine at Conte Vistarino dumped in a nefarious act (more here) or 80K liters dumped at a vineyard in 2012.
60 Minutes reported that work like this is related to the "Agromafia" (touching upon wine, olive oil, cheese) which is a $16B a year business focused on wheeling-and-dealing lower-quality-than-advertised products. And the Financial Times reports this is growing a 10% per year; now accounting for 15% of all Italian mafia activity.
The entire 60 minute segment can be viewed here.
source:
https://vinepair.com/booze-news/italian-wine-drained/
https://www.ft.com/content/73de228c-e098-11e8-8e70-5e22a430c1ad
Wednesday, March 13, 2019
The rise of Rose, Prosecco and ... Rose Prosecco?
During the final group assignment, I've been researching which varietals best appeals to millennials. We know that they have a particular fondness of rose. The Wine Market Council also found that significantly larger percentages of 20 and 30 year olds report drinking sparkling throughout the year vs older people.
We've seen data showing rose table wine dollar sales growing 66% between 2016-2017. We've also seen Prosecco growing at double digits, particularly international brands such as La Marca which grew 25% in 2016-17 according to Beverage Information and Insights Group. Prosecco accounted for 17% of U.S. Sparkling wine sales in 2018 according to BeverageDynamics. Prosecco has been the go to sparkling wine for my half Italian spouse for a long time. We drink it during fun gatherings and she uses it in cocktails a lot. In response to the rising popularity Prosecco DOC consortium, the entity that overseas the production of the sparkling wine, launched the first ever National Prosecco Week in the US in June 2018. Prosecco is increasingly becoming more and more synonymous with sparkling wine.
Consumers, brands and retailers alike are constantly sussing out the next big trend. Could a combination of rose and prosecco be the answer? The Prosecco DOC is allegedly considering certifying a Sparkling Prosecco making process for the 2019 harvest. Watch this space.
We've seen data showing rose table wine dollar sales growing 66% between 2016-2017. We've also seen Prosecco growing at double digits, particularly international brands such as La Marca which grew 25% in 2016-17 according to Beverage Information and Insights Group. Prosecco accounted for 17% of U.S. Sparkling wine sales in 2018 according to BeverageDynamics. Prosecco has been the go to sparkling wine for my half Italian spouse for a long time. We drink it during fun gatherings and she uses it in cocktails a lot. In response to the rising popularity Prosecco DOC consortium, the entity that overseas the production of the sparkling wine, launched the first ever National Prosecco Week in the US in June 2018. Prosecco is increasingly becoming more and more synonymous with sparkling wine.
Consumers, brands and retailers alike are constantly sussing out the next big trend. Could a combination of rose and prosecco be the answer? The Prosecco DOC is allegedly considering certifying a Sparkling Prosecco making process for the 2019 harvest. Watch this space.
1996 Price Spike
During the class discussion of the "Chateau Pontet-Canet" case, a question was raised about the spike in prices across the Five Classes of Bordeaux wine in 1996. Although there were likely many factors at play, some quick research suggests that the spike may have been caused both by high quality vintages and by supply/demand imbalances driven by an increase in demand from Asia. As can be seen in articles such as the first link below, the 1996 vintage was considered especially high in quality. The article notes that high priced wines can often stagnate in price, thereby limiting opportunities to purchase these wines as an investment. However, the article notes that many of the high priced Bordeaux wines from 1996 have continued to appreciate significantly - in many cases, the wines have increased in value over 6x, and some have even appreciated 15x. This suggests that at least part of the spike in price was due to the intrinsic quality of the 1996 vintage.
However, the precipitous drop in prices in 1997 suggests that there may have been some other market forces affecting the 1996 vintage in addition to the intrinsic quality. The second link below hints that the ramp in prices may have been caused by an influx of Asian buyers. Like the more recent bubble from a large increase in Chinese buyers, the spike in the 1990s may have been at least partially driven by an influx of Japanese buyers. The publication notes that the Japanese wine boom began in the 1990s. However, the authors note that Japanese wine consumption fell sharply in 1997, which may have at least partially caused the sharp decrease in Bordeaux prices from 1996 to 1997.
https://www.thedrinksbusiness.com/2015/07/in-focus-1996-bordeaux/
https://www.eu-japan.eu/sites/default/files/publications/docs/japanwinemarketreport-2014.pdf
However, the precipitous drop in prices in 1997 suggests that there may have been some other market forces affecting the 1996 vintage in addition to the intrinsic quality. The second link below hints that the ramp in prices may have been caused by an influx of Asian buyers. Like the more recent bubble from a large increase in Chinese buyers, the spike in the 1990s may have been at least partially driven by an influx of Japanese buyers. The publication notes that the Japanese wine boom began in the 1990s. However, the authors note that Japanese wine consumption fell sharply in 1997, which may have at least partially caused the sharp decrease in Bordeaux prices from 1996 to 1997.
https://www.thedrinksbusiness.com/2015/07/in-focus-1996-bordeaux/
https://www.eu-japan.eu/sites/default/files/publications/docs/japanwinemarketreport-2014.pdf
Kombucha Imitating Wine
Some of our classmates seemed shocked when Michael Preis mentioned alcoholic kombucha, but I've been on the boozy booch train for a while (detox while you retox, am I right?). I believe their is no better mixer and a kombucha cocktail is often my drink of choice.
