Nineteen years ago, in issue #8 of BarterNews, we reported on an entrepreneurial California vintner who embraced barter to build his winery...we feel his thinking about barter's applicability is as relevant today as that of two decades ago.
Vintner Finds Answer In Barter For Building Business
Wine is not every man's drink in the U.S., as it is in Europe. One man trying to change the wine image is Napa Valley wine maker Hamilton Vose III. He advertises his slightly sweet White Zinfandel through a print ad that places a bottle of wine next to an elegant wine glass overflowing with...popcorn!
Mr. Vose's innovative thinking is not limited to his unusual advertising message. He's also creative in his marketing methods. He's an avid barterer! And well he should be, as the California wine industry is extremely competitive.
The six largest wineries account for 80% of the wine sold in the state. Such overwhelming dominance means that the 90 smaller wineries must battle hotly for business. Vose, through his bartering efforts, moves his wine while acquiring the necessities for building his business.
Our first encounter with the Voses was at the Southern California Business Exchange (BX) Faire. Hamilton and his beautiful wife, Lourdes, had journeyed over 500 miles to trade their wares.
We enjoyed our brief meeting with the Voses and found them, as well as their wine business, most fascinating. To learn more about Vose's wine trading techniques, as well as take a peek at the industry itself, a BarterNews representative traveled north to their 300-acre mountain vineyard estate, located in the world-famous wine region of Napa Valley.
The day chosen to interview Vose was cold and rainy, no day for a picnic. Driving up Mount Veeder through a patch of dense, towering trees one rounds a sharp bend and sees acres of orderly sown grapevines. A small wooden sign is nailed to a lone pine in this quiet, tranquil setting. It reads: "Pinot Chardonnay, Planted 1973 by H. Vose III."
After a brief tour of Vose's Redwood Ridge Ranch, we proceed to the wine tasting room where we can talk.
BarterNews: Hamilton, how did you get involved in the wine business?
Vose: I've been asked that question a hundred times! I grew up in California, went to school in Santa Barbara, so I was acquainted with the famous Napa Valley region and its reputation for producing fine wines.
After college and the service, I settled in Chicago. There I operated a commercial paper company, selling high-grade paper to printers and lithographers. We represented such mills as Mead, Hammermill, St. Regis, as well as becoming the largest distributor for Kimberly-Clark coated paper in the country.
My next endeavor was a warehouse business back there, which had 160,000 square-feet of space to rent out.
Although my businesses were successful, I wasn't completely satisfied. I'd always dreamed of being a farmer...working the land, so to speak. After a lot of thought and research, I settled on the Northern California area. The isolated mountain land was relatively inexpensive. I could afford to build a vineyard here and grow high quality grapes.
Superior grapes come from areas there they have to struggle a bit. My goal was to build and maintain one of the finest vineyards in the country.
When I achieved that goal and started selling my grapes to people who were making great wines, I became intrigued with the possibility of producing wine myself. Since I had already learned the vita-cultural aspects of the business, I decided to go into wine-making too.
BarterNews: What are the start-up costs for a wine business like you've built here?
Vose: Over the first four years an owner will spend $7,000 to $10,000 an acre before there's any cash flow. I started developing Redwood Ridge Ranch in 1970. It took us nearly eight years to get a mature production.
in the wine business are really becoming prohibitive, because it takes
such a long time to realize a return on your investment. A study done
ten years ago reported that the cost to establish a 10,000 case winery,
was one million dollars then. Here at Vose Vineyards we have a
BarterNews: Is your 17,000 case production based on the acres you've personally planted?
Vose: No. Case production of a winery is based on the capacity of the equipment, i.e. the stainless steel tanks, barrels, and other equipment. So it's not necessarily relevant to what's been planted in the vineyard.
We also purchase grapes from others. So although our estate only produces three varieties—Chardonnay, Cabernet and Zinfandel—we also bottle Sauvignon Blanc, White Zinfandel, and Gewurztraminer.
BarterNews: With such an investment in production capabilities, it's obvious that marketing your wine is of major importance to your success. How does an independent vintner like yourself accomplish this?
Primarily we work through distributors in our state. We also
work with wine brokers, paying them a negotiated 10%-15% commission
for new business. Then there's mail order sales within California,
where we sell to the consumer in case lots. Selling wine outside of
California is more
BarterNews: Doesn't selling the majority of your wine within one state make your job more difficult?
