Friday, October 29, 2010

Market Conditions and Augustan Wine Imports Positioning: Part III of an Interview with Proal Perry, Founder

Earlier this week I sat with Proal Perry, Founder of Augustan Wine Imports, for what turned out to be two hours of dialogue on Augustan Wine Imports, current market conditions, and the company's response to the winds of change that are buffeting the industry.  In installment 1 of this series I reported on the Augustan origins and partnership with Premier while installment 2 looked at the company philosophy, goals, and organizational structure.  In this the third installment, Proal gives us his insight into current and future market conditions and addresses Augustan's positioning in that future market.

Prior to the onset of the current recession, there was already a move to greater concentration in the industry.  This was a troubling trend, in Proal's view, because larger companies tend to be less forward-looking than their smaller, nimbler counterparts.  Proal likes the idea of a large number of distributors in the Florida market as it results in more wine choices for the consumer and leads to stronger wine consumption.  On the other side of the equation, wine sales are inhibited by a lack of consumer knowledge and an intimidation factor.  Retailers have seized the opportunity to increase their sales by allaying the fears of, and providing education to, retail-level customers.

According to Proal, high-end wineries have historically been loath to sell their wines to independent retailers.  Rather, they have wanted their wines sold in restaurants because of the belief that that channel provided the greatest exposure for both the wine and the winery: the wine is prominently displayed on the wine list; the bottle is brought to the table and consumed by multiple persons; and while the wine is being consumed, the bottle is on display on the table for other diners to see.  Not so for the independent retailer, according to the wineries.  These high-end wines are never displayed on the racks in the store.  Rather, the retailer makes them available only to his/her best customers in a dark back room from where it goes into a collector's cellar never having seen the light of day.  And having provided no broad-based exposure to the winery in that market.

In today's straitened environment very few wineries are placing restrictions on where their wines can be sold due, in large part, to the current restaurant environment.  It has been a difficult time for small operators who, in many cases, lack the capital to ride through the rough times.  Further, it is toxic for startups who, even in the best of times, require two years from startup to profitability.

Proal Perry with the Talley Vineyards winery Rep.

On the consumer side, Proal sees the "top-end" buyers continuing to spend on their favorite collectibles.  It is the "aspirants," as he calls them, who have retreated from the market.  This particular type of customer lacked wine knowledge but bought it because it was "cool" and bestowed "status" on the consumer.  In today's environment this type of consumer has fallen back to wines that are more moderately priced.

With the "aspirants" retreating to the lower-priced end of the market, this segment is showing a marked propensity for trying a more diverse array of wines: diverse both in terms of styles and geography.  And producers are responding.  Good value wines from around the world have increased their presence significantly over the past two years, with independent retailers leading the way in providing customers with exposure to these products.

Proal sees the current market dynamics enduring for some time.  As he sees it, the $50-$75 retail price range has been hurt badly and may never regain its prior elevated levels.  The <$30 market, on the other hand, will continue to be robust going forward, especially given the fact that the quality of the wines produced at that level has improved dramatically over the past 5 years.  It has, historically, been been difficult to get "big spenders" to try lower-priced wines but as the quality of these wines have improved, they have become more open to giving them a try.

Given the foregoing market dynamics, and a strong sense that the <$30 market will continue to grow, Augustan has focused all of its referral assessment activity on that space.  Iconic (read high-end) wines will continue to be pursued as the opportunities present themselves.  A full listing of the Augustan portfolio can be viewed here.

With market positioning set, Augustan has to take all of the necessary steps to ensure that its customers are on board and are prepared to carry that message on to the ultimate consumer.  Augustan eschews the trade-show-type approach in favor of education-themed interactions with its customers which provides those retailers with the tools to then educate the end customer.  For example, last year, the company brought many of its producers to Florida for a three-city road show where small groups of customers had dedicated interaction time with each producer over a four-hour period.  This year the company is doing a number of education-themed sessions with customers in various markets to include a Fall show in the Orlando market where Master Sommelier Andrew McNamara will be leading a seminar on Grower Champagne and South America.

Well, this concludes what has been, for me, a fascinating view into the workings of a company and an industry through the eyes of a leader who has built a successful entity in the space.  I would like to thank John Allport of Augustan for facilitating the meeting with Proal and express my deep appreciation to Proal for taking the time to patiently walk me through the things which come so naturally to him.

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