The Emperor's New Clothes

I really enjoyed listening to Jessica Kogan tell her story about how she and her husband founded Cameron Hughes. I found it interesting to learn about their business model and the secondary market for wine, where people can come buy ready-made wine and re-bottle it under another name. One thing that really stuck out to me was the idea of key-man risk in this business. According to Jessica, the eponymous brand would not exist were it not for Cameron’s special palate, which allowed them to identify incredible wines and develop a brand that people associate with quality. What happens when Cameron dies? Is he still so critical to the business today, or do the existing relationships with wineries maintain the brand’s high quality into the future? My gut tells me that with good business relationships, Cameron Hughes (the brand) could find someone with a good enough palate to keep the business going strong. But where is the line between good enough and great?

                In an even more explicit point than Cameron Hughes, the idea of key-man risk keeps bringing me back to Robert Parker, the arbiter of taste. I remember reading a book on wine several years ago, where the author’s thesis was this: just because Robert Parker prefers his wines a certain way does not mean that everyone should like them a certain way.  Why then does the industry continue to depend upon his rating to determine the grade of a wine? There’s a certain “emperor has new clothes” aspect to this dynamic that gives me pause. Is he really wearing clothes, or are people just not telling him that he is wrong?

It is hard for me to think of other industries where so much power rests in the hands of single individuals. In fashion, there are a lot of prolific designers, but they seem to share power in a way that Robert Parker shares with no one else. In business – for the most part – even the most powerful managers share responsibility to those below them. Why has the wine industry developed in such a way that the rest of us yield our taste preferences to people with a biologically different palate than we have? As for me, I’ll continue to drink what tastes good to me, thank you very much.

Millennials + Wine

I thought Jessica was Cameron Hughes was an awesome speaker who got me thinking a lot about my generation. She argued that when millennials buy wine, they opt for boxed wine, or other unrefined mediums – they’re not buying what she’s offering. That point surprised me. Are millennials really not interested in bottles?  It got me thinking: if you replicated the Cameron Hughes model, but branded it for millennials would that work? I think it would.

We know from the cases we’ve read that millennials are increasingly drinking wine. Wine sales in the US are approaching $62 billion, and millennials are consuming over 40% of it. The studies reveal similar things about what millennials want from wine. We want stories, and we want varieties and regions that we haven’t heard of.

I read a Wall Street Journal article that references this trend, and opens the article quoting a sommelier in NYC who says, “so many millennials are interested more in the narrative of the wine rather than the wine…a lot of mediocre wine is sold on the basis of a story.” The content may be right, but to frame millennials behavior with condescension misses our generation.

There’s a reason why we prefer exploring with wines. A lot of us grew up around wine. It’s in our supermarkets. Our parents drank Old World, imported wines. But France and Italy aren’t exotic for us anymore. Syria is. Wine is a way to open our world, and to differentiate ourselves from older generations, as we grow into adults ourselves.

The face of Cameron Hughes does not feel like the face of my generation. Baby boomers may gravitate towards him – 78% of the wine drinkers in that generation are white – but we want a trusted source that is different from the old guard. And we want to understand it. I learned from a Wine Opinion survey that 72% of us have posted something about wine on social media, 85% have met someone for a glass of wine in the last month, and 43% have visited 4 or more winery tastings in the last year.

All of this is to say, I think millennials want to buy bottled wines in the $15 - $20 price range, but I’m not convinced we understand how to market to this generation. We need to embrace the diversity that millennials want to experience in wine. And we need to look at is not as the misguided tastes of untrained palates, but as a way to redefine what grapes and what regions get airtime.

Mark West Goes After Young Men (but actually)

Millennial males are not the target demographic for many wine brands. According to the WineDirect case, women comprised 57% of the wine-drinking population, and 66% of the Millennial wine-drinking population. This shows that there is an opportunity to pull out the young male buyers and convert them to wine drinkers.

I was recently chatting with a friend of mine who is a brand manager for Constellation Brands. She said that one of the brands she is managing, Mark West, has specifically targeted young males in an effort to build up this demographic. Constellation Brands bought the Mark West label for $160M in 2012. At the time, it was one of the nation's best-selling pinot noir, producing over 600,000 cases each year.  Mark West had positioned themselves as the "Pinot for the People", targeting a $10-12 per bottle price point and making the wine "simple to understand". This combination positioned the brand well to take on this young male population.

Since the acquisition, Constellation has clearly targeting this demographic. My friend had mentioned that Mark West had done a tailgating tour of the South earlier in the year to raise brand awareness and attempt to establish wine as a alternative tailgating beverage, like at Stanford tailgates ;). On the website, there is a pairing recipe for Chocolate Oatmeal Cream Pie Football Cookies (yum!!). Other recipes on the menu include pulled pork, ribs, brats, and jalapeno poppers. Sounds like a good tailgate to me!

And to prove that the marketing scheme has worked, last Sunday I was compelled to pick up a bottle for myself. Nailed it!

Wine Direct for Restaurants

The history of direct to consumers wine sales was a fascinating, frustrating and intriguing case study. In particular, learning how Wine Direct under the leadership of Joe Waechter has been able to establish a direct marketplace for wine consumers by leveraging Joe's career experience in the logistics business. Joe described the success of the SAAS component of Wine Direct in part because of the reality that wine makers are simple people with limited technical experience and resources to manage the complexity of an online sales presence. Similarly, I believe most restaurateurs are simple people and organizations that are much more interested in and success at creating a great dining experience than they are at maintaining the physical inventories represented by a wine list. The inefficiencies of a managing a wine list run deep into a restaurant operations. From the seemingly insignificant - the opportunity cost of the time spent searching for a particular bottle of wine to the missed moment of hospitality when a bottle is listed but unavailable. To the significant - improvements in working capital by elimination of low turnover inventory redundancies and next day replacement of super premium bottles of wine. 

