#2 Keeping it in the family

Survived the first blog post. Have not been publicly shamed, nor academically disciplined. A sign of compassion or simply luring me in, only to strike later? Let’s find out. The year is off to a fast start. The fire hose is open, and I’m thirsty. Bad combination. Dropped a few classes. Quality over quantity. Still in GDotWI... My more socially inclined friends have labeled the classes causing my reticent social behavior as prefixes to my name. Barging through my door at 11pm on a weekday night, thrusting a beer into my hand, they indignantly announce their displeasure with d.School Ravi. Where is Summer Ravi. Bring him back.

So much to choose from. I want to explore entrepreneurship. I want to enhance my public speaking and presentation skills. I want to step across the street, into the law school, into engineering, into the social sciences. I want to immerse in Professor Nemerov’s poetic worlds that exist within the instance of a single photo. A sponge can only retain a certain amount of water. As I bounced across Stanford this year, I’ve accepted the limitations of time and focus.

My story continues at Trader Joe’s. My hipster level rises half a point as I enter the store, ready to pay a premium for organically grown green apples that fell naturally from the tree onto Egyptian cotton air-pads, before spending an hour in the presence of a Sufi Yogi. My sense of purpose and belonging is reaffirmed. I make my way across to the wine racks. California. Spain. France. No South African wines? Seriously? There’s pink Himalayan sea salt packaged in South Africa, but they haven’t managed to find a few bottles of De Toren, Hamilton Russell, Chocolate Block, Kevin Arnold, Paul Cluver, Kleine Zalze, or Tokara? Urggh. No choice but to randomly pick wines but from different regions. Without a plan, strategy, or the requisite skills and knowledge, I set about acquiring a selection of wines.

It was with a similar feeling to my Trader Joe’s wine experience that I read the Rothschild case. An uneasy sense of someone standing in front of a map of the world, without a clear idea of how he was going to navigate it. At first I wasn’t quite sure whether I was missing something. Was there an insight into old-world estates growing into new markets? Perhaps consolidating or redefining their brand? Perhaps it was about changes in the global agricultural property market? A nagging uneasiness suggested no coherent strategy to their expansion. How did this come about? Was this the consequence of an unbalanced executive team?

This case sparked some interesting thoughts. A growing market of new wine drinkers + lower barriers to entry + lower production costs in other countries + low customer switching costs + rapid brand creation = market ripe for disruption?

How do family wineries capitalize on this changing dynamic? Do they encourage succession planning that retains as much familial influence as possible, but which may risk siloed thinking or a lack of holistic executive talent. Or do they bring in talent, but risk family disinterest and shifting power dynamics which might even result in either selling or partitioning the land, and consequently losing the power base of critical mass? Or are they best suited as lifestyle businesses focused on quality retention and not mass-market domination?

As the baton passes hands, behind the veneer of staged photos, lies both an incredible opportunity and lurking uncertainty. “Someone said drink the water, but I will drink the wine / Someone said take a poor man, the rich don’t have a dime / Go fool yourself, if you will, I just haven’t got the time / I’ll give you back your water, and I will take the wine.”

Super Premium Wines

After reading the Lafite Rothschild case and hearing about DRC, I was interested in doing a little more research on this super premium segment of the market. I came across the following article on Sotheby's wine auctions that I found informative: https://www.barrons.com/articles/why-is-romanee-conti-worth-20-000-1427964771.

A case of 1978 vintage DRC recently sold at auction for $39,700 per bottle -- well above the $1,000+/bottle quoted in the case for Lafite. While I imagine that the 1978 vintage is considerably rarer than 1999, I did see a bottle of 1999 Lafite retailing for $1900 at the SFO Duty Free store:

Another interesting fact was that DRC wine appears to sell for a premium in bulk: when sold by the case, the bottles have reached nearly $40,000. However, a single bottle sold of the same vintage typically reaches only $14,000 - $20,000 per bottle at auction. It's also interesting to note that much of the demand for burgundy is being driven by Asian consumers.

The only new world wine that I could find that commanded a comparable price premium was Napa Valley's own Screaming Eagle, a cabernet sauvignon with a cult following.  Those bottles are unavailable to buy directly from the winery without making it through an extensive waitlist, but can be purchased from a collector for $3,000 - $4,000 bottle for recent vintages.

