How Wineries Create Value, with Genevieve Rodgers, PEMDAS Winery Solutions

Intro: [00:00:00] Business owners likely will have only one shot to sell a business. Most don’t understand what drives value and how buyers look at a business. Until now. Welcome to the How to Sell a Business Podcast, where, every week, we talk to the subject matter experts, advisors, and those around the deal table about how to sell at maximum value. Every business will go to sell one day. It’s only a matter of when. We’re glad you’re here. The podcast starts now.

Ed Mysogland: [00:00:35] On today’s episode, I had the opportunity to visit with Genevieve Rodgers of PEMDAS Winery Solutions. And, boy, I can’t even begin to tell you everything that we learned during her episode. It went a little bit longer and she was so generous with her time. But she’s a winery consultant, and if you just Google her name, you will find that she is everywhere.

Ed Mysogland: [00:01:03] So, she’s an MBA. She’s an engineer by trade. She’s also a Level 3 of the Wine and Spirit Education Trust. She does all kinds of work as far as strategic planning, company or winery positioning. And she was just such a wealth of knowledge. And I guess the reason I really wanted to have her on was, number one, I don’t know anything about wineries. We’ve sold a few in the last, probably, five, ten years, but they were difficult sales.

Ed Mysogland: [00:01:40] And believe it or not, there are a lot of wineries throughout the country, and those business owners, at some point, will want to sell. So, the rough rule of thumb is that it takes one to two years to sell a winery. And I wanted to learn where’s the risk in the winery, how to mitigate that risk, and then how to effectively transfer those businesses. And she did not disappoint. She was, like I said, so generous with her time and such a wealth of knowledge. So, I hope you enjoy my conversation with Genevieve Rodgers of PEMDAS Winery Solutions.

Ed Mysogland: [00:02:22] I’m your host, Ed Mysogland. On this podcast, I interview buyers, sellers, and advisors about what creates value in a business and then how that business is effectively sold at a premium value, because sellers and business owners now understand what creates values in their company. So, on today’s show, you have no idea how excited I am to visit with Genevieve Rodgers from PEMDAS Winery Solutions.

Ed Mysogland: [00:02:53] And I am such a novice at anything wine related. I have a buddy of mine, John Baker, that always makes me look good as far as wine selection. So, I’m fortunate to have somebody in my corner, but now I’m going to get a lot smarter because I got Genevieve. So, Genevieve, welcome to the show.

Genevieve Rodgers: [00:03:14] Thank you, Ed. I am pleased to be here.

Ed Mysogland: [00:03:18] So, tell me about PEMDAS Winery Solutions. I haven’t seen any business named PEMDAS, but I know what it means. So, tell me about it.

Genevieve Rodgers: [00:03:30] Well, that’s why I picked it. And I’m an engineer by my original training and so sort of a math geek. So, when I started this business, I really wanted to help people work through how to start a winery, how to run a winery, how to have a winery in an organized manner. And so, being a math geek, I came to PEMDAS, which is how you, in an organized method, solve a mathematical equation.

Ed Mysogland: [00:04:09] You know what? That makes total sense. That’s a great way to look at how your practice is. I wouldn’t have guessed it, but, you know, I always just figured you were just messing with acronyms. But there was substantially more thought that went into it and that’s awesome.

Genevieve Rodgers: [00:04:28] Probably too much thought, but yes, yes. And it’s interesting to me, there’s people who are in certain groups that see PEMDAS and say, “Oh, I know what that is. Isn’t that math?” And people who look at me and say, “What is that? I have no idea,” which I think is really interesting. But since I like math, it works for me.

Ed Mysogland: [00:04:58] I get it. So, you’re based out of Oregon, right?

Genevieve Rodgers: [00:05:02] Well, that’s where my home is. But my clients are all over the United States and I have some international clients. So, I do a lot of my work from home office, a lot of my work over the internet with clients, things that can be shared electronically. And then, I do winemaking consulting onsite for clients, and so then I travel and I’ll be at the winery.

Ed Mysogland: [00:05:34] Well, awesome. So, I’ll apologize in advance for some of the silly questions that I’m certain I’m going to ask that probably would be rudimentary to folks like you. So, I appreciate the latitude. But the first thing that I guess we should talk about is that there’s differences in wineries. Like you were talking about, case thresholds, there’s the larger operations versus the smaller operations. And I think the people that listen to this podcast are probably more geared to the smaller side because there are some substantial differences, right, other than volume?

Genevieve Rodgers: [00:06:20] There are some really big differences and it’s almost like being in two different industries. And people can think about it in the difference between your local hardware store and Home Depot. And that’s kind of where the winery is. So, you have some really, really big players in the United States and across the world that make millions of cases of wine. But most of the wineries in the world, most of the wineries in the United States, are making less than 5,000 cases of wine annually.

