The Solution


It’s the end of the world as we know it (REM).  Back to my roots!

It has been ABSOLUTELY CRAZY.  Finally, the ivory towers are crumbling and the inane Wine Country purchases made over the last 8-15 years have come home to roost.  Actual multi-million dollar sales with haircuts in excess of 50% are happening all over (we have worked on two of them) and the infection is spreading.

Let’s start with some indicators:

Diageo Indicates Worsening Profit on ‘Murky’ Economy

French wine exports fall 25 percent amid crisis

Champagne grapes will rot as producers protect price

Wine auction: Tough economy leaves glasses half empty

NOW IT IS TIME.  All the “behind the scenes” actions and “dirty little whispers” are gone and replaced with desperation and the reality that even at bargain prices escape may not be possible:

Makers of high-end wines caught in ‘dead zone’

Cosentino Winery Sued For $500K (unpaid grapes)

Lewis G. Carpenter, Jr., owner of Carpenter Ranches of St. Helena has sued Cosentino Winery in Napa County Superior Court for more than half a million dollars he says is still owed for wine grapes from 2008.

Diamond Oaks Vineyards Plus Two More Maniar Firms File Chapter 11 (BANKRUPTCY)

Napa Valley’s Diamond Oaks Vineyards has filed for Chapter 11 Bankruptcy protection.

In addition, two other firms also owned by Dinesh Maniar: SF-based Montgomery Realty Group and Southland Thoroughbred Farms in Riverside County have filed separate Chapter 11 filings, all in the U.S. Bankruptcy Court for the Northern District of California.

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Point Of Know Return (Kansas).  You know it’s time you see the sign.

Well, the school year is beginning and we should return to our feeble attempts to consolidate economic data and provide some insight into the future of the Wine Industry in the Wine Country.  Sorry we “slacked off” for most of August.  Hey, the stock market was up.  We should all be happy right?

WRONG!

We have arrived at THE stock market inflection point where the market will continue to trend higher and the last two years will seem like a horrible nightmare OR we will slowly crumble under the weight of an ever-increasing morass of depressing information tidal waves.  We still hold to the time line of Thanksgiving 2009 as our time frame for the “sum of all knowledge” to reveal the future of the Wine Country.  For now, here is the latest insights:

Foreclosures Impacting More-Affluent Areas

Record Number Of Foreclosures For Sale

Summary Of Distressed Sales And Financing

It appears as though the pain in the real estate market continues to accelerate toward the Wine Country.

Major Winery For Sale

We find it very interesting to see this.  For the first time, a large enterprise has moved out of the “secret sales society”, where all transactions occur without public record, and into the light of potential discounting.  It will be interesting to see the bids and whether they are so low so as to cause the seller to “pull” the property from the marketplace.

Jump On It (Sir Mix-a-lot).  Word!

Here is an extension of the WSJ article discussing the fate of the Wine Country.

Luxury Fever Cools Off

Wrap It Up (Fabulous Thunderbirds).  Old school (bald guys rock)!!

FINALLY, someone is flat out saying the Wine Country will follow the rest of the economy into the worst recession since the Great Depression.

Listen people, trouble is coming and it will be long-winded and incredibly painful.

Luxury Wine Market Reels

We have been presenting discussions of the various economic components as well as some insight into how they might affect the Wine Country.  This appears to be the first article “admitting” the “bottom may fall out”.

Make sure you include the comments after reading the article.

Cypress Hill (much love!!)

Even we have to marvel at the complete ignorance of the current slate of executives in the Wine Industry.  The fact that Mr. Robert Beynat dismissed the Internet as a marketing vehicle is grounds for immediate dismissal.  However, the fact that we have not heard ANYTHING from any “peer” at least gently berating him for this perception is incomprehensible.

It is hot in the Wine Country, are we all delirious??

Internet not a suitable tool for wine sales

Hopefully, someone it at this very moment deriving a spectacular direct marketing initiative to prove both the merits of the Internet as well as it’s cost effective delivery methodology??