Wine Packaging

Small observation, but I was struck by Tracey’s points at the end of class. Given she’s part of a wine lobbying organization, it makes sense that she would belittle CO2 standards and FDA regulations on nutritional information disclosure. Interested in the former, I was curious to learn if her statements were warranted. It turns out that fermentation contributes a very small amount to the overall environmental impact of wine production – the largest portion comes from wine transport to the end consumer. In the U.S. alone, ~95% of wines come from the west coast; environmentally, it costs a lot to ship heavy glass bottles across the U.S., let alone around the world. Better packaging – think boxed, etc. – would not only cost the consumer less economically, but it would produce fewer CO2 emissions as well.  

There’s some hope that this trend picks up – according to a study by Allied Development, alternate packaging is stealing share from glass bottles and is projected to continue. Not only do other materials have better features from a practicality perspective, but they stand out to younger consumers who are more willing to part from staid wine tradition. 

How to Build a StitchFix for Wine

Should Amazon make a big play into the wine space, they'll only add to the problem already plaguing many wine buyers today - an overwhelming paradox of choice. Amazon is not known for their merchandising, and its endless aisle is rather hard to shop unless you know exactly what you're looking for. Our discussion highlighted the opportunity for someone to move into the space with the angle of providing a curated selection and personalized recommendations.

Having worked at StitchFix this summer, my thought immediately jumped to the idea that there should be a StitchFix for wine, i.e. collect preferences, send personalized selections of wine, collect feedback, refine and repeat. I, for one, would love to use that service. I'm vaguely aware that many players have attempted to solve for this (I seem to be a good target for social media advertising), but to my knowledge, no one has figured out how to make it work or at least how to make it stick. My opinion is that brand counts for a lot. I strongly believe that StitchFix and Amazon can coexist in the world of fashion largely because StitchFix solved the paradox of choice that Amazon created. Before Amazon made a play towards personalized clothing recommendations, StitchFix created a strong and widely recognized brand; so now millions of consumers think StitchFix before they might think Amazon as a destination for this need. So for a player like WineDirect to be successful with their bet on curation, I as a wine buyer must think WineDirect before I think Amazon.

There are many other critical pieces of this puzzle that are important to get right in order to set-up a successful play in personalized wine recommendations. The one I'm deeply familiar with from my experience at StitchFix is figuring out how to most effectively collect data on preferences and feed those into a recommendation algorithm. While figuring out the right way to ask questions to assess wine preferences, which is likely rather tricky, my hypothesis is that the recommendations themselves are actually easier get right for wine than for clothes because I'd guess that to the rather untrained palate, 9 out of 10 wines hit the mark on enjoyable. Then the feedback loop becomes the core of the value proposition, and in relatively short time, the wines recommended could go from good enough to great or even outstanding.

I'm confident that if you put enough smart and capable people on this, they can create a really effective wine recommendation, so the discussion will always circle back to the importance of brand building. With Amazon's acquisition of Whole Foods and with all the potential for what they may now do in the wine space, the window of opportunity to establish a brand as the go-to place online for a curated selection of wine is closing for these other players. Because while I cringe at the thought of scrolling through page after page of options trying to pick wine, I do love the idea of having wine shipped to me for free on Amazon Prime.

2 Weeks in a French Vineyard

I, like many people, had a rather romantic impression of working in a vineyard: along the meandering slopes and the meticulously planted lines of grapes, a vintner would stroll pass her prized old vines, with a glass in her hand, and later sit down by the porch of her estate for a platter of cheese and prosciutto, followed by a nice fiesta under the afternoon sun...

With that impression in mind, I gladly signed up for a two-week volunteering gig at a French vineyard in Languedoc-Roussillon, a southern French region known for hearty table wines. The vineyard was situated around a 14th century chapel (still in use today), and planted 13 hectares of typical southern French varietals (Syrah, Mourvedre, Grenache, Cinsault, Carignan, etc.). Here's me on day of arrival:

(Careful what you wish for!)

It was late spring / early summer when I arrived, so the grapes were just starting to grow. I had 2 jobs (mostly): to prune the grape vines and cut off excessive grapes (to control yield / concentrate flavor in remaining grapes), and to trellis the weaker grape vines so they don't get destroyed by the storms. Picture below is me cutting off tiny grains of grapes on the vine (sad! but important for making good quality wine). 

(Shoop, shoop)

I thought it was a pretty fun job in the first hour, not as much when the second hour hit, and my whole body started aching in the third hour from the constant bending down and standing up. The scorching sun in southern France didn't help either - it would be 50 degrees in the morning when I started working, but 80s when it got closer to noon. By the time I finish my 8-hour day, I'd be lying exhausted in bed... 