Genevieve Rodgers: [00:06:58] So, what you see in the stores, and if you’re going to grocery stores, you’re seeing primarily the big wineries, really big million cases annually of wineries. And then, you might see some local wineries that are smaller scale. And you might see some wineries that are kind of mid-size that make specific products to specific value that they’re big enough to be picked up through distribution and sold across across the nation.

Genevieve Rodgers: [00:07:35] But the majority of wineries are really fairly small, under 10,000 cases. And wineries that are family-owned, they’re small. So, the cost basis is very, very different and the way they sell wine is very different. Because their cost base is so different than selling through the distribution market, it’s taking their margin and cutting it at least in half. So, that becomes a real boundary for small wineries, is like, when I have a higher cost basis, am I going to be able to sell it at half or just sell it to a distribution? So, it sets up almost two different industries.

Ed Mysogland: [00:08:43] Yeah. So, that explains a little bit about why you see all of these small operations having – what’s the best way to put it? – onsite – I don’t want to say tourism type winery, but it seems as though that is more so why they do it because that’s how they get the distribution as opposed to going through your normal distribution chain, right?

Genevieve Rodgers: [00:09:17] That’s correct. And, really, if you look at the sales distribution for small wineries, and you look at averages, and you look at wineries that are doing well, they should be selling 85 plus percent of their sales directly to the consumer. So, you’re either doing it through your tasting room, you’re doing it through your wine club, you’re doing it through your website. That’s your direct to consumer market.

Genevieve Rodgers: [00:09:53] And for small wineries, like if you’re under 20,000 cases, the vast majority of your sales should be through those markets. So then, you need a tasting room, somewhere where you connect with customers. If you’re a huge winery, there’s not a whole lot of value in that for you.

Ed Mysogland: [00:10:17] I get it. That totally makes sense. One of the things, I guess, can you take me from cradle to grave? So, we start with grapes and then we end with a bottle of wine in the consumer’s hand. I mean, what is the mechanics of all of that from a high level? You don’t have to get too far in the weeds. But I know you work with startups.

Genevieve Rodgers: [00:10:42] I do. I do work for a startups. So, I like to say that there’s three different types of people in a winery. The first type of person is a farmer. So, you’re going to grow grapes. And grapes are a perennial. They’re a lot more like having an orchard than other other types of fruit, because you’ll plant and you’ll plant for the next 25 years. That plant is going to grow for 25 years, if not more. So, it’s a real dedication to the land, to that crop, to those individual plants.

Genevieve Rodgers: [00:11:21] And you want a good winery that has its own grapes. You don’t have to, but a good winery that has its own grapes is growing grapes that work with that climate and those soils, and that produce a wine that customers like. And you have to do all of those things. So, grapes are kind of a weed. They’ll grow anywhere. But what you need is you need a grape that will grow well, that will give you volume and quality in which to make a product that people are going to like at the price point that you need to sell it for. You have to do all of those.

Ed Mysogland: [00:12:06] Can I ask you a question? Can I ask you about the grapes?

Genevieve Rodgers: [00:12:12] Sure.

Ed Mysogland: [00:12:12] So, if I’m a farmer, does the winery owner, if I don’t own the farmland, do I get exclusivity? Is that how it works? Or if I’m a farmer, I’m going to sell it to anybody that needs my grapes?

Genevieve Rodgers: [00:12:34] You know, most wineries have contracts with farmers. It a little bit depends on the area that you’re in and the ability to get grapes. If you’re a farmer and you are growing grapes really well, you should look for contracts that are long term and you build a relationship. And that’s really what a winery wants, too, because the winemaker wants consistency and they want to be able to direct the grape growing practices. And so, for that, you need a relationship.

Ed Mysogland: [00:13:18] So, the winery that contracts with the farmer, they have control over certain aspects of the farming other than just the product?

Genevieve Rodgers: [00:13:33] You know, it’s by contract. And so, everything is a little bit different. Sometimes wineries will have long term contracts, and then it makes sense for those two organizations to work together and farm in a certain manner. And then, wineries will often get to a point where they’ll be growing or where the volume that they’re getting from one farm isn’t enough because of the year, and they buy, basically, on the spot market. And then, you’re just getting whatever someone grew.

Ed Mysogland: [00:14:14] I see. All right. So, first thing you said is three parts. We had farmers. What’s our second part?

Genevieve Rodgers: [00:14:20] The second part is the winemaker. So, the winemaker is this person who has a really high attention to detail, is somewhere between a scientist and an artist. They make the wine. And I like to say, a good winemaker is a little bit OCD. There’s a lot of attention to how the wine is made on a daily, hourly basis. And you want someone who’s really methodical.

Genevieve Rodgers: [00:14:53] And so, that person is going to bridge the two parts. They will direct some of the growing to get the raw product that meets their quality standards and their chemistry that they’re looking for. And then, they work with the sales, which is the third person, to make the wine that’s going to match what’s being sold.

