Connoisseur Consulting
Thomas CaseyRichard HofferSarah SafeerYael Smolar
W.J. Deutsch & Sons Proposal
Connoisseur Consulting
Agenda
2
Untapped Market: Millennials
Trade Up or Trade Down
Issues
Recommendations
Increase [ yellow tail ] Pricing
New Sub-Premium Wine Brand
Long Term Outlook
Anticipated ResultsGenerate Profit with Proposed Recommendations
Connoisseur Consulting
W.J. Deutsch & Sons Core Values
3
Family Focus Prestigious Global Wines
Loyalty Appropriate Pricing
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Market Segment: Baby Boomers
4
• High disposable income• Established tastes• Trading down from luxury and deluxe wines
Connoisseur Consulting
Baby Boomers Trading Down
5
Expected Wine
Spending
-32.3%
Expected Change
in Income-27.8%
Income Elasticit
y of Wine1.3
Premium Wine($7.00- $9.99)
$9.48
American Association of Wine Economists, U.S. News and World Reports
Deluxe Wine ($14.00+)
$14.00
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[ yellow tail ] Trading Up
6
Price Increase of 15%
New Premium Classification
7
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Convergence at Premium Pricing
Deluxe($14.00+)
Premium($7.00-$9.99)
Sub-Premium($3.00-$6.99)
Baby Boomers
[ yellow tail ]
Connoisseur Consulting
Effect on Existing Consumers
8
Price Elasticity of Demand
Starbucks -0.40
Price Elasticity of Demand Wine
-0.24
American Association of Wine Economists, Yahoo Finance
9
Connoisseur Consulting
Starbucks Trading Up
2003 2004 2005 2006 2007 2008 3,000,000,000
3,500,000,000
4,000,000,000
4,500,000,000
5,000,000,000
5,500,000,000
6,000,000,000
6,500,000,000
7,000,000,000
Cups of Coffee Sold
Year
Cup
s So
ld
2003 2004 2005 2006 2007 2008$1.00
$1.10
$1.20
$1.30
$1.40
$1.50
$1.60
$1.70
Coffee Price Per Cup
Year
Pric
e
Bloomberg Business
Connoisseur Consulting
Market Segment: Millennials
10
Currently Not Brand Committed
Want Good Quality for Lower Price
Open to Experimentation
11
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Product Adoption Curve
Millennials
Boston Consulting Group 11
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New Partnership
12
Dom
estic • Consumer
shift to imported wines
• 2008 weather difficultiesO
ld W
orld • Antiquated
• Variable product
• Limited production
New
Wor
ld • Consistent tastes
• Fruity flavors• Advanced
technology
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New World Wine Partnership
13
Argentina
Bodega Catena Zapata
Production
A Top International Winemaker
Large, Family Owned Winery
One Million Cases per Year Since 2002
14
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[ elevation ]
15
Chardonnay
Popular White Wine
Argentine Twist
Malbec
Adventurous
National Specialty
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Implementation of [ elevation ]
16
2009 2010 2011
Secure partnership and finalize negotiations with Bodega Catena Zapata
Import 75k cases and place in existing retail channels
Marketing Campaign: 20% of anticipated profit from
[ elevation ]
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Complete Portfolio
17
New Consumers
[ elevation ]
Core Consumers
[ yellow tail ]
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Financials in 2010
18
[ elevation ]Profit$1.1M
Total Recommendati
on Profit$146.2M
[ yellow tail ] Profit
$145.1M
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Financial Projections
19
2009 2010 2011 2012 2013 2014 2015$100,000,000
$120,000,000
$140,000,000
$160,000,000
$180,000,000
$200,000,000
$220,000,000
$240,000,000
$260,000,000
$280,000,000
Total Profit From RecommendationFinancial Projections Without Recom-mendation
Year
Profi
t
$66.2M Marginal
Profit
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Conclusion
20
[ yellow tail ] Repositionin
g[ elevation ]
DevelopmentComplete
Wine Portfolio
Successful Market Capture
and Profit Generatio
n
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Questions?