However, I was surprised to see that one of the flavors in GT's new alcoholic kombucha line is unapologetically imitating wine (if you can even call 3% ABV alcoholic...). Here is the description of their New World Noir™ flavor:
Still, it got me thinking about some of our speakers' comments about millennials' moves toward healthier beverages (often away from booze) and whether drinks like this one will take share away from wine.
However, I was surprised to see that one of the flavors in GT's new alcoholic kombucha line is unapologetically imitating wine (if you can even call 3% ABV alcoholic...). Here is the description of their New World Noir™ flavor:
Inspired by the sophisticated profile of a fine wine, GT’s CLASSIC GOLD New World Noir Kombucha is what sommelier dreams are made of. Elegant like a Pinot with 3% ABV and billions of living probiotics, this sparkling, chilled red pairs our organic & raw Kombucha with a woody oak blend, rich Aronia juice, sweet Blueberry juice, and a hint of Vanilla extract. Cheers to good health!Something I found particularly interesting is the fact that it doesn't even have grape juice! Instead, its deep wine color comes from blueberries. The ingredients are as follows:
GT’s Kombucha* (Kombucha Culture*, Black Tea*, Green Tea*, Cane Sugar*), Oak Blend*, Blueberry Juice, Aronia Juice*, Vanilla Extract*, and 100% Pure Love!!!I've, unsurprisingly, tried it (along with their other 2 alcoholic flavors). While it tasted slightly reminiscent of wine, I think the color and the name reminded me more of wine than the flavor itself. It almost had a mulled-wine-like spiciness to it. It was my least favorite of their 3 flavors.
Still, it got me thinking about some of our speakers' comments about millennials' moves toward healthier beverages (often away from booze) and whether drinks like this one will take share away from wine.
BOOMER'S BLOG: On Wine and the Beauty of Being a Boomer!
Alyssa, Sarah, Jeannine and fellow students - We want to thank you all for welcoming us to the class and sharing your perspective, energy, and all that wine (which you know we love) with us! We finally figured out how to do this "blog thing" and thought we might share a few parting thoughts and "words of wisdom" with you all - better now than at the end of the evening on Thursday.
First, we know that you are smarter, faster, healthier, and more tech savvy than we are. We also know that you have figured out the "buzz ROI" and prefer a stiff cocktail (believe us, our drinking days did not start with wine either), but now - here we are, part of the Boomer generation - and thought we'd share a few thoughts on the benefits of aging.
In the category of "Everyday Wines" the winners are:
Alyssa, Sarah, Jeannine and fellow students - We want to thank you all for welcoming us to the class and sharing your perspective, energy, and all that wine (which you know we love) with us! We finally figured out how to do this "blog thing" and thought we might share a few parting thoughts and "words of wisdom" with you all - better now than at the end of the evening on Thursday.
First, we know that you are smarter, faster, healthier, and more tech savvy than we are. We also know that you have figured out the "buzz ROI" and prefer a stiff cocktail (believe us, our drinking days did not start with wine either), but now - here we are, part of the Boomer generation - and thought we'd share a few thoughts on the benefits of aging.
Why it's good to be a Boomer
- We taste wines in class but don’t do presos or tests (Jim)
- We don’t have to worry about our teenagers getting into our wine stash anymore (Wanda)
- We don’t drink and drive because we hardly ever go out anymore (Wanda)
- Can remember the legendary 1961 Bordeaux vintage on the vine (Jim)
- Still #1 demographic in wine industry! (Jim)
- We’re too tired at night to do anything BUT drink wine (Katie)
- Now that we’re done paying college tuitions, we can afford good wine (Katie)
- It's more fun to be a “wine native” than a “digital native”! (Katie)
In the category of "Everyday Wines" the winners are:
- Lioco Chardonnay (unoaked), $22.99/bottle (Katie)
- Argentine Malbecs - bold, fruity, and cheap (i.e., slutty!) for what you get - of course, this would be Jim's pick!
In the category of "Special Occasion" Wines we propose:
- Harlan Estates Cabernet (Katie)
- Richebourg – 2011 Mongeard-Mugneret great & not crazy expensive (~$300) (Jim)
- Donum Russian River Reserve Pinot Noir (Wanda)
- Chilean Carmenere - varietal "lost" for 100 years & rediscovered (Jim)
- Las Jaras 2017 Sparkling Wine, Old Vines Carignan, Mendocino County, YUM!! (Katie)
We also discussed wine experiences that we have loved and this was (oddly enough) one category where we were all in agreement:
- Taking GSBGEN 356 Dynamics of Global Wine Industry! (Note: since we are not getting credit or a grade this is not gratuitous brown-nosing!)
- A distant second... Spending 2 weeks in Sarteano Tuscany eating amazing food and drinking fantastic wines. If you get a chance to visit and try the following, DO IT! Nostra Vita or Le Chiuse vineyards Brunellos are fabulous and the locations idyllic!
If you have any time over Spring Break and want to continue your wine education with a good read or two, we'd recommend:
- Cork Dork, Bianca Bosker - Wide-ranging and informative, well-written, gives you the sense of the commitment it takes to be really good at tasting wine!