Genevieve Rodgers: [00:15:23] So, the winemaker is going to get the grapes in. They process it through the harvest. You ferment it. There’s different processes during fermentation. And then, you press it and you put it into tanks or barrels to age it, and then you bottle it. And bottling then goes to this third person who is the sales management person.

Ed Mysogland: [00:15:54] Got it. So, on the scientist or the chemist, how hard is it to find somebody that does that? Is that just somebody you hire or is that typically the owner?

Genevieve Rodgers: [00:16:10] Yes. For small wineries, it is typically the owner. And the owner either has that background – and I see a lot of first time owners that have backgrounds in engineering. So, the owner either has that background or they go out and get that.

Ed Mysogland: [00:16:37] How do you get it?

Genevieve Rodgers: [00:16:38] Well, there are programs around the country that teach winemaking to adults who have already graduated. So, Cornell has a program, Penn State has a program, University of California, Davis has a program, San Luis Obispo. There’s a whole bunch of programs around the country where you can take online or in-person classes as a professional already. And you get a certification.

Ed Mysogland: [00:17:12] Finish your thought.

Genevieve Rodgers: [00:17:13] You get a certification in winemaking.

Ed Mysogland: [00:17:17] And that gives you enough knowledge to produce a commercial grade wine, huh? I wouldn’t have known that.

Genevieve Rodgers: [00:17:29] Yeah. And you can go the route. I mean, that’s sort of the route I took. I have an engineering degree. I have an MBA. When my family started a winery, nobody had ever made wine. And so, I took classes. I became the winemaker with my engineering degree and my MBA. And I took classes and I worked with a couple of consultants, and so I was learning. The consultant would say, “Do this today,” and I would go and do that. But then, I was learning at the same time.

Genevieve Rodgers: [00:18:09] So, you can do both. You can do one or the other. It really depends on your temperament and how much work you want to put into it. Because there is a lot that you need to know to make wine well. Or you can hire someone.

Ed Mysogland: [00:18:27] Well, and that’s what I was getting at, is that it seems like the astute wine people in my life, they are always talking about different things about the wine. And so, when we’re talking about chemistry and stuff, I’m sitting here going, “Okay. How do I learn this online in order to be able to produce something in a manner that is attractive to the consumer?” You know what I mean? But I mean, it makes sense. So, you worked with somebody and that’s probably what other people can do.

Genevieve Rodgers: [00:19:13] And it’s one of the things that I do, is, I come to wineries and I train people to take over my job, basically. And while I’m not there, they’re doing the work. We’re talking, I’m saying do this, they do that. But they’re also learning intensely on why this is happening so that they can then take over.

Ed Mysogland: [00:19:38] Yeah. I thought it was so much more about tasting and tailoring it based on kind of a palate that you were going for.

Genevieve Rodgers: [00:19:52] It is. It is too. So, that’s why I said that it’s science and art. Because you can’t do it straight on the chemistry. So, wine is made usually during fermentation. It’s really when the wine is made. And that’s a couple of weeks. So, if I’m making wine and I’m at a winery, I will taste every single tank, barrel, lot in the winery at least once a day, if not twice a day, if not three times a day. And then, I will make changes to how the fermentation is going based on those tastes. So, you do have to do both.

Genevieve Rodgers: [00:20:50] And you also have to understand, if I want a product that tastes a certain way at the end after it’s aged, what do I need to do now during fermentation in order to get that? And that’s something that you have to have the mind for it, but you also have to have some experience doing it.

Ed Mysogland: [00:21:15] I get it. All right. So, you had talked on the third part, which is the sales. So, what is at this level? I mean, what is the optimum route to maximum value? I think we’ve established that probably you don’t want to go to a distributor because you don’t have the volume to accommodate that. So, it sounds to me that it’s direct to consumer, and the ways – if I heard you right – was your tasting room, events, and online. Those are the three or areas did I miss any?

Genevieve Rodgers: [00:21:54] And wine club, which is actually the backbone. So, if someone has a winery or starting a winery, the most important thing that they can do is determine what experience they are creating their wine. That is by far the most important thing that a winery can do to be successful, is, what experience do I want people to have when they visit, when they come to my winery and come to an event, when they taste my wine at home, when they come to my website, what do I want them to feel? What am I creating for them?

Genevieve Rodgers: [00:22:43] Because people who love wine and get into the industry, I think that it’s all about the wine. Because that’s what’s been important to them while they’ve been drinking wine, it’s about the wine. This wine is fantastic because of this criteria. But that’s not actually how wine is sold. Wine is sold based on the experience that people have, and the wine is integral. But it’s not always the most important, but it is integral. So, that’s the first thing that people should do.

