What Softsoap has to tell us about Iowa's competitive advantage in wine

Terry post:

A competitive advantage is something which all businesses strive to attain. A competitive advantage is that certain something which gives a product or a brand an advantage over its competitors. Examples of competitive advantage would include engineering expertise at General Electric, logistic chain with FedEx and brand recognition for Coke.

A competitive advantage can be brief or enduring. A competitive advantage can be realized or unrealized. Having a competitive advantage also requires that you recognize that advantage and are able to comprehend it’s scope and magnitude. It takes skill or luck to create the advantage and expertise to recognize its existence.

It could be argued that the soil and climate of France created a competitive advantage for their wine makers. That competitive advantage for premium wines existed unchallenged for dozens of years and is being challenged by similar regions which, each in their own way, have advantages.

That brings me to the story of Softsoap. Those of you 30 or younger have always known of liquid soap products which are dispensed from pump containers. It was not always that way. Until very recently there was no such product.

Enter the entrepreneurs at Minnetonka Corporation. In 1980 they envisioned a liquid soap product which would be squirted from pump dispensers - Softsoap. The only problem was that they were a small company and their idea, once on the market, could be easily duplicated by huge companies such as Proctor & Gamble.

Minnetonka desperately needed to find a way to maximize their competitive advantage - liquid soap - establish market share, and keep the big guys at bay.

How did they do it?

It turned out that the patents and manufacturing capacity for the pump mechanisms were held by one company. Minnetonka invested heavily and locked-up 100% of the pump manufacturing capacity for a period of three years thus ensuring that no competitor could bring their product to market during those three years. This provided Minnetonka's Softsoap with an unfair competitive advantage: the only liquid soap product in the market segment for over three years.

Now it is time to put this analogy in terms of Iowa wine.

I am certain that there are people reading this who think that Iowa operates at a competitive disadvantage as compared to other wine producing states such as California, Oregon or Washington. And that the competitive disadvantage is the inability of Iowa to consistently produce the workhorse grapes of the West Coast such as Chardonnay, Merlot, Cabernet Sauvignon, etc.

Let’s recast the scenario in terms of Minnetonka's Softsoap and P&G. Softsoap was a new and unique product which Minnetonka wanted to bring to market and were able to do so in isolation for a period of three years because they controlled a key element required for production - the pump mechanism.

How then, is Iowa like Softsoap?

I would offer that Iowa’s unfair competitive advantage is that it does not grow the same grapes found in California, Oregon and Washington. I contend that Iowa holds an unfair competitive advantage in the growth of LaCrosse, Frontenac and Marechal-Foch grapes. And, that the advantage is an enduring advantage given the period of time it takes to make vines productive.

Now hold that thought for a moment. I am certain that most of you have never considered this to be an advantage. Iowa has a unfair competitive advantage in growing grapes which are not widely enjoyed outside of Iowa. Iowa is in the identical position of Minnetonka the day before Softsoap went to market.

What then to do?

If I were the Iowa Wine Association (if there is such a thing) I would:

1. Increase the name recognition of varietals (NOT BRANDS) which are grown primarily in Iowa.
2. Create “buzz” over the new hot varietal - which just happens to grow in Iowa.
3. Get Iowa varietals used as blending grapes in wines from other states.
4. Develop and distribute the taste characteristics of Iowa varietals - create the language of the top Iowa varietals.

Bottom Line: Iowa's wine issue is not so much copying California wines, as establishing which varietals will carry the state's banner. Job #1 should be identifying which grape is the Chardonnay of Iowa, and then advertising the hell out of it.

~ Terry

What Home Depot has to teach us about marketing wine.

Terry post:

Next time you visit Home Depot take a walk through the section where they sell drill bits.

Drill bits are the instruments which are used to drill holes through materials. There are bits for drilling holes in concrete, ceramics, wood, brick, plastic, steel, iron and copper. In short, there is a wide world of drill bits.