Eminem, playa!!

This article outlines EXACTLY what we are seeing in the Wine Country and what the results will be in the near term.  We think this is SO important we have extracted two sections for your review:

TREND NOTED

‘”This increased price sensitivity of consumers comes on the heels of an unprecedented trend of trading up. Where you saw consumers willing to spend more for small luxuries and premium products,”…

As an example, for retail sales of wine between 2002 and 2008, the average growth of wine priced at more than $15 a bottle, was 15 percent. However, in the same time period, wine priced under $3 a bottle saw negative growth. In April 2009, wines under $3 experienced more than 8 percent growth, while growth for wine more than $15 a bottle, slowed to slightly less than 2 percent.’

RESULT OF NOTED TREND

‘”The problem comes in the investments that were made to take advantage of these trading up trends,”…

While consumers were trading up, companies were able to profit from investments in acquisitions, as well as brand positioning and image. However, with consumers migrating to less expensive options, returns on those investments are now not meeting expectations.’

*********************************

If this change in consumer habits is permanent, there is no way for the current business “model” in the Wine Country to continue and no amount of repositioning will change the end game.  Say it with me, CONSOLIDATION!!!!!

Read this article wondering the entire time if the author has any understanding about what is occurring in the Wine Country.

http://www.winebusiness.com/news/?go=getArticle&dataid=64949

Basically, NOTHING IS SELLING!

If that is the case, any entity in business to facilitate the delivery of sales is in severe distress if not bankrupt.  End of story.

Are we ever going to comprehend the need to change our outlook?

UPDATE UPDATE UPDATE

Now this is the reaction we were looking for (end of the world stuff)!!

DEAD! – New Vine Withers After Amazon Bolts & Investors Pull Plug

New Vine Logistics slammed the doors and headed for the hills on May 30, after impatient investors pulled the plug following the direct-shipping company’s mounting losses.

New Vine touted itself as the solution to allowing wineries to sell and ship wine to consumers while complying with the crazy quilt of laws that varied from state to state.

New Vine shutdown notice posted on their shuttered office door.New Vine shutdown notice posted on their shuttered office door.

SMALL WINERIES LIKELY TO SUFFER MOST

More than 200 winery customers were left in the lurch by the sudden closure including Beringer, Cline Cellars and even a Lufthansa wine club. But the smallest wineries — such as Araujo Estate Wines, Paul Hobbs Winery, Fisher Vineyards and Hanzell Vineyards which depend heavily on direct sales –  are likely to suffer the most.

WINERIES ANGERED AT LACK OF WARNING

“I am enormously angry,” said a  major Sonoma County vintner. “It is the height of arrogant irresponsibility to slap a sign on the door and run for the hills. Our brands can take a hit like this, but I feel sorry for so many smaller wineries who were depending on them. I wouldn’t be at all astonished if some of the smaller wineries sued because the sudden, secret closing didn’t give them any time to prepare.

“The company obviously knew it was in trouble and it had a responsibility to make sure that its closing did not hurt its customers,” he said.

Other winery customers interviewed by WII made similar statements, many copiously laced with profanities.

NEW VINE STONEWALLS INQUIRIES

The company sent out a mass email and posted a letter (above) on the door of its locked offices. It has, however, failed to return most phone calls or emails including those from its customers and the media.

Ted Schlein, the partner at New Vine’s lead investor, Silicon Valley venture capital firm Kleiner, Perkins, Caulfield and Byers, did not return Wine Industry Insight’s phone call by deadline.

AMAZON, ECONOMY, INVESTOR IMPATIENCE SANK EIGHT-YEAR-OLD PROFITLESS VENTURE

Despite New Vine’s stonewalling, Wine Industry Insight’s examination of government records and numerous interviews with investors, winery customers and others familiar with the company’s operations say that the company’s sudden demise resulted from multiple financial wounds including:

  • The inability to bring a long-promised Amazon deal to fruition,
  • Continued losses which had accelerated over the past six months, and
  • Substantially less shipping business from winery customers due to the economic down turn.

