case competition

[yellow tail]® Wines Capturing Opportunity

Hannah Hersch, Matthew LaMotte, Brittany Piket, Anna Prigl

Agenda

• Situation Analysis

• Pricing Strategy

• Target Market

• Direct-To-Consumer

• Implementation And Projections

• Summary And Questions

Situation Analysis

Trading Down Phenomenon• 50% decrease in sales growth beginning 2008

Core Market For Wine In Danger• Baby Boomers spend 20% less on food & drink purchases

Unreliable Wholesale Channels• Wholesalers and distributors reluctant to take on inventory

Background Recommendation Implementation Projections Summary Questions Appendix

Source: Trading Down On Wine, ncpa.org, ShipWire: A Roadmap For Export Growth

The Solution

Revise Pricing Strategy• Find best way to maintain sales while preserving brand value

Capture A New Market• Target a market that will be sustainable in the long term

Tap Into Direct-To-Consumer Channel• Curb reliance on traditional wholesale channels


Trade Up Or Trade Down?

Trade Up

Increase Prices of All

Wines

Trade Down

Decrease Prices of All

Wines

Neither

Maintain Current

Prices of All Wines

Both

Decrease Some Prices,

Increase Some Prices


Trade Up Or Trade Down?

Trade Up

Loss of consumers

during recession

Trade Down

Destroy short-term profits and long-term

brand equity

Neither

Risk losing consumers

to competitors

offering lower prices

Both

Attract consumers less willing

to spend and maintain those still willing to

spend


Source: Harvard Business Review: Should You Launch A Fighter Brand? 2009

Pricing StrategyIntroduce Sauvignon Blanc at Low Price

Introduce Reserve Merlot at

High Price

Balanced Portfolio

and Higher Profits


W. J. Deutsch & Sons company records

Why Reserve Merlot?Red Wine Varietal 2009 Expected Case Sales

Cabernet Sauvignon 1,100,000

Cabernet-Merlot 440,000

Merlot 950,000

Pinot Noir 480,000

Reserve Cabernet 500,000

Shiraz 900,000

Shiraz-Cabernet 375,000

Price Segmentation Trends

2003 2004 2005 2006 2007 2008$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

$7,000

$8,000

Sub-Premium ($3.00-$6.99)Premium ($7.00-$9.99)Super Premium ($10.00-$13.99)Deluxe (>$14.00)Economy (<$3.00)

Year

U.S

. Sal

es in

Mill

ions


Source: Impact Databank Review and Forecast

Price Segmentation Trends

2003 2004 2005 2006 2007 20080

20000

40000

60000

80000

100000

120000

140000

Sub-PremiumEconomyPremiumSuper PremiumDeluxe

Year

Case

Sal

es in

Tho

usan

ds o

f N

ine-

Lite

r Ca

ses



Price Segmentation TrendsBackground Recommendation Implementation Projections Summary Questions Appendix

Price Segment Economy Sub-Premium Premium Super

Premium Deluxe

Revenue Growth (2003-2008) -2.2% 16.5% 50.0% 57.3% 68.8%

Percent of Total Revenue (2008) 7.2% 31.0% 25.2% 25.1% 11.4%

Case Sales Growth (2003-2008) -10.5% 16.7% 50.7% 45.2% 57.3%

Percent of Total Sales (2008) 22.7% 40.0% 20.4% 13.4% 3.9%


Wine Market SegmentationBackground Recommendation Implementation Projections Summary Questions Appendix

Non-Drinkers

42.5% of U.S.

Population

123.3 Million

Marginal Drinkers

(Millennials)

46% of U.S. Population

133.4 Million

Core Drinkers (Baby Boomers)

11.5% of U.S.

Population

33.4 Million

Academy of Wine Business Study, 2003 U.S. Census


Marginal Drinkers

(Millennials)

10% of Wine Purchases


90% of Wine Purchases



Marginal Drinkers

(Millennials)

60% of Purchases in Sub-Premium

Category ($3-$7)


50% of Purchases in

Premium Category ($7-$10)


New Varietals At Target Price Points


Sauvignon Blanc

$4.49 per Bottle

$52.70 per Case

Reserve Merlot

$8.75 per Bottle

$102.00 per Case

Net Income Comparison with Recommended Additions


2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 $80,000,000 $90,000,000

$100,000,000 $110,000,000 $120,000,000 $130,000,000 $140,000,000 $150,000,000 $160,000,000 $170,000,000 $180,000,000

With Pricing Recommendation Without Pricing Recommendation

Year

Net I

ncom

e

Source: ‘Benchmarking Winery Financial Performance,’ Silicon Valley Bank

Source: Milennial Wine Consumers: Risk Perception And Information Search, Thomas Atkin & Liz Thach

Why Millennials?