Genevieve Rodgers: [00:23:23] And if they have a winery and they’re thinking “I would like to sell this at some point,” they need to nail that down, what am I creating? And then, figure out, is that what I think I’m creating or what I’m actually creating? Because those two things can be different. And then, does everything match? Is the experience I’m trying to create, does that match the wine that I’m selling? Does it match the prices that I’m selling it at? Does the label match? How about the packaging? How about my website? And when people call me on the phone, is it all consistent?

Ed Mysogland: [00:24:11] But when you’re sub-20,000 cases – is it cases?

Genevieve Rodgers: [00:24:18] Cases.

Ed Mysogland: [00:24:18] Cases. So, I mean I follow what you’re saying. What I’m trying to reconcile with is, can they create that brand consistency that you’re talking about? And, again, it’s back to the wine. You know, so you have a great product, so how do I make everything downstream tied together? You know what I mean? And I’m certain that’s the trick in your industry is, if they knew, you wouldn’t have a job.

Genevieve Rodgers: [00:25:11] That is true. And this is where I get myself out of the job, I teach people how to do this. So, you start first with the experience and what do you want people to have. So, there’s a winery in Napa called Opus One. And I use it because lots of people know it. They make a single wine. One wine a year. Period. And they tell you this is a singular wine. It’s part of their vision statement. A singular wine that transcends generations, that’s their vision statement. So, that’s what they do.

Genevieve Rodgers: [00:25:56] So, if you imagine in your head, “Okay. Well, what does that look like?” The place is going to be something you remember. You’re going to look at that building, “Oh. That’s it. That looks like an imagé to wine. That looks like a wine museum where the best wines would be stored. Then, your price is going to match that. So, that’s not a $20 bottle of wine. That’s a $300, $400 bottle of wine. So, they do a really good job. And that’s why I use them is because everything matches.

Genevieve Rodgers: [00:26:41] But it doesn’t have to be the best of the best. You can have a place where families come and they have a great time together. Well, what does that look like for a wine? It’s going to be a lower price point. You’re going to have a bigger breath of wine. Some of it will probably be sweeter off-dry if you’re going to have whites and reds. That’s kind of how you progress through this.

Ed Mysogland: [00:27:10] I get it. And I think that’s where business owners get themselves in trouble, is, they’re looking at volume rather than playing the long game and get the experience down, and the money and the profit will follow. That totally makes sense.

Genevieve Rodgers: [00:27:29] And part of the thing is something that you kind of maybe didn’t realize you were alluding to at the beginning. Most consumers don’t really know a lot about wine. Like, you are not unusual. Most consumers don’t know a lot about wine. They like what they like. They’ve tasted the wine. It tastes good to them. That’s what they know.

Genevieve Rodgers: [00:27:55] And so, when you think about it in that manner, it’s really not as much about the wine itself, because people don’t know a lot about the wine. What they know is that they had a good time. Everybody enjoyed themselves. Or someone that they know recommended this, they probably drank it together. And so, wine, especially for small wineries – and this is hard because I’m a winemaker – you really need to get out of this idea that it’s all about the wine, because it’s not.

Ed Mysogland: [00:28:42] Okay. No, that’s great advice. So, we were talking about the farmers earlier, I mean, we’ve got some pretty funky weather going on these days, you know, because one of the things you were talking about when we talked last was how important it is to kind of foresee what is the outlook for the region. And I guess as a business owner, I value companies all the time. And one of the tendency is, what does the future look like for this particular investment? And I’m looking at a winemaker and they’re trying to forecast what the farmland and the farmer and the climate looks like down the road. So, how do you do that? And how do you pivot if it goes back?

Genevieve Rodgers: [00:29:54] So, you know, one of the benefits for winemaking is, like I said, grapes are kind of like a weed. They will do well in a climate range. But you do want to target the varieties that is going to do better in your climate range. And there’s a lot of them. And part of it is, if you’re in the United States, you go to your extension program, which works with agricultural and farms, and you say to them, “What’s brewing in my state?” And you work to make sure that the land is going to be good for grapes and that you pick the right grapes for it.

Genevieve Rodgers: [00:30:54] And then, there is some looking forward, and it depends on how much risk you want to take. If you plant a grape right now, you’ll get a good crop in five years. The climate is probably not going to change substantially in that five years to make this grape nonviable. It’s still going to be viable. It will still be viable in ten years.

Genevieve Rodgers: [00:31:21] There might be a grape that’s kind of on the edge of your climate that you may take a risk on and say, “I’m going to plant that now because I can see what’s been happening with the climate in my region, and this is going to be really good in ten years.” That’s a risk, and it depends on how risk-averse you are.