- The Wine Lover's Daughter, Anne Fadiman - Memoir about her father, Clifton Fadiman, who was a critic and bon vivant. Beautifully written and delves into differences in taste.
- In Vino Duplicitas, Peter Hellman - A fascinating true story about a famous wine forgery that ensnared the Koch Brothers and many in Hollywood. Also in movie form as "Sour Grapes."
Enjoy your spring break and let us know if we can help with your wine "research" in the future!
Cheers,
Cheers,
Katie, Jim and Wanda
WineInStyle: one last due diligence
Eberhart’s parable in Japan was truly remarkable. From a foreigner in a deeply conservative society, to disrupting an industry in the face of often criminal opposition and unfair competition. Indeed, his humbleness to leave the company in CEO Khoo’s hands to spend more time with his family and allow the company to grow even further, was just another testament to his business intuition.
Now, facing the latest question, this time about whether to sell the company, do deeper due diligence or follow the advice of half his board and just trust the new buyers, Eberhart should carefully consider his move. After all, it was determination and hard work in the face of infinite challenges that build WineInStyle.
I would argue that he should set out a process of careful due diligence on the buyers before agreeing to any move. And that he aim to sell the company to a set of investors that he would judge able to carry out the mission of the company as well as able to adequately support the new CEO in his challenges.
This is for a number of reasons:
- Eberhart’s trajectory is clearly shifting toward wanting to spend more time at home in Palo Alto, and the sale would allow him to complete that move
- The company, his baby from the beginning, needs not only deep pockets but also solid moral. The numerous examples of unfair business practices mean there is a significant risk of leaving the company with some rather shifty investors
- Lastly, as demonstrated by the change of CEO a few years prior, further growth in the Japanese market would require not only the local knowledge and network that the new CEO provided, but also perhaps local capital to complete the ultimate step to becoming a fully Japanese company and therefore achieving fully acceptance in the local market
Now, facing the latest question, this time about whether to sell the company, do deeper due diligence or follow the advice of half his board and just trust the new buyers, Eberhart should carefully consider his move. After all, it was determination and hard work in the face of infinite challenges that build WineInStyle.
I would argue that he should set out a process of careful due diligence on the buyers before agreeing to any move. And that he aim to sell the company to a set of investors that he would judge able to carry out the mission of the company as well as able to adequately support the new CEO in his challenges.
This is for a number of reasons:
- Eberhart’s trajectory is clearly shifting toward wanting to spend more time at home in Palo Alto, and the sale would allow him to complete that move
- The company, his baby from the beginning, needs not only deep pockets but also solid moral. The numerous examples of unfair business practices mean there is a significant risk of leaving the company with some rather shifty investors
- Lastly, as demonstrated by the change of CEO a few years prior, further growth in the Japanese market would require not only the local knowledge and network that the new CEO provided, but also perhaps local capital to complete the ultimate step to becoming a fully Japanese company and therefore achieving fully acceptance in the local market
D&D&Wine
Since it's winter quarter, and the MBA1s in the class are in the midst of the regression project and finals studying for Data & Decisions, I thought I'd look for some statistical analyses of wine prices. I came across the below study, which provides some interesting statistical (although not really surprising) results on factors that affected Bordeaux wine prices in 1996-1999. The primary conclusion of the study is that Bordeaux wines of the 1996-1997 vintages were priced predominantly on the prior reputation of the appellation where the wine was produced, although other factors such as "taste" and "bouquet" were found to have statistically significant (albeit smaller) impacts on prices. Importantly, all variables in the study were significant at the 5% level, and all but 2 variables were significant at the 1% level.
However, the study notes that the predominance of reputation has decreased since prior studies on 80s vintages, primarily due to "the reduction in information asymmetries between consumers and producers and the increased competition in wine market," according to the authors. Given the study was published in 2004 about 90s vintages, it would be interesting to see an updated analysis, particularly given the increase in popularity of "new world" wines, the increasing oversupply in the market, and the democratizing power of the internet.
https://www.researchgate.net/publication/24068071_What_explains_Bordeaux_wine_prices
However, the study notes that the predominance of reputation has decreased since prior studies on 80s vintages, primarily due to "the reduction in information asymmetries between consumers and producers and the increased competition in wine market," according to the authors. Given the study was published in 2004 about 90s vintages, it would be interesting to see an updated analysis, particularly given the increase in popularity of "new world" wines, the increasing oversupply in the market, and the democratizing power of the internet.
https://www.researchgate.net/publication/24068071_What_explains_Bordeaux_wine_prices
How to tell when your wines have gone bad
I recently cleaned out a family member's wine cellar...a family member who did not drink wine. Needless to say, the wines had been sitting in that dusty cellar for quite a while, definitely not at the right temperature. I nabbed some anyway, and noticed some interesting qualities. The sauvignon blanc was very pink, and the reds were brown. I opened a white and it smelled like a vinegary raisin, in a bad way.
Finally I found a white that looked normal colored, opened it, and poured a glass. It was FIZZY! I didn't realize this was a sparkling, so I checked the label. It was not a sparkling. Gross.
In class when we received the tasting notes (the little card with all the potential flavors), I feel like some of them sounded like terrible flavors....remember that there's a big difference between "tobacco," "earthy," and "astringent" or "chemical."