“OUT OF TIME, OUT OF MONEY” MAJOR VENTURE CAPITALISTS PULLED THE PLUG ON FRIDAY

Despite published accounts to the contrary, New Vine’s banker, Silicon Valley Bank did not pull the company’s plug. One member of New Vine’s consortium of venture capitalists told Wine Industry Insight that the direct wine fulfillment company, “ran out of time and out of money.”

The venture capitalist said that for approximately six months, New Vine had been trying to raise an additional round of equity financing and “we simply told them that we had had too many promises and not enough progress. In short, as a group, the equity stakeholders said we could not participate in another tranche.”

AMAZON = GODOT: NEW VINE RAMPED UP FOR A PARTNER WHO NEVER ARRIVED

“We got tired of hearing ‘Amazon, Amazon, Amazon,” from the company,” an investor told Wine Industry Insight. “I felt like I was back at a college production of Waiting For Godot. I didn’t like the play then and I certainly didn’t like having my money wait any longer.”

In anticipation of the Amazon deal, New Vine had, in the past year, ramped up shipping and fulfillment capabilities by moving into a 380,000 square foot warehouse facility in American Canyon.

Amazon had become New Vine’s brass ring, but it never came close enough to make investors happy.

AMAZON: SLIM MARGINS, “TOO MANY UNKNOWNS” AND “BOOKS NEVER BREAK”

Amazon had no comment on the issue, but a Seattle insider told WII that, “the potential costs and hazards of wine and all the red tape outweighed the benefits. There was simply too many unknown factors — including the need to rely on a third party — for management to gain the required comfort level. That could change if the company decided to do it by itself and control the process. Still, the overhead with wine  squeezes margins too tight. And a book never breaks or goes sour.”

SILICON VALLEY BANK LEARNED OF SHUTDOWN ON MONDAY

Silicon Valley Bank Wine Division Founder Rob McMillan told Wine Industry Insight on Monday that, “We found out about the company’s decision today and we’ve been doing everything possible to find a soft landing solution.”

McMillan said that he has been working with New Vine’s equity investors and talking with parties that may be potential buyers.

“We were not involved in the decisions to close or lay off people,: McMillan said. “Nor have we filed any legal papers.”

NEW VINE CONTINUES THE WINE “TAR PIT” FOR VENTURE CAPITALISTS

Investing in wine has rarely been successful for venture capitalists who have managed great successes in other areas. The $180 million+ lost in wine.com and associated transactions in the millennial DotCom meltdown, however, have not completely deterred Menlo Park’s Sand Hill mafia who have dropped enough money on fine wine to make them want to own a piece of it.

While hard numbers are hard to come by, investors have told WII that New Vine has certainly burned through more than $50 million if one includes software and other goods exchanged for equity.

New Vine’s equity investors include:

  • Altos Ventures
  • Angels Forum/Halo Fund
  • Equity Group Investments
  • Kleiner Perkins Caufield & Byers
  • Monitor Venture Partners
  • Pacific Community Ventures (Part of Accel)
  • Thomvest
  • Staenberg Ventures (Rustic Canyon)

ASHES TO ASHES WITH NO PHOENIX IN BETWEEN

Ironically, New Vine had its beginnings in the ashes of the wine.com meltdown. Kleiner Perkins had suffered major losses in the wine.com debacle, but in 2001 still saw potential.

KPCB Partner Ted Schlein, looking to salvage something from the ruins, recruited Kathleen Schumacher (now Katie Hoertkorn), who had served as wine.com’s vice president and general manager in charge of fulfillment.

He introduced her to Netscape mogul and formed KPRC partner Jim Barksdale, and William Del Biaggio, CEO of the Sand Hill Capital which had retained the assets and intellectual capital of the defunct wine.com.

In short order, Schumacher/Hoertkorn’s new company had $3 million in venture capital and software worth $30 million from Del Biaggio in exchange for his equity.

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