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It Gives Me Great Pleasure to Introduce You to Mr. William Chong

You would think that a seemingly innocuous speech by financier Bill Price at a recent North Bay Business Journal wine industry conference would be much ado about nothing.

You would be wrong, however.

A more flippant lead to this post would surely start with a quote from “Sympathy for the Devil” by the Rolling Stones, or, perhaps, Tony Montana from Scarface.

“Please allow me to introduce myself …”


“Say hello to my little friend …”

While not above it at other times, in this instance I will roll with the straight facts.

I’ve seen reference to Price’ comments in at least three different places, and while I get around, I do not read that much.

In a nutshell, Price said, as excerpted from a coverage piece by the North Bay Business Journal:

The wine business is approaching a historic period in which 1,000 to 2,000 of the 2,400 wineries in California could be for sale in the next 10 years, Bill Price told the audience of nearly 300 at the BUSINESS JOURNAL’s Wine Industry Conference at the Vintners Inn. He was citing a Silicon Valley Bank/Scion Advisors study on winery ownership succession released earlier this year.

“In a growing or consolidating industry, it generally pays to sell early or late,” he said, regarding timing in relation to the trend. “If you sell in the middle, there generally are compressed multiples.”

That’s because there are few properties for sale at the beginning, so buyers are paying higher multiples of earnings before taxes, depreciation and amortization (EBITDA) than they would after a few years, when neighbors see the high multiples and put their businesses on the market, according to Mr. Price.

Frankly, seeing this blurb in several different spots reminded me of political coverage where the slightest sound bite is blown up, spun and covered unmercilessly by talking heads.  Surely, it cannot be that big of a deal, right?

Maybe it is a big deal.  Could it be that for all of the advocating that bloggers do online about small wine, terroir, and other high brow, nuanced wine-related thought-leadership types of things that we are really in the midst of the halcyon days?  In 10 years time will we look back wistfully at the good old days, the pre-2008 era in wine?

Separately, I have been managing the Wine Business Network group that I started at the professional networking site LinkedIN. Slowly, surely, and without effort, it has grown to 275 members in two months time.  It has folks of all stripes from the wine industry—big wineries, little wineries, distributors, retailers, the whole gamut.  Likewise, I have rejected membership for a fair number of folks that did not fit the criteria for “Wine Business.”  Recruiters, oddball vendors and the like have been politely rejected for membership.  I’ve been trying to keep it for wine folks.

Today, however, I received a request from a Mr. William Chong.  Mr. Chong is the Head of Alternative Fund Services at HSBC. 
HSBC is the world’s largest bank.  HSBC is also based in China.  I hear the Chinese are taking a liking to wine.

Alternative Fund Services at HSBC, based on my own cursory review, provides fund administration services to customers that might include hedge fund managers, funds of hedge fund managers, absolute return fund managers and private equity partners.

Perhaps, it is not so coincidental that Bill Price founded Texas Pacific Group, a private equity firm.  He knows that which he speaks, particularly, it would seem, about winery sell-offs and acquisitions.

I find it curious that unexpectedly I would see a notation about a winery sell-off and all of a sudden and out of the blue somebody from the world’s largest bank that supports hedge funds and private equity would want to be a part of the Wine Business Network.

Perhaps I am being hyperbolic, as I am wont to do.  Perhaps, not.  Nonetheless, I approved Mr. Wong’s membership, contrary to my own previous arbitration about who gets in.

Dear Wine Industry:  Please allow me to introduce you to Mr. William Chong.  He works for a bank with a lot of money.  I hear that some of you guys may have your winery up for sale in the next decade.  Some folks say you might want to do it sooner, rather than later.

If you want to join the Wine Business Network at LinkedIn, you must have a profile and you can request membership at this link.  I will not be taking any finders fees, a case of wine will suffice.  I am sure you will have Sympathy for the Devil.


Stormhoek Wine:  “On a Mission from God?”

If I could, I would lower my voice an octave and intone in my best Elwood Blues voice, “It’s 106 miles to Chicago, we’ve got a full tank of gas, half a pack of cigarettes, it’s dark, and we’re wearing sunglasses.”

The band is getting back together. 

I am not sure if it is a mission from God, and, well, it may not a band, per se—more like a band of good people.

And, if you are not a fan of the movie The Blues Brothers than you really have no idea what I am talking about.

Likewise, if you have never heard of Stormhoek wine, then you doubly have no idea what I am talking about. However, you can get caught up at the Stormhoek blog.