Ed Mysogland: [00:31:54] You know, we were talking and it was a question I was going to ask that little down the road was, you know, especially in selling wineries, you’re talking one, two years to sell it, to find the right buyer and to sell it. And then, on top of it, trying to see into the crystal ball what my crops are going to look like or what my grapes are going to look like, you know, 5, 10, 15 years down the road. And I guess my question is, do I lock-in the farmer? Do contracts go out that far? Or are they one year and then one year renewable? You know what I mean?

Genevieve Rodgers: [00:32:36] Contracts are all over the map. And contracts in the Midwest are very different than contracts in California, where 85 percent of the wine in the United States –. So, what is common is a multi-year contract that is more like four or five years or one year renewable contract.

Genevieve Rodgers: [00:33:00] And the contracts are with the business, but there’s a lot of contracts that are really with the owners. So, if you’re purchasing a winery that doesn’t have its own grapes, you want to talk to their grape sources and get a feel for do I want to work with these people, are they going to give me the quality that I need, are they going to give me the volume that I need so I can be consistent and have a consistent cash flow.

Ed Mysogland: [00:33:36] So, if I’m a buyer and you’re a seller, and I meet your farmer and I like him or her and we kind of get along, why wouldn’t they want to do business with me? I mean, is it all economic?

Genevieve Rodgers: [00:33:58] No, it’s not. It’s not all economic. No, it’s not.

Ed Mysogland: [00:33:58] Because we were talking about this the other day about goodwill.

Genevieve Rodgers: [00:34:02] And, you know, it’s hard for me to answer that question because I’ve seen vineyard owners that say, “I want a five year contract and let’s write out how we’re going to value the crop so that it’s reasonable for everyone. I want to do that. And I want you to take all of my crops. Like, everything I grow, I want you to take.” And then, I’ve seen some growers who say, “I want five buyers every year. I don’t want one buyer because I don’t trust that they’re going to do right by me every year.”

Genevieve Rodgers: [00:34:44] And so, it’s very individual. And part of it also depends on where you’re located. And what experience those growers have makes a big difference too. And when I say experience, I mean experience working with wineries.

Ed Mysogland: [00:35:06] Yeah. Yeah. I follow you. Well, like I said, it’s one of those things of – boy – everything is sizing up risk and the prospect of losing your supplier. I guess my question then becomes, does the farmer have the leverage over the business owner or the winemaker? Who has leverage in that —

Genevieve Rodgers: [00:35:41] It depends on the scarcity, really. If you’re the only grower, then you’re the only grower, you’re the only game in town. If you’re one of 50, then it doesn’t. So, that’s where it really starts to make a difference. And then, it’s personality. You’re working with people and it’s getting a good mix that people work together.

Ed Mysogland: [00:36:08] Okay. So, what do typical owners look like these days? What’s an owner of a winery?

Genevieve Rodgers: [00:36:15] For a small winery, it’s all over the map. If I look at my clients, I have clients who started wineries who are retired, they made money. And one gentleman who is just opening a winery in New Jersey said, “You know, Genevieve, I spent my career making money and doing things for other people. Now, I want to do something for me. This is for me.” So, that is one group.

Genevieve Rodgers: [00:36:58] Another group is, I get a lot of people who are younger than I am – I mean, I guess at my age a lot of people are younger than I am – they’re in their 20s and 30s, and some of them have legacy farms in their family. And so, now they’re going to turn a legacy farm that is growing corn or soybeans or something else and change the way that farm works.

Genevieve Rodgers: [00:37:36] And then, it’s all over the map. Usually, it’s people who have liked wine and who want to do something different, and they want to do something that they’re going to love. And that’s really important if you’re going to buy a winery, because people who buy wineries, unless you’re buying it for someone else to run, it will become your life. There’s really not an in-between. So, you want to love it.

Ed Mysogland: [00:38:11] I get it. So, it strikes me that the avatar of somebody that wants to get into this business is a high net worth individual that is either on one side of the scale, meaning they’re at retirement age looking for kind of the next chapter of their life, or they’re on the younger side and they’re trying to set the world on fire but yet they have the net worth to pour into something like this. Is that true or not?

Genevieve Rodgers: [00:38:53] I think that’s true for the most part. I find that the people who are younger, who are starting this, they’re really bootstrapping it. But they don’t have to purchase the land. And so, that makes a huge difference in how much money and capital you need to start over. And you can do that. But I think you’re right, for the most part you’re going to be looking at people who have equity and have money to spend or have equity and have a group behind them that has the capital.

Ed Mysogland: [00:39:36] I get it. So, I know you just alluded to private investment. I mean, do these things get financed through conventional means, like through the SBA or through conventional banks? Are you familiar with that? And I know I’m kind of jumping all over here, but I’m just kind of curious to see how that works.

Genevieve Rodgers: [00:40:07] The bigger startup wineries do get with commercial banks and conventional loans. For smaller wineries, it’s harder. You really have to make the case. And it is one of the things that I do. So, I create ten year financial forecasts that you can take to a bank. But you have to take it to a bank who understands what’s going on. Because this is not something that you can just turn around the next year. This is a long term project.