To avoid your encountering this issue in the future, I've included below some tips I discovered for how to ensure your wine has not gone bad. Color is definitely a signal, but you really can't tell by color alone. So once you open it:
1. Smell (should NOT be moldy, musty, wet, or vinegary)
2. Red wine shouldn't taste sweet (this means it's been overexposed to heat)
3. Cork: shouldn't be moldy looking or pushed out from the bottle at all (the latter also could mean the wine overheated and expanded within the bottle)
4. Color: red shouldn't be brown, white shouldn't be deep yellow, brown, or pink unless they're rose
5. Flavor: should def not taste chemically, astringent, or like paint thinner
6. Bubbles: table wine should not have bubbles. This means it underwent a second fermentation
Finally I found a white that looked normal colored, opened it, and poured a glass. It was FIZZY! I didn't realize this was a sparkling, so I checked the label. It was not a sparkling. Gross.
In class when we received the tasting notes (the little card with all the potential flavors), I feel like some of them sounded like terrible flavors....remember that there's a big difference between "tobacco," "earthy," and "astringent" or "chemical."
To avoid your encountering this issue in the future, I've included below some tips I discovered for how to ensure your wine has not gone bad. Color is definitely a signal, but you really can't tell by color alone. So once you open it:
1. Smell (should NOT be moldy, musty, wet, or vinegary)
2. Red wine shouldn't taste sweet (this means it's been overexposed to heat)
3. Cork: shouldn't be moldy looking or pushed out from the bottle at all (the latter also could mean the wine overheated and expanded within the bottle)
4. Color: red shouldn't be brown, white shouldn't be deep yellow, brown, or pink unless they're rose
5. Flavor: should def not taste chemically, astringent, or like paint thinner
6. Bubbles: table wine should not have bubbles. This means it underwent a second fermentation
WineInStyle: If the Price is Right
With the Board split on such a fundamentally important decision for the future of the Company, Eberhart should suggest that the Board temporarily hold off on making the decision about whether to sell to the Japanese investor group. As the case mentions, the company could really use the cash. However, since the identity of the Japanese investors is unknown, it could easily be a competitor trying to look under the hood before reneging on their offer. Additionally, it's certainly possible that there is an even better offer out there, and it's next to impossible to evaluate this offer without the offer price and the expected cash flows of the company.
Although the company clearly needs a cash infusion, that does not mean they need to vote on a deal today. The company can act on some of the cost-cutting measures mentioned at the end of the case to keep the company running smoothly while the Board takes its time to make an informed decision. In the meantime, the Board should look into hiring a small, boutique investment bank, potentially a Japanese / Asian regional bank (or find some other type of broker if the deal is too small for a bank - perhaps Topol would be up for a side project). The bankers can help with the following:
After the bankers have performed their work, the Board can tick through the following options available to them:
Throughout this process, Eberhart should focus solely on the offer price and the potential cash flows of the company. While tempting, if he factors in his support for CEO Khoo's career and his desire to spend more time in Palo Alto with his family, he could leave himself open to a potential lawsuit from other investors.
Although the company clearly needs a cash infusion, that does not mean they need to vote on a deal today. The company can act on some of the cost-cutting measures mentioned at the end of the case to keep the company running smoothly while the Board takes its time to make an informed decision. In the meantime, the Board should look into hiring a small, boutique investment bank, potentially a Japanese / Asian regional bank (or find some other type of broker if the deal is too small for a bank - perhaps Topol would be up for a side project). The bankers can help with the following:
- Conduct due diligence on the Japanese investor group to confirm that the offer is serious
- Run a broad auction process and analysis of other strategic alternatives to figure out the best option for the company from a valuation perspective
- Perform a fairness opinion on the offer from the Japanese investor group to confirm that the offer is within a fair range of values
After the bankers have performed their work, the Board can tick through the following options available to them:
- If the auction yields a higher offer from a reputable investor, vote to take that offer if it is within the range of values included in the fairness opinion
- If the offer from the Japanese investors remains the highest offer, then:
- Accept the offer if it is within the range of values included in the fairness opinion (and if the bankers can identify the Japanese investors through the DD)
- If all else fails, the Board should reject the offer and continue to run the company, while instituting the cost cutting measures identified in the case on p13. The Board can also consider a smaller cash infusion from Eberhart and the other existing investors (or friends / family / a VC firm not identified by the bankers) to alleviate the working capital concerns
Throughout this process, Eberhart should focus solely on the offer price and the potential cash flows of the company. While tempting, if he factors in his support for CEO Khoo's career and his desire to spend more time in Palo Alto with his family, he could leave himself open to a potential lawsuit from other investors.
BJ's Joins Private Label Market
BJs just launched its own private label wine under its
Wellsley Farms line, continuing the trend of private label wines popping up in
major retailers across the country. Besides Trader Joe’s, BJs joins a long list
of retailers investing in private label wine, including Costco, Target, Sam’s
Club, Kroger, Aldi, and Whole Foods.
Private label wine is growing, currently accounting for 12%
of all U.S. wine sales, and is expected to reach 17% by 2021. And along with
growth in volume is an increase in quality across the category, as consumers
are becoming more open to experimentation and varietals from across the world
and are looking for “value wines” rather than “cheap wines” when shopping
private label. Who’s to thank for this trend? Yep, you guessed it… millennials.
