Quinton Jay When Quinton Jay earlier this year was named managing director of San Francisco-based Bacchus Capital anagement! which pro"ides creati"e financing and operational consulting to wineries! he brought with him a long history in the wine industry# Jay was founder and managing director of Bacchus Consulting $roup! whose ma%or clients included Beringer Blass! Quintessa and $eyser &ea'# (e also did a stint as general manager of Bonny Doon )ineyard in Santa Cru*! Calif# ost recently! he was "ice president and general manager at +rtesa Winery in the Carneros region# Jay began his career in the be"erage industry at Coca-Cola! and later wor'ed in the corporate finance and in"estment ban'ing di"ision at Ban' of +merica# (e earned his bachelor,s degree in finance at California State -ni"ersity! Long Beach! and his B+ at the .ellogg $raduate School of anagement at /orthwestern -ni"ersity# Wines & Vines: What is the most important piece of ad"ice you could gi"e to a winery about sur"i"ing and e"en thri"ing during a recession0 Quinton Jay: 1 would ad"ise a winery that the best way to sur"i"e and thri"e during this recession is to re"iew the winery,s business and operating plans# 1f a winery does not ha"e one! it is ne"er too late to de"elop one# 2his re"iew has to loo' at each piece of the winery business! each department! and how they impact each other3 specifically! "ineyards 4grape purchasing5! winery 4bul' wine and finished goods in"entory5 and sales trends 4shipments and depletions5# -nderstanding both your current-har"est "ineyard yields and your contracted grape purchase plan is important for two reasons# $rape payments and bul' wine re6uire and use up "aluable cash! which might be more scarce if wine sales are not happening# +lso! you can ad%ust your own "ineyard yields based on grape needs! or tal' with your grapegrowing partners to see if they ha"e another buyer for the grapes you ha"e contracted for# Bul' wine in"entory is a reflection on how well your wine is selling# 1f you,re not selling! you shouldn,t be bottling# 1f sales are slowing and a winery decides to bottle the bul' wine! this could compound a bad situation! and the winery could be selling an out-of-"intage wine in the mar'etplace# Sometimes your first loss is your best loss! and selling the bul' wine is your first loss# 7emember! bottling and bottling supplies 4bottles! cor'! capsules and labels5 will use up "aluable cash# Finally! re"iewing sales trends -- both shipments and depletions -- is crucial3 1f the distributors are not depleting the wines from their in"entory! shipments will not continue from the winery# 2hen wineries must decide if cutting bac' on grape purchases or selling off the current bul' wine is a decision that needs to be made! based on their cash-flow needs# 1f the winery has enough wor'ing capital! then it might be 8. to do both! but if it doesn,t ha"e the wor'ing capital to fund both! a winery really needs to ma'e the hard decision of one or the other# By ta'ing an ob%ecti"e loo'! the winery can identify areas of wea'ness and strength! pinpoint needs that might otherwise be o"erloo'ed! and spot opportunities early# 1n this process! the winery might unco"er the need to search for alternati"e or fle9ible financing! which would be important to identify before true wor'ing capital needs arise# Building your direct-to-consumer sales
Quinton Jay is a great proponent of selling directly to consumers-- especially for small- to medium-si*e wineries# 2here are two main reasons why this approach is important! he says3 better margins and :a one-on-one relationship: that helps to build brand loyalty# :Direct-to-consumer gross margins are higher than F8B!: he notes# :+nd the relationship between a winery and the consumer that is de"eloped o"er time is not only about the sale but also about bringing the consumer in as part of the family;brand# During difficult economic times! consumers gra"itate to brands that they 'now and trust# Consumers trust! buy and recommend ,their, brands! brands to which they are connected#: 2here are se"eral ways to build the direct-to-consumer side of the business! Jay says# :<"ery direct-to-consumer sales plan should ha"e three main channels3 tasting room 4if your use permit allows5! wine club and e-commerce# 2he collection of names and e-mail addresses is 'ey to continuing the relationship# 1f they sign up and you ha"e permission! consumers ha"e opened the door to building a relationship with you#: (e cautions! howe"er! that wineries shouldn,t deluge customers with e-mails or unload problem wines on them# :2hin' of these customers as your friends and family!: he says# :2reat them li'e )1&s! and you,ll reap the benefits during