Notes on what’s now and Why Lions Eat their Young

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.