Stormhoek, the wine brand, previously owned by Orbital Wine and later sold as a brand asset, was alleged to have been moving over 200,000 cases of South African wine in the U.K., before falling into a spat of financial trouble. 

Despite only having slight distribution in the U.S., their importer, Palm Bay, seemed to be making headway in the latter half of 2007 and after a little air turbulence in the form of a business dissolution, Stormhoek is now re-organizing with a similar cast of characters that brought them well-earned fandom amongst the dork blogger set both technology and wine-oriented.  This dork included. 

Internet wine denizens know the wine brand very well, as many of us hosted “Geek Dinners” in the summer of 2006.

Just a week ago I opened a bottle of their Pinotage at a late Friday afternoon team meeting at work and we quaffed some South African goodness.  It is good wine.  It is not particularly profound, but certainly good at price point (around $12 a bottle) and it hits the spot with the folks that were drinking it—mostly people in their 20’s who claim themselves wine fans, but aren’t terribly caught up in brands and/or nuance.

When news came out late last year that the parent company was having some difficulty it was met with some level of intrigue, and not a whole lot of information. 

Hugh from, a very popular blog, breaks the silence and indicates he will again be participating in their business efforts as a marketer, and by all accounts, their previous marketing was blazing some incredible new trails in technology-based social marketing.

And, while they break new ground in Internet/Web 2.0/Social Marketing, one thing they do not do is sell online—which is dubiously curious. 

I met with Jason Korman, the former owner of Orbital, who is engaged in the brand under new financial backing, at a posh condo with a fantastic view in Miami, FLA early last year.  I was dressed in a sports coat during Spring Break time and looked like a narc at biker rally, but that is beside the point.  While my primary discussions with Jason were unrelated to consumer ecommerce and related to my previous employ, one thing we did talk about anecdotally was the reasoning behind Stormhoek not selling consumer direct.  At the time, it was implied that building a mass-market brand at that price point with an importer well versed in navigating the three-tier system in brand building efforts precluded a direct sales strategy.  It made mild sense if U.S. distribution was strong, but at that point in time, the brand was only available in a couple of U.S. markets.

Oddly enough, and despite their previous sales strategy, I think it is safe to say that Stormhoek’s U.S. based mindshare is confined almost exclusively online. 

Hmmm … speaking of which, Hugh generously offers to take in suggestions via email for Stormhoek v2.0.  I will not necessarily send him an email, but I will write this blog post and say, “Don’t be a bunch of damned fools.  If you are going to leverage technology for wine marketing, then by golly go all the way and sell the damn stuff online.

I hope they listen. 

I am raising a toast to Stormhoek.  Welcome back.  Godspeed to a truly fun wine brand with derring-do.  May all of your days be dandy and your evenings brilliant.  Now, go set yourself up to sell some wine to people that want to buy it.  If not, you may be re-visiting issues of mindshare that do not equal wallet share.  I hope that’s never the case, but in the event that it is, Jake Elwood would say,

I ran out of gas. I had a flat tire. I didn’t have enough money for cab fare. My tux didn’t come back from the cleaners. An old friend came in from out of town. Someone stole my car. There was an earthquake! A terrible flood! Locusts! It wasn’t my fault, I swear to god!

Mistakes can happen once and it is an aberration.  If it happens twice, well, no amount of Jake Elwood excuses will fly. 


The $3M Dollar Question

It is a provocative question: one that is as likely to divide a room of people as any hot button issue around religion, politics, the death penalty, etc. 

I exchanged a few emails with a person that is in the business of creating successful wine brands and he posed the following question:


You have $3 million dollars starting tomorrow to pursue your dream to make a wine, what are your top five priorities?

Exclude the legal elements, (i.e. lawyers, business set up).

1)  Where would you start?
2)  What kind of wine would you make?
3)  What would it cost?
4)  Who is your winemaker?
5)  How would you utilize the money and why?

My response:

I think before you get to any of your questions, you have to ask who you are trying to sell it to and build backwards.

It starts with the customer and the market.

Part of the problem with marketing in the wine industry is there is very much a gulf in between large production wines with distribution muscle and the lifestyle-based ivory tower approach to wine marketing.

I would spend $2M on researching a market that I could capably penetrate with the remaining $1M buying high quality bulk juice (in a negociant model), if that would yield the best results with a targeted customer.


