I received this email from Jeff Crittenden, CEO to address how CAGR fits into the International Market unlike any other "Big Boy".
A winery does not need a “distributor” to bring their wine into China. They need an “Importer” who works with a “Customs Broker” or is one themselves. The “Big Boys” as your refer to them, have been putting their wine into the China Market for many years. There are a couple of problems with what they have established and why it is a business model that will only work for them. First, the “Big Boys” produce Millions of cases of wine each year and many of them have international production facilities. They are on the opposite end of the spectrum of what the majority of CA Wineries pride themselves on. The economies of scale and just sheer production volume allow the “Big Boys” to go into a market and drop several thousand cases of wine without concern for building of a business or a brand. We all know of the major brand names but, how many of those can we actually remember? Most people who drink wine on a regular basis can name 10 or so wineries (mostly the big brand names). The CA Wine Industry consists of over 3000 wineries and 7000 producers of wine. All of them are quality wines and some are better than others but, they do not have the same desires or financial capacities as the “Big Boys” and are much more concerned about the integrity of their brands. A perfect example is as follows;
1) A major online wine e-tailer in China www.winenice.com sells a 2007 Beringer Napa Valley Merlot for $425 R&B (USD is @$67.00) that we can buy online in the US for as low as $7 to as high as $20 (as a general consumer not even taking into account trade discounts)
The winery in the scenario is not concerned about the resale price of their wine but is dependent on the brand recognition to make the sale. The markups in price to make this available to a Chinese consumer are outrageous and accounts for the main perception that CA Wines are overpriced and lack quality. This winery has no control beyond the “transaction” of the buyer/importer and they do not necessarily concern themselves beyond that point. The “Big Boys” can do this because of their ability to absorb losses, provide financing terms to buyers internationally, provide their own marketing or promotional products/campaigns and their production costs are substantially less when they are producing millions of cases of wine a year.
Second - Now, we take into consideration that over 70% of the wineries in CA produce 30k and about 90% fall into the 100k or less production annually, they cannot take the same level of risk with their brands internationally and most of them lack the financial resources to be able to just drop 1000’s of cases of wine into a market to “see what happens”. CA Wineries produce at a level they can actually account for sell-through with. A winery who is producing 30k cases a year can produce much more but, they need to have a plan to sell it as none of them want to or can afford to sit on inventory. This causes a very interesting dilemma for most wineries. Do they invest in trying to build a brand international or continue to refine their existing business to maximize profits and grow conservatively in the US Market. In addition to just the business operations, exporting today requires someone who is specifically dedicated to just that part of the wineries business in managing the export document requirements, international logistics, international labeling requirements and customer payments. All of this and still only being in an international market to build their single brand against the “Big Boys” from around the world is not a very attractive investment for them.
CGI takes all of the risk and complication out of it for them. We also provide a more manageable building process for their production levels and provide oversight and feedback from the direct consuming base. The best part of this is that the brand being build is CGI as the CA Wine Industry representative or expert. People will be able to buy a CGI offered wine with confidence that the value of quality and price are coming directly from the source.
I apologize for the lengthy response but, there is not easy way to respond. Any winery can export their wines to China but, most are in the business of making wine not exporting or directly selling to consumers, especially in the international market where they have no resources or trusted partners.
I hope this is helpful and makes things a bit clearer.
Happy Holidays,
Jeffrey Crittenden
C.E.O.
California Grapes International, Inc.
Hangovertrading Member Level Wednesday, 12/21/11 03:08:33 PM
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