Below are the results from the Sonoma State University Wine Business Program Summer 1999 survey of leadership and strategy in the Northern California wine industry.  Results are presented in five sections to facilitate comparisons between your firm and the aggregate sample.  We sent the survey to 354 firms, and received 84 usable and 34 unusable surveys for a response rate of 33%.  We appreciate your attempts to improve our mutual understanding of best practices in the Northern California wine industry and hope is that you find the following informative and productive.

Section I: Company Profile Demographics: 84 respondents (33% of surveyed firms)

· 90% of the respondents were privately-owned, averaging 27 years in business

· 52% of firms had written objectives, 58% had written mission statements, and 45% had written strategies.

· 74% of firms were organized by function, 22% by product, and 4% by region.

· 78% of firms used sales brokers or agents, 71% had tasting facilities, 60% used direct mail to sell products, 48% had an in-house sales force, 29% used external sales and marketing firms, 8% used internet stores and external wine clubs to sell their products.

· None of our respondents claimed they served the market for wine priced under $3/liter (Economy segment)

· 8% of firms served the $3.01-$7/liter (Sub-Premium) segment, 21% the $7.01-$10/liter (Premium) segment, and 47% served the $10.01-$14/liter (Ultra-Premium) segment.

· 75% of respondents served the $14.01-$25/liter (Deluxe) wine segment, 68% serve the segment with prices ranging $25.01-$50/liter, and 26% serve markets with a per liter price above $50.

· 95% of the firms served the California market, averaging 34% of the market.  57% of wine was nationally sold, while the remainder was sold internationally.

· 55% of the firms surveyed had only one brand, while 22% had two or three brands.  16% of the firms had more than four brands, and 7% had no branded products.

· 50% of the firms were estate wineries, with 35% purchasing their fruit from other locations outside on-site lands.

· 69% of the firms owned the facility where their wine is crafted, 18% used a custom crush facility, and 13% of the firms used both.

· 78% of firms used estate grapes, though they did not necessarily position themselves as an estate winery.

· 78% of the firms used grapes in Sonoma and/or Napa County, while 25% used grapes from California’s North Coast.

· 21% employed fruit from California’s Central Coast, and 21% purchased fruit from California’s Central Valley.  4% use American grapes from outside California, while only 6% use imported fruit.

Section II: Environmental Profile

 This section provided insight on perceptions of the opportunities and threats in the business environment.  The following are opportunities and threats seen as most important by the majority of respondents.

Opportunities

· Growth via quality differentiation from competitors.
· Improving competitive positioning in niche markets, especially with new brands.
· Being part of and sharing information about a dynamic industry.

Threats

· Increasing costs of fruit, vineyard land, technology, and labor.
· Entry of large, heavily capitalized competitors.
· Being defensive rather than proactive with regards to government regulation.

Firms were evenly divided on their perception of foreign competition as a threat.

 Future wine business leaders must therefore know more than wine making.  Leaders must possess broad business and communication skills to share best practices that benefit the industry as a whole.

Section III: Top Management Team (TMT) Profile

 Our aim in this section was identifying your management teams’ traits concerning reaction to threats and execution of optimal business activity and policy.  In 78% of the responses, the TMT were original founders or related to them.  The TMT style was mainly entrepreneurial, as most firms are proactive, seeking new products and attempting to outpace competition.  Customer satisfaction is a primary focus, with many interactions between firm and customer.  In the last five years, most firms were changing products and reacting to changing trends in consumer demand.
 The TMT’s focus must change in this industry as changing conditions dictate the need.  Most respondents identified that knowing the marketplace, in terms of the agricultural and consumer cycles, was of extreme importance.  Also, experience in the industry and business acumen were seen as key traits for the industry leaders of tomorrow.  TMTs were split between entrepreneurial strategies and administrative strategies, as some firms use and enjoy flexibility in business plans and policies.  About half of the respondents use written plans, strategy formulation, and market forecasts to make decisions.

Section IV: Organization Strategic Profile

 The main concern of this industry was adapting to technological change.  Consequently, most respondents invested in systems designed to increase both flexibility and capacity to improve service to both existing and new markets.  Most firms did not adjust their profit and sales downward in the light of new training and costs due to technology.  Best strategic practices included:

· Serving a well-defined market or niche
· Rapid response to changing customer needs
· Attracting and retaining key personnel to implement strategy

Because the sample was skewed towards smaller producers (reflecting the Northern
California population), few respondents placed emphasis on growth via low-cost production, acquisition, or diversification into unrelated markets.

Section V: Performance

 Most respondents perceived their performance to be medium (10%-25%) to high (25%-50%) real market growth in the last three years.  These figures imply the results that sales, profits, market share, and employee growth are all up in the last three years.  For the years 1996 to 1999, our respondents' average case sales were as follows: 197,338 (1996), 208,986 (1997), 233,705 (1998), 251,295 (1999 projected).  The smallest winery sold 160 9-liter equivalent cases in 1998, while the largest sold 7,800,000 cases.
 To summarize, these results have important practical implications for wine business leaders.  Regarding the top management team and strategic posture profile results, risk-taking, innovative, and proactive (entrepreneurial) entry strategies may be instrumental to achieving initial growth in the wine industry.  New entrants in this industry should consider pursuing an "aggressive" strategy aimed at niche market definition and penetration via "entrepreneurial" behaviors.  Established, growing businesses in this industry may experience diminishing efficacy of entrepreneurial behavior, as prudent management would entail greater attention to building management systems and market share.  For mature, slower growth firms in the wine industry, attention to "administrative" processes to improve operating efficiency and cost competitiveness may lead to increased performance.  While among the sample respondents there were several examples of mature firms that had successfully pursued innovation, sometimes revolutionizing the industry, this proved to be the exception rather than the rule.  It is evident that all leaders of wine business eventually best serve their interests by emphasizing the establishment of centralized control, standardized operations, formal rules and procedures, or other "mechanistic" tools designed to promote internal efficiency in an uncertain environment.
 We are currently compiling the complete results to improve practitioner understanding as well as to enhance future wine business professional development and academic program course offerings.  You will soon be able to access these results on our web page or contact armand.gilinsky@sonoma.edu.