Articles referenced:
Climate change leadership conference for wine
Last week there was a climate change leadership conference that
hundreds of wine industry representatives attended. The conference took place in
Porto during March 5 to March 7, and Al Gore gave the closing speech.
This article summarizes some of the key takeaways
from the conference: https://www.decanter.com/wine-news/al-gore-global-emergency-wine-climate-change-conference-410330/#TUqS0RMqWyD6ttTE.99
Climate change is important for everyone, and the wine industry has a responsibility to reduce climate change as well. Some of the key highlights of the article include the
following:
“Bridge conceived of
the conference as a way to galvanise wine producers into collaborating and
sharing information. While acknowledging a growing trend towards more
sustainable practices, he believes that the wine industry as a whole has not
yet woken up to this issue. ‘We know what the problem is and we need to find
solutions.”
“Al Gore closed the
conference highlighting the global emergency posed by climate change to the
planet’s resources – from water, topsoil and forests to biodiversity and the
integrity of our oceans, and recalling extreme weather events like the
wildfires in California that occurred last year."
“A number of wine
sector initiatives were showcased at the conference, including California’s
first ‘Self Sustainable Winery’ at UC Davis, advances in water-saving
technology from around the world, research programs to protect biodiversity in
wine regions and investments in renewable energy.”
Wine in Style - To sell or not sell ...
If I were Eberhart, I would not take the deal and search for other investors under different terms. There are 3 primary reasons why I would not take the deal.
First, I would be concerned about the reputation and capabilities of the unknown Japanese investor. According to the case, Eberhart had been a businessman in Japan for nearly 10 years - in which time he has been able to raise millions of dollars through other reputable VC firms. If I were Eberhart, I'd want to leave my company in capable hands to ensure growth - and I'd be skeptical that the new investor would be able to do so.
Second, barring the reputation of the investor, the deal terms are not ideal - particularly the part about buying out Eberhart completely. As the case mentioned, there are so many growth paths that WineinStyle could take: (1) Expanding further to all regions of Japan, (2) Serving other Asian markets such as China and Taiwan, and (3) Distribution through big box retailers (e.g., Costco). These growth paths suggest that there is still value to be captured as a partial owner.
Finally, if cash is the only need that the company has, then there are other ways to raise funds. For example, the company can issue debt in order to invest further in their operations. They can also find ways to operate more efficiently, thereby freeing up more cash. Finally, Eberhart could issue more equity to existing investors - ones he knows and trusts, rather than seeking capital from new investors.
First, I would be concerned about the reputation and capabilities of the unknown Japanese investor. According to the case, Eberhart had been a businessman in Japan for nearly 10 years - in which time he has been able to raise millions of dollars through other reputable VC firms. If I were Eberhart, I'd want to leave my company in capable hands to ensure growth - and I'd be skeptical that the new investor would be able to do so.
Second, barring the reputation of the investor, the deal terms are not ideal - particularly the part about buying out Eberhart completely. As the case mentioned, there are so many growth paths that WineinStyle could take: (1) Expanding further to all regions of Japan, (2) Serving other Asian markets such as China and Taiwan, and (3) Distribution through big box retailers (e.g., Costco). These growth paths suggest that there is still value to be captured as a partial owner.
Finally, if cash is the only need that the company has, then there are other ways to raise funds. For example, the company can issue debt in order to invest further in their operations. They can also find ways to operate more efficiently, thereby freeing up more cash. Finally, Eberhart could issue more equity to existing investors - ones he knows and trusts, rather than seeking capital from new investors.
Fancy a Drink? (Of water)
Just about every time I've drove through some sort of agriculture or farm land (growing whatever crop the area produces) in the US, I've always been struck by how technologically advanced and intricate the various irrigation systems are. The one that especially catches my eye whenever I see it is a center pivot irrigation system, looking something like this:
Given how prevalent this sort of technology is for other crops, I was pretty surprised to learn that most wineries do not water their vineyards artificially like above. And even those that do do so with incredibly sparing and meticulous use. In France, for example, it was illegal by law to water wineyards until 2007. And once it was allowed, it could only be done for a short stretch (the hottest period of Summer, unsurprisingly) on vineyards that had received special permits from the government.
Like many things related to wine, these rules generate from a bit of subjectivity and traditional belief that irrigated vineyards produce inferior wine (and France therefore produces superior wine by not irrigating). However, there's little empirical evidence that this is in fact true. Many great New World wines are irrigated according to what the respective winemaker believes is best for the grapes. Irrigation can also make vines more abundant, and therefore help the same sized plots of lands produce more volume in a given vintage (cue comment that this could drive down price as well).
Given it's 2019 and wineries are experimenting more and more with innovative techniques like biodynamic farming, it's interesting that something as simple as 'watering the plants' is considered a huge no-no in many wine regions. There are likely plenty of reasons for this, most of which have been institutionalized by the ever powerful Old World wine producers, but it's still a neat anecdote to consider when we think about where innovations might lie in the winemaking industry.