I like your answer; the only problem with the bulk concept is it seems more and more apparent that the consumer is demanding some ownership of the land, vineyard or the appearance thereof. We launch brands constantly that have no soul yet, it is a tough launch…

However, I do agree that I would want a sound outlet prior to making the project real.

My response:

You are right; people are looking for provenance, at a higher price point. I think it depends on what market you are going after. Yellowtail still sells by the boatload and I personally have a lot of friends and family that, if asked, would proclaim themselves a wine lover, but they show up with Alice White at parties.

It begins with the target. I think the ultra-premium category that was formerly $12 - $15 and is going upstream to $16 - $19, but below $25 is going to be very crowded with small and medium size producers.

I would do what K-J is doing with Vintners Reserve and target that $13 affordable luxury mapped to a target market. Claritas can help you find a market, positioning that resonates, and that price point is not really all about the dirt.

My two cents. 


The one piece of this theory that we are talking about is it lacks soul ... I think those with finances to hallmark their lives with a wine have to be involved, I am growing weary of the contrived brand. The marketing think tank putting Barney on a bottle … it has no heart, no one to tell the story.

As we continue to launch brands, I see a big difference in the absentee owner and the one that is buried up your backside. The biggest difference is in those who truly care for what they are doing and live it ...

My response:

I do not disagree with anything you say, but your initial question was related to what I would do first. And, if I had to do something first, I would first find a customer. Presumably, I’m interested in turning a profit, so in answering this question I’m more capitalist than soulful humanitarian, therefore I’m less discriminating in building a brand with heart, soul and passion and more inclined to build one that will sell wine.

Fred Franzia is never going to be accused of being Mr. Rogers, and I am taking a pure business approach to the question.


I guess the real litmus test is how you interpret the question and the part about, “your dream to make a wine.”  It could, literally, be done a hundred different ways.  Personally speaking, if I was coming into the business cold, I would want to make some money before diving into the passionate, “life’s labor” part and going artisan/boutique, but that is just me.

How would you respond?


Vin de Napkin – The California Equation

It is an interesting question:  Because of the world climate and the falling dollar, at what point does our current global “world is flat” mentality go from U.S. city epicenter to overnight flight to France and instead become more grounded, more domestically insular?

A provocative, if only slightly pop culture and zeitgeist-oriented book called The 4-Hour Work Week came out last year and went on to become a massively popular best seller.  At its core, the book advocates “lifestyle design” which means tailoring your work around your life and not the other way around and it goes on in some practical depth to tell you how to do that.

Therefore, instead of vacationing in Italy or France for a week a year, you could actually live in Paris for a few months at a time, or at least a destination where your money is going to be favorably advantageous for you. 

One of the words the author, Timothy Ferriss, coins is “geoarbitage” – a hybrid word of “geo” from geography and arbitrage.  According to Wikipedia, “arbitrage” means:

The practice of taking advantage of a price differential between two or more markets: combinations of matching deals are struck that capitalize upon the imbalance, the profit being the difference between the market prices.

So, using arbitrage as its base, “geoarbitrage” means:

Leveraging the appropriate areas of the world that give the best value for a particular need and then taking advantage of the service/product.

I have been thinking about this a lot, mostly because of the cost of living in California versus other parts of the country, particularly the Midwest, where I am from.  Maybe it is because I traveled to California close to 30 times last year, picking up the benefits of being there frequently, without the mortgage and cost of living headaches. 

As related to wine, well, I am wondering when the Midwest is going to see a flight of folks from out west looking to buy houses.  Mortgages are low and Southwest Air tickets are cheap … wine country is only a flight away with a big bank account difference.



The IBM Value-Chain and its Translation to Wine

Just the mere mention of IBM and I sense a somnambulistic state with eyes glazing, head bobbing, as if in a dimly lit and warm hotel conference room after a catered luncheon, a lumpy, middle-age fellow wearing Khaki’s, a logo’ed company button down and Rockport’s talking about something vaguely important, assuming incorrectly that it makes sense to his audience.

Alternatively, maybe that is just me channeling the seven years I spent in the IBM channel working for and with IBM resellers.

Nobody cares about those experiences or IBM, at least nobody that reads this blog, I presume.  I understand that, but I want to draw a quick correlation because the way IBM (and many large technology companies) conduct their channel development and support is the model that I believe the wine industry is going to evolve towards.

Since I was nominated in the Best Wine Business Blog category of the AWBA, I figure if it walks like a duck and talks like a duck … it must be a duck, hence a post on some mechanical items in the wine biz.