Vose: Certainly! And that's not the only obstacle we have to face. Trade barriers limit the U.S. wine industry from exporting American wines, yet our government doesn't have similar trade protection from imports. So we see foreign wines flooding into our state and country, creating massive competition in the form of lower prices.
I'm not saying their product is inferior to ours, although I feel our California wines are equal to or superior to any in the world, but they are extremely competitive here in our marketplace because their governments subsidize them.
For instance, Italian wine can be sold in the U.S. for less than I can bottle my wine. On top of the trade barriers we are faced with another problem, the strength of the U.S. dollar. It greatly affects and restricts our overseas sales.
BarterNews: It sounds like the wine business is faced with numerous obstacles. Did you begin bartering to move your excess production?
Vose: Basically, yes. Even though I've operated two previous successful businesses before becoming a vintner, I'd never thought about barter as a way of merchandising.
Then about two years ago I became intrigued by the concept. Because I had a lot of inventory it certainly made sense to try it. Now I'm very comfortable with trading. In fact, I'm sold on it. I feel it's been extremely beneficial for my business. I'm into trading my wine for color ads in various California city magazines as well as printing for my brochures. I've also picked up a fork lift and computer equipment on trade.
Just yesterday I had a salesman call on me to replace an old labeling machine. I had budgeted $10,000 for the replacement, but he wanted more than that. So I told him, "Look, I really like the labeler, but I don't want to lay out that much cash. How about trading with me? I'll give you $10,000 in cash, and the balance in wine."
My experience when proposing such a trade to someone is usually quite positive. More often they will say, "Hey, I like that concept," rather than, "No, we can't do that."
But I've found that bartering requires both initiative and aggressiveness. Most people don't consider barter, because it's not part of their background of experience.
BarterNews: What percentage of the 100 wineries listed in Napa Valley Yellow Pages barter?
Less than five percent. It wasn't long ago that I too was skeptical
and defensive about barter. I didn't understand how a trade exchange
worked, and I had no idea of the services they could provide me. Now
I'm a member of four exchanges, and overall I'm very pleased with
BarterNews: Are the trade exchanges all located in Northern California?
Vose: Mostly. I'm a member of BX of Napa, American Trade Association in San Rafael, and Trade Services International in Santa Rosa. In Southern California I've recently joined TradeAmericanCard.
BarterNews: What differences do you see in the exchanges?
Vose: There's a difference in the aggressiveness of the owners. Personally, I like to work with exchanges who'll work for me, go out of their way to find the products or services I'm looking for. A particularly good example of this is Stephen Hayes, president of Trade Services International. He has been more than helpful.
Ironically, one of the largest trades I've made through a trade exchange came about by accident, without the help of anyone at the exchange. I had bought a new 25-foot motor home in 1970 and wasn't using it, so I priced it at $13,500 BX while looking for a high-grade lawnmower, on trade. I also traded the motor home, as the people I acquired the lawnmower from were looking for a motor home and had sufficient BX.
BarterNews: What percentage of your annual business is done on barter?
Vose: Now it's around 8%, however I can handle more and plan on doing so in the future.
BarterNews: Do you trade direct with restaurants and hotels, the "users" of your wine?
Vose: Yes. I work directly with four restaurants up here for our needs. And I've moved $15,000 worth of wine, through a barter broker recently, to markets outside my immediate area.
BarterNews: What about trading your wine to the airlines?
Vose: Now that's a unique situation. We've traded with them indirectly through a broker who had airline connections, but overall working with them on a large scale is a problem. The reason being that most wineries produce cork-finished products in bottles containing 750 milliliters, or 375 milliliter half-bottles.
The airlines want wine in smaller screw-tops, 187 milliliters. There are very few small wineries that have the expensive, specialized equipment to handle the airline requests. The other problem, quite frankly, is that the airlines are looking for the lowest price available. Buying top-quality wines is not their number one priority.
BarterNews: When you trade your wine, is it at wholesale or retail price?
Vose: If a trader has a liquor license or a resale license, and is legitimately able to buy products at wholesale, I will trade my wine at our wholesale price. Otherwise, all trades are made at retail price.
BarterNews: Now that you've been bartering for a couple of years, what do you see down the road for yourself, in regards to barter?
Vose: It's wide open! I see more and more companies, as well as individuals, becoming aware of the advantages and possibilities of barter. Here at Vose Vineyards we're compiling a list of traders. I plan on contacting them regularly, and building quite a business through barter.
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