June 1 2009
A couple of thoughts on news from the wine front …
Parsing New Vine Logistics
Unless you are in and around the wine business, or, like me, know too much about how the sausage is made in the wine business, you’ve probably never heard of New Vine Logistics (NVL), a wine shipping and compliance management company based in Napa Valley.
All I really know about them is they were (emphasis on ‘were’) the gold standard for winery shipping to consumers and they have, over the years, had a ton of venture capital poured into them, on multiple occasions. UPDATE: A wine business insider and commentor to this post tells me NVL was never a gold standard. Fair. In my experience in the wine biz., NVL was the lead dog, though perhaps not a ‘gold standard.’ They have been a veritable sinkhole for third-party money. In fact, it has been alleged in an unknown, but known kind of way that New Vine has never truly been financially solvent.
Well, all that VC money seems to be for naught now because NVL sent an email to customers over the weekend indicating that they are suspending operations, as reported by Wine Business Monthly.
What “suspending operations” means exactly is anybody’s guess, but it appears as if they are not fulfilling any new orders. The likely circumstance is they are trying to salvage what is salvageable.
This is all unfortunate, though not quite on par with the General Motors bankruptcy that happened today, June 1st, as well.
However, what is interesting is the relationship between New Vine Logistics and Amazon.com. It was reported circumstantially at Wine & Spirits Daily today:
Recall that Amazonwine.com had planned on partnering with New Vine once the website and its foray into the wine business officially began (which was expected sometime this summer). Initially it was thought that Amazon would unveil its new business in October of 2008. The word on the street is that Amazon’s delay caused New Vine to go under.
Megan Haverkorn, the writer at Wine & Spirits Daily goes on to say:
As a result, it’s looking less likely that Amazon will enter the wine business at all, particularly not anytime soon.
Not so fast, Megan. An Amazon.com delay may not have anything to do with their desire to enter the wine business. Now, I want to say that I have absolutely no first, second or even third hand information on this situation – but what I do have is experience with a similar situation.
The thing to remember is that lion’s eat their young. Amazon.com is a lion. When a lion takes over a pride they may kill all of the young cubs that are not genetically their offspring. Why raise them as they may be weak lions, not their genetic link? This also hastens the female lions in the pride to go into heat for fresh reproduction with the new lead lion.
Now, without rehashing too much of my own first hand experience, I will note that a publicly traded company (or even a well-capitalized company) like Amazon.com would not let a company that it was relying on to make its foray into the wine business falter.
Or, would they?
Typically, in any joint venture or strategic partnership type of situation, particularly because Amazon.com is publicly traded, they look at the books of potential partners. Surely, Amazon.com knows the financial health of NVL.
What Amazon.com likely saw was a company that was bleeding in a neutral to good economy and close to being mortally wounded in a down economy.
Now, if you look at this situation from a business perspective, what does Amazon.com want from New Vine Logistics?
Do they want their winery customers?
Not really.
Do they want their logistics expertise?
Not really.
Do they want their wine shipping facility?
Maybe.
Do they want all of the compliance knowledge and proprietary systems specific to the wine business, software that has been custom built just for New Vine? Software that is difficult to replicate and build from scratch?
Yes, why yes they probably do want the software.
So, what does Amazon.com do in this situation? They see a partner that has assets they desire, but needs cash. A lot of cash. Does Amazon.com buy into it with a lot of debt load, and significant venture capital obligations or do they bleed out the relationship with delays and a non-committal stance, with a company that was likely bowing at its altar?
The logical, business-oriented answer says they let it die a death of a thousand paper cuts and subsequently buy the assets out of bankruptcy, taking what is good, taking what they want and leaving the rest ...
... that’s what I would do, at least. Not being in the business of making money by throwing my good money after somebody else’s bad money.
Capitalism is survival of the fittest.
That’s the way it went down in the situation I was a part of. Contract a joint venture, take a look-see at the books and then let the company bleed itself out while said company simultaneously seduces themselves into thinking that a Knight in Shining Armor has appeared. And, then said Knight pick’s over the carcass.
Interesting to note, unsubstantiated, but stated at the blog Overabarrel.net, that Amazon.com has the first right to buy NVL.
Hmmm …
Equally true is the fact that Amazon.com probably has first right to buy assets from NVL, out of bankruptcy—assets like software that allows Amazon to build-out their own consumer direct wine shipping program, not relying on anybody else.
Yeah, lions eat their young.
Posted in, Wine: A Business Doing Pleasure. Permalink | Comments (15) |
Jeff, we were a New Vine customer and I can tell you from personal experience - they were and never have been the gold standard in direct wine shipping.
