Democratizing wine

Although wine consumption has increased at unprecedented rates in recent history, I wonder if growth rates will begin to plateau in the coming years unless all players in the wine industry find ways to innovate and appeal to a younger demographic. While I first began to think about this question when we learned about Cameron Hughes' marketing strategies, but it really struck me when Alder Yarrow visited class. I thought Alder was a fantastic speaker and connected with the class well; however, I was surprised when I looked at his blog and felt that I had been transported back 10 years to 2007. As one of the most highly regarded wine bloggers, I found it rather bizarre that the interface and format of the blog is so inaccessible. It felt as if there were a disconnect, as Alder talked about how he sought to make the content of his blog accessible to the average consumer (e.g., in terms of how he describes flavors). There is no doubt that the content is of the highest quality, but I can't imagine myself or anyone I know ever choosing to consume information presented in that form. 

I think this speaks to a systemic issue facing the wine industry: that all players, from wineries to distributors to wine experts, are using obsolete tactics to reach their audience. Wine is inherently difficult to purchase for the average consumer, given the abundance of choice. It is up to the wineries, distributors, and wine experts alike to make wine more accessible to the average consumer through easily consumable information and customer education. Customers today are more demanding than ever in wanting transparency and information about the products they are purchasing. It will become increasingly important for people like Alder to present that information in a relevant and seamless manner.

While the old school tactics have not meaningfully impeded their success to date, I think it will pose a significant challenge to growth as the younger generation today reaches the age where they are the primary target. 

Realm Cellars

This summer, I had the chance to meet Scott Becker, owner and Managing Partner of Realm Cellars (and an HBS grad). Founded in 2002 by fellow owner Juan Mercado, Realm has lived through dramatic ups and downs and built an outstanding consumer brand from scratch. Since 2002, Realm has scaled from 300 cases to several thousand cases across 11 small-batch wines: four proprietary red blends and 6 single-vineyard designant wines.

Realm started out by purchasing fruit from exceptional Napa vineyards and producing wines out of a rented winery space. While at the time, they could use only one of the vineyard names on their wines (To Kalon, part of which is owned by Robert Mondavi), the quality of the grapes and ability to lock-in outstanding relationships early became key to their success.

“Realm. As in the realm of possibility. We hadn’t sold a bottle of wine. We didn’t have a single person on the mailing list. We had all this inventory of great juice but no clear idea of what we were going to do with it. But I knew we’d figure it out. And I had the name.”

Realm continues to produce wines using grapes from those same plots of land and will selectively add new growers and new wines to their portfolio. While Realm relied on its vineyards’ reputation in the early days, its only addition to-date since 2005, Houyi Vineyard located on Pritchard Hill, indicates that Realm now leverages its own brand to elevate those of its vineyards. The Chang family purchased Houyi Vineyard and founded Nine Suns, a new winery, in 2010. Realm began sourcing fruit from the vineyard in 2013; it both displays Houyi on the bottle and makes a plug for Nine Suns on its website.

Scott had graduated from HBS to work in Napa Valley and worked for Bill Harlan on his new project, Promontory. After many years of being mentored by Napa Valley greats, Scott was looking for his own project. Scott and Juan began their partnership at Realm in 2012 at a time when “financial things were piling up” and the winery, despite having a strong brand and great wine, needed a restructuring. I asked Scott about the process of raising capital for a high-end winery in Napa Valley to support this restructuring. I thought it'd have been easy; having read about vineyards all month, a number of high net worth individuals seem purchase and steward them as investments or hobbies (or both). Contrary to my suspicion, raising capital to recapitalize Realm was incredibly difficult.  At the time Scott first met with Juan Mercado in mid-2011, Realm owned no vineyards and no capital; Juan had cashed in his 401k from his job in healthcare and bootstrapped the entire thing. High net worth individuals, even if they like wine, will evaluate an investment in the wine industry like any other.

As the next step in its evolution, Realm purchased Hartwell Estate in Stag's Leap District on December 30, 2015. Realm’s winemaker had worked on the property for more than 10 years, and Realm had outgrown its existing winery space. Although it’s described in Realm’s story as a “fixer-upper,” the property, despite the replanting and rebuilding required, provides Realm a home and a sense of place. Most importantly, it gave Realm its own fruit from which to create exceptional wines. Scott mentioned that the only thing more difficult than raising capital for Realm in the first place was going back to investors asking them for additional money to purchase Hartwell and make the huge capital investments required to rehab it.

Today, Realm competes with the "cult wines" of Napa Valley, and the team has ambitious plans for growth. I encourage you to check out the killer brand they've built and the storied history they've compiled here: https://www.realmcellars.com/pages/up-to-now.html#whole-story.

Wine tourism

Given fierce competition in the wine industry, tourism seems to be one of solutions to overcome the challenges and expedite sales of winery. People who are interested in wine come to the winery, learn about the different wines, and enjoy wines in the place where wines are made.

Among the many choice of wine tours, how winery differentiate themselves from others?

Marques de Rsical Rioja hotel located in the center of Rioja Alavesa region Spain could be one example to successfully create multi-cultural spaces to meet the needs of wine lover. 

Marques de Riscal opened in 2006, and the hotel was designed and built by Frank O. Gehry, one of the world’s most renowned architects and author of works of art in the Guggenheim Museum in Bilbao. The hotel’s amazing curves, titanium roof and asymmetry of walls provide a great balance with historic wine cellars. The hotel has 43 luxury rooms and suites, each unique and different in their shapes and offered views. The hotel provides multiple services including food by Michelin star chef, bar/rooftop lounge, library including more than 1,000 wine books, and experience of wine production from old to new technologies.

One interesting thing about this luxury hotel is that the hotel is invested and run by Starwood group. Considering large required up-front investment to building wine tour facilities including hotel and restaurants, what about strategic alliance with hotel industry? It is not a simple as the statement, but it doesn't have to be always luxury as Marques de Riscal.