Friday, June 24, 2011

L’eft Bank in Madison: from the Sugar River to the world – Part II of III

MadisonWineScene (MWS) recently interviewed Michael Paré, Wine Merchant with L’eft Bank Wine Company, 4918 Triangle Street, McFarland, WI about the wine business.

Founded in 1985 by Mark Johnston with his handy Ford Pinto and a few cases of Burgundy, L’eft Bank has grown to become the leading distributor of fine wines and spirits in Wisconsin. What’s with the apostrophe in the name? See for an explanation, and why a picture of newts leads off this posting.

A previous post discussed the wine importation/distribution business. This post will discuss wine sales to restaurants and retailers.

MWS: How do you get retailers/restaurants to carry a new wine producer?
Michael: With retailers, you take a sample bottle, you sample the wine, you talk about the features and benefits – a term from the Gallo playbook of selling -- why they should buy it, the profit they can make off the wine, their positioning of the wine price-point wise against their competitor down the street because you know your customer well enough to know how they are going to price things, exclusivity if there is an opportunity for that for a retailer. As a side note, exclusivity for a retailer is ok to some degree if you can hand-sell the wine to a customer face-to-face, but exclusivity will work against you if it is an inexpensive kind of commodity style wine where there is no brand recognition.

For restaurateurs when you show a wine, again same thing, you have to sample it, you have to talk about the features and the benefits, the aging and then often if you have it inexpensive enough they will want to know if they can pour it by the glass, or if they want to put it on the bottle list.  

There are different things to consider there, a wine that would retail for $15 or more is more likely to be on the bottle list than a wine that is less than $15 at retail. The next step is that often the restaurateurs will say “ok, do you have a better price for me because I know you are telling me that it will cost me $10, but do you have a better price if I pour it?” and then they are also going to ask if anybody else is pouring it, and if they are going to see it in grocery stores.

So if I went into L’Etoile with Bogle Cabernet they would say, “Well it’s at grocery stores so that is not going to work for us.”  If I go in with a new Cabernet which is $15, and they have a reputation that their client base can afford wines that are more expensive, they would say, “Is it at retail?” and I would say, “It’s new to us” or “Yes, but it is only at the independent retailers – Barriques, Steve’s, Riley’s, Star Liquor”. They would still ask for a better price if they poured it by the glass.

MWS: Why is that?
Michael: Retailers and restaurateurs are two different animals.  

Retailers are not as concerned about other people having it. Restaurateurs tend to not want to have something that’s at retail.

If you take a $10 wine at Steve’s for instance, and they sell it for $15. If I took the same wine to a restaurant and I said it is $10 they would say, “Ok for what are we going to pour this by the glass?”  They might say that they are going to pour it at $8 by the glass, so a little bit below their cost, and they will get four or five pours per bottle.  

The customer then looks at the bottle list price and they see the wine is $45 on the list, and they can go to Steve’s and buy it for $15, then they may not want to buy it because it looks like they are getting gouged. That’s why it is better for restaurants to not want to have something that’s at retail.

The reality is that retailers have a lot lower margin because they count on volume than restaurateurs who have a lower volume and a lot more to cover. A retailer may have three people working on any given day, a restaurateur could have 25. So a restaurateur does not want someone to come back and say I paid $45 for that bottle and I could have gone down the street and paid $15.

Also, as a restaurant you are looking at your costs and if you paid $10 for one bottle of wine and $25 for another, you are probably not going to make the same percent off each, because for the higher one you simply can’t charge that much, but you can maybe charge more on the cheaper one.

MWS: How much of L’eft Bank’s business is with restaurants as opposed to retailers?
Michael: Personally, I have 45 accounts, of which 10 are retailers and the rest are restaurants. In terms of sales about 60% restaurants and 40% retail.

MWS: Is there a difference between the wines sold to restaurants and wines sold to retailers?
Michael: There are some distributors that have some restaurant only wines. The whole idea is to go to a big hotel and say, “You need a banquet wine. Here is a Chardonnay for $3 and it is on-premise only”. And then you go to the hotel and put on a banquet and pay $25 for it. So there are places like that which have huge fixed costs to cover and so they want something like that.

Of course, if you go to any fine restaurant you are going to see a higher percentage of fine wines at those good restaurants because they are good wines. But the approach to wine is definitely different.

MWS: In what way?
Michael: In a fine dining restaurant the staff is trained to talk about the wines. In those restaurants there is a feeling of  -- I talked about the business model of discovering something and bringing it to the customer – when you have somebody say “We are serving you lamb from a farm that is 30 miles away, and we have been working with them, and it’s organic” – you are bringing them something special. They want to do the same thing with wine. They want to bring you something special – a wine from the southern Rhone valley that they just discovered and it’s only available at one other place in town. It gives people more reason to go to that restaurant – when they know they are going to have an unique experience with wine that they can’t get anywhere else.

With restaurants it is a little bit easier to anticipate what you should bring in as a wine rep. If you go in there and you see the same Cabernet by the glass, and you know that the restaurant turns their glass list over a lot, you know that at some point they are going to need to change that so you can kind of anticipate that. Some restaurants change it every month, or every week, even. I know a restaurant in Madison that does not change their regular wine list, but they have new features every single day. Other restaurants change their core lists a lot.