good times and bad#: Jay also suggests creating :occasions: to prompt consumers to buy! a techni6ue he says he learned while wor'ing at Coca-Cola# Such :occasions: could include :Cabernets for Father,s Day!: :&inot /oir for 2han'sgi"ing!: or :Sau"ignon Blanc Summer#: L.D. W&V: What are the drawbac's to discounting in an effort to mo"e in"entory0 Jay: 2he main drawbac's to discounting are damaging the brand position and image! and establishing a new! lower price-point for the brand# 1 will not go into the first drawbac'! as you can read many boo's and opinions on this topic# (owe"er! the second point is a clear and present danger# Consumers understand that we are e9periencing a recession! but if your discount is too drastic! your current consumer base could reset your price and brand at that new! lower price# +nd when the economy comes bac'! which it will! your consumers might only remember that your wines used to cost =>? less# 2herefore! the smarter way to discount is to manage or implement strategic discounting with selected partners 4each state has its own regulations! so these are generalities5# @ou can wor' with your distributors on where and how a discount will be applied! implement a by-the-glass program with restaurant partners so that people who might not ha"e tasted your wines can try it by the glass! and not dump your wine in the mar'et# W&V: (ow do the economic challenges facing big! medium-si*e and small wineries differ0 Jay: 2he differences are really between the big and the medium-to-small wineries# 2he bigger wineries are really a consumer product wine# With that in mind! they ha"e the financial wherewithal 4cash flow and borrowing capacity5 to weather this economic storm# (owe"er! medium-to-small wineries are "ery much affected by cash flow! borrowing limits and the amount they can discount to get their product on the shelf or sell through# 2hese wineries really ha"e to e"aluate their position and their long-term goals! and mo"e "ery strategically# 2o weather the storm! they may need to e"aluate alternati"e sources of capital and consider partnerships they might not ha"e considered pre"iously# W&V: What sorts of e9penditures can wineries cut or delay during difficult economic times0 What sorts of things do wineries sometimes cut that they shouldn,t0 Jay: 2here is not a coo'ie-cutter approach to cutting e9penditures# We ha"e tal'ed about reducing bul' wine and bottled goods in"entory# /e9t! we ha"e to loo' at reducing other material costs and operating costs# 8ther material costs include labels! cor's! capsules and bo9es# +s' your suppliers if there is an e6ual but less e9pensi"e alternati"e to what they currently sell you# +nother area of possible sa"ings is operating cost! which includes tra"el! entertaining! point-of-sale printing and other mar'eting e9penses# (owe"er! 1 would li'e to caution not to do the straight percentage reduction! as you did not build your business budget using a straight percentage! nor should you reduce by the same amount# 2he things that most wineries cut are their most important resource3 not grapes! not wine! but good people# &eople are the greatest resource of any company! and the first reaction is to cut people! because they are the easiest targets and ha"e an immediate impact on the bottom line# /ow is the time to reward your best employees and let them 'now that together we will weather the economic storm# W&V: 1n the long run! is consolidation in the wine industry a good or bad thing0 Jay: 1n the long run! it will be good for the wine industry! as the industry will become more significant as a whole! with greater "isibility and impact on the country,s landscape# (owe"er! the le"el of fragmentation will always be high! since there will always be many small wineries that ma'e up the entire wine industry# 1 belie"e the industry will di"ide itself between the wines that are consumer product wines and artisanal 4wines5# Consumer product wines will grow as wines become a bigger part of the +merican lifestyle as per capita consumption grows# Small wineries will be the artisanal part of the business that connects humans 4consumers5 to the earth# We see the importance of this trend -- the organic mo"ement in +merica -- as people increasingly want to 'now where their food comes from and more about it# 2here will always be room for and an opportunity for those with a great product and a commitment to the industry# 1t will be increasingly competiti"e as bigger players assert themsel"es# Wineries and wine businesses will ha"e to be e"er more strategic and creati"e# Branding and distribution will remain the dri"ers of success# <9ecution will matter more than e"er as competition intensifies#