The Context

Josh from Pinotblogger wrote a very nice piece earlier this week that covered a lot of ground, but the thing that sparked a notion is that the author of an article in which Josh was quoted puts words in Josh’s mouth about the potential demise of fine wine retailers, and in particular, ties that assertion to wineries selling direct.  Josh, obviously, refutes this bit of creative license by the writer of the article.

Just as Josh notes, I would say the same thing.  Fine wine retailers are not going anywhere.  I do not care if a winery can ship to all 50 states in quantities that they desire, it is not going to happen. What will happen is wineries that cannot traditionally access the market will have increased DIRECT opportunities.  But, to think that the three-tier or fine wine shops are going away is folly.

However, what could happen is the same thing that happened to IBM. 

Now, let us throw a couple of things out of this conversation just for simplicity sake: let us throw out importers and let us throw out the online component; we can deal with that later on.  Secondarily, let me say that pieces of this model already exist, but not at the scale that I think it will in the next 10 years.  And, finally, let us, for the moment, discard the whole “distributors stink” conversation, particularly as it relates to the restriction of free trade, lobbyist money, etc.

Consider IBM as “the wine industry.”  Forget that at about $91B in annual revenue that IBM is approximately 30X the size of the domestic wine industry, too.

What does IBM have to do with Wine?

Basically, the bigger you get, the greater the need to service customers.  In addition, IBM is a hulking big ship, only able to make a turn with 18 miles worth of notice.  And, sales people are expensive, and IBM has many products.  Too many products in fact to have sales people covering all of the different types of customers—small, medium, enterprise, and on down the line.

So, you develop a channel program and in addition to having a couple of distributors through which all of your hardware and software sells through, you also have resellers that, yes, work directly with the customers in the various industry verticals and niches.

This is not any new idea; it is the same general notion as the three-tier system.

But, here is the rub.  Years ago, IBM knew that the technology lifecyle creates downward innovation pressure on products that would create commoditization if their was not a “value-add” component.  So, they put restrictions and incentives in place for both the distributor AND the reseller, who is now known as a “Value-added Reseller” or a VAR.  Both the distributor and the VAR get more money and, essentially, are locked out of engaging with customers if there is not some sort of services component to their transaction.  They restrict the heck out of you until you demonstrate that you are adding legitimate value with the end-user in some sort of solutions form.

This, is where I believe the wine industry is headed.  Basically, the three-tier system is down to the very large players and the very small players.
It is a broken mess and nobody is happy about it, otherwise the big guys would not keep consolidating and the small guys would not keep bubbling up.

An Evolving Model?

I think the eventuality is that the large wine distributors are going to morph towards being just that—a distributor.  The provider of logistics.  Moving boxes from point a to point b.  In the IBM model the distributor sells to the reseller who sells to the customer, the business.

However, the area akin to our IBM analogy that has not fully taken shape in the world of wine is the “Value-added Reseller” part, the guy that works with the customer.  Sure, the distributors say they do it now, but not to too many people’s satisfaction in the fine wine portion of the wine business.  In this case, and in my crystal ball, there is actually going to be a fourth-tier.

Assuming that the big guys morph into pure play logistics providers, I think that these small distributors can and will eventually morph into value-added services providers to retailers, selling through wine, for a mark-up, without ever, necessarily, taking wine into their possession.  So, small distributors aren’t going to grow up in the wake of big distributor consolidation, they will actually evolve into something different that complements the needs downstream with retailers and end customers. 

Small distributors will morph into being a services company.  They will be the sales ombudsman on the ground, the retail event planner, the consumer tasting provider for tightly staffed retailers, the content developer for retailer blogs and web sites, the extended marketing team—basically anything that adds an additional service that the retailer cannot capably provide that is separate from actually getting wine from point a to point b, which the distributor will do, albeit at a much smaller rate than the current 30-33% mark-up plus chargeback’s and spiffs.

This new fourth tier will pick up the margin slack from the distributor who no longer adds value commensurate to the 33% while new logistics providers, from outside of wine will enter the fray; they are skilled at moving stuff and will enter the game because they won’t have to find and sell to the retailers, they just have to sell to the value-added resellers. And, well, anybody can get a bonded warehouse for wine.

Maybe it is a pipedream, but I would not bet against it.  If I were a small distributor, one of the first things I would do is hire a copywriter for retailers to use for their newsletters and hire an event planner to lead the organization of retailer-driven events.
Is this a pipedream or am I smoking a pipe of a different sort?  What do you think?


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