And you know what is interesting about those bits? They are shelved based on their use. Bits for drilling holes in concrete are located next to other bits which can be used to drill holes in concrete. They vary in diameter, brand and length. But, the bits which are used to drill holes in concrete are all shelved next to one another.

So too for bits for ceramics, wood, brick, plastic, steel, iron and copper: bits are shelved based on their functionality.

Now. Let's take a trip down to our favorite local wine retailer. How are the wines shelved?

The worst offenders shelf their wines based on the winery with all of XYZ Brand being shelved shoulder-to-shoulder with one another. Cabernet Sauvignon next to Pinot Gris next to Merlot next to Chardonnay: no logic or sense to the placement.

Only slightly better are those retailers which shelve their wines based on regions. You've seen them: "FRANCE", "SPAIN", "ITALY" and my personal favorite "OTHER". Yes, come sample the wonderful wines of "OTHER"!

Getting closer to a reasonable approach are those retailers which shelve their wines based on varietal. But, even this approach has its limitations as the characteristic of a grape varietal can vary widely based upon where the grape is grown and how it is processed. You'd be hard pressed to believe that a steely French Chablis was borne of the same grapes as the oaky Chardonnay offerings from Napa - they are so very different.

So how to shelve our wines, then? Let's go back to Home Depot and arrange wines by their functionality.

About fifteen years ago I visited a wine shop in Traverse City, Michigan which had their wines arranged by the food with which they were best paired. Over the shelves were crude wooden cut outs of cattle, chicken, fish, cheese, etc.

Just like Home Depot this small retailer in Traverse City found sanity in shelving their wines in a way which made sense to their customers. An individual looking for a good wine to go with beef had only to meander under the wooden cut out of cattle to find their wine.

I know that it is a wild idea. But, maybe, just maybe the wine-drinking public would be more accepting of our products were we to make their use a little less daunting.

~ Terry

Choosing Wine & Sales

Brad Post:

After reading my brothers remarks on restaurant patron wine purchase choices I began to do some research to see how people go about selecting a wine and reviewed current sales trends. The source of my material comes from Wine Business Monthly (April & May issues).

Wine sales over the past year (and the past 13 weeks - ending 2/7/09), according to the Nielson Company, and reported by Rachel Nichols (WBM, p. 71, May, 2009) indicates overall wine sales are up by 5 percent.

Any guesses to the top selling varietals? The dollar volume for the past 52 weeks follow: #1 Chardonnay - $1.7 billion, #2 Cab Sauv. - $1.18 billion, #3 Merlot - $898 million, #4 Pinot Grigio/Gris - $649 million.

The fastest growing segment over the past year are: #1 Pinot Noir (13.2%), #2 Fume/Sauvignon Blanc (10.4%), and #3 Pinot Grigio/Gris (9.7%). It is interesting to note, despite such a large market share, that Chardonnay and Cabernet Sauvignon are still making headway reporting moderate growth over the same period: 4.1% and 7.7% respectively.

That is a lot of wine being purchased - Billions of dollars! So, how do winemakers go about marketing their product so it moves? What do potential customers key-in on before they buy that one bottle (or case)? Using experimental research, Larry Lockshin, professor of Wine Marketing at the University of South Australia (WBM, p. 64-67, Apr. 2009), reported two studies. The first being critical of traditional market research methodologies, which simply asks customers to pick their favorite attributes of a wine (e.g., bottle design, label, etc.), and in this study he created a simulation and manipulated the label colors and styles. He found label style and colors were predictive of purchase behavior - but varied by respondents.

Study 2. In this study, he experimental manipulated several independent variables (e.g., bottle size, label design, color, price, ratings, awards, alcohol level, and closure type) to understand their effect on the dependent variable: choice. Biggest purchase predictors? 1) ratings (0-5 stars), 2) brand, 3) price, 4) medals and trophies, 5) price discounts, 6) alcohol level, 7) region, and 8) closure type. For online purchases price seems to be even more important!

Take home message to us: get Robert Parker to highly evaluate our wines, build a strong brand image, and price it right!

Happy tastings!
~Brad