Wednesday, May 19, 2010

Sun Tzu - War On Business Part 6 (Witchmount Winery)

Part 6 of this series features James moving on to Australia, where he checks out a winery business and visits a vineyard owner. The scene is set in Melbourne, Australia and the vineyard is called Witchmount Winery (WW) and its owner is a man called Tony Ramunno (“Tony”). The background on this business is that it is a family business founded in the early 1990’s. The vineyard occupies many acres (exact area was not mentioned) and Tony’s wine had just won a prestigious award from France for “Best Shiraz In The World”. However, Tony did not really leverage on this award to establish networks or push for more sales, resulting in lost opportunities. Early in the program, James mentions that one of Sun Tzu’s sayings is “Always be ready to seize an advantage”. This is very true in war as well as business – if you have a superior advantage over your enemy (competitor), you should fully utilize it to win the war and battle. Tony’s Witchmount brand had good coverage as a result of the award but because he did not leverage on it, he let the opportunity slip to promote his wines to the next higher level.

When interviewed, Tony admitted that “sales was always a challenge” and that there were 15,000 wineries in Australia, thus competition was keen and it was mainly a pricing game as it would be difficult for consumers to differentiate between brands. James brought in 5 wine experts to taste Tony’s wines, and all agreed it had quality and was a good product, but the problem was differentiating it from the competition as other consumers may not have such discerning palates. According to James, it was a disappointment but not a disaster. Tony did not have a concrete plan to increase sales and was just plodding on currently, so that was a gap which needed to be filled. James cited one example where a sales rep from Tony’s office did not show up at a restaurant which was selling their wines, and it was this lapse in service which could make or break a good deal, as restaurants are the main channel for Tony to distribute his wines to (he has no retail presence).

James interviewed one of Tony’s employees called Adrian Machioiro and he mentioned that staff in general need more guidance from Tony when it came to higher-level decision-making. Tony was sometimes uncontactable, which resulted in many decisions being left by the wayside and it severely slowed down the process of getting things done. Management staff also got impatient as a result of these delays and it negatively affected overall staff morale. On a side note, Tony did comment that for Adrian’s case, he feels that he is not competent enough to execute some of the marketing initiatives which Tony himself had come up with, but he declined to elaborate on camera.

An Australian entrepreneur called Ash Hunter was called in to take a look at Tony’s business and comment on it. He mentioned that a glaring problem was that there was no budget drawn up for the business and the business also lacked a marketing team. There is no effective costing system in place to measure which wines brought in the highest contribution margin (defined as revenues less variable costs). As a result, it was impossible to know which wines to focus on selling more within Tony’s existing product line, and also which products to target the marketing and promotions on.

To add insult to injury, Tony also admitted problems in the distribution company which WW engaged, in terms of expectations and also the need for close monitoring. James mentioned another Sun Tzu line: “Let your methods be as infinite as your circumstances”. He was trying to state that Tony should try out different techniques for improving sales and distributing his products, but that Tony lacked a strategy and also the proper Public Relations department.

James then challenged Tony to come up with a campaign to push wines through to five-star restaurants to increase exposure for WW. Tony focused his efforts on Sofitel, which is a very highly-acclaimed 5-star hotel chain in Australia. A few weeks later, he managed to tie up with executives from Sofitel to launch a special dinner with 5-star meals to showcase WW’s wines. 6 wines would be presented to 60 invited guests, even though technically speaking Sofitel only agreed to carry 2 of WW’s wines. Tony’s staff Stephen Goodwin was tasked with matching wines to dishes in an appropriate manner (e.g. white wine for fish, red wine for meat) and this was done in a successful manner, resulting in very positive reviews and impressions of Tony’s wines.

Lessons to be learnt here:-

1) Lack of a defined sales and marketing strategy and plan – It was painfully obvious throughout the whole program that Tony was lacking in terms of sales plan and marketing strategy, and this caused sales to stagnate at WW and he was unable to bring the business to a higher level.

2) Know your competition – Tony mentions that there are 1,500 vineyards in Australia, so he should have done a simple survey or spent some money to try to find out more about his competition, in order to benchmark costs, pricing and best practices. In other words, he should actively try to learn from his competition instead of staying in his own “shell”, like a hermit.

3) Availability of Boss for strategic decision-making – It was obviously disruptive to the workflow when Tony could not be contacted to make important decisions, and by right he should have delegated some measure of decision-making authority to his Management Team, instead of retaining full control. While some may argue that Tony retains more control over key decisions with this type of Management style, ultimately when the business expands and grows it will become a problem unless he delegates some responsibility down.

4) Employee Morale and Employee Relations – During the program, it was alluded that Tony had some “issues” with his staff like Adrian for example, which would not be pleasant to highlight on camera. One has to wonder if other such problems exist with him and other staff, who may be disgruntled with his attitude or management style. Since employee relations are such an integral part of running a business, this is something which every business owner has to look out for. Morale can literally make or break a business!

5) Computing the numbers to review profitability, hence trimming product portfolio – This is a mistake which is not too common for businesses, not knowing which are your most profitable products! For the case of alcohol, the strange thing is that a particular vintage may sell very well but actually generate the least profits, as the CM is very low or even negative. Thus, Tony should run through the costing and come up with a detailed costing sheet (hire a cost accountant!) to see which products should be “dropped” and which he should continue to focus on.

6) Problems with Distribution Network – Tony should have put a stop to the poor distribution company’s practises a long time ago, but his argument was that this kind of relationship was difficult to disrupt and it was more of relationship rather than efficiency which caused him to retain the bad distributor.

All in, I feel Tony was probably a very good “wine” person, but not a very good businessman or manager at all! He made a lot of mistakes which a business person should not have made, and I dare say the business was built up to this scale because of his predecessors, and he is merely “taking over”. While the marketing campaign at Sofitel went well, it remains to be seen if he knows how to leverage on the success to scale the business up to a higher level; and also if he manages to resolve the lingering problems with his staff.

The next episode features another Australian business called Zak’s Surfboards, and is about the surfing industry and the sun, sand and sea!

Visit Witchmount Winery’s website at

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