Sources:
https://www.jancisrobinson.com/articles/irrigation-now-official-in-france
https://beesource.com/point-of-view/joe-traynor/the-french-mystique-comparing-french-and-california-growing-conditions/
https://daily.sevenfifty.com/3-myths-about-irrigation-and-dry-farming/
https://napagrowers.org/storage/app/media/uploaded-files/Best%20Practices%20-%20Irrigation.pdf
Given how prevalent this sort of technology is for other crops, I was pretty surprised to learn that most wineries do not water their vineyards artificially like above. And even those that do do so with incredibly sparing and meticulous use. In France, for example, it was illegal by law to water wineyards until 2007. And once it was allowed, it could only be done for a short stretch (the hottest period of Summer, unsurprisingly) on vineyards that had received special permits from the government.
Like many things related to wine, these rules generate from a bit of subjectivity and traditional belief that irrigated vineyards produce inferior wine (and France therefore produces superior wine by not irrigating). However, there's little empirical evidence that this is in fact true. Many great New World wines are irrigated according to what the respective winemaker believes is best for the grapes. Irrigation can also make vines more abundant, and therefore help the same sized plots of lands produce more volume in a given vintage (cue comment that this could drive down price as well).
Given it's 2019 and wineries are experimenting more and more with innovative techniques like biodynamic farming, it's interesting that something as simple as 'watering the plants' is considered a huge no-no in many wine regions. There are likely plenty of reasons for this, most of which have been institutionalized by the ever powerful Old World wine producers, but it's still a neat anecdote to consider when we think about where innovations might lie in the winemaking industry.
Sources:
https://www.jancisrobinson.com/articles/irrigation-now-official-in-france
https://beesource.com/point-of-view/joe-traynor/the-french-mystique-comparing-french-and-california-growing-conditions/
https://daily.sevenfifty.com/3-myths-about-irrigation-and-dry-farming/
https://napagrowers.org/storage/app/media/uploaded-files/Best%20Practices%20-%20Irrigation.pdf
WineInStyle
I'm very torn on what I would do if I were Eberhart here, but ultimately think I would accept the buyout from the new investors and head off into the sunset to spend more time with my family.
Maybe it's me being a bit sentimental and not having ever had the opportunity to turn down a large buyout that would provide wealth for me and my family, but I simply think the daily grind of spending a week or two in Japan every month when your kids are growing up in California just doesn't merit the time commitment, especially when considering the money available to spend more time with your family. That to me is the ultimate kicker with all things being equal, and why I would accept the buyout, let Khoo operate the business (and celebrate him if he achieves the success that I think can come) and find whatever is next for me when I again have the opportunity to spend every day at home.
The caveat here, and something I would want to do more due diligence on, is how the investors plan to shape the business if WineInStyle does accept their investment. It seems like the way in which they operate is a bit shady and secretive, which is definitely a red flag. I would figure out a way (through these investors or not) to speak with executives at other companies they invested in to get a sense for how they treat their portfolio companies. If those reference checks come back anything but positive, I would rethink my stance. But with only the information in the case available to me, my ultimate decision would be less fiscally motivated and more personally motivated (his commute is historically bad!), which would lead me to accept the investors' money and take my win home to my family.
Maybe it's me being a bit sentimental and not having ever had the opportunity to turn down a large buyout that would provide wealth for me and my family, but I simply think the daily grind of spending a week or two in Japan every month when your kids are growing up in California just doesn't merit the time commitment, especially when considering the money available to spend more time with your family. That to me is the ultimate kicker with all things being equal, and why I would accept the buyout, let Khoo operate the business (and celebrate him if he achieves the success that I think can come) and find whatever is next for me when I again have the opportunity to spend every day at home.
The caveat here, and something I would want to do more due diligence on, is how the investors plan to shape the business if WineInStyle does accept their investment. It seems like the way in which they operate is a bit shady and secretive, which is definitely a red flag. I would figure out a way (through these investors or not) to speak with executives at other companies they invested in to get a sense for how they treat their portfolio companies. If those reference checks come back anything but positive, I would rethink my stance. But with only the information in the case available to me, my ultimate decision would be less fiscally motivated and more personally motivated (his commute is historically bad!), which would lead me to accept the investors' money and take my win home to my family.
Wonder Women of Wine
Given that March is Women's History Month, it is only right to highlight what is going on in the wine industry regarding women. The first weekend of March, Austin hosted the "Wonder Women of Wine conference", which has been called the first national conference advocating gender equality in the wine industry. This event was started by Sommelier, Rania Zayyat with the mission "to create balance in leadership through the advancement of women into decision-making positions."
During the event there was keynote by Karen MacNeil, the author of the best-selling wine book in America, The Wine Bible, who discussed her personal experience with gender bias during her career path. On Saturday, the event shifted gears to focus on how to change the future by creating a more inclusive space for women in the wine industry. Overall, people have been discussing the event as a success.
Given this success, Rania Zayatt is hoping to make WWOW a nonprofit entity in Texas. She has officially applied for 501c3 status and is awaiting approval. Overall, Rania is extremely excited about improving gender equality in the wine industry!
During the event there was keynote by Karen MacNeil, the author of the best-selling wine book in America, The Wine Bible, who discussed her personal experience with gender bias during her career path. On Saturday, the event shifted gears to focus on how to change the future by creating a more inclusive space for women in the wine industry. Overall, people have been discussing the event as a success.