Long-Term, Profitable Customers

Undetermined Wine

Preference

More Spending

Money

Wine Consumption On The Rise


SummaryBackground Recommendation Implementation Projections Summary Questions Appendix

Sauvignon Blanc – Sub-Premium

Reserve Merlot – Premium

Target Millennial Market

Wine Bars Promote New Launches And Attract Millennials

Harvard Business Review: Should You Launch A Fighter Brand? 2009

Questions?Background Recommendation Implementation Projections Summary Questions Appendix

Harvard Business Review: Should You Launch A Fighter Brand? 2009

AppendixBackground Recommendation Implementation Projections Summary Questions Appendix


Pricing Trends

Year 2003 2004 2005 2006 2007 2008

Economy $1,636 $1,666 $1,735 $1,573 $1,584 $1,601Sub-Premium $5,905 $6,233 $6,626 $7,127 $7,593 $6,882

Premium $3,738 $3,914 $4,282 $4,557 $4,803 $5,608Super Premium $3,547 $3,838 $4,262 $4,755 $4,965 $5,579

Deluxe $1,505 $1,615 $1,849 $2,166 $2,369 $2,541

Source: W.J. Deutsch & Sons Company Records

Current Yellowtail Projected Retail Case Sales

Wine Varietal 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Chardonnay $ 1,450,000

$ 1,600,000

$ 1,650,000

$ 1,701,563

$ 1,754,736

$ 1,809,572

$ 1,866,121

$ 1,924,437

$ 1,984,576

$ 2,046,594

Pinot Grigio $ 585,000

$ 610,000

$ 660,000

$ 714,098

$ 772,631

$ 835,961

$ 904,483

$ 978,621

$ 1,058,836

$ 1,145,625

Riesling $ 410,000

$ 450,000

$ 480,000

$ 512,000

$ 546,133

$ 582,542

$ 621,378

$ 662,804

$ 706,991

$ 754,123

Sauvignon Blanc

$ 220,000

$ 280,000

$ 350,000

$ 437,500

$ 546,875

$ 683,594

$ 854,492

$ 1,068,115

$ 1,335,144

$ 1,668,930

Rose $ 290,000

$ 320,000

$ 340,000

$ 361,250

$ 383,828

$ 407,817

$ 433,306

$ 460,388

$ 489,162

$ 519,734

Cabernet Sauvignon

$ 1,100,000

$ 1,250,000

$ 1,200,000

$ 1,152,000

$ 1,105,920

$ 1,061,683

$ 1,019,216

$ 978,447

$ 939,309

$ 901,737

Cabernet-Merlot $ 440,000

$ 430,000

$ 470,000

$ 513,721

$ 561,509

$ 613,742

$ 670,835

$ 733,238

$ 801,446

$ 875,999

Merlot $ 950,000

$ 1,100,000

$ 1,050,000

$ 1,002,273

$ 956,715

$ 913,228

$ 871,717

$ 832,094

$ 794,272

$ 758,168

Pinot Noir $ 480,000

$ 520,000

$ 570,000

$ 624,808

$ 684,885

$ 750,740

$ 822,926

$ 902,054

$ 988,790

$ 1,083,866

Shiraz $ 900,000

$ 1,090,000

$ 1,050,000

$ 1,011,468

$ 974,350

$ 938,594

$ 904,150

$ 870,970

$ 839,008

$ 808,219

Shiraz Cabernet $ 375,000

$ 390,000

$ 430,000

$ 474,103

$ 522,728

$ 576,342

$ 635,454

$ 700,628

$ 772,488

$ 851,717

Reserve Cabernet

$ 500,000

$ 600,000

$ 650,000

$ 704,167

$ 762,847

$ 826,418

$ 895,286

$ 969,893

$ 1,050,718

$ 1,138,277

Total Sales 7,700,000

8,640,000

8,900,000

9,208,949

9,573,158

10,000,233

10,499,364

11,081,689

11,760,738

12,552,990

Source: W.J. Deutsch & Sons Company Records, Bloomberg Business

Projected Retail Case Sales With Recommendation

Wine Varietal 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Chardonnay 1,450,000