The gold standard quiet financially solid and nice people is Winetasting Network WTN Services. They hired Matt Wood from Icon a year ago and they have Chris Edwards driving the bus to excellence. We do business with them having left NVL and are thrilled. Good riddance
No opinion on NVL, just a note that I find it distracting to read prose with unnecessary apostrophes in it.
PK
When I read that NV had closed it took me about two seconds to envision the same Amazon/NV scenario, as I posted over on Josh Hermsmeyer’s blog this morning. I won’t go into my first- and second-hand experience with a number of similar situations, but this is common practice.
The object lesson is that if the success of your business model depends on being acquired by a larger company, especially a potential competitor, your model is not sound. Same goes for being dependent on the success of major stakeholders.
Jeff
Your NVL-Amazon analysis is brutal but very likely right on the money (pun intended).
Kathleen Hoertkorn, founder of New Vine Logistics, a Napa-based wine shipping and fulfillment company, and Chairman of the Board Homer Dunn responded today to media reports about the suspension of its business operations yesterday.
New Vine Logistics is currently working with customers to transfer all services to another means of legal direct shipping, and in the meantime, is finalizing all work, including compiling of reports, reconciling inventory and invoices, and performing all of the necessary business operations for the months of May and June.
In response to comments that the company knew it was in financial trouble, Hoertkorn affirmed that they “truly believed that they would have been funded and were not expecting to have to cease operations.”
“New Vine has always been committed to quality, legal service, and built the only service that integrated compliance and fulfillment. It does cost more to be compliant and follow all the laws established by the various states. The company also pioneered many solutions such as temperature controlled packaging. The whole objective was to allow wineries to concentrate on sales and marketing, versus the back end processes from inventory to fulfillment to special services to compliance.”
New Vine was founded in May 2001 by wine industry, technology, and transportation veterans to solve the complex business problems associated with the interstate sale and distribution of wine. The company has developed proprietary fulfillment systems that enable fully compliant consumer-direct shipping in up to 44 states.
Hoertkorn stated that she will keep winery customers, employees and shareholders advised of next steps. “We deeply apologize for the situation, and we pledge to work with our customers to make as smooth and expedient shipping transition as possible.”
Lion’s does not have an apostrophe. It should read “Lions” without the possessive.
Yes, it has been an interesting couple of days. I believe Amazon remains interested in and committed to the wine vertical (anonymous sources).
Not convinced about your dark vision of their plan to topple NVL though.
I think it is more likely that it was the age old story of the small company overinvesting in a huge client.
They were counting on making their money back but the process took too long and the funds ran out.
All of us who work in the wine biz know that the online sales channel is extremely complicated and burdensome.
I know some very talented and kind hearted people at both companies and wish them all good luck.
Cheers
Amy
Well-written, of course with the exception of everyone’s reaction to the misplaced apostrophes. Jokes aside, I appreciate the insight—I never considered a strategy like that before between larger and smaller companies. From all the evidence you cited it seems like a plausible theory. Let’s see what happens.
Thanks for all of the comments and thanks especially to Paul and Marlene, the grammarians.
As Marlene isolates, the use of the possessive is a grammatical Achilles heel for me.
Regardless, I appreciate everybody reading!
All the best,
Jeff
Great post, a little cynical, but good. Have experience with NVL and like the commenter said above, they were far from being the gold standard. Wrap-it Transit were better!
Jeff,
As always, entertaining and informative. Btw, I chalk it up as a poetic license and believe you can use an apostrophe wherever you’s feel.
Just an update for those who may have missed it: http://www.winebusiness.com/news/?go=getArticle&dataid=65098
Inertia will be acquiring NVL.
Okay so what is the scoop scoopers. When WTN Services and IBG were in an alledged bidding war in due dilligence for New Vine. There were blogs, twitters press releases all over the place. Now IBG announced they would buy the debt, and not a work since except the sucking sound of wine leaving New Vine. So is there a deal or not? Is there anything left for a deal. Rumor is the warehouse is now 1/2 empty and the only ones left are those that will not pay or cannot pay their bills. What is the scoop grapevine?
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Another former giant of the American retail scene would entice a small company that had a great product that was new to the marketplace with a large order.
Small company would get excited and acquire loan money to gear-up for the substantial order—only to have the giant company “dawdle” over a protracted period, all with seeming innocence. Meanwhile, small company would become stressed at meeting the much larger monetary servicing requirements.
Inevitably, something would happen to push the small company over the edge and fall into the financial pit. Guess who would be there, on the other side of bankruptcy; or making a cents-on-the-dollar offer to avoid the (then) stigma of bankruptcy? Yep—the giant company, AKA “the lion.”
Acquisition of valuable assets at very cheap prices—then use your substantial resources to finalize and fine-tune the product, and slide it into your existing product line-up as “the Next Big Thing.”
Not so much lions eating their young, but predatory nonetheless; more like a large starfish absorbing a small urchin?