Given this success, Rania Zayatt is hoping to make WWOW a nonprofit entity in Texas. She has officially applied for 501c3 status and is awaiting approval. Overall, Rania is extremely excited about improving gender equality in the wine industry!
2 Buck Chuck
We're all familiar with it, the magical $1.99 vino available at your local TJ's - Charles Shaw. There are a number of interesting theories of why the wine is so cheap, and then there are some more logical business reasons why it is so. Let's look at both!
Myths
Myths
- Divorce
- Charles went through a divorce and was outraged at having to divide his assets and as a result sold the wine at a very low price in order to ruin any potential profits
- Airplane
- After 9/11 corkscrews were banned on airplanes and as a result, airlines offloaded a large amount of wine and TJ's bought it up - selling the wine at a very low price
- Claw
- Charles Shaw used a giant mechanical claw to harvest it grapes (a large cost savings mechanism), including any bad grapes and potential small animals in the vineyard!
Economics
- Cheap real-estate
- Charles Shaw grapes are grown in the San Joaquin Valley which is much cheaper than Napa or Sonoma
- Oak chips
- They use oak chips rather than oak barrels which is a huge cost savings as the barrels are very expensive
- Lightweight bottles and cheap cartons
- They reduce shipping costs by using as lightweight materials as possible to package the wine
- Low-cost cork
- They utilize a special cork which has cork pieces glued together and a cork veneer at the bottom
Sources:
https://vinepair.com/wine-blog/the-mystery-of-charles-shaw-better-known-as-2-buck-chuck/
https://www.businessinsider.com/why-trader-joes-wine-is-so-cheap-2017-5
Wine in Style- What to do next?
Given the current knowledge in the case, I think Eberhart should vote against the deal.
However, there are a few points in favor of the deal. First, personally it will allow him more free time to spend with his family in Palo Alto. In addition, given the timing, the deal would show support of the current CEO Khoo. Finally, the deal could positively impact the cash flows of the company.
Despite these favorable points, there is a lot of concern in taking the deal. The biggest con is that there is no idea who these investors are, their thoughts and desires for the company, and their intentions. Given the previous scare tactics made towards the company, this lack of knowledge is extremely concerning since the investors could be people trying to sabotage the company for competitors benefit. Additionally, the cash problems can be resolved through other means such as operating more efficiently and cutting down existing expenses. Finally, while this could be a good sign of faith in the current CEO if everything goes well, it could also be extremely hard for the new CEO to deal with the potential scam.
Given this information, I think the best option would be to turn down this current offer unless there is certification showing more details on who the investors truly are!
However, there are a few points in favor of the deal. First, personally it will allow him more free time to spend with his family in Palo Alto. In addition, given the timing, the deal would show support of the current CEO Khoo. Finally, the deal could positively impact the cash flows of the company.
Despite these favorable points, there is a lot of concern in taking the deal. The biggest con is that there is no idea who these investors are, their thoughts and desires for the company, and their intentions. Given the previous scare tactics made towards the company, this lack of knowledge is extremely concerning since the investors could be people trying to sabotage the company for competitors benefit. Additionally, the cash problems can be resolved through other means such as operating more efficiently and cutting down existing expenses. Finally, while this could be a good sign of faith in the current CEO if everything goes well, it could also be extremely hard for the new CEO to deal with the potential scam.
Given this information, I think the best option would be to turn down this current offer unless there is certification showing more details on who the investors truly are!
How to correctly saber a champagne bottle
After dabbling with it quickly in class, I spent some time doing additional research on how to saber a pressurized wine bottle (champagne, etc.) correctly -- and with limited injuries by the participants! Here's what I've learned:
Tips:
- Get a wine bottle of choice and the object that you'd like to use to saber it. A kitchen knife works well (since you likely don't have a sword available)
- Point the bottle away from everyone
- There is a seam on the bottle that runs the length of the bottle (vertically)
- You want to strike the bottle right at the intersection of the lip and the seam (very close to the top of the bottle)
- The goal is to have the cork and a portion of the glass bottle fly off so please please don't point it at anyone
- Amaze your friends and family
Tips:
- American champagne bottles are harder to saber than French bottles
- The bottle should be VERY cold.
- Your knife doesn't have to be sharp. You can do this with a kitchen knife
- There is a lot of force from the Champagne pushing against the cork at all times and you're pretty much capitalizing on that force to break the bottle at it's weakest point
Sources:
https://www.wired.com/2015/12/how-to-saber-champagne/
https://www.chefsteps.com/activities/how-to-saber-a-champagne-bottle-with-writer-neal-stephenson
Wine in Style
Eberhardt is at an interesting junction with WineinStyle and one that is not all that common, especially here in Silicon Valley. As a growing company becomes cash constrained, it has to make a few choices about how it is going to increase working capital.
For WineinStyle, I see the choices as follows: First, consider identifying ways to decrease current expenses to free up cash flows. On page 13 of the case, it is discussed that Eberhardt believes that they can accomplish this by operating more efficiently. However, based on the current operational structure of WineInStyle, I don't believe that there is significant room for growth. The company does not carry a significant amount of inventory and has already invested in operational efficiencies through its order management system. Furthermore, growth takes cash! It's unreasonable to believe that the company won't have to hire more individuals or bring on additional inventory as it expands at the rate it would like. I'm not arguing for inefficiency but there seems to be little room to improve working capital in the short run.
