The key to sell wine online worldwide

Why clothes, groceries, technology and not wine? 

Last year I started buying wine online in Spain, feeling extremely weird! However I found out that it was even easier than going to the overwhelming wall in the supermarket. 

In fact, wine e-commerce is growing rapidly. The interesting thing is that in Spain, there has not been a new entrant in the market to occupy this space. Instead, the traditional wine distributors have done so. Why? 

I asked a friend of mine, whose family business used to sell wine through a retail channel and they are now selling 20% online. The key of their success, she says, is due to different factors but especially to a very customized and personalized customer service. Indeed they customize the newsletters they send the customer with recommendations according to their previous orders and to the survey they send the customer after every order to understand which wine they would prefer next. 

A fantastic way to help the customer choose and try new wines without being overwhelmed! 

Naked Wine - reconnect with the World

Technology is changing the world, what about wine? The $300 billion industry has only seen succeed a handful of start-ups.

Indeed, most of these successful start-ups are trying to connect the consumer with the overwhelming world of wine. Take Vivino, for instance, allowing the user to scan a bottle of wine and immediately have access to ratings, reviews and price information. Wine consumers are eager to have more start-ups like Vivino (300,000 scans a day!)

What do you feel when you go to a wall of wines in a supermarket? I feel overwhelmed and lost... Vivino helps, but picking a wine is still overwhelming. Naked Wines is the online wine club that wants to help me solve my problem and pick the wine for me. We, the customers, are the angels and by paying $20 a month I get an exclusive wine with a story behind, I drink knowing what I'm drinking and I learn some more about this giant world of wine. Additionally, the club gives me the possibility to exchange my opinion with a community around the world, with a same passion.

Apparently, the club has not only convinced me, it made >$100 million last year in revenues!

Not ready to take off the wine tasting training wheels

A couple of weeks ago, some MBA1s hosted a Trader Joe’s wine tasting dinner; it included various wines from the store under $10 and some of our favorite foods (much like the last day of this class). The tasting was blind - our hosts wrapped the labels in paper towels to obscure them from the rest of us, gave us tastings, had us rate them, and had us write down tasting notes.

I definitely found myself adjusting scores as we went along, but I also found it very difficult to produce coherent tasting notes. It really hammered home what Alder Yarrow talked about during his visit - it’s really difficult to translate what we’re tasting into words. Most weeks in class, I can’t get beyond “sweet,” “not as sweet”, “tart”, “grapes”, “fruity”, “tangy”, and “dry” when trying to think of what the wine I’m drinking tastes like, even though I can taste far more overall subtlety than that, and I’m not under the impression that most of the wine we’ve had tastes the same.

It makes me wish the product my group is presenting for our final really existed!

When someone else profits from your name

Already delighted to discover that Trader Joe's was founded by a GSB alum named Joe Coulombe, '54, it was fun to find out that the namesake of two buck Chuck, Charles Shaw, is also one ('71). But as it turns out, he sold the rights to his winery, which bares his name, at at time of personal financial turmoils for $27,000. Trader Joe's got the brand for a steal, and Shaw sees none of the profits.

Some of his issues stemmed from how leveraged the Charles Shaw winery was - they needed strong growth to keep cash flow positive, but this was at a time when the interest rates he was facing were about 20%, and his marriage was failing. His wife, who he described as a person who "didn’t drink wine and didn’t even like to talk about wine" ended up with the winery, and lost the distribution deal in place, which included selling throughout the US and in 20 countries. Bankruptcy soon followed.

Shaw's regrets include the poor relationship he had with his business partner/wife (no kidding) and the fact that he was too rigid in the wine space he wanted to play in. He wanted to be the "light red" guy, so he focused gamay varietal from the Beaujolais region of France, but feels like he should have instead produced "a chardonnay, a merlot, a sauvignon blanc, for example," then gone to the market and observed the demand. Even in the wine world, iteration and market observation is key.

Source: https://www.gsb.stanford.edu/experience/news-history/charles-shaw-mba-71-risk-rigidity

A question of land ownership in South Africa

Wineries are a question of land ownership. In places like Napa Valley and Sonoma, the ownership is clear (enough). At some point in the past it came under the ownership of someone with a deed, who sold it someone else, who owns it today. We (mostly) no longer talk about how land ended up in the hands of the Americans who eventually flipped it in the first place.

Not so in South Africa. The very recent history of apartheid renders the question of land ownership - Is it valid? Is it fair? Should it change? - very acute. The Stellenbosch wine region is actively dealing with such issues.

One of the things that complicates the question of ownership is the fact that a non-trivial amount of this land is actually public - right before the end of apartheid, the government gave a number of white farmers 50 year leases for public lands in exchange for their investment in water infrastructure.

Adding to the turmoil, the area in question is where most of the leaders of apartheid were originally from, making this symbolically loaded. Stellenbosch is often called “the cradle of apartheid.” Yikes.

Right next to the wineries there is a poor, black, overcrowded neighborhood called Kayamandi, separated by barbed wire and electrified fences. Some of the people who live there have started to squat on a farm owned by Stefan Smit, building thousands of metal shacks, resisting arrest, and refusing to leave.

What are the obligations of tourists who want to take advantage of the South African wine world? Should they make a point to learn this history? Should it change how they explore the region? I’m a big believer in understanding the context of the place you’re visiting, but it’s not totally clear that the answer here to not go. It’s important to see how this case shakes out and what happens as these leases start to end in the 2040s. How will South Africa continue to grabble with the inequality that besieged it for so long, and how does that extend to land rights?

Source: https://www.nytimes.com/2019/03/09/world/africa/stellenbosch-south-africa.html

What to do about the cash crunch - WineInStyle

What an amazing feat by Robert Eberhart. He did a remarkable job of transferring skills from his experience in electronics and transforming the learnings into a successful California wine import business in Japan. What's more, he did it by focusing on execution while his competitors focused on wine as a prestige product.

I also particularly loved the portion of the case where he became a "part-time retail anthropologist", the on-premise customer observation definitely struck a chord with me as a former product manager. And as far as the insight in the case about how most people select the second cheapest wine -- let me tell you, many of my restaurant clients back in New York confided that they price the cheapest wine they buy as the second cheapest wine on the menu, so you're often better off getting the cheapest (or third cheapest) wine on the menu.

But let's get back to the question at hand. To sell or not to sell? The question is really about working capital. The 3x import volume growth that Khoo was able to achieve as CEO in such a short time was remarkable, but it certainly came at a cost. Cash is definitely king, especially when you increase your headcount so rapidly while closing larger deals than ever before. But does that necessarily mean that selling the company to mysterious and untraceable investors is the way to go? An exit would certainly help Eberhart get to spend more time at home with his family. But there are alternative avenues to achieving this. Raising debt to pay for the additional staff plus someone to oversee the cash flows so Eberhart could take on a more removed advisory role seems like a better choice at this time. This way, he can continue to hold a steak in the company through this high growth phase and wait for a more attractive and transparent offering at a higher valuation.

Perspective on WineInStyle

In order to significantly expand the business, the WineInStyle team needs a cash infusion. Moreover, it will be difficult for the company to expand its geographic reach and its national sales volumes without continued investments in new headcount. Given the limited avenues for Eberhart to streamline operating costs, he should accept the investment, but only if he is able to maintain his controlling interest and after he's conducted due diligence into who the potential buyers are. If he is not able to establish their identify as a buyer, he should seek a different local partner with ties to the local banking/investment community who can help secure a line of credit or an investment with more favorable terms.