Is there an business opportunity for restaurants to order small quantities of premium wines, often wines under allocation, direct from the wineries to both eliminate the cost of the distributor but also to free up working capital by not buying half or whole cases? Can the time-consuming responsibility of the sommelier or restaurant manager be automated via a SAAS patch between a restaurant's POS system and Wine Direct? Moreover, I have had poor experiences with restaurant wine inventory softwares and I see there to be an opportunity to connect all of these industry level opportunities. 

Adult beverage sales during crises

One nugget that stood out to me from last class was Jessica Kogan's comment about promoting Cameron Hughes during the 2016 election. She noted that social crises present optimal times to do a massive marketing push for adult beverages--in a bipartisan manner, of course.

Intuitively, this strategy made sense to me. If people are stressed and need a release, and alcohol can take the edge off, why not facilitate the happy union of the two?

I was curious, though, if there were research on the relationship between alcohol consumption and broader societal malaise. There unfortunately isn't much written about the topic in the U.S., though there are several reports pertaining to alcohol consumption trends in Eastern Europe, Russia, and Greece. In general, it seems that economic crises don't reduce the amount of alcohol that people buy but do change the type of alcohol they consume. In countries with poorly-enforced regulations, one often sees a significant increase in the illegal trade of alcohol. For countries that are deeply divided but still prosperous, the relationship between alcohol sales and the national level of social angst is still more anecdotal.

That said, there does appear to be a relationship between unemployment and alcohol: the rates of substance misuse and addiction are nearly twice as high for the unemployed as they are for employed workers. Thus, when Cameron Hughes is busily promoting its wares during America's next great social trauma, they might want to remind people to avoid risky drinking.

Colgin Cellars Acquisition by LVMH

Yesterday, LVMH announced the acquisition of a 60 percent stake in Napa Valley winery Colgin Cellars from Ann Colgin and her husband Joe Wender. Founded by Ann Colgin in 1992, Colgin produces vineyard-designant cabernet sauvignon, syrah and a red blend from two estate vineyards, Tychson Hill in St. Helena and IX Estate atop Pritchard Hill. Colgin is prized among collectors for its ultra-premium quality and limited production. Each Colgin wine has at some point received a 100-point rating from wine critic Robert Parker.

This development follows a string of acquisitions of top-quality wineries by luxury conglomerates. In October 2017, Francois Pinault’s company Artemis purchased historic Clos de Tart in Burgundy. That same month, the Chanel family purchased Chateau Berliquet in Saint-Emilion. Importantly, Colgin’s sale also represents an ongoing trend of iconic, founder-owned wineries in Napa trading to new corporate owners. In 2014, Artemis purchased Eisele Vineyard (née Araujo), a winery founded in 1990, from Bart and Daphne Araujo. Earlier this year, Constellation Brands purchased Schrader Cellars from Fred Schrader (coincidentally, Ann Colgin and Fred Schrader were married until the mid-1990’s and founded Colgin – then named Colgin-Schrader – together).

The Colgin deal is a reminder that while Napa began as a small farming community (and in some circles, still feels like one), labels such as Colgin are luxury brands at their core. Ann Colgin and Joe Wender have no children, and thus a highly lucrative offer that enables them to continue owning and operating their business (and also paves a path for an eventual exit as they age) must have been too good to pass up. The Colgin team will remain intact, and Ann will remain at the helm as CEO. Moreover, LVMH, with experience selling luxury brands around the globe, can more easily place Colgin products into the hands of consumers in Asia and other foreign markets. Their expertise will be a huge value-add to Colgin’s existing marketing and sales operations.

I do wonder what an increasing number of corporate deals will mean for Napa Valley. For one, I question whether consumers will care to know and understand the personalities and histories behind this region’s storied vineyards, or whether outstanding wines can continue to stand on their own as luxury brands even after the founders move on.

More details on the transaction here.

The Oldman's Guide

Shortly after I started my first job, I sat down for lunch with a very senior partner, who was very particular with his wine preferences. Knowing nothing about wine at this point, I figured the best strategy to not sound dumb was to admit defeat immediately and start asking about how I could even start getting into wine.

He said there was one book - the Oldman's Guide to Outsmarting Wine. I went home and 2-day shipped it from Amazon, and immediately went out and bought some of the value picks from each of the American grapes, and started to learn.

To this day, this is still the 'most' amount of effort I've put into appreciating and understanding wine. I can't say that my effort or knowledge has evolved too much more since then. But the one thing that really stuck out from this short burst of effort was the central lesson - the best wine is the one you like most. And that wine vocabulary is just a way of navigating toward what it is that you want to drink and learning how to discern between what you like and don't like.

As we discussed in class, I think there is definitely a desire for unsophisticated wine consumers like me to understand the basic tasting notes, and a desire for it to be simple and approachable. The Oldman's guide began to do that for me, but it was still a lot of effort. What I think I'm looking for is a guide that tells me what the 'stereotypes' of various wines are, so that I can begin putting words to wine and validating whether I taste the same thing or not.

Any recommendations?