1,603,200

1,658,250

1,710,070

1,767,897

1,827,668

1,894,113

1,962,926

2,083,805

2,148,924

Pinot Grigio 585,000

611,220

663,300

717,669

778,426

844,321

918,050

998,193

1,111,777

1,202,907

Riesling 410,000

450,900

482,400

514,560

550,229

588,368

630,699

676,060

742,340

791,829

Sauvignon Blanc

220,000

280,980

352,625

440,781

552,344

717,773

897,217

1,132,202

1,415,253

1,785,755

Rose 290,000

320,640

341,700

363,056

386,707

411,896

439,806

469,595

513,620

545,721

Cabernet Sauvignon

1,100,000

1,252,500

1,206,000

1,157,760

1,114,214

1,072,300

1,034,504

998,016

986,275

946,824

Cabernet-Merlot 440,000

430,860

472,350

516,290

565,720

619,880

680,897

747,903

841,518

919,799

Merlot 950,000

1,102,200

1,055,250

1,007,284

963,890

922,360

884,793

848,736

833,985

796,077

Pinot Noir 480,000

521,040

572,850

627,932

690,022

758,247

835,270

920,095

1,038,229

1,138,059

Shiraz 900,000

1,092,180

1,055,250

1,016,525

981,657

947,980

917,712

888,390

880,958

848,630

Shiraz Cabernet 375,000

390,780

432,150

476,473

526,649

582,105

644,985

714,641

811,112

894,303

Reserve Cabernet

500,000

601,200

653,250

707,688

768,569

834,682

908,715

989,291

1,103,253

1,195,191

Reserve Merlot

150,000

191,386

239,830

299,787

375,666

470,748

591,347

742,826

955,842

1,194,802

Total Sales 7,850,000

8,849,086

9,185,205

9,555,875

10,021,990

10,598,327

11,278,109

12,088,873

13,317,968

14,408,821

Capturing Millennials

Risk Perception

Word Of Mouth Taste

Before Purchase

Brand Association

Source: Millennial Wine Consumers: Risk Perception And

Information Search, Thomas Atkin & Liz Thach


Average Gross Margins Per Case

2008 2009 2010 2011 $-

$5.00

$10.00

$15.00

$20.00

$25.00

$30.00

$15.21 $14.98 $15.13 $15.28

$25.03 $25.03 $25.61 $26.57

Wholesale DTC

Year

Gro

ss M

argi

n

Source: 10 Reasons The Best Time To Start A Business Is During A Downturn, Forbes

Reasons To Start A Business During An Economic Downturn

• Consumers are looking for innovation

• Incumbents are vulnerable

• Good people are looking for work

• Assets and resources are cheaper

• Lower interest rates, cheaper credit• Less competition

Wine Bar Trends36% increase

in wine consumption since 2000

50% increase in imported wines since

2001

Expanding offerings of

wine

Changing perceptions

of wine

Greater desire for flexibility

Source: SymphonyIRI GroupSource: Symphony IRI Group

Projected Daily Traffic Per Wine Bar

2009 2010 2011 2012 2013 20140

10

20

30

40

50

60

Year

Num

ber

of C

usto

mer

s

Source: Statista

Projected Daily Traffic Per Wine BarYear 2006 2007 2008 2009 2010 2011 2012Bar & Nightclub Industry Revenue (billions of U.S. dollars) 22.4 23.5 23.2 21.1 21.3 22.1 22.8Coffee & Snack Shop Industry Revenue (billions of U.S. dollars) 24.1 25.6 26.5 24.7 25.5 26.5 27.8

Bar & Nightclub Growth Percentages 6.22% 3.52% -6.79% 3.24% 3.92% 4.91%

Coffee & Snack Shop Growth Percentages 4.91% -1.28% -9.05% 0.95% 3.76% 3.17%Average

