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When Downtown Comes Around:  Changes in the Business of Wine

Interested wine enthusiasts love to talk about a back-to-basics approach to wine—a terroir-driven, minimally invasive, natural sensibility that is more Chez Panisse than expense account steakhouse.  Yet, it’s no secret, big wine business drives better than 90% of domestic wine sales in the U.S.

Despite the sales velocity of the big boys, the wine industry, cast artistically, as most ardent wine enthusiasts know it, is the province of the small and artisanal, a sleepy hamlet of agrarian idyll, German Mittelstand as manifest reality. 

While wine enthusiasts are fixated on the romance in the glass, subtle changes are happening on the business side of the small to medium size domestic wine industry that speaks to a long-term shift with wineries that is more akin to slacks and a button down shirt moreso than dungarees and a chambray. 

Simply, a growing counterpoint may reshape our understanding of wineries in the U.S. in the coming decade.

As reported in the North Bay Business Journal, Mario Zepponi, a principle at Zepponi & Company, gave a presentation at the recent Impact Napa event (organized by the North Bay Business Journal), focused on issues important to the Napa business climate.

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Zepponi, a Cal Berkley undergrad and a Notre Dame MBA/JD graduate brings significant education and wine industry experience to the table.  In his presentation (slides and audio available here), Zepponi covered a great deal of territory survey-style (well summarized here).  Two of Zepponi’s nuggets that jumped out to me include an increasing awareness on his part that winery owners may be experiencing, “owner fatigue.”  Zepponi said, paraphrasing a common winery owner sentiment about economic conditions, “I don’t know (if) I have it in me to tough it out this time if it’s going to be a longer cycle than I’m prepared for.” Zepponi also noted that, in facing tough business challenges, professional management is frequently needed while also acknowledging that long-time winery owners rarely are able to take a back seat to a hired gun.

These are compelling comments rarely seen – “owner fatigue” and a need for professional management in the wine business.

Last summer when I interviewed Scott Becker, formerly of Global Wine Partners, he too noted a need for more professional management saying, “(In the future) more professional talent will be required … Napa Valley will need to develop the systems and the talent to support a maturing, complex industry in an increasingly competitive market.”

So, what happens when our pastoral ideal meets a need for b-school?

Put another way, what happens when a winery owner, raised on the production side, or coming from out of industry with skills in one functional area, faces a set of business challenges that exceeds their capability to lead successfully?

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It’s a good question, certainly, and all wine enthusiasts have a stake in the outcome.  But, let’s face it: an MBA program is impractical for most. The time, expense and commitment for an MBA program for an existing business owner rarely makes sense, particularly when case studies and group projects are focused on solving problems that have limited application for an owner already in the proverbial weeds.

And, as mentioned, bringing in a professional manager rarely ends well when somebody’s lifeblood, their baby is involved. 

As a trend, there has been an increasing interest in business coaching, a sort of peer mentoring program for those lonely at the top to bounce ideas off and be held accountable.  Some reports indicate the business coaching industry is growing at 18% annually.

Yet, the business coaching industry, filled with sages that have done more talking than doing, isn’t perfect, either.

For these reasons, it was with interest that I noted the launch of a program from a company called ShortTrack CEO that takes a hybrid business coaching and educational approach to working with mid-market CEO’s, those that have revenue in between $1M and $100M annually.

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Led by a former CEO of three businesses and based on research with over 2,000 mid-market companies, the program is a 12-month long immersion that can be undertaken with existing professional responsibilities combining training, consulting, mentoring, seminars and self-study focused on the four fundamental growth areas of a business– infrastructure, market, people and operations.  The outcome of the 12 months of work is an actionable framework for re-shaping a business to address specific needs supported by tools that lead an owner or CEO down the path to creating lasting, tangible, measurable results in their business:

Find the hidden numbers in your P&L and balance sheet that indicate if time, energy, risk and money are being invested wisely

Increase the accuracy of managing and hiring decisions to 80%

Foster morale and galvanize culture to lead people to a shared vision

Learn how to win mindshare to build competitive advantage and grow sales

Of course, this all sounds good and nearly like a silver bullet.  I’m as jaded as the next person is by consultants, particularly because I’ve spent the majority of my career, by choice, in businesses under $100M in revenue where the challenges are real and the solutions aren’t easy.  However, ShortTrack CEO does offer an incredible downloadable book (download here) that had me nodding my head in agreement on page after page as they describe the challenges in mid-market businesses before laying out the business concepts and how they affect a business.  It’s an excellent read, and highly recommended for most people in the wine business as a precursor to examining the ShortTrack CEO program.

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In sum, while most wine enthusiasts prefer to view the wine industry as their own oasis from a harried life, an agricultural ideal that can be escaped to, I don’t think there’s any doubt that future success in the wine business requires a blending of the art with a real business sensibility that drives success.

Or, as Andy Warhol said, “Being good in business is the most fascinating kind of art ... Making money is art and working is art and good business is the best art.”  Like it or not, this may be something that the wine enthusiast is forced to allow into their consciousness, alongside thoughts about ambient yeast.



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Posted in, Wine: A Business Doing Pleasure. Permalink | Comments (3) |


Comments

On 09/02, 1WineDude wrote:

Even the Indian mystic Osho said money is good and the ability to earn money is a talent not unlike the ability to create art…

On 09/03, Albert wrote:

I agree with Joe’s mysticism…  Business acumen is not necessarily an enemy to the art of making wine.  Both can and must co-exist for the sake of a brand’s longevity.

On 09/03, Charlie Olken wrote:

My father was educated as an architect during the great depression and wound up owning a bicycle store in the university town where he grew up and was educated. He and a bunch of friends could not get jobs so they created one.

His success had nothing to do with an MBA. He did not have a minute of business training. He had a good accountant. But he would have agreed with much that Short Track preaches because it was the culture of his business that made it one of the most successful in the nation and led him to the head of the bike dealers association and onto the board of the American Youth Hostel. He did not need short-track anymore than owners of small wineries need it.

Joe Roberts Dude must be a member of my family because he understands. He needs no Indian mystic to come to recognize the entrepreneurial spirit that simply allows some small businesses to succeed where others do not. My father also knew that, and I am lucky to have learned it from him.

Funny things is that I have an MBA, but it was not what I learned in those two years of post graduate schooling that has allowed my wine mag to succeed for three and half decades. It is not even what I learned sweeping floors and washing windows or doing inventory or selling on the floor on Sat. afternoons that was the key. Osho new the key. It is something within.

All of which brings me back to the wine business. There are people in the wine business who know how to be successful and there are people who can only be successful in an up-market. When you have been a success in big business or as a lawyer or doctor, you do not necessarily have the stones to be successful as an entrepreneur.

Look at Jerry Seps at Storybook Mountain. He was a university professor (history) but he had the calling. Today, 35 years later and now in his seventies, he still loves the business. He loves the dirt, he loves the tractor, but somehow, deep inside, Dr. Seps, is an entrepreneur who knows how to sell his products the same way my Dad knew.

I don’t worry much for winery owners who no longer find it “fun” to be in our business. They should get out for their own sakes. I wish them well—and I am sure that most of them are independently wealthy and do not need my good wishes in any event.

Guys like Jerry Seps who love this business and love being in this business will stay around. They don’t need any stinkin’ MBAs to keep them going. The good ones have got it. And it is that way in all fields. The good ones strive for the joy of it and succeed because they are good at it.

The wine biz is cyclical. It always has been. Big business is done by MBAs. Small business is done by entrepreneurs—and there is a steady stream of them who will keep the small producer side going.


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