Once the customers and Augustan staffers had vacated the premises, Proal and I had the dock to ourselves and settled down for what turned out to be a wide-ranging discourse on the origin and evolution of Augustan Wine Imports, the company philosophy and operating principles, and the state of the broader wine industry.
Proal Perry has a restaurant background and one of his frustrations while in that space was the unavailability of small-producer, estate-bottled wines in the Florida market. Proal was trying to exit the restaurant business and began looking at opportunities to address this niche. Bruce Neyers, the National Sales Director for the then fledgeling Kermit Lynch Wine Merchants, came to Florida at that time seeking a distributor for the company's products and suggested that Proal form a company for that express purpose. Proal listened and Augustan Wine Imports was launched in 1993. Proal's wife Connie joined the business 1 year later to focus on business operations while he focused on sales.
A number of factors contributed to the early-life success of Augustan: (i) the timing was right; (ii) Augustan was exploiting a niche that was unserved; (iii) there was little competition; and (iv) Augustan was not viewed as a threat by the large distributors. Augustan was, according to Proal, one of the first small distributors in the state and after its initial success a number of smaller players entered the market. There are now over 200 licensed distributors in the state.
As Augustan began doing business across the state, its business model became problematic. The logistics costs associated with a small company trying to distribute small-estate wines across the state was steadily eroding profitability. By this time, the company had brought on a number of European and domestic producers but had only one distribution center in South Florida from which to dispatch products across the state. Distributing product to the Panhandle could mean that a truck would be gone for three days and be empty for two of those days. If the company wanted to extend the model across the state efficiently and effectively, another path would have to be pursued.
The chosen path was a partnership with Premier Beverage. Premier saw prestige value in Augustan and preserved that value by allowing its management to retain a high degree of autonomy and independence. Augustan saw value in Premier's distribution muscle (4 distribution centers across the state) and willingness to provide an environment wherein the founding vision of the company could be pursued in an untrammeled fashion. Further, the partnership would allow Augustan to become even more specialized as it would now be representing a smaller group of suppliers.
Augustan Wine Imports” goal is to be the most-valued company in the space where their upper-tier customers are doing business. Meeting this goal requires, according to Proal, that the company exhibit the following characteristics: quality of service; knowledge; education; creativity; and innovativeness.
The critical success factors (CSFs) for goal attainment are (i) provision of high-quality wines to the market and (ii) the fostering of an entrepreneurial culture within the organization. The first CSF is of paramount importance and the company has implemented a rigorous screening process to ensure that only the highest-quality wines are offered to its customers. The second CSF is being addressed by giving a strong sense of ownership to the people in the field. The message from management to the field is “We are lending you a $1 million+ business that you should treat as your own. Invest in yourself by continually acquiring wine and industry knowledge and we will give you the support required to ensure your success.” A forcing function for this new management approach was Daniel Pink’s book Drive: The Surprising Truth About What Motivates Us.
According to Proal, “The carrot and stick approach does not work; a perception of mastery of your environment does.”
Proal believes that commissioned sales forces spend too much time “chasing the money” and not enough time servicing the customer. In the Augustan scheme, salespersons are salaried and this allows them to devote whatever time is necessary to ensure a satisfied customer. In addition to salaries, salespersons have benefits packages and expense accounts. Proal sees the latter as an essential element of the salesperson “managing his/her own company.”
Augustan has a strong support structure facilitating the activities of the field force. The General Manager/Sales Manager reports directly to Proal and is charged with balancing responsibilities across the company. Two Portfolio Managers – one responsible for the U.S. and the other for the rest of the world – handle issues such as inventory, profitability, costing, and supplier contact and coordination. The Marketing Specialist handles referrals (The Company only solicits “iconic” wines.). New opportunities are assessed as a group. A prospect wine is tasted blind and assessed both on its own merit as well as against other potential entrants. Price does not enter the assessment until after the wine has been judged to have the type of quality that Augustan is pursuing.
When asked to categorize Augustan’s customers, Proal indicated that this was an issue they have been wrestling with for a while and had not fully resolved. Historically, a disproportionate share of the business had been with the restaurant trade but that is now down to 60% from the 70% level. On the retail side, they only do business with independent fine wine retailers. The retailers who depend on Wine Spectator “shelf talkers” are not their preferred customers. He wants customers who: (i) understand what distinguishes Augustan from the competition; (ii) want to partner with Augustan; and (iii) Augustan wants to partner with. Proal cites Tim’s Wine Market as an example of the ideal Augustan customer. Tim’s has been an Augustan customer from day 1 and, 15 years on, remains one of the company’s best customers.
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.
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