Bar:Coffee Shop Revenue 92.95% 91.80% 87.55% 85.43% 83.53% 83.40% 82.01% 86.67%

Yellow TailYear 2005 2006 2007 2008Percentage 10.80% 11.20% 10.70% 10.40%

Dunkin' Donuts ~16%

Year 2009 2010 2011 2012 2013 2014Approximate Daily Traffic per Store 164 190 200 210 220 228

Projected Daily Traffic per Wine Bar 36 41 43 46 48 50

Percentage Growth 15.85% 5.26% 5.00% 4.76% 3.64%

Source: Statista

Wine Bars

Develop Brand Loyalty

Wine Tastings

Smaller Quantities At Lower

Prices

Friendly, Social

Environment

Advertise New

Products

Promotion With Wine Bars Promotiona

l events near locations – contests, games, giveaways

Feature new Sauvignon Blanc and Reserve Wines

First tasting free with purchase of featured wine

Source: Entrepreneur

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

$(120,000)

$(100,000)

$(80,000)

$(60,000)

$(40,000)

$(20,000)

$-

$20,000

$40,000

$60,000

Year

U.S

. Dol

lars

Projected Annual Operating Profit

Second half of year

Source: Entrepreneur

Projected Annual Operating Profit

Year 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Startup Cost $135,619 $- $- $- $- $- $- $- $- $-

Operating Expense $58,297.25 $135,074.73 $142,179.66 $149,288.64 $156,394.78 $162,087.55 $166,139.74 $169,960.95 $173,360.17 $176,827.38

Revenue $81,250 $168,939.06 $177,825.26 $186,716.52 $195,604.23 $202,724.22 $207,792.33 $212,571.55 $216,822.98 $221,159.44

Estimated EBIT $(112,666) $33,864.33 $35,645.60 $37,427.88 $39,209.45 $40,636.67 $41,652.59 $42,610.60 $43,462.81 $44,332.06

Estimated Table Wine Consumption

Suggested Timeline

Select Strategic Locations

Construct and Design

Market to Local

Consumers

Host Promotiona

l Events

Grand Opening of Wine Bars

February

March April May June July


Profit Projections Without Recommendation

Retail Profits Without Recommendations

Running a winery 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Revenue $ 310,625,000 $ 351,240,000 $ 366,030,000 $ 379,654,053 $ 394,426,201 $ 410,801,850 $ 430,640,902 $ 453,843,045 $ 480,434,024 $ 511,759,955

COGS $ 118,580,000 $ 133,920,000 $ 142,696,667 $ 148,264,084 $ 154,925,614 $ 162,337,116 $ 171,139,636 $ 181,370,309 $ 193,268,122 $ 207,166,182

Gross Profit $ 192,045,000 $ 217,320,000 $ 223,333,333 $ 231,389,968 $ 239,500,587 $ 248,464,734 $ 259,501,267 $ 272,472,736 $ 287,165,902 $ 304,593,773

Selling, Marketing, Promo $ 93,187,500 $ 105,372,000 $ 109,809,000 $ 113,896,216 $ 118,327,860 $ 123,240,555 $ 129,192,271 $ 136,152,914 $ 144,130,207 $ 153,527,986

Profit $ 98,857,500 $ 111,948,000 $ 113,524,333 $ 117,493,753 $ 121,172,726 $ 125,224,179 $ 130,308,996 $ 136,319,823 $ 143,035,695 $ 151,065,786


Profit Projections With Recommendation

Retail Profits with Recommendations

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Revenue $ 317,252,000 $ 360,409,648 $ 379,895,926 $ 394,825,730 $ 414,017,339 $ 436,428,001 $ 464,014,301 $ 496,863,734 $ 547,036,625 $ 591,013,840

COGS $ 122,786,077 $ 139,230,163 $ 149,040,542 $ 155,643,148 $ 164,006,014 $ 173,926,692 $ 185,776,486 $ 199,875,565 $ 221,016,797 $ 240,050,950

Gross Profit $ 194,465,923 $ 221,179,484 $ 230,855,384 $ 239,182,582 $ 250,011,325 $ 262,501,309 $ 278,237,815 $ 296,988,169 $ 326,019,828 $ 350,962,890

