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Sour Grapes-Analysis and Report Case

Sour Grapes-Analysis and Report Case

Vintage Wines had been in the wine business for over a decade.  While it was not one of the big operations in the industry, it had made a good name for itself in Australia with its premium wines.  So while the industry and many competitors grew, Vintage didn’t as it chose to focus on its mission “To always deliver a high quality product to market.”  However, thanks to the growing buying power of giant retailers who demanded reliable high volume supply deals, many smaller names like Vintage were either sold to larger competitors or forced into alternative wine markets.  These alternative markets included smaller retailers and restaurants in which there was higher demand for premium product and a greater reliance on distributors to achieve the needed sales volumes.  ORDER YOUR PAPER NOW

While this approach had worked for some time, it was now failing for a variety of reasons.  Competition from the big retailers had forced down the prices of premium wines overall and it was clear that the increasing availability of high quality, high volume wine labels was hurting the smaller wineries and their distributors.  Large retailers were now offering discounts to many restaurants and other small retailers that were hard to match.  As one analyst in the industry put it, “The big liquor chains are trying to absorb these markets as they present an easier path for growth given the advantages of their shorter value chain.”  Faced with this, smaller wine labels like Vintage had to do something, particularly as their inventories were growing due to the local distributor’s inability to generate sufficient sales.  Before long, it was clear Vintage Wines could not continue to operate beyond two years without substantially turning things around.

To answer the challenge a new CEO Paul Downs was brought in to deal with the issue and he quickly ensured extra efforts were provided for in the sales area to clear the inventories and generate some badly needed cash.  Paul came from one of the large rivals with a background in sales and distribution and was looking forward to bringing the well-respected label of Vintage to the world.  Furthermore, to help encourage progress in these areas, the owners ensured Paul’s package had generous incentives to reward positive outcomes with respect to revenues and profit.  Paul felt that with a strong sales team working closely with distributors, the company stood a good chance of breaking into new markets that could bring in the extra cash.  It was a business challenge he and the owners felt he was ideally suited to.

Paul started by hiring an old friend (Tom) to fill the position of sales manager, a move which caused a stir in Vintage.  This was because to do this he had to replace Tony, a popular manager Paul felt was responsible for the lack of sales.  However, both Cody (Production Manager) and Shirley (Cellar Door Manager) made strong objections about the move to replace Tony.  They argued that given his experience, he should be given a chance to work towards the new goal of expanding its distribution reach into new off shore markets.  Further, that such a move would be widely unpopular among the many workers who knew him well (themselves included).  However, Paul pointed out they needed someone with a more appropriate background for this kind of a job and asked for their support.  Finally he added, “Don’t worry; I’ll give him a handsome severance and a send-off to remember.”

For a while after this all seemed to go well apart from some obvious lingering tensions between Paul and Cody.  Cody and Tom also had some heated arguments as Cody felt the focus on building sales had neglected key production considerations.  He argued, “…we’re a premium and super premium brand.  You can’t just increase sales without considering production capacity and how you’re going to maintain quality.”  In one very heated exchange in a management meeting Cody angrily barked, “Our obsession with sales and bonuses has taken our eye off the ball.  We’ve not considered how we’re going to source grapes from third parties to make up for what is likely to be a second consecutive low yield year from our vineyards.  The fact is it’s going to be tough to find good quality grapes in the quantity we need.” ORDER YOUR PAPER NOW

Indeed, it seemed circumstances for Cody had reached a point where he was questioning his future at the firm and indeed the firm’s future.  Cody had expressed concerns privately to Paul that care needed to be taken in what supply undertakings Tom committed the firm to.  He once said to Paul, “He’s getting a lot of bonuses for these deals but I need his negotiation expertise on the supply side of things in order to secure enough quality red grapes.  He earns two to three times what anyone else at his level of management does and yet he’s reluctant to help me out in areas where Tony used to.  We’re a small company and we don’t have the people needed to specialize as much as he does at the moment, so he needs to step out of his comfort zone and help me deal with these growing supply side problems.”

To some degree Paul considered these rumblings as jealousy and took comfort in the fact that sales were up significantly and that the cash flow problems had been dealt with.  Tom and his team had successfully negotiated two new distribution contracts for both the North American and Asian markets that more than tripled sales within a year and almost cleared inventories.  The bonuses Tom and his team earned for this were substantial as he had negotiated a largely contingent reward package that was results driven (much like Paul’s).  Tom said when he started, “If you want sales, the best way to get them is to light a fire under me and my team.  To do that we need a decent wage with a big carrot for performance and you can sit back and watch us dance.”  True enough the sales came, inventories rapidly shrunk and finally when Cody resigned in late 2009, Paul was looking forward to getting someone more cooperative in that role.

All was not well though.  Getting a new production manager took a bit longer than Paul anticipated and while he was tempted to just work with Cody’s old assistant, Paul felt he needed further development to be effective.  Eventually he was forced to pay top dollar to lure an old friend Ted away from a rival, who within two weeks reported they had a major problem.  The company would most likely be unable to meet all supply commitments Tom had made for the following year despite the fact the financial crisis of 2008 had hit restaurants particularly hard and as such, their demand for wine.  It also appeared that some of the contracts had “local” content that meant there would be substantial penalties if orders were not filled; a practice not uncommon in these offshore markets for newcomers.

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