Marijuana + Wine

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

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:

https://www.inc.com/jim-schleckser/making-sense-of-the-100-point-wine-scale.html

https://www.wineturtle.com/sensory-characteristics-of-wine/

https://www.winespectator.com/display/show/id/about-our-tastings

http://www.academicwino.com/2012/07/how-expert-opinions-influence-consumer.html/

https://winefolly.com/review/wine-characteristics/

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.

Dave Matthews - Dreaming Tree Wines

Confession: I've been to over 30 Dave Matthews Band ("DMB") concerts. Obsessed? Perhaps.

Given my fandom, I was delighted earlier this week when a friend brought over a bottle of Dreaming Tree Wine (named after a song from a 1998 DMB album) - a $13 bottle of Cabernet Sauvignon from CVS Pharmacy - crafted by winemaker Sean McKenzie and Dave himself.

I was delighted by the quality of the wine - and it appears to have the attention, albeit with mixed reviews, of many others, with a 4.3/5.0 rating on TotalWine and a 3.7/5.0 on Vivino (~17K reviews!).

Dreaming Tree is the only celebrity wine I've tried - upon further research, it appears Dave's celebrity does wonders for the brand's marketability - with Sean McKenzie remarking that the company expects that about half of the company's customers are DMB fans, or at least are aware of the Dave Matthews connection. 

What could possibly motivate a multi-hundred-millionaire musician to take on a business endeavor as a winemaker? The connection for Dave seems to have started based on his American roots (he's originally from South Africa) in Charlottesville, Virginia (also home to UVA Darden), which has a few beautiful vineyards - and, upon my own time exploring the town - a very prevalent wine culture. Beyond his roots, other motivations appear to be from a similar drive to create experiences and community (similar to bringing people together at his concerts) and sustainability, with over $1M donated by Dreaming Tree Wines to environmental causes.

Do you have a favorite celebrity wine (list here)? And was your motivation to buy based on celebrity? Amidst the noisy world of wine brands, I expect celebrity wine-branding to continue to serve as an effective edge in marketing and distribution.

Sources:

https://www.dailynews.com/2018/09/19/dave-matthews-fans-can-drink-his-wine-the-award-winning-the-dreaming-tree/

www.dreamingtreewines.com

http://scottsseafood.net/theriver/new-featured-wines-from-the-dreaming-tree/

Forget Kylie, Lebron is the real MVP.

Over the last 9 weeks, we've heard plenty about how millennials aren't buying expensive wines.  This new generation values experiences over things, and it's going to kill winemakers.

[Cue ESPN 30 for 30 voice]

What if I told you there was still a luxury market where each product sold for hundreds of dollars?  That one of the greatest influencers that drove this market just moved to one of the largest media markets?  And that he also happened to be a fan...of high-end wine?

Here's a listing for a Lebron 16 King Court Purple Nike basketball shoe.  It is listed for $1,100.

Here's a listing for a bottle of 1996 Chateau Lafite Rothschild.  It is listed for $1,000. 

Now admittedly, the value and pleasure derived from these two items is different.  You can wear the shoes repeatedly and you can only drink the wine once.  Yet I would argue there is an untapped opportunity here by the wine industry.  ESPN and the Wall Street Journal have both documented how many NBA stars have become avid wine aficionados, particularly for high-end wines.  Many of these stars command millions of social media followers and have a proven track record of selling a relatively cheap good produced in limited quantities to their fan base for obscene margins.  Both markets rely on scarcity value to drive up the price of certain products, and huge secondary markets exist to resell goods that haven't been used or consumed.


I'm not saying it's a guarantee you can convert sneakerheads into oenophiles, but why wouldn't you try?  After all, as Lebron ages closer to retirement, the fans that grew up with him may find their own tastes evolve and seek new ways to spend that disposable income.  Elite wineries should be devising ways to get their bottles onto his Instagram as soon as the Lakers are officially out of playoffs. 


Reference articles:

http://www.espn.com/espn/feature/story/_/id/22358028/the-nba-obsession-wine
https://www.wsj.com/articles/the-lebron-factor-who-drives-wine-trends-today-11552053545?mod=hp_listb_pos4

Unboxing Winc (Pt. 2)

An impressive four days after I placed the order, my Winc box arrived with three bottles of wine priced at $13 each.


Reasonably easy to carry and open. Box has a handle and insert-snap closure


Comes with a fun magazine - Wines of the world from A to Z


Bottles are protected with molded pulp inserts (fully recyclable, which is nice)

First impressions:

• The aesthetic appeal of the bottle packaging was a bit of a letdown, especially in comparison to how stylish the website itself is. The bottles came without foil capsules, the label design on these bottles is simplistic almost to a lazy degree
• On the wine itself - have only tried the L'Atelier de Sud Grenache/Syrah blend. Organic, red-fruit and light spice
• Tasting companions described it as "completely inoffensive" and "nice enough" 
• Very easy to skip next month's delivery through the website on mobile

Would completely consider ordering again in a couple months after I work through other bottles still on my shelf! If you're curious... don't mind my shameless plug here for a $22 discount code (I'll get a $15 credit on your first shipment)