Man, I love the wine industry!!! I was lucky enough to spend some time with Gary Archer, Operations Manager at Gary Farrell. A few weeks ago I drove up to the beautiful Russian River area to meet up with Gary. We met at his office located on the lovely
Gary Archer Amongst the "Silver" at Gary Farrell
property of the Gary Farrell Winery. If you haven’t been up there to sample some of their award winning Pinot Noirs and gaze at the spectacular views, you need to stop reading this article and find a way to get up there….but please come back to this article and read the goodness.
Fresh from his visit to the Unified Symposium, Gary was very open to any question I threw his way. Admittedly, I’m still new at this interviewing thing and Gary was patient with me and my different questions. We had a long conversation (thanks Gary for your time and patience!!) and covered a lot of ground. We talked about the challenges of operating Gary Farrell to sustainable farming…something Gary is extremely passionate about. It was really cool to sit back and have him educate me on why sustainable farming was the right thing to do.
Gary has an interesting perspective on the wine business. Yes, he’s working for one of the most regarded Russian River wineries, but he also owns a 50 acre vineyard, Archer Family Vineyards. He’s got a real intimate feel for the wine supply chain.
As I sit here and listen to our conversation that I recorded two things come to mind:
1) I got schooled by Gary. He gave me so much great insight and information…I was really fortunate to have the interview.
2) I’m struggling with how to put all the good stuff into one good article. I think the best way to do this is cut it up in pieces. That way you the reader can eat it in internet-ready-digestable-chunks and me the writer/blogger can get something out to on my site and Gary the subject of the article, gets more exposure…it’s a win-win-win!
So, this will be the first of a few articles based on this interview. Enjoy.
In the Beginning…
Let’s start this off with how Gary got into the wine game. Gary has a finance degree from the University of Oregon. He’s done housing development and investments in small businesses. After coming back to the Napa area, he wanted to get into the wine business. He took 50 acres of land that his father once owned, went to school to learn how to farm and started putting a plan together. Gary had met someone in the wine business and asked him review his plan and give him his opinion.
He looked at the numbers and he said, “yeah that makes sense”. I told him, “I’d love to be in the wine business, but I don’t know much about it.” I don’t know anything about wine other than what I learned in those classes I took. He said, “You know….a widget is a widget. And I’m consulting for a bunch of small wineries and I need someone who has some business disciplines.” And that’s how I got involved.
Gary continues on with walking me through the common path that people take when getting into the wine business and how he and his partner were helping these wineries. Essentially, people start in the wine industry from the core passion of wine. Their little wine business begins to grow and evolve into something they’re not quite prepared for. Gary talks about various plateaus that you take while you’re growing. It’s not a smooth linear glide. For instance, Gary illustrates one fork in the road for a growing winery: do I take on a distributor or not”.
A distributor comes along and says, “God I’d love to have your wine. Can you make more? Let’s distribute it.” And then they ramp up to 20,000 cases. Use all there cash and get lost at the distributor because they’re small. And they call us in because they have no cash and we’d put the whole business plan together for them. Because they’re not really business guys, they’re passionate about wine. And there are a lot of stories like that. People just don’t understand simple cost accounting. They just think, “50 cents for the label, 50 cents for the capsule, $3 for the wine, a buck for the bottle. I figure my cost is $5 in that bottle.” Well, it’s not. There’s a lot of indirect costs. But they get lost in all that. So, we’d put in accounting systems [to help] and that’s how I learned the wine business.
This is interesting as it is somewhat in parallel with what I’m trying to do with vinoEZ. Gary used his background in finance and being a businessman to assist wineries in giving them the rigor they needed to keep growing. I want to use my background in supply chain planning to help wineries and suppliers with reducing costs and increasing customer service by implementing simple and easy supply chain tools.
Do the Right Thing
During the interview, Gary spoke a lot about doing what’s right for the wine. As much as you want to reduce the cost of goods, you want to make sure you don’t cut too deep. This is where his passion for the wine comes in to keep things in balance. He gives me a great example of this by talking about the most critical part of the wine package: the bottle.
Small wineries come from passion…and love of wine. That could cloud things. Then you have the accountants that have to look at things as a business. There’s always a constant battle to balance passion and business and going too far in either direction can wreck a brand.
To give me an example, Gary reached for a bottle of Gary Farrell Russian River Selection Pinot Noir from his book case and puts it on his desk right in front of me. My mouth was salivating at this time…I know it was 10:30 in the morning, but, man that Pinot is good!…I digress.
This bottle right here…it’s a very heavy bottle, it’s very expensive and it’s not very green but that’s what our target customers gravitate towards right now. We could save money both in manufacturing and shipping but we have to be careful about matching our wine quality to our packaging and eventually to the people who drink it. Sure we can save a buck or two, but how would our customers perceive the cheaper package material. But there’s a movement to get a lighter bottle. Every time I talk to a wine club person, every time I talk to a retail guy they say, “Do not change your bottle.” Because it has a perception of quality – wrong, right or indifferent. So, I push back on making any bottle changes because I don’t think the Gary Farrell wine drinker is ready for those changes.
What happens in an industry like this, is that people sit around and they think they know what the customer needs instead of finding out what the customer wants. That happens a lot in the wine business.
I agree with Gary on this. If you go too far one way over another, you will fail. For instance, if your main goal is to increase profit by cutting various costs, you will run the risk of compromising the quality of the wine. Now, quality has a couple sides to it:
1) the perception of the quality of the wine in the bottle
2) the wine itself.
View from Just Outside the Tasting Room at Gary Farrell
The perception of the quality of wine comes from the packaging. If you cut costs too much on the label, glass, cork, closure, etc. you may turn off some consumers. This is a difficult thing…price point plays into this as well. A low cost package for a $5 bottle wine may be just fine, but once you move up the price-point ladder, you better be careful on where you cut your costs. Is heavy glass just some really expensive package that eats into your margin? Ummm…no. Our senses pick up a lot of information and how all that information is aggregated in our brain plays into our decisions. For whatever reason, when I pick up a heavy bottle of wine with thick walls, nice tin closure and a nicely made label, I’m thinking there’s probably some good wine in there. Not sure if this is something that the wine companies have trained me to believe or what, but it is what it is.
The other aspect of quality is in the wine itself. If you cut costs on your winemaking processes to shave a few bucks here and there, then you may compromise the quality of the wine.
An important and sometimes often forgotten reality in the wine industry is that any decisions you make with your wine or package takes months or years (depending on the release of the wine) to know if it was the right decision. This reality is often overlooked by the newbies that come into the business.
It’s a high-risk game. With all the competition that is out there, if you make the wrong decision, your brand is impacted significantly and it will take years to reverse things. If you’re really interested in lowering your costs and making an impact to the bottom line now, without risking your brand, then you need to take a look at your supply chain. No, I’m not saying you need to make radical changes, you just need to install some simple planning processes and planning tools. The investment is low and the payback is high. This is the essence of vinoEZ and this is where I can help. Read through my article “Why is Planning Important” to get a little more insight into planning practices.
Well, I’ll stop here for now. As I mentioned earlier, I will be publishing a few articles from this interview with Gary Archer. Stay tuned for follow-ups where Gary talks about sustainable farming, how Gary Farrell is weathering the poor economy and more.
Also, leave a comment below to give me some feedback.
Let’s make wine a little EZ’er!
shawn@vinoEZ.com
