jamie goode's wine blog: Now is different (2)

Sunday, January 25, 2009

Now is different (2)

A week ago I posted here on how now is different, and how old ways of doing business in the wine trade need to change. It met with a range of responses, from highly positive, to highly negative.

I've been thinking some more on these issues.

I think a different type of leadership is needed in times of difficulty and rapid change. There are people who do a very competent, effective job when conditions for business are stable and benign, but whose skill sets are likely to be unsuited to tougher times of rapid flux.

The organizations that are going to find things very difficult are those with managers at the helm rather than leaders.

Here's an important point: sometimes changing nothing and carrying on just as before is the most effective strategy. But if this is the chosen route, then people need to be led into it - it needs to be communicated that the decision to carry on is an active choice, and people need to buy into this.

However, I suspect that in the current difficult economic climate strategies of 'batten down the hatches' and 'ride out the storm', might lead to failure - albeit a slower, more drawn-out failure than would otherwise have been the case.

Think of a parallel with evolution. Rapid shifts in climate, for example, threaten those species least able to adapt rapidly. Typically, larger animals with longer generation times and higher energy requirements will be more at risk. Smaller animals, able to adapt quickly to changing circumstances may be better off. New niches will appear and these will offer opportunities for some.

While economic downturn is bad news for most, there will be some winners. Wine companies must make sure they are being led by leaders who are set free to lead, and not crippled by fear, with cautious managers making all the decisions. There is a risk in this, but failure to take risks will be even riskier, in that it looks doomed to failure. We may see a much changed wine market emerge the other side of the current crisis.


At 10:02 PM, Anonymous Doug said...

I am not sure the analogy with evolution holds, Jamie. A more apposite metaphor might be to imagine that a bank is an elephant and a wine merchant is a mouse. There is a fire in the forest (credit squeeze/recession), the frightened elephant stampedes and squashes the mouse.

Small wine companies might well be more adaptable and imaginative than larger ones, but one blow (a big, bad debt, for example) can bring them to their knees.

The companies that will best survive this recession are structurally sound with low debt exposure, manageable overheads and thus will be able to control the huge risks. Wine merchants, particularly those that deal with the on-trade, have operated for too long giving extended credit terms and generous discounts (analagous to banks giving big mortgages); now they are going to have to tighten up the way they conduct business.

The forthcoming recession will be a storm and there will be plenty of collateral damage. Brilliant strategy will aid survival, but is still no guarantee (a lot of companies will probably have to refinance - if that is an option). Everyone will necessarily sharpen their game, but there will be unpredictable chain reactions. This is not evolution as we know it, but catastrophe theory.

Not all sides of the wine trade will suffer equally. Supermarkets will continue to flourish and online companies who are competitive because of their low overheads should do reasonably well.

And let's not forget the other variables that affect the wine trade and over which wine companies have no control, specifically the exchange rate.

At 7:18 AM, Anonymous Keith Prothero said...

Good post Doug. I think the key for all businesses in a recession,is positive cash flow.
This recession is almost certainly going to last for at least two more years and possibly longer. Banks have moved from being greedy and unafraid to being paralysed with fear,and hence getting a loan at a decent rate will be almost impossible,even for the better companies.
Many companies,including of course winemerchants will go bust,but this of course leaves a great opportunity for the efficient well capitalized concern.

At 1:01 PM, Anonymous Augustine said...

Agree with both previous posts. Cashflow is king. I would like to add that of the industries I have worked in wine has some of the most fantastic and diverse leaders with a huge amount of respect and interest for each other within this group, comparable to the restaurant world and many of whom have featured in this blog. My thinking on this is the opposite to Jamie. I believe that the industry needs better managers, analytical,competitive and full of ideas. Remember wine is easy to be passionate about and as such having passionate staff is a banality. It doesn't equate to better employees, just a bonus if they also happen to be savvy, committed and flexible. In general the industry is very focused on the FMCG aspect of the business and less so on the retail. This hopefully will change.

At 7:30 PM, Blogger Michael Pollard said...

Well as everyone keeps saying - we live in interesting times. One thing that we can be thankful about (or maybe not!) is that the whole process is sure to be documented by blogs of all types.

One thing that will continue to be important will be consumer confidence – if all the tales are of doom and gloom then the bunker mentality will reign supreme and we will be in a mess for the long haul. The survivors (wineries, wine shops, just about any business) may well be those without debt, or at least debt they can continue to service. But the smart guys will be those who can change their focus to suit the times. For example in the US there is a trend for consumers to “trade down” (buy the same volume of wine but at lower prices) which means that those wineries and or wine shops that can service that need may well do well. Thus its likely that the big chains selling value will chug along nicely but the specialist shops may well suffer if they don’t add cheaper value wines to their inventory.

Its going to be interesting to see how all this pans out over the next year or two – I truly hope we don’t have to go longer than that.


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