Genevieve Rodgers: [00:40:50] So, startup wineries do not make money the first year or the second year. And they start getting to the block on an annual basis in their third or fourth year. But it does take five, six, seven, eight years to actually get truly profitable where you’ve paid back your loans and all of your capital, and now you’re actually making money.

Ed Mysogland: [00:41:32] Now, are those capital sources exclusive to the industry? I mean, my point is I’m certain there’s a lot of people that are probably listening saying, “You know what? If I get a buyer, I’m going to call Genevieve because she knows where the capital is. I have lenders that specialize or understand this industry and the risk profile.” You got those people?

Genevieve Rodgers: [00:41:54] Let me just say, it’s not my forte. But, yes, there are. A lot of them are in California or they’re ag based banks. You can qualify for SBA loans. It’s sort of a hard sell, but you can do it. And I’ve worked with the SBA.

Genevieve Rodgers: [00:42:31] And you probably have had this experience, when someone’s trying to get funding for a project, if you’re buying a winery, first, you’re looking at their cash flows. Do they have positive cash flows for years, not just this year? But do they have a history of positive cash flows? That goes a long way to a lender saying, “Yeah. I’ll lend that to you,” because they’re looking at their years of positive cash flow. If you’re starting up, that’s a more difficult sell.

Ed Mysogland: [00:43:12] Yeah. Sure. It always is. I get it. I’m bumping up on time. Do you have time for a few more questions?

Genevieve Rodgers: [00:43:26] I do.

Ed Mysogland: [00:43:26] All right. So, on the coronavirus, how did that affect the smaller business? Did it affect the supply chain as much as it did for a lot of the larger wineries or not?

Genevieve Rodgers: [00:43:43] It did. It did affect the supply chain. For smaller wineries, primarily at the end of making wine, which is bottling. Small wineries have and continue to have a very difficult time getting bottles. And that’s been a problem. Yes. And it’s been a really, really substantial problem that is ongoing, because what is happening in the Ukraine is affecting the cost of energy in Europe, where a lot of the bottles are made. And bottle making is high energy usage. And so, not only are costs going up, the supply is going down.

Ed Mysogland: [00:44:34] I had no idea.

Genevieve Rodgers: [00:44:35] That’s been the biggest as far as supply chain that’s hit the industry is in bottles. The pandemic affected the industry differently in that it closed a lot of tasting rooms and the ability for people to come in to your tasting room. And so, wineries had to pivot. And the wineries that did well did pivot. They kept in touch with all their consumers. They worked their wine club. They worked online sales and classes and meet the winemaker. They did all that. And the industry in the United States actually grew through the pandemic.

Ed Mysogland: [00:45:26] Yeah. And that totally makes sense. And as you know, one of my questions was, as restaurant usage is declining, the consumer usage is growing. And based on what you were saying on the areas where you create value through the tasting room, through online, and through the wine club, the pandemic for the smaller wineries, if you played it right, probably, it did pretty good for you. That your margins actually probably improved, right?

Genevieve Rodgers: [00:46:15] The small wineries that had a wine club, to start with, and built consumer loyalty, and built interactions with their consumers over the years before the pandemic, they were able to leverage that and continue to give real value to their customers who stayed with them. And not only did they stay with them, but they bought more wine. And their cost basis then went down because they didn’t have an employee in a tasting room and have to staff that. Now, they’re staffing someone shipping wine and moving wine as opposed to tasting them.

Genevieve Rodgers: [00:47:02] So, the wineries that did that really well, they made out, because now all of that infrastructure is still good. It’s still viable. People still buy wine over the internet. They still want that interaction. So, if I’m a winery buyer, show me how you did during the pandemic. What is your wine club like now? How are your interactions? Because those have real values.

Ed Mysogland: [00:47:42] But, conversely, if I’m the buyer and I’m saying, “Oh, you didn’t capitalize on the wine club, you didn’t capitalize on online,” from a buyer standpoint, am I not sitting there saying, “Wow. I have a tremendous opportunity to take advantage of something you didn’t?” Or has that ship already passed?

Genevieve Rodgers: [00:48:03] It has not. That opportunity is always there. And, really, from a buyer point of view, what you would do is you would look – and I say – wine club is based on the brand. The value of the wine club is how you value the brand. And so, if they haven’t done that, then the value of the brand – which is what we call this goodwill amorphous value that we put on when we’re selling something – declines. And most likely you’re going to come out with a new brand and do something else. So, yeah, it does give you that opportunity but your starting point, though, is then lower from a sales perspective.

