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Researching the business model of a wine merchant

June 30, 2014

Being a good wine merchant is about providing the best quality possible at all levels, be that hidden gems or grand châteaux. It is about integrity, treating customers in an honest and fair manner. It is about authority, presenting knowledgeable and respected opinions. And, vitally, it is about providing an unsurpassed level of customer service.

So one of my best friends tells me, as he’s currently researching the wine merchant market, as he’s considering taking his hobby of wine collecting and drinking into making a living as an on-line merchant. He’s a bit of a wine snob to be honest, but little did I know there were so very many oenophiles out there.

I’m helping him with his research into his business model, and doing the rounds at wine trade fairs as part of the fact finding. You’d be amazed at the descriptions of ‘mouth feel’ and correct ways to pronounce ‘Mere-LOW’, made me literally snort Chardonnay out of my nose. My favourite wine punditry I’ve heard in recent weeks includes:

The oaked Chardonnay reminds the tongue of subtle hints of cat piss and grass while the 2007 Napa Valley Cabernet disturbs the palate with whispers of leprechaun breath. And by the way – it’s pronounced “Mere-LOW” not “Mer-Lot!”

I get a mouthful of wet slate and bacon fat on the finish.

I only drink bio-organic, sustainable wines that were harvested during the full moon using recyclable materials that was then hand poured into eco-friendly bottles and blessed by Captain Planet. You can REALLY taste the difference.

Wine is the drink of civilization, the drink of romance and friendship. Families drink wine together at dinner. Wine is the ritual of religion. Wine has helped to define many great cultures such as France and Italy. Wars have been fought over wine. It happened in Greece, although why anyone would fight over Retsina is one of the world’s great mysteries along with the Pyramids and Stonehenge.

Working on the business model, its been fascinating to see the scale of an online marketplace, full-blown e-commerce supported by omni-channel marketing. Laithwaites, Yapp, Corks Out and The Sampler all offer insights as to how to launch a new business into what is a crowded market.

But back to wine snobbery. There’s no getting around it, central to the very premise of wine appreciation is the notion that it requires an advanced skill set, that in order to most fully understand and enjoy the experience of sniffing and sipping fermented grape juice, one must have a cache of special knowledge to which mere ordinary people do not have access.

Wine snobbery is, therefore, the default state of the wine enthusiast. In this regard, it is unique among cultural snobberies. In other cultural realms, such as music, films, art and food the snobs are the hard cases, the ones who have taken their passions to irrational extremes, devoting their lives to, say, the pursuit of the perfect round of Portuguese semisoft sheep’s-milk cheese made with thistle rennet.

The wine snob, on the other hand, can sit judgmentally as a bottle is presented to him, being indifferent at the label, sniffing the cork, watching intently as its contents are decanted and poured, swirl the liquid centrifugally in his glass, hold the glass up to the light, lower it under his nose, close his eyes, take a sip, pause in contemplation, open his eyes, and declare what he has just drunk to be ‘complex on the nose, with leather, dust, barnyard, and raspberry on the mid-palate, and a medium-long, tannic finish’. Not only will this man not be led away in restraints to the sanatorium, he will find himself actually being admired for his taste and acumen.

Far from existing on the freaky margins of society, the ever-resentful madly dogmatic wine snob commands centre stage in his chosen area of cultural fanaticism. Talking to them at the wine fairs leaves you feeling bewildered, humiliated, excluded, and inclined to drink nothing but beer. Would-be sommeliers are warned, however, that even books are no substitute for experience, runty stature, a persecution complex, and a tightly cinched dark suit offset by an assaultively loud necktie. Or cravat.

The research has taken me on a historical tour. Though references to wine abound in the Bible and in ancient classical literature (the word symposium is a corruption of a Greek term meaning ‘drinking party’), wine snobbery as we know it dates back to the middle of the C19th. It was in 1855, on the occasion of the Exposition Universelle de Paris, that Napoleon III enlisted his country’s wine merchants to put together a system of ranking and categorisation for its finest Bordeaux wines. The result, the Bordeaux Wine Official Classification, was hierarchical and utterly idiosyncratic, ideal breeding conditions for snobbery.

The advent of classification system, with its Premier Crus (first growths) and exalted Châteaux, equipped wine-lovers with a common set of standards to be upheld, absorbed, dissected, and showboated. In Britain it became the mark of a true oenophile to drink one’s way through all the classified Bordeaux and jot down tasting notes about one’s impressions, as much for purposes of social one-upmanship as for one’s own edification.

Looking at demand and pricing for the business model was illuminating too. As a national average, each of us drinks a bottle of wine a day. Aside from the occasional gift or splurge bottle they are almost always cheap – less than £10 a bottle, and most often less that £5.

One has to face reality once in a while. Cheap wine is not always very interesting. Some of them are the doorways to the soul of humanity at £5 a bottle. We drink lots of cheap wines risking our health and sanity in the altruistic desire to stay off the beer. But let’s also add that wine is beneficial to a healthy mind and body. Especially the mind and body.

So, that’s one side of the wine market. At one of the wine shows I met a farmer who had taken up creating his own brand of home made wine – on an industrial scale from his farm in Rossendale, and he showed the lighter side to wine snobbery. Having chatted and tasted his samples at the wine fair, when he found out I lived just a few miles from him, he invited me to visit his farm.

A week later and I’m knocking on his door, to be greeted by a friendly, warm, physical handshake and a beaming smile: ’Would you like a drink of my wine?’, and I stepped in. ‘He’s always looking for a victim’ said his wife. ‘Right I’ll be back in a minute’. He disappeared into his large pantry at the end of the kitchen and came back with a bottle of amber liquid and two glasses.

