Top 3 Lessons Learned During 27-Years in a Wonderful Industry
I entered the alcohol beverage business at 24 in the mid-1990s, fresh out of college. The wine that did it for me was a 1988 Brunello; shortly after that tasting experience, I decided to pursue a career in wine sales. A relative advised taking any job in the industry I could get and moving to the center of the action, so I joined Seagram Beverage, selling beer in San Francisco. Despite a graduate school fellowship offer, I chose a job selling beer and moved to the Bay Area. I've never regretted the decision and haven't left the industry.
Yesterday was my 51st Birthday, so I thought it would be nice to share some wisdom gained in this wonderful industry over the last 27 years:
1. Distributors are not the enemy; suppliers are not the enemy. Transitioning from a beer-selling role to wine sales at The Henry Wine Group, I advanced from sales to executive management in distribution. My most vivid memory of managing a distributor is the stress of dealing with suppliers. In distribution, frustration with suppliers is common, yet it's crucial to recognize suppliers as essential partners. Like a bank, suppliers make deposits of inventory, expecting growth on their investments. Battling suppliers is counterproductive. Distributors, irrespective of size, must understand their market, ensure portfolios meet consumer demands, deliver meaningful returns for large suppliers while keeping the trade account's needs central, and also value the long tail suppliers for their potential lifetime value. This is true in both open and franchise states. It’s no easy job.
Shifting to the supply side, I observed reversed frustration. Producers often view distributors as adversaries, citing franchise and control state laws as examples of the inefficiency of the middle tier. However, distribution offers economies of scale that producers should embrace. Today, platforms like LibDib (part of RNDC) or ParkStreet facilitate startup brand builders to enter the market in a manner that was never available before. Though you can now enter some markets without huge barriers and basically be “your own distributor” on a very small scale, dismissing distributors as enemies is counterproductive, because your goal will be to build your brand large enough where you will absolutely need traditional distribution. That being said, parking deposits in a distributor's warehouse and managing them with spreadsheets is outdated, no matter what your size as a supplier. Building your brand yourself to a tipping point of scale—whether you’re a large supplier getting larger or a startup just entering the market—enables you to become a bigger part of the big head, or a new part of the long tail for the distributor.
Understanding that distributor margins are essential, akin to banks charging interest, is crucial. Leveraging distribution tier costs for brand building, even with a 30% fee, is tantamount to a financing source for your business as a supplier. Think if you had to support all the fixed costs and operating expenses of distribution internally. Recognizing the opportunity cost of trying to manage your own distribution in lieu of selling is vital, especially for small suppliers. To win, focus on selling efficiently, pricing optimally, and appreciate distributors as valuable allies in the journey.
2. Technology is a valuable ally in the wine industry, which historically hasn't been on the cutting edge due to the allure of high tech drawing the brightest minds away. Our industry tends to attract both romantics and luddites, and while I’ll admit to being a romantic, I'm not a luddite.
On the sales and marketing front, embracing technological advancements is crucial. Early in my career, I achieved success as a sales rep by learning to code URL links into emails, offering a competitive advantage in engaging buyers. Back then, this was novel in our business. In the early 2000s, I created a very rudimentary website using clunky tools and then used it for posting training materials, which helped me beat out larger competitors for a corporate hotel program. As I moved into management and entrepreneurship, I strived to stay current with tech, but occasionally fell behind.
Today, there's no excuse for falling behind, with low and no-code software, DIY tech support across various functions, and the rise of AI in sales and marketing tools. This technological evolution promises increased productivity, better organization, and the potential for enhanced sales, as highlighted in my earlier blog. As I said before, tech won’t take out the human element so long as people keep drinking wine. Embracing these tech advancements is both wonderful and essential for staying competitive. That is, if you remember to leverage the human side and adhere to lesson number three:
3. Customer centricity is paramount in an industry traditionally fixated on products. The fine wine sector in particular, which is deeply ingrained in product centric culture, often markets product features rather than the fulfillment of customer needs. For some reason, this product centric approach even dominates DTC marketing in premium and luxury wine, where we have the precious opportunity to literally connect with the end consumer. To be successful in a product centric environment, one must create a "blockbuster" product, fulfilling core human demands either faster, better, or cheaper than any other product and with a completely unique position in the market. The iPhone, and Tesla luxury EVs: these are examples of blockbuster products. However, such products are statistically quite rare. What the rest of us sell are products that are competing in categories with abundant supply and we must therefore connect with the customer as our key value proposition for our individual product.
The fine wine industry, historically product centric, mistakenly markets value through explanations of geology, climatology, and production chemistry. Even blockbuster brands recognize the limitations of this approach. Can you imagine if Apple had tried to launch the first iPhone by sending out a tech sheet to customers and explaining the specifics of the Samsung 32-bit ARM microprocessor, which is underclocked from its stock 620 MHz to a slower 412 MHz to increase battery life? Laugh all you want, but it’s what we do everyday in the fine wine business.
Being customer centric entails making the customer the hero of your brand story, which you can’t do if you don’t know what shape that hero takes. Understanding Customer Lifetime Value in the context of heterogeneity is crucial here. Dr. Peter Fader at Penn highlights this in his leading work on customer centricity, and I learned it through success and error in my 27 years in this business. The customer is not always right, as he says; the right customer is always right. The human element in customer connection, discussed in my first blog post, is key to understanding this, measuring it, and building predictive models for how to attract more of these unique heroes.
It was refreshing to see the story this morning about the Colangelo & Partners and Wine Opinions survey which found that consumers surveyed see wine as having social and cultural value, even though the Wine Business headline focused on the recurring negative side of the story. Moving forward, customer-centricity for our industry needs to be aimed squarely at the underlying need for humans to be connected socially. Customers can gain joy from experiencing the community that fine wine consumption occasions bring. We will succeed if our customer heroes see fine wine and all its ancillary experiences (travel, discovery, education, cultural awareness) as central to their story of the pursuit of happiness.