Another consideration for WineInStyle is that it could raise debt instead of giving away equity. This seems to be ill-advised because of the growth the company is looking to pursue. There is a potential for debt overhang where positive NPV projects might not be taken on because they might limit the companies ability to pay back the debt holders. More information on the situation is needed to answer this fully but at this time, I would not recommend this course of action.
Therefore, I would recommend that if Eberhardt is looking infuse cash into the company, looking for outside investment makes sense. However, I would strongly caution about moving forward without doing strict due diligence on the interested party. Eberhardt has put in way too much work into the company (even given significant time away from his family) to sell the company to just anyone.
Will You Accept this Rosé?
My guilty pleasure for years has been The Bachelor and
Bachelorette franchise. A sexist franchise with countless flaws (that’s a
different blog post) … yet I keep returning, season after season. Partly because
the Monday night gathering with friends always includes wine, and partly
because I find the people who choose to go on this show fascinating.
Just as fascinating as their behavior on the show are the paths
the contestants take after the show. The most popular as of late: The Instagram
Influencer. After last night’s Most. Dramatic. Finale. Ever. while debriefing
with friends and polishing off the last of our wine, I took to Instagram to
explore past contestants’ paths, specifically their relationship with wine.
As expected, I found many contestants promoting well known DTC
companies such as Winc and BrightCellars. But I was surprised to see that there
were a number of contestants that had more than dipped their toe into the wine
world:
·
Ben Flajnik –Season 16, The Bachelor: Ben was a
winemaker before coming on the show, at Sonoma wine company Envolve. Ben sold Envolve
to the Benzinger family in 2016, although is still involved in the wine world with
his new venture Return of the Ros
·
Kaitlyn Bristowe – Season 11, The Bachelorette:
Katilyn launched a wine-centered podcast “Off the Vine”, and is working on
launching her own wine label.
·
Lauren Bushnell – Season 20, “Winner” of the
Bachelor: No longer engaged to her Bachelor Ben Higgins, Lauren is working with
her new boyfriend to launch a wine brand Dear Rosé
WineInStyle: Let it Go...Let it Go
Letting go can be hard. Yet, sometimes you just...do it.
Eberhart has done an excellent job growing the business as much as he has. Hitting $4M in 10 years in a foreign market is no mean feat. However, there seem to be few arguments left as to why he should continue. On the macro level, while the wine industry in Japan is growing, it's not growing that fast relative to other international markets. One could argue that Eberhart should stick around and carve out a larger slice of Japan since he has an early mover advantage. However, Eberhart's company lacks differentiation or impassioned leadership - bad signs in an increasingly crowded market. Since the company is already struggling against competition, it seems unlikely that it would survive against larger or more determined opponents.
Eberheart's care for his new CEO in his absence is touching and important. However, immediately selling the company to these new investors may not be the best course of action. I believe he should use this current offer as leverage and shop around for alternative investments. If the current offer is the best he can get, fine - otherwise, he should optimize for investors that clearly care about the long term upkeep of the firm.
Eberhart has done an excellent job growing the business as much as he has. Hitting $4M in 10 years in a foreign market is no mean feat. However, there seem to be few arguments left as to why he should continue. On the macro level, while the wine industry in Japan is growing, it's not growing that fast relative to other international markets. One could argue that Eberhart should stick around and carve out a larger slice of Japan since he has an early mover advantage. However, Eberhart's company lacks differentiation or impassioned leadership - bad signs in an increasingly crowded market. Since the company is already struggling against competition, it seems unlikely that it would survive against larger or more determined opponents.
Eberheart's care for his new CEO in his absence is touching and important. However, immediately selling the company to these new investors may not be the best course of action. I believe he should use this current offer as leverage and shop around for alternative investments. If the current offer is the best he can get, fine - otherwise, he should optimize for investors that clearly care about the long term upkeep of the firm.
WineInStyle
The question facing Robert Eberhart at the end of the
WineInStyle case is a fundamental question of whether Eberhart wants to
continue to be responsible for managing a business across oceans or if he wants
to return to his life in Palo Alto and let the business that he built collapse.
If it were my decision, I would hold out and look for another investor rather
than be inadvertently responsible for the end of my business.
I can’t imagine a plausible scenario in which the new
investors have positive intentions for WineInStyle. If they did, there would be
no reason for the secrecy with which they are approaching the deal. Even if the
investors did get certified, I don’t believe that they are committed to
protecting the business. Their secrecy is a red flag to me.
One of Eberhart’s main concerns is supporting WineInStyle’s
current CEO, but I don’t believe that taking the investment would be supporting
Khoo because I don’t trust the new investors. It seems unlikely to me that they
would work to preserve the business, so taking their money would not protect
Khoo from anything. Eberhart’s only option to support his CEO is to take the risk
on finding an alternative source of funding.
The only scenario in which I would take the new investors’ money
is if they committed to allowing the current leadership team, including me as
the co-founder, to maintain governance of the company for an extended period of
time, at least five years. That is the only way I would feel confident that
they were invested in the business itself, not just its assets.
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