Ed Mysogland: [00:49:01] Right. Right. But if I’m the seller, maybe I wasn’t aware of what to do. But, nevertheless, that’s where the value is. And you talked about this a little bit when we originally talked was, the goodwill component tends to erode very quickly. Meaning that you’ve got inventory, you’ve got the equipment, and now you have what we’re talking about is goodwill. And then, goodwill separates into personal goodwill or the branding. And then, you have corporate goodwill is the earnings that you can forecast.

Ed Mysogland: [00:49:54] So, where I was going with this is, I’m curious to know if you’re coaching a seller, how do I sell that I have that goodwill? Because the equipment is what it is. How do I demonstrate that I do have the goodwill? So, I’m certain it’s mailing list, wine club. But how am I going to withstand the scrutiny of a buyer? How would you coach in that scenario?

Genevieve Rodgers: [00:50:37] So, the goodwill you’re looking at a couple of things. One, you’re looking at the wine club, which is an annual income that is really easy to forecast and put a value on. So, that’s a big piece and that’s probably going to be a significant portion where you say, “Look. I’ve got this value because I have a wine club and it’s this size.”

Genevieve Rodgers: [00:51:12] Another thing that you’re going to look at is how many people walk through your door. And if you’re going to sell your winery, you should be counting those people and literally tallying every single person who walks through your door.

Genevieve Rodgers: [00:51:28] Because there’s lots of potential sale. And as a winery consultant, I can tell you what that potential sale is. There’s a real value — many people walk through your door. You may take advantage of it or you may not. But I think that’s a piece of the goodwill. And that has to do partly with your location, partly with your marketing, how you’re branded, how people know you.

Genevieve Rodgers: [00:52:00] So, those would be the two biggest things that I would say maximize your value of those two things because you can really sell those and those have that goodwill value.

Ed Mysogland: [00:52:21] Again, what do buyers look like? I mean, I know we said here’s what a seller looks like. We’re on both sides of the spectrum. So, buyers these days, is it the same avatar? I guess the first question is, are you seeing wineries sell? And two, who’s doing the buying?

Genevieve Rodgers: [00:52:50] So, small wineries, the reality is most small wineries don’t actually sell well. And you talked about this, like, it takes a couple of years. Most small wineries don’t actually sell well and most of them just close.

Ed Mysogland: [00:53:09] Because of what?

Genevieve Rodgers: [00:53:12] They don’t have these cash flows. Either they don’t know how or they were not able to, for whatever reason, they don’t have this. And so, their winery brand doesn’t have a lot of value. Now, their property has value. The buildings have value. Their equipment may or may not have value.

Genevieve Rodgers: [00:53:41] I was asked today by someone who’s starting a winery and he says, “Well, how long do I keep this?” And I told him, I said, “Well, I can hear your children in the background, they’re the ones who will replace this equipment that you’re buying.” That’s the lifespan of equipment. And his children were young.

Genevieve Rodgers: [00:54:03] So, we were talking about what does this person look like? One, most wineries don’t sell. That’s just the reality. Most wineries close. The wineries that sell are selling to someone who wants this as a lifestyle, because it is a lifestyle. You may be selling it to someone who has made money, who has been a real high achiever, like a lawyer or a surgeon or someone who’s been in construction or building and they’ve done something for a long period of time. They have equity and they have capital. Now, they want to do something for them. And that’s the kind of lifestyle that they want to lead. Those really are the buyers.

Ed Mysogland: [00:55:03] Okay. Back to the sellers, though, and I have two questions that kind of go hand in hand. If I’m a business owner, can you coach me into making my winery a marketable asset to a buyer? And if so, how long does it take? And then, I guess the third question is, how do I work with someone like you? It seems to me like you’re going lots of places. How do we work together as a seller?

Genevieve Rodgers: [00:55:41] If you’re a seller and you want to sell your winery, it’s a long term process, unless your winery is sale ready.

Ed Mysogland: [00:55:59] So, what does that mean? Tell me what that means.

Genevieve Rodgers: [00:55:59] So, if you’re sale ready, you have years of cash flow that are positive, that are consistent. You can show that you have put in money to keeping up your equipment, to training your staff, to your facility. You have been doing ongoing maintenance and everything is in real working order. You’ve got those two things from just a straight production business side.

Genevieve Rodgers: [00:56:34] The next thing that you need to have is you need to have wine, that is – what we call in the industry – clean. It needs to be good wine. And so, it needs to be free of faults. Because faults are a winemaking problem that make the wine not taste good to consumers. Also, wine that has faults has no value to a buyer. So, if I’ve got a whole bunch of wine and tank, but that wine has faults, that wine has no value to a seller. It’s bad inventory. So, I would work with you to fix that, but that takes one to two vintages minimum because you have to get through that wine. So, you do those things and then work to build your wine club.

Ed Mysogland: [00:57:29] What is vintage? Sorry about that.