21
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Appendix
22
A1. Projected Financials Explained A2. Simplified Projected Financials A3. [ yellow tail ] Price Increase (White) A4. [ yellow tail ] Price Increase (Rosé and Red) A5. [ elevation ] Projected Financials A6. [ elevation ] Demand Variables A7. [ elevation ] Results A8. [ yellow tail ] vs. [ elevation ] Chardonnay A9. Baby Boomers Gained A10. Existing Consumers Lost A11. New World Partnership Options
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Connoisseur Consulting
A1. Projected Financials Explained
Net Effect 2009 2010 2011 2012Total Revenue From [ yellow tail ] Recommendation $310,625,000 $414,676,155 $496,645,335 $548,055,464[ elevation ] Profit ($300,000) $1,098,672 $1,483,207 $1,779,849Total Revenue From Recommendation $310,325,000 $415,774,827 $498,128,542 $549,835,313Financial Projections Without Recommendations $310,625,000 $352,736,000 $368,978,876 $409,043,838Profit From [ yellow tail ] Recommendation $108,718,750 $145,136,654 $173,825,867 $191,819,412Profit From [ elevation ] Recommendation ($300,000) $1,098,672 $1,483,207 $1,779,849Total Profit From Recommendation $108,418,750 $146,235,326 $175,309,075 $193,599,261Financial Projections Without Recommendation $108,718,750 $123,457,600 $129,142,607 $143,165,343Increase From Recommendation ($300,000) $22,777,726 $46,166,468 $50,433,918Net EffectTotal Revenue From [ yellow tail ] Recommendation[ elevation ] ProfitTotal Revenue From RecommendationFinancial Projections Without RecommendationsProfit From [ yellow tail ] RecommendationProfit From [ elevation ] RecommendationTotal Profit From RecommendationFinancial Projections Without RecommendationIncrease From Recommendation
2013 2014 2015$605,682,890 $670,470,032 $743,545,408
$2,135,819 $2,562,982 $3,075,579$607,818,708 $673,033,014 $746,620,987$454,193,808 $505,217,635 $563,057,777$211,989,011 $234,664,511 $260,240,893
$2,135,819 $2,562,982 $3,075,579$214,124,830 $237,227,493 $263,316,472$158,967,833 $176,826,172 $197,070,222
$55,156,997 $60,401,321 $66,246,250
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Connoisseur Consulting
A2. Simplified Projected Financials
Year 2009 2010 2011 2012 2013 2014 2015Total Profit From Recommendation $108.4M $146.2M $175.3M $193.6M $214.1M $237.2M $263.3MFinancial Projections Without Recommendation $108.7M $123.5M $129.1M $143.2M $159.0M $176.8M $197.1MIncrease From Recommendation ($300,000) $22.8M $46.2M $50.4M $55.2M$ $60.4M $66.2M
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Connoisseur Consulting
A3. [ yellow tail ] Price Increases (White)
Wine Price Elasticity of Demand: -0.24*
*American Association of Wine Economists
White 2009 2010 2011 2012 2013 2014 2015Chardonnay 38.00$ 44.46$ 52.02$ 53.06$ 54.12$ 55.20$ 56.31$ Expected Case Sales 1,450,000 1,637,400 1,683,918 1,797,329 1,918,377 2,047,578 2,185,481 Expected Price Per Bottle 3.17$ 3.71$ 4.33$ 4.42$ 4.51$ 4.60$ 4.69$ Expected Retail Price 6.33$ 7.41$ 8.67$ 8.84$ 9.02$ 9.20$ 9.38$ Pinot Grigio 34.00$ 40.10$ 48.41$ 50.50$ 52.69$ 54.97$ 57.35$ Expected Case Sales 585,000 624,259 673,567 715,565 760,181 807,579 857,933 Riesling 29.00$ 34.35$ 41.79$ 43.91$ 46.13$ 48.46$ 50.91$ Expected Case Sales 410,000 460,519 489,867 511,009 533,063 556,068 580,067 Sauvignon Blanc 31.00$ 36.65$ 43.29$ 44.67$ 46.09$ 47.55$ 49.06$ Expected Case Sales 220,000 286,545 357,195 450,552 568,311 716,846 904,204
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Connoisseur Consulting
A4. [ yellow tail ] Price Increase (Rosé and Red)
Varietal 2009 2010 2011 2012 2013 2014 2015Rose 27.00$ 31.05$ 40.31$ 43.29$ 46.50$ 49.94$ 53.64$ Expected Case Sales 290,000 327,480 346,989 362,252 378,187 394,822 412,189