Selling, Marketing, Promo $ 111,038,200 $ 122,539,280 $ 125,365,655 $ 126,344,234 $ 124,205,202 $ 130,928,400 $ 139,204,290 $ 149,059,120 $ 164,110,987 $ 177,304,152

Profit $ 83,427,723 $ 98,640,204 $ 105,489,728 $ 112,838,348 $ 125,806,123 $ 131,572,909 $ 139,033,524 $ 147,929,049 $ 161,908,840 $ 173,658,738

Wine Bar Profits

Revenue $ 325,000 $ 2,703,025 $ 2,845,204 $ 2,987,464 $ 3,129,668 $ 3,243,588 $ 3,324,677 $ 3,401,145 $ 3,469,168 $ 3,538,551

Startup Cost $ 542,476 $ - $ - $ - $ - $ - $ - $ - $ - $ -

Operating $ 233,189 $ 2,161,196 $ 2,274,875 $ 2,388,618 $ 2,502,317 $ 2,593,401 2658235.841 2719375.266 2773762.771 2829238.026

Profit $ (450,665) $ 541,829 $ 570,330 $ 598,846 $ 627,351 $ 650,187 $ 666,441 $ 681,770 $ 695,405 $ 709,313

Total Profit w/ Recommendation $ 82,977,058 $ 99,182,033 $ 106,060,058 $ 113,437,194 $ 126,433,474 $ 132,223,095 $ 139,699,966 $ 148,610,819 $ 162,604,245 $ 174,368,051

Social Media Campaign

• Expected annual growth rate of 34%• Large portion of Millennial market using Internet

Why Social Media?

• Enhance strength of brand via company website, Facebook page, Twitter feed, and YouTube channel

• Target Millennials by using appealing tacticsStrategy

• Integrate new varietals into company’s social media

• Associate [yellow tail]® brand with social, fun environment

Content

Wine Bars

Market New Varietals

Attract Millennials

Sell Directly To Consumers


The Wine LoftBackground Recommendation Implementation Projections Summary Questions Appendix

• Upscale Wine Bar

Chain Founded In 2002

• 10 Locations As Of

2009

• $1 Million In Annual

Revenue“One of the best values we have

ever experienced. Have told

everyone about it.”-Colleen S. (Verified by Groupon)

Source: TheWineLoft.net, Manta: More Details About The Wine Loft

Source: Entrepreneur: How To Start Your Own Bar

Buy Or Build?Background Recommendation Implementation Projections Summary Questions Appendix

Buy Existing BarBuild From

Scratch

Startup Cost $50,000 + $140,000 +

Time Immediate Upward of 6 months

Hire New Employees/Training No Yes

Existing Customer Base Yes No

Four Initial LocationsBackground Recommendation Implementation Projections Summary Questions Appendix

Los Angeles

New York

San Francisc

oChicago

Source: US Census, per capita wine consumption by state from Adams

Wine Handbook

Offerings And RebrandingBackground Recommendation Implementation Projections Summary Questions Appendix

Simple Food Menu

Promote New Varietal

LaunchesOffer Wine

Tastings

Increased Positive Brand Awareness

Casella Wines Produces

Import & Sell To Wholesalers For

50% Of Retail Price

Wholesalers Sell To Retailers

Lower Gross Margins

Wholesale Channel:

Direct-To-Consumer (DTC)

Casella Wines Produces

Import And Sell Directly To U.S.

Consumers

65% Higher Gross Margins

DTC:


Source: Entrepreneur: How To Start Your Own Bar

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

$(120,000)

$(100,000)

$(80,000)

$(60,000)

$(40,000)

$(20,000)

$-

$20,000

$40,000

$60,000

Year

U.S

. Dol

lars

Projected Annual Operating Profit Background Recommendation Implementation Projections Summary Questions Appendix

Second half of year


Total Profit ProjectionBackground Recommendation Implementation Projections Summary Questions Appendix

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 $75,000,000 $85,000,000 $95,000,000

$105,000,000 $115,000,000 $125,000,000 $135,000,000 $145,000,000 $155,000,000 $165,000,000 $175,000,000

Profit from Retail Sales Profit from Wine Bar OperationProfit without Recommendation

Year

Net I

ncom

e