(Already exhausted after half a day) 

It was southern France so the weather was extremely unpredictable, and the storms could sneak up on you before you knew it. One morning it was sunny like the picture above, but the clouds gathered within half an hour, and soon the wind was roaring through the field and the rain pouring from the sky. The owner of the vineyard and I had to stay in the field for another 2 hours in the storm to finish trellising the weaker vines and save them from getting totally destroyed. From that day on, I gained a whole new level of appreciation of the comfort of an office job... 

However, the hard work came with priceless rewards. I got to bottle my first bottle of wine from the cellar and took it home as a present. The owner opened a bottle from 1990, my birth year, and taught me a lot about the history of her family's winemaking heritage. And after a week's work, I got to relax on the weekend and enjoy a bucolic brunch like this one: 

And I made a new friend: 

Remember I said that the 14th century chapel was still in use? I was very lucky to have caught a concert inside the chapel during my stay. The acoustics were amazing. 

All told, it was a rough two weeks from a physical stand point, but time extremely well spent and rewarding. The work on the field taught me how hard it was to grow and make wine, and helped me appreciate wine from a whole new perspective. I was humbled by the dedication and diligence of the winemakers, and moved by their sacrifice and pride. 

(My first bottle of rose!) 

(Not) Sponsored by Vinebox

As much as I hate online advertising,  I'm a sucker for good clickbait. And Internet Big Brother has figured out how much I love wine. Which is why they pushed a wine advertisement to me...and also why I clicked on it:

Vinebox.

By the glass, monthly wine club. Great, unique wines that probably haven't hit Safeway shelves. In pretty vials with educational cards. They had my attention.

While I didn't buy it for myself (already guilty about my bi-yearly wine club shipment...), it got me thinking about the model for selling wine by the glass. When I consider my own wine habits, it makes a lot of sense:

• I like the "discovery" in trying a new wine / from a new place / etc.
• I want to drink a glass with dinner sometimes...but no more
• I hate feeling like I wasted good wine when it spoils

Additionally, buying a bottle can feel like an investment - wine by the glass feels like a treat.

I've seen other versions of wine-by-the-glass in grocery stores (Underwood cans comes to mind) but the format doesn't seem to have proliferated outside of a few select brand / wine clubs. But I wonder, as consumers shift towards more sustainable products (and packaging for that matter), as smaller wineries fight to get in front of consumers, as the food / beverage industry feeds a growing consumer preference for innovation, if we will see more wineries signing up for wine-by-the-glass clubs, or experimenting with packaging. 

Wouldn't it be nice if you could open a wine "flight" with dinner, instead of a bottle? As long as retailers can keep the formatting affordable, I would bet on seeing more from this space in the next few years! 

The Legality of Wine Trade within Latin America

After thinking about the legal obstacles that NVL faced in the United States, I was curious whether NVL might have luck abroad, specifically in Latin America.

In 2012, Euromonitor released a report that showed that the trade in illegal alcohol in six Latin American countries accounted for 25.5% of the region's total market by volume and 14.1% by value. These six countries include Colombia, Ecuador, El Salvador, Honduras, Panama, and Peru. These numbers represent a loss to the legal trade of US $736M.

While consumer awareness of this issue has been improving, the issue has been difficult to combat. On average, retail prices of illegal products are 30.3% lower. In addition, counterfeit products are often priced similarly and sold side-by-side with legal, authentic products making them hard to detect. Governments in these countries have done little to improve industry regulations or even enforce existing laws, despite the millions of annual tax revenues they are losing as a result of the illegal trade.

Given that consumers in the region do seem to have the desire to purchase responsibly and legally, there may be an opportunity for NVL to improve the process and facilitate the ease of legal alcohol purchases. Governments should theoretically welcome NVL with open arms since it will increase their revenues from taxes and reduce illegal activity in their countries with little investment or action on their part.

That said, a drawback would be that the LatAm consumer may end up capturing more of the value than the U.S. consumer. This would depend on how far consumer responsibility and desire for product authenticity could drive consumer behavior. If consumers are willing to pay 30% more for an authentic, legal product, value capture in the value chain may not need to change much. If consumers aren't willing to pay the higher price, then some or many parts of the value chain would need to sacrifice a piece of their value captured in order to drive consumer purchases at lower prices.

Sources:
https://www.thedrinksbusiness.com/2014/05/illicit-alcohol-trade-in-latin-america-worth-2bn/
https://blog.euromonitor.com/2015/10/the-illegal-alcoholic-beverages-market-in-six-latin-american-countries-2014.html