‘This is my rhubarb’ he said, tipping out two good measures. I took a sip and then a good swallow, and gasped as the liquid blazed a fiery trail down to my stomach. ‘It’s strong stuff’ I said breathlessly, but the taste was very pleasant indeed. He watched approvingly as I took another sip. ‘Yes, nearly two years old’.

I drained the glass and this time the wine didn’t burn so much on its way down, but seemed to wash around the walls of my empty stomach and send glowing tendril creeping along my limbs. Delicious. He refilled the glasses and watched with rapt attention as I drank. When we had finished the second glass he jumped to his feet and trotted to the pantry to emerge with another bottle, this time of a colourless liquid.

‘Elderflower’, he said smiling. When I tasted it, I was amazed at the delicate flavour, the bubble sparkling and dancing on my tongue. Terrific, just like champagne. I never thought home made Lancashire country wines could taste like this. I sipped appreciatively at my second glass, and I hadn’t got more than half way through it before my host was clattering and chinking inside his pantry again, emerging with a bottle of a blood red wine.

‘You try that!’ he gasped. I was being beginning to feel like a professional taster and rolled the first mouthful around my mouth with eyes half closed. Wow, just like an excellent port, but there’s something else here, a fruitiness in the background. ‘Blackberry, one of the best I’ve done, made it two backends since’.

Leaning back in the chair, I took another drink of the rich dark wine. It was round flavoured, warming and behind it an elusive hint of brambles. I could almost see the heavy-hanging clusters of berries glistening black and succulent in the autumn sunshine. The mellowness of the image matched my mood which becoming expansive by the minute.

I couldn’t make my mind up which had been the best. ‘But you haven’t started yet’, he said, ‘I’ve got dozens of bottles in there, all different’, and he shambled over again to the pantry and this time when he reappeared he was weighed down by an armful of bottles, different shapes and colours.

What a charming man! My research was going very well! Wide eyed and impassioned, he rambled at length over the niceties of fermentation and sedimentation, of flavour and bouquet. He dealt learnedly with the relative merits of Chambertin and Nuis St George, Montrachet and Chablis. I sat spell bound listening to him. And drinking.

He poured endless samples of his craft in front of me, mixing and with a

meticulous attention of his bottles, their date, origin and fruit. The big man drank with me, glass by glass. We tried parsnip and dandelion, cowslip and parsley, clover, gooseberry, beetroot and crab apples. Incredibly he had some stuff made from turnips, which was exquisite.

Everything gradually slowed as we sat there, time slowed and eventually became meaningless. The farmer’s visits to his pantry became laboured, unsteady affairs, sometimes he took a roundabout route across the kitchen. Eventually it was time to go, and I left with a bottle in each pocket – trousers and coat – including elderflower, of course.

So two extreme experiences to consider when discussing with my friend, and his aspiration to build on an on-line wine merchant business. The research had been intriguing, but how do you start to put this into context to launch a business? Whenever I work with folks pitching a new business venture, I use the Business Model Canvas, created by Alex Osterwalder and Yves Pigner.

A business model describes the rationale of how an organisation creates, delivers, and captures value for its customers. It identifies the key building blocks and their relationship to take an idea to market, and the necessary investments.

The nine elements are:

Customer Segments An organisation serves one or more customer segments.
For whom are we creating value? Who are our most important customers? How will we reach them? How often will they buy from us? How will they buy?

Value Proposition An organisation seeks to solve customer problems and satisfy customer needs with value propositions. What value do we deliver to the customer? Which customer needs are we satisfying? What bundles of products and services are we offering to each customer segment?

Customer Channels Value propositions are delivered to customers through communication, distribution and sales channels. Through which channels do our customer segments want to be reached? How are we reaching them now? How are our channels integrated? Which ones work best? Which ones are most cost-efficient?

Customer Relationships Customer relationship are built with each customer segment. What type of relationship does each customer segment expect us to establish and maintain with them? Which ones have we established? How are they integrated with the rest of our business model?

Revenue Streams Revenue streams result from value propositions successfully offered to customers. For what value are our customers willing to pay? For what do they currently pay? How does each stream contribute to overall revenues?

Key Resources Key resources are the assets required to offer and deliver the five previously described elements. What key resources do each of the other eight business model elements require?

Key Activities Key activities are the jobs and operations needed to be performed in order to produce key resources. What key activities do each of the other eight business model elements require?

Key Partnerships Key partnerships involve activities and resources that are acquired outside the enterprise. Who are our key partners? Who are our key suppliers? Which key resources are we acquiring from partners? Which key activities do partners perform?

Cost Structure The eight previously described business model elements result in a cost structure. What are the most important costs inherent in our business model? Which key resources are the most costly? Which key activities are the most costly? Which are fixed, which are variable costs?

It doesn’t matter if the glass is half empty or half full – there is clearly room for more wine, but as in any business, to avoid a ‘dive and catch’ business existence, you need a clearly thought through business model.

Few of the entrepreneurs I meet spend sufficient time exploring alternative business models for their products and services. Too often I see them fall in love with their initial idea and then they immediately dig deep into spreadsheets and business plan writing. That has a great risk.

Life’s too short to drink bad wine, as it is to not have developed an innovative business model, but whatever you do, pour yourself into it.

One Comment leave one →
  1. July 1, 2014 9:55 am

    Take a look at Naked Wines if you advent already. They have a unique business model which funds new/small vineyards in return for wine at reduced rates – which is then passed on to its members. Great, story, good wines, great service and a unique business model.

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