In Madison, with retailers, if you have a Cotes-du-Rhone that you can retail for under $15, you are probably going to sell it, unlike Chardonnay, Syrah and Petite Sirah which are harder to move. The retailer has to figure out what is the hot area, what is moving – Malbecs are great – you can sell a Malbec regardless of what it tastes like almost, it seems.

MWS: What is the business purpose of wine tasting dinners at restaurants?
Michael: If you go to a wine dinner and you have a sales rep that lives two blocks from there talking about the wines, there is nothing magical about that. If you have the winery owner from Italy standing in front of you telling you about when his dad planted the vines, or his grandfather built the winery – it is more romantic.

MWS: But does it result in more wine sales?
Michael: Sometimes.

It really depends upon the restaurant and the skill of the restaurant.

Also, it is like in-store wine tastings – if you are tasting wines like Barberas and Dolcettos – those are everyday wines but Barbarescos and Barolos are much more expensive, so to be able to taste before you buy, and if you are a wine collector, tasting Barbarescos and Barolos before you buy is a really good thing. Because if you pay $50 for this bottle of wine and you are supposed to wait 10 years before you can drink it, the risk is huge.

The next post will discuss trends in wines.

Friday, June 17, 2011

L’eft Bank in Madison: from the Sugar River to the world – Part I of III

MadisonWineScene (MWS) recently interviewed Michael Paré, Wine Merchant with L’eft Bank Wine Company, 4918 Triangle Street, McFarland, WI about the wine business.
Founded in 1985 by Mark Johnston with his handy Ford Pinto and a few cases of Burgundy, L’eft Bank has grown to become the leading distributor of fine wines and spirits in Wisconsin. What’s with the apostrophe in the name? See for an explanation, and why a picture of newts leads off this posting.

MWS: How has the wine business been?
Michael: It has been really good. In July, I would have been with L’eft Bank two years and it has been pretty much non-stop growth.

MWS: How many wine producers, countries and regions are represented in L’eft Bank’s portfolio?
Michael: Of the approximately 60 wine producing countries in the world, we probably have half of them.

We don’t have places like Belarus and Russia and China and Mexico – they do have wines from Baja in Mexico.  

All of the major wine-growing regions are represented.

Some regions are more obscure for a reason – they haven’t got traction in the market. For us to bring in wines from Uruguay, for instance, where they make a great Tannat – we wouldn’t stand a chance of selling it, and we cant take the financial risk.

On any given day, we probably have around 2500 wines in our book that are available from about 400 – 500 producers. A huge range of flavor profiles.

MWS: How does L’eft Bank approach the importation/distribution of wine?
Michael: As an importer/distributor there are three different ways you can go about it.

You can have importers that are product driven: they find the best Beaujolais they have ever had and they want to get it out there because they want to share it.

You can have importers that are customer driven: I know people like Chardonnay and so we need to bring in Chardonnay and we need to fit the product to the customer.

And then you can have somebody who is simply top-down: we want to make profits and we will figure out a way to fit the product to the customer regardless.

I think the best importers are ones that can figure out a way to make a profit while starting with a good product and then bringing it to the customer.

You can always try to fit the product to the customer but the customer is fickle – moods change – Chardonnay will always be popular, but what style of Chardonnay? What label?

To bring somebody something that is justifiable on its own, and you can just say here is the reason that it is good, and they can taste it and believe it because of the taste – that is a more sustainable way.

L’eft Bank is a distributor and an importer and so we have brand managers that manage different parts of the world for our portfolio. For example, we have a domestic brand manager who finds products in California, Washington and Oregon that he thinks fit a hole in our book or he thinks, with our product-driven model that a wine is just amazing, and we have to have this because it is great – we already have 25 Cabernets but this is the 26th that is going to make everything better.

MWS: What do you mean by a “hole” in your book?
Michael: For example, in Italy, you might have the same grape varietal but made in different areas and because it is made in a different area, it becomes a different wine. So you have Chianti, but you can also have Sangiovese grown in Emilia Romagna north of there, and it has it’s own appellation, it’s own style, and so if we find wine, though the grapes are well known, the area and the type of wine are pretty rare.  

Makes it kind of a unique find, and an exciting find, if it is priced right. If it is priced so that more people can enjoy it – not a $100 bottle of wine but a $10 or $20 bottle of wine.

MWS: What types of wine producers do you tend to represent?
Michael: Generally, we focus on family-owned and operated wineries. Our biggest winery is Bogle, which is very well known, but still family-owned and operated.

Bigger wineries, those that are part of a group like Constellation Brands, more often than not, like to pair themselves with liquor houses because the liquor distributors have the most market penetration, and so they go down that channel. [MWS: Constellation Brands’ wine labels include Robert Mondavi, Clos du Bois, Blackstone, Estancia, Ravenswood, Kim Crawford, Inniskilin, Jackson Triggs, Black Box, Franciscan, Ruffino, and Simi; their beer brands include Corona, Modelo, St.Pauli Girl, and Tsingtao; their spirit brands include Svedka, Black Velvet and Paul Masson Brandy. Similarly
Caymus, Belle Glos, Conundrum, Meiomi, and Mer Soleil are all made by the same company.]

