|Matthew Dickinson: why some wine business survive and others become extinct|
|Written by Richard Siddle|
|Thursday, 11 October 2012 11:25|
One of the essential values of the modern wine industry's founding fathers, if indeed they thought that way at all, was creativity.
Jeff Fredericks, David Garlick, Paul Stratford, Roger Gabb and many other charismatic entrepreneurs, all thought in one direction - creatively leveraging a gap for themselves in a buoyant market that needed someone like them to fill it.
If there was no gap, or if they weren't creative enough, then there was no business opportunity - and they probably would have all ended up making their mark (and perhaps getting considerably richer) in another industry.
The demise of Stratford's last month, and the news about D & D earlier this year, sees the departure of two stalwarts of the UK wine agency business. Last week saw WaverleyTBS go in to administration.
At their height, D & D was responsible for millions of cases of wine sales, some of them quite good (Luis Felipe Edwards, St Hallett etc.) and some to become important brands (Canti), and Stratford's for some pretty decent Australian wines such as Wakefield (and for bringing to the UK that little known brand YellowTail).
There are undoubtedly more major failures to come as the recession takes its hold, and banks start to tighten up the lending parameters. The question though is surely : isn't this just part of a normal business cycle of adapting to changing surroundings, or die?
Throughout my career, working for retailers and producers, as well as for an agency business, I have been a staunch defender of good agencies and wholesalers - they started out as enormously creative businesses, inventing solutions (or brands) for either end of the supply chain - who were, and perhaps still are, most appreciative - and certainly some of their owners became very rich as a result of their efforts.
And let's face it, you really need to be creative in our industry to make money, with its typically low margins and high cash risk. There have also been various examples of ‘sharp' business practice - all totally legal of course, but perhaps morally dubious, and really used as a cover for a management team running out of good ideas and wanting to escape some responsibilities.
The "one man and his dog"' model was starting to become unworkable by the mid-90s. The sophistication required to run a few million cases into some highly demanding customers, meant large teams, lots of expensive expertise in fiddly areas such as shipping, quality control etc.
Many of the creative entrepreneurs either sold, or developed into brand owners, or simply grew - massively. Of those that simply grew, without finding their niche, it was always going to be a question of too many sharks, not enough food to go around - so the biggest sharks of all ended up by eating everybody else.
Ironically though, those that found their niche have done just fine (Brand Phoenix or Boutinot are excellent examples), and those that sold at the right time - well, let's just say that beaches can be very comfortable places with the right bank balance!
Also ironically, the "one man and his dog" model is starting to make a bit of a comeback - why? Because the overheads are low, and those sort of prices are always going to find favour with some customers.
But becoming too big and investing more and more in high overheads, whilst forgetting that creative imperative, always sounds like the death knell of the original fast-moving, lean, innovative agent. It feels almost like the owners of now-defunct agencies forgot why they existed in the first place - to provide the UK wine industry with the creative spark, in a way that retailers can't always (too many more important categories) and producers find hard (too many other markets to deal with).
Many small businesses became very ‘corporate', exactly what their founders were running away from in the first place.
Whilst not technically an agent, it would not be appropriate to forget to mention WaverleyTBS, given that it's so hot off the press. Their recent situation may indeed be a bit of a soul-searcher for the industry.
How is that an obviously profitable company (£4.2m last year), with good credit insurance, manages to be put into administration by its owners? There are several reasons - firstly, the new owners Mansfield was clearly none too impressed by wine growth and margins (it makes you wonder why they bothered buying Waverley in the first place).
Secondly, Waverley had become simply a glorified logistics company, and had lost a lot of its credibility by not focusing on the quality of its offer. And finally, what happened to the creativity? Other wholesalers in the same sector are keeping their heads above water in tough trading conditions by continuing to offer creative solutions to their customers, who are also facing tough economic times.
I'm not saying that Waverley didn't, but just that others are potentially doing it better - and no wonder the owners lost patience, at the end of the day, if you can't see things improving, it's probably better to get out while there's still something to sell.
The sad thing with many of these situations is that there is a significant impact on staff, suppliers and customers, and our sympathies should be with them - we should hope they find solutions appropriate to them in the future. Having said that, it is a necessary evolution for the sector, and whilst it's easy to blame the trading conditions, in effect recession is all about survival of the fittest (ie lean, and creative).
Transforming and continuous creativity are therefore the only ways forward - and creatively adapting to changing scenery (for example consolidation, new services, product innovation) is absolutely the only route to success.
Stratford's, D & D and Waverley got caught in the headlights and failed to remain creative.
I wonder how many more dodos are going to move from endangered to extinct in the coming months.
Matthew Dickinson is a Trustee of the WSET and runs Dickinson Associates, a consulting firm based in France