Genevieve Rodgers: [00:57:34] Okay. Grapes are harvested one time of year in the United States. We put the vintage, which is the year that you see on the bottle, is based on when we picked those grapes. So, right now, the vintage that is in tanks at people’s wineries is 2022. But what you’re seeing coming out in the marketplace would be 2021 and ’20. So, it takes a while.

Ed Mysogland: [00:58:11] Okay. That makes sense. Got it. Thanks.

Genevieve Rodgers: [00:58:12] So, if you want to get there, you’ve got to get through a couple of vintages, which is years, to get sale ready.

Ed Mysogland: [00:58:23] Okay. So, I need a couple of years with you to get sale ready. And during that time, you’re going to work on faults. You’re going to work on how to improve cash flow and how to shore up the online, the wine club, and tasting at this level. Okay.

Genevieve Rodgers: [00:58:41] It depends on what people need, but some of it I come onsite. So, I would come onsite and we’d taste for all your wine, every single thing you have. And we would talk about what’s going on, where you need to go, and how you get there. And then, some of it is one hour sessions where we talk on the phone and you say, “Okay, Genevieve. This is what I’ve been doing. This is where I am.” And I say, “Okay. Well, here’s your next steps. Like, this is where you need to concentrate. What questions do you have? How can I help you understand?” And then, as the winery owner, you then have to execute.

Ed Mysogland: [00:59:30] Got it. And I always kind of conclude every podcast with, you know, what is the one piece of advice that you would give that would have the most impact on somebody’s business? And I’m assuming it’s preparing, but I may be wrong.

Genevieve Rodgers: [00:59:48] If you want to go into this industry or you’re in this industry, if you’ve got a winery, you want to start a winery, the most important thing that you can do is fully understand, write down and encompass what is the experience you’re creating. How are you creating it with every single thing you do? In this industry, that is going to be the most impactful for your business and the wine industry.

Ed Mysogland: [01:00:27] Awesome. So, number one, how do people connect with you? And number two, how does your process work? How do I work with Genevieve?

Genevieve Rodgers: [01:00:38] So, the best way is my website, winery.consulting is my website. Or if you go to Google and you type in winery consultant, I’m at the top of the list. That is the easiest way to find me. And then, you go on my contact page and it sends me an email and says, “Genevieve, here’s what I’ve got, let’s connect.” And then, we set up a one hour phone call or video conference.

Genevieve Rodgers: [01:01:11] Usually one hour works and people say, like, “This is what I need.” And we’ll decide, like, am I the right person for you? Because it’s important to me that we get the right fit, and then we go forward. And it depends on what you need. Sometimes people need hourly work, sometimes they need me onsite for a day, two days, a week. I’m flexible in that. And then, we go from there.

Ed Mysogland: [01:01:45] Yeah. So, you scope the work and this is what I need. And you scope it, this is kind of the mechanics and the deliverables, and you go from there.

Genevieve Rodgers: [01:01:55] That’s my background, too, so that’s exactly what I do. It’s like,
here’s my deliverables, here’s my — this is how much it costs. That’s what I do.

Ed Mysogland: [01:02:10] I get you. Well, Genevieve, I’m telling you, we’re probably bumping up into 80 episodes, and normally I’m fairly versed at a lot of the things that I’m talking about. But you enlighten me so much about how this world works. And my buddy, John, he’s our wine guy. You know, you were talking about the experience. He’s the guy. No one knows what to drink other than him and he hooks us up every time. And so, I’m so grateful that you have now given me something to talk to him about, because this is awesome.

Ed Mysogland: [01:02:59] And I’m certain that our listeners have learned a lot because what a unique business. Everybody drinks a lot of wine, and to learn how this is made and the mechanics behind it, I hope we’ll find some some people that are willing to give it a go and get into this industry. So, thanks for all your time. I know we went long and I’m certainly grateful that you were willing to take a couple extra minutes with me.

Genevieve Rodgers: [01:03:29] Well, it was a pleasure. It was a pleasure talking with you. And since I love what I do and I love the industry that I’m in, it’s really easy to talk about it.

Ed Mysogland: [01:03:43] Yeah. Well, you made it super easy for someone like me to understand it. And if I can understand it, others will too. So, everything about you will be in the show notes. So, those of you listening, don’t hesitate to look to the show notes, because everything that we’ve talked about and more will be there. All right. Well, Genevieve, thank you so much. And I am so happy that we finally got together.

Genevieve Rodgers: [01:04:15] It was a pleasure, Ed. I’m very happy to be on your show. And it was fun.

Ed Mysogland: [01:04:24] Right on.

Outro: [01:04:27] Thank you for joining us today on the How to Sell Your Business Podcast. If you want more episodes packed with strategies to help sell your business for the maximum value, visit howtosellabusinesspodcast.com for tips and best practices to make your exit life changing. Better yet, subscribe now so you never miss future episodes. This program is copyrighted by Myso, Inc. All rights reserved.