Economic forcasts for a global turnaround vary from 8 months to 18 months or more. The wine industry is not immune from the impacts of this. More than ever it is important to take key actions to grow your cash position. Here are my thoughts on this.

How to Ride out the Economy – 7 Key Actions to Grow Cash & Equity

1. Run a new profit scenario that forecasts volume down from last year. You can decide the decrease but I recommend down 30% - 50%. If this sounds doomsdayish that’s my intent. Scenario planning will give you an idea of just how bad the bad news could be. It will also start you thinking of what overhead you will need to cut and how aggressive you will have to be in a dire situation.
2. Rationalize your brand portfolio and tighten your brand message. Stick to your brand strengths and don’t produce periphery varietals that increase inventory and eat cash. Last Spring, I wrote an article: How to grow cash and equity for more financial security: The cigar box approach. It provides a formula so you can calculate your rate of return by varietal, so you can understand which wines make you money and which don't.
3. Do a realistic cash flow forecast once you’ve run a bearish forecast scenario. Understand the timing of your receivables and payables and assume you will not be paid as quickly as in a normal environment. This will help you analyze when potential cash flow issues will surface and how this will affect your bank borrowings and covenants.
4. Suspend all capital spending that is not essential to brand quality or is an emergency issue. Try to use up all materials you can before buying more.
5. Decide: is there anything you can move to raise cash? Knowing it will be difficult to sell excess assets in this environment, consider bulk wine. Despite the fact that this year’s harvest will not be sold for a year or longer, rationalizing your volume may give you the flexibility to move the wine now and generate some cash.
6. Pay close attention to your most profitable channel. For many this is the direct-to-consumer business (DTC). The margins are better and you can afford to be more aggressive in this area to entice sales. Finding ways to keep your customers loyal will pay off now and when the economy improves.
7. Seek unbiased and informed outside perspective, before making any major change in your business strategy. It is easy to have a knee jerk reaction during times of high emotion and uncertainty. Recovery from poorly made decisions is extremely hard and costly. This is where my colleagues at Scion Advisors really can be useful; it may be as simple as a quick phone call to one of us. You can reach me at 925.915.1289.

Best regards,

Hank Salvo, Partner
Scion Advisors ®
925.915.1289