MWS: How do you select wine producers that become part of L’eft Bank’s portfolio?
Michael: With any good distributor it is the quality of the wine that is going to get them interested.

MWS: Are you interested in scale – about how much wine they can produce – if they are a small winery producing 100 cases a year?
Michael: Certainly. There is a place for that in our portfolio – that boutique winery which makes less than 500 cases – and you know that going into it. If you have a wine that hits $9.99 on the shelf and they make a 100 cases of it a year, you are going to say that you can sell that out of your winery, you don’t need us to sell it for you.

For a winery to come into a state, they have to pay a licensing fee, so they need to pay the state every year to be able to sell their product here. That’s not a small commitment on the part of a winery that’s a smaller winery to come into the state.

But if it’s a $100 bottle, that gets great press, then it makes sense to bring it in even if they only make 100 cases a year, because they need distribution to move that and there may be a prestige factor involved for customers.

We have one winery that makes one barrel of wine per type – so if it is Syrah it is one barrel -- and that means maybe about 200 cases and that’s for the whole U.S – they are in only four states. We are interested in those kinds of people because to be able to bring those kinds of wines, to your customers, whether at retail or at restaurants, that are unique, that no one else can get, is kind of fun.

MWS: How often do you add new wine producers?
Michael: We are continually looking at new things just to make sure we know what is out there, because occasionally producers do leave us, for different reasons. The odds are someone is going to leave us this year, so we need to keep growing our portfolio.

MWS: What are the reactions of wine producers already in your portfolio when you add a new wine producer?
Michael: That is interesting. We added a producer that has a Sauvignon Blanc last year – a $13.99 Sauvignon Blanc. We wanted to make sure that it didn’t butt up against two or three others that were at the same price point. It turns out that we could slot them in against one that was $14.99 and another that was $11.99, and fit a good place. So we try to find those holes.

So when a producer sees that, they worry that the new $13.99 one will cut into their $14.99 wine, and sometimes they get worried about it. Some people are jealous or worried and you can tell there is a little unease, but some people know that we are a good company and no matter what, we are still going to sell their wines.  They might call up and say, “Last month was pretty bad.  You need to do a little better this month.” Not threatening, but just pay attention – we will go out and we will make it happen. So they trust that we are going to get the job done.

Also suppliers in seeing other wineries in a book, we might have a winery in our book that is really prestigious, and a rising tide raises all boats, so if you as a winery join our portfolio, you are joining a portfolio, not just where we can sell your wine, but where we also have other wineries in there that are really prestigious and that may make your winery look better.

So there may not be as much jealousy or worry, as much as a desire to get into our book, because we have some prestigious wineries that you want to be associated with.

MWS: How much control do wine producers have over the final price to consumers?
Michael: Distributors and retailers have standard markups, and Wisconsin has a minimum markup law which requires a minimum markup on wine of 6% - so a wine that costs the retailer $10 has to be sold at least $10.60.

Wineries sometimes recommend a retail price – so they might sell at the winery at $14 a bottle so they may want to hit $14 at the retail location, so then we backtrack to make sure that the cost to us makes sense, but we cant dictate the retail price. I could have a customer that goes out at $11.99 – I can’t say anything, and if they go out at $20.99 – then they will never sell it but that’s their problem.

MWS: How does wine get from a wine producer in say, Italy, to the wine consumer in Madison?
Michael: With domestic wines we can buy from an individual winery, it is pretty easy.

Importers will represent multiple wineries because it is a challenge to get product from Italy to the U.S. because of the paperwork, the taxes and all that kind of stuff to get it in, but also when you ship in, you ship in a container which has a minimum amount of I think 1200 cases, and for one distributor, let’s say in a smaller state like South Dakota, where they don’t sell as much wine, to buy a container of Barolo which is $100 a bottle – he just cant do that.

We work with suppliers that represent multiple wineries, whether that’s Germany or France or Italy or South America. They are usually American based companies that represent a bunch of wineries in countries outside the U.S.  One company we work with is Empson – they are a worldwide company based in Milan, and we can buy wine from their warehouses there, and it is a little bit less expensive, or from their warehouses in New Jersey, and because they shipped it over and they paid for landing it in the U.S. and paid for warehouse space, it is a little bit more expensive.

Ultimately, there are five layers -- there is the wine producer in Italy, then there is the guy in charge of the boat – the importer or the shipper, us, the retailer or the restaurant, and then the consumer.

With Bordeauxs it is even more complicated. A Bordeaux estate like Lynch-Bages, they don’t sell their wines direct to importers. If you want to buy their wines, you have to buy it from the négociants in Bordeaux, who contract with Lynch-Bages to buy their inventory, and the négociant puts it in their warehouse, and then they sell it to importers. So there is another layer.

The next post will discuss wine sales to restaurants and retailers.