How to strengthen the foundation of your wine business during uncertain times.
Deborah Steinthal, Founding partner, Scion Advisors, in conversation with Steve Dorfman, Partner, Ciatti Company
Deborah Steinthal: What has positioned you for your leadership position today at Ciatti?
Steve Dorfman: Starting my career with a family owned winery, Fetzer Vineyards, and working through their large growth phase prepared me to see how opportunities need to constantly be fostered. International sales grew during this time and the Fetzer family stuck it out, resulting in a more sustainable sales plan. Once the company was purchased (by a family-controlled, publicly-traded corporation), I was able to expand my horizons beyond wine production into sales, marketing and acquisitions. In my current partnership position at the Ciatti Company, I maintain an open mind to how opportunities can be leveraged throughout the global wine industry.
DS: What is one thing you’ve done right that will carry you through these times?
SD: I understand that there is no one-and-only way to succeed in the wine business, and that humility is paramount. Neither I, nor the organization I work with, are the center of the universe. Some push forward, others retreat; however those that survive remain true to their core and recognize that there will be another day.
DS: How does Ciatti sustain its growth during up and down cycles?
SD: Ciatti works with thousands of wine businesses around the world: family-owned, closely held & publicly funded. Ciatti has a vision born out of necessity: we maintain a viable business during uncertain times by being diversified and differentiated. 50% of our business is international which allows us to piece together marketplace trends, see opportunities others may not and position successfully with a global presence. We do this by having our own people on the ground in 8 countries around the world.
DS: We notice many leaders in the wine industry seem to think we are somewhat protected from economic shifts. Do owners in this industry need to worry about the economy? Are you planning for a short or long recovery and why?
SD: Yes, everyone should worry about the economy. Without question, rising production costs and the impacts of fuel prices are eating into our margins and winery owners cannot pass all this all onto the consumer. I question, will those who drink $50 wine trade down to more value-focused wines? As a winery owner I would ask whether the consumer will drink thru all vintages over the next few years. Do wineries need to produce less? Are you in the right price point in the restaurants?
DS: Blind spots & mistakes – what do most business owners fail to focus on during tough times?
SD: I notice business leaders - myself included - fall into 5 traps when times get tough:
1. Don’t skimp on reinforcing your brand in the market. Everything has a life cycle; give it a chance. Stick to what you stand for and spend scarce resources on maintaining visibility with your distributor team and tightly managing inventory. When these things start backing up, you end up making bad decisions for your brand. Learn more about what your competition is doing and differentiate more than ever before. Manage your brand with discipline, consistency, persistence and focus.
2. Can you, or should you afford the same things? Check on whether your economic model has changed. Look at cost-benefit of doing certain activities (sales, wine club, accounting) in-house vs. outsourcing.
3. Don’t keep the wrong people on for too long. Wine business owners simply cannot afford to keep dead wood in the organization out of loyalty. Intentionally or not, these people will dig the hole deeper during difficult times.
4. Don’t cut corners on important issues. Be clear about what you do well and don’t change this. Authenticity is right there – revisit how you express it and clarify this to your employees and customers.
5. Don’t push off succession planning until the good times. You cannot afford to wait and will have fewer options later. Question whether you allow people (your successors) to mature at the pace they need to, or can you accelerate them at your rate?
DS: Top opportunities?
SD: 1. Got to be international. Diversify your market and customer base. With today’s exchange rates, California wines have good perceived value. At the London International Wine Fair in May out of 10,000 wineries exhibiting only 20 were from California. California had fewer wines than the Uruguayan booth. I didn’t even know Uruguay had wines. Consider however, that this takes an investment of both time and money.
2. Solidify relationships with growers. As partners, both the winery and grower can control costs so everyone rides thru uncertain times to come out successfully at the end.
3. (I know this is hard) Solidify relationships with distribution. This is more important than ever before. Ask them genuinely: ‘How can we keep this thing going? I am concerned about where we are going. We understand our relationship is 1 of 600, but what can we do to make our way thru these uncertain times and ensure success?’
DS: Vintage Wine Trust (VWT), Ciatti’s wine industry REIT: What happened and why?
SD: Joe retired from the Ciatti Company in December of 2006. Although VWT was started and managed by Joe Ciatti, it is a totally separate entity and has nothing to do with the Ciatti Company.
DS: Any final advice for wine business owners?
SD: Don’t put your blinders on. It is so easy to be arrogant during these times. Don’t be complacent. We have seen brands come and go: large & small.
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Steve joined Ciatti as a Partner in August 2007. With 27 years general management experience globally in the wine industry, Steve started as an assistant winemaker for Fetzer Vineyards, worked in grower relations, and has led various groups from sales and marketing for Brown Forman’s Estate wines division to overseeing production of Brown Forman’s wine operations around the world.
Steve has been a participant at Scion Advisors’ CEO Roundtable for the last 5 years.