What’s the secret to making money in the wine trade?
That, of course, is the opening to the classic joke: “If you want to make a small fortune in wine, start with a big one”.
Except, as it turns out, there is a way to make money in wine.
It’s not easy. Not only is there fierce competition and tight distribution bottlenecks to cope with, but also the shaky wine economy itself. At one end are the producers running zombie businesses. These wineries and vineyards appear to be functioning and debt-free, but the people who own them are not replanting the vineyards, investing in equipment, or drawing a living wage.
At the other end of the wine business are the trophy hunters and lifestyle seekers – the doctors, lawyers and internet entrepreneurs who have made their fortune and are now ready to follow their dream. Caught up in the glamour of wine, they frequently throw away everything they know about business planning and forecasting, and just buy a winery and hope for the best.
Over the years as I’ve tramped around vineyards, I’ve asked many of these owners point blank where their real revenue is coming from. The answer is rarely “from wine”. Instead, they are funding their gracious chateaux from their real estate or logistics or manufacturing businesses. I’ve been surprised at how many well-known wine names aren’t making money from wine itself, but from some other business.
These polar ends of the wine industry make life hard for the people in the middle who do need to make a living from what they do. It’s tough to compete with people who can afford to trade unprofitably for years at a time, or who sell wine at rock bottom prices.
But that’s the world of wine and it is what it is. Fortunately, there are wine producers who are finding a way to turn a profit, and these people all have one thing in common: spreadsheets.
This year I’ve spoken to companies in Argentina, New Zealand, Spain and Portugal, who are all on the up. The Argentine company wanted to move into the premium sector. The New Zealand and Spanish producers decided to invest more in quality, and the Portuguese company was turned around from near bankruptcy.
In every case, the change came from someone sitting down with a pen and calculator. The owners worked out the exact return on investment needed for every dollar, euro or peso spent. Knowing where they were financially gave them the information they needed to plan their market strategy.
In one case, the business owner taught himself how to use spreadsheets late at night after the day’s work was done, and he kept going until he’d built a financial model of his entire business. When considering the purchase of a vineyard, he asked himself tough questions about how much money he would need to earn from each bottle of wine it would produce. He realized that it would make more financial sense to to improve some of the wines he was already making, by investing in better viticulture. Soon, his wines were flying off the shelf and his distributors were asking for more, allowing him to negotiate a more advantageous deal with them. In the end, he got his new vineyard.
Another winery decided they didn’t have the expertise themselves, so they hired a retired CEO part time. He was happy to have something to do, while they were able to draw on his exceptional financial knowledge.
What all these businesses have in common is that someone took the time to sit down and run the numbers of different scenarios – and then acted on what the numbers were telling them.
The wine trade is a curious beast, in that the lack of money is a continual topic of conversation. But genuine hard conversations about money and finance are extremely rare. People prefer to argue over whether wine communications are effective or not, or whether sulphur is a good or bad thing.
In a sense, these are all distractions. The viticulture is the start of the process, and customer communications are the very end. None of it makes sense if the underlying financials aren’t taken seriously.
This isn't a secret - it's what profitable wine companies are already doing. For everybody else? The answer is in the spreadsheet.