Too much premium product, not enough demand? How one innovative winery came up with a profitable solution.
It's a real problem that's plagued an industry for a long time: too much premium wine, and not enough customers to purchase it.
Okay, that might not seem like a problem to most of us. If it were, we'd have an easy, five-letter solution (party!). But for high-end vineyards it's a real dilemma. There's a wine glut out there. Too many wineries produce too many good grapes, and thus run the danger of driving down prices. Not only is that bad for their bottom line in the short term, but high-end wineries depend on their premium image. That can vanish quickly if they discount their pricey labels even temporarily.
Enter Cameron Hughes: a San Francisco-based entrepreneur with a profit-making solution for the wine industry. Besides being a pretty cool story (and a helpful tip, if you're into wine), his experience might provide you with some good ideas in whatever industry your entrepreneurial brainstorming takes you. How do you turn one man’s problem, into your sought-after, profitable product?
Hughes and his wife and business partner, Jessica Kogan, run an eponymous company, Cameron Hughes Wine. One of their product lines is called the “Lot Series.” Rather than tend their own grapes and make their own wine, they buy excess stock from ultra premium vineyards and sell it under their own labels. What makes them different is that they don't blend the wines, but they also sign confidentiality agreements never to reveal which lots come from which winery.
Check out their website, and you'll see products such as, "Lot 246 (2009 Napa Valley Cabernet Sauvignon)," and "Lot 269 (2010 Santa Barbara County Sauvignon Blanc)." For customers, it can turn into a treasure hunt, with consumers hosting dinner parties and wine tastings at which guests try to guess what wine they're really drinking. Some folks really get into it and build collections; some lots are considered "legendary" because people might think they're drinking surplus Screaming Eagle (which normally sells for thousands of dollars a bottle) for $15.
Sometimes, a secondary market can even develop. Meanwhile, the high-end vineyards can get rid of their excess grapes at a profit without destroying their brands or undermining the high-end market. Win-win, all around.
The business seems to be doing well. Cameron told us the company sold about 400,000 cases of wine in 2011. He also said that, two years ago, a single story in the Wall Street Journal contributed to the company completely selling-out of all of their high-end Cabernet Sauvignon – to the tune of $2MM.
Before this illustration tempts us to call it a day and open a nice bottle of red, we think there are two key takeaways for entrepreneurs in the Cameron Hughes example.
First, resources are always relative.
Entrepreneurship isn't about gathering resources; it's about demonstrating better uses for resources that already exist, regardless of who owns them. This point might seem semantic when we're talking about resources that people uniformly value---like money for example. It becomes a bit more obvious when we talk about resources that might have entrepreneurial utility, but that aren't so obvious at first because they're not uniformly valued. (Here's a less appetizing example: turning the greasy, leftover cooking sludge from fast food restaurants into biofuels.)
Second, great entrepreneurs cross-pollinate.
As we examine in our new book, Breakthrough Entrepreneurship, entrepreneurs rarely need to come up with an original idea completely out of the blue. Often, it can be better to look for incremental steps forward, or else to try to cross-pollinate two (or more) accepted ideas or insights---say a proven business model from one industry and a market with which the entrepreneur has familiarity. So, founders might find success with, say, "the McDonald's of laundromats," "the eBay of professional services," or "the Airbnb of car sharing," or the like.
So, here's your challenge for today: Can you come up with another industry in which the Cameron Hughes model might provide an opportunity? Pour yourself a glass of wine and mull it over.
And what about that insider’s tip for wine-lovers? We asked Cameron whether there are any great wines in the Lot Series that customers might have overlooked, anything really special that hasn’t yet caught-on. His answer: Lot 263, a “phenomenal bottle.”
JON BURGSTONE was co-founder of SupplierMarket, acquired by Ariba for $1.1B. He now teaches at Berkeley, where he helped launch the Center for Entrepreneurship & Technology. He is co-author of Breakthrough Entrepreneurship. @jburgstone
BILL MURPHY JR. is a journalist, ghostwriter, and entrepreneur. He is the author of Breakthrough Entrepreneurship (with John Burgstone) and is a former reporter for The Washington Post. @BillMurphyJr