RedCabernet Sauvignon $47.00 54.05$ 60.00$ $58.80 57.62$ 56.47$ 55.34$ Expected Case Sales 1,100,000 1,279,219 1,224,668 1,352,973 1,494,720 1,651,317 1,824,321 Cabernet-Merlot $41.00 47.15$ 58.61$ $61.33 64.19$ 67.17$ 70.30$ Expected Case Sales 440,000 440,051 479,662 474,211 468,822 463,495 458,228 Merlot $45.00 51.75$ 57.16$ $55.86 54.59$ 53.35$ 52.14$ Expected Case Sales 950,000 1,125,713 1,081,232 1,211,644 1,357,785 1,521,553 1,705,074 Pinot Noir $36.00 41.40$ 51.59$ $54.07 56.67$ 59.40$ 62.25$ Expected Case Sales 480,000 532,155 581,717 605,955 631,204 657,504 684,900 Reserve Cabernet $52.00 59.80$ 73.75$ $76.83 80.03$ 83.36$ 86.84$ Expected Case Sales 500,000 614,025 663,362 729,698 802,668 882,934 971,228 Shiraz $43.00 49.45$ 55.05$ $54.04 53.05$ 52.08$ 51.12$ Expected Case Sales 900,000 1,115,479 1,071,584 1,211,486 1,369,652 1,548,467 1,750,628 Shiraz-Cabernet $39.00 45.85$ 57.43$ $61.11 65.03$ 69.20$ 73.63$ Expected Case Sales 375,000 399,116 438,839 453,196 468,023 483,335 499,148
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Connoisseur Consulting
A5. [ elevation ] Projected Financials
*Industry Average
20% Yearly Case Demand Growth
$0.21 Variable Bottling Costs*
Year 2010 2011 2012 2013 2014 2015Malbec Case Demand 25,000 30,000 36,000 43,200 51,840 62,208 Chardonnay Case Demand 50,000 60,000 72,000 86,400 103,680 124,416 Total Wine Cost $2,506,500 $3,007,800 $3,609,360 $4,331,232 $5,197,478 $6,236,974Number of Export Crates 2.98 3.58 4.29 5.15 6.18 7.41 Total Export Cost $4,410 $5,292 $6,350 $7,620 $9,144 $10,973Total Costs $2,526,660 $3,031,992 $3,638,390 $4,366,068 $5,239,282 $6,287,138Total Revenue $3,900,000 $4,680,000 $5,616,000 $6,739,200 $8,087,040 $9,704,448Income Before Marketing Costs $1,373,340 $1,648,008 $1,977,610 $2,373,132 $2,847,758 $3,417,310Marketing Costs $274,668 $164,801 $197,761 $237,313 $284,776 $341,731Profit $1,098,672 $1,483,207 $1,779,849 $2,135,819 $2,562,982 $3,075,579
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Connoisseur Consulting
A6. [ elevation ] Demand VariablesDemand Variables Values
Yearly Case Demand Growth 20.00%Bottles per Case 12Malbec Cost per 9L Case $35.40Chardonnay Cost per 9L Case $38.00Bulk Discount 10%Malbec Cost per 9L Case (Discount) $31.86Chardonnay Cost per 9L Case (Discount) $34.20Export Cost (per 20 Foot Crate) $1,4809L Cases in Export Crate 25,171 Bottling Variable Cost $0.21Malbec Sales Price to Retailers $4.00Chardonnay Sales Price to Retailers $4.50Negotiation Sunk Costs (2009) ($300,000)
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Connoisseur Consulting
A7. [ elevation ] ResultsVariables PriceCost per Malbec Bottle $2.87Cost per Chardonnay Bottle $2.95Malbec Sales Price $5.74Chardonnay Sales Price $5.89Retailer Profit Malbec $1.75Retailer Profit Chardonnay $1.50
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A8. [ yellow tail ] vs. [ elevation ] Chardonnay
[ yellow tail ]
TasteClassification
[ elevation ]
Premium
Sub-Premium
Classically Aged
Argentine Twist
31
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Increased Case Sales540k
Adoption Rate 2%
Wine Consume
rs27M
A9. Baby Boomers Gained
Population Reference Bureau
32
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A10. Existing Consumers Lost
Price Elasticity Of Demand Wine
-0.24*
Recommended Price Increase 15.0%
Cases Demanded
-3.60%
*American Association of Wine Economists
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Connoisseur Consulting
A11. New World Partnership Options
New Zealand
•Too similar to Australia
Chile
•Destabilized economy
South
Africa• Ne
gative connotation (apartheid)
Negative Connotation (apartheid)
Destabilized Economy
Similar to Australia