The Grapevine In-home wine sales Feasibility Plan 7/30/03

1. The Grapevine In-home wine sales Feasibility Plan 7/30/03 Farzin Abedzadeh Christine Mollenkopf Tara Rigler Dave Rueter MBAX 6100

2. Opportunity/Need • Need • An alternative to a “beer bash” is needed by the more mature and conservative hosts of friendly social gatherings. • People need a fun, educational, and affordable way to have a unique wine experience in their homes. • Additionally, people need high quality (good tasting), affordable wine but they need to learn how to select wine from the variety available. • People also need a convenient way to taste wine and decide if they like it before buying. • Opportunity • Wine is gaining higher acceptance with consumers as both a social drink and a casual dinner beverage. • Wine bars and stores are starting to grow in availability, which we believe is being driven by market demand. The Wine Experience, Seed Wineshop, Pour have all opened within the last 2 years, which means that there is an opportunity to start a business in an emerging local market. • People would like to know more about wines so they can feel comfortable about their selection among numerous possibilities. • People feel less intimidated at home and among friends and prefer learning about wines in a friendly and informal atmosphere. • There are a great deal of products offered through in-home selling (Candelites, Tupperware, Pampered Chef, etc.). People have been exposed to the concept. Therefore, applying the same idea to wine would be a concept that most people understand. • The opportunity has two possible structures: • Focus on tasting and education (similar to a full service catering operation) and sell the wine indirectly. • Focus on wine selling and the tasting is just a feature of the evening (possibly served by the host of the party). • To the best of our knowledge, no one has combined the wine and in-home selling into a business. For wine bars, this is because they cannot sell the wine in a closed bottle. For wine stores, it is because it falls outside of their value proposition. • Market Demand • Three new wine specialty stores have opened in the past 2 years in the Boulder/Broomfield area. This is largely driven by the needs of the large population of affluent 30-55 year olds in the 15 mile area (about 210,000)1. • This population is highly educated and would like to make educated decisions about their consumption. In their choice of alcoholic beverages, this population is more selective (prefers micro brewery beers) and more conservative (prefers wine over beer). • We believe the demand could be very large and extend into many communities in the Denver/Boulder area (390,000)2. • Market Accessibility • The wine specialty stores are busy working on their brick and mortar retailing and do not have the time to invest in in-home sales. • The wine stores offer tastings in hotels to build brand equity. It is not part of their model to have an in-home business as well. • The wine bars cannot sell bottled wine and must sell “educational” services. Thus, they lose out on the potential profit from the education they provide by not taking their product to the next level and selling the wine, which they cannot do by law. • Accessibility difficulties could come from the complicated nature of the liquor laws. From our current interpretation of the law, and from talking with industry professionals, we believe we can structure the product offering in a way that would withstand any legal challenge. However, there is always the opportunity that the law may change or competitors may complain about the law in order to cause hardship for the business. We believe that we can set-up the business in a way that allows us to deliver our value proposition to our customers. 1http://www.boulderchamber.com/life/demographics.asp#population and http://www.broomfieldedc.com/business/retail_profile.htm 2http://www.westcor.com/documents/demogrpahics/FICdemos_7_19_15.pdf

3. Product/Service • Value Proposition • Grapevine is a home delivered wine tasting and wine retail company specializing in affordable, great tasting wines from small vineyards. With its direct in-home service and product delivery, it provides self improving instruction in a fun, non-intimidating, and comfortable atmosphere to a well educated middle income customer base. In addition to great wines, we also provide affordably priced wine accessories. • Product/Service Features • Direct in-home wine tasting; service and products come to the host’s home environment via representative. The host purchases wine ahead of time at a 10% discount. • Rep brings necessary tasting and education material, (i.e. glasses, and wine fact/term sheets), as well as recommends which foods/appetizers go best with wines that will be tasted at host’s home. Catering chefs can also be recommended. • Company rep presents educational material that provides host and guests with key wine and knowledge skills. • Hosts and guests can purchase products that they have tasted at a 10% discount. • Repeat purchases after the party at the on-line store for delivery to hosts home. • Attributes • Social Attributes: It’s fashionable to be educated about wine. Wine tasting is typically thought of as “upscale”. The casual approach enables popularity among friends who may or may not be familiar with the topic. Upgrades status among friends. • Cost Attributes: Affordable; host’s are getting a “deal” by purchasing product. • Availability: Direct personal service. • Performance attributes: High quality products because the company only sells “the best products per dollar”. The quality is derived from the excellent taste, aroma, and texture of the wine. • Direct sales of wine and wine accessories through parties and the internet. The Grapevine Model Guests experience fun and education about unique wines Host provides light appetizers and pre-purchased wine Host and Guests have opportunity to purchase wine at reasonable prices (10% discount) Host invites friends and family to experience wine tasting (Preferred size 10-20 people) Host buys wine at 10% discount from Rep and schedules a party After the party, Host and Guests can purchase wine online at reasonable prices, no shipping fees. Host gets free bottle(s) of wine of their choice based on guest purchases!

4. Target Market • Demographics • Consumer target market • Primarily women or couples • Age group – 30’s and up • Middle to Upper middle class • Working professionals who don’t have time to research and purchase wines • “Stay at home” women who like the socializing aspect • Suburban and urban markets • Anywhere people like to drink wine and socialize! • Psychographics • As a whole, this target market will encompass a wide array of psychographics (besides teetotalers). • They consider themselves mature. They are open minded and conservative in their lifestyles. • They like to socialize with friends. Some have rotating social gatherings with their circle of friends. • At individual parties, the group members will presumably be from same psychographics. • Social Status • Middle and upper middle class who are well educated and will appreciate the educational aspect of parties. • Social group setting important for this business model. • Attitude Toward Product • Wine purchasing can be both risky and intimidating. • Consumers want to learn how to distinguish products and brands. • Uncertainty about what foods to serve with which wine. • Desire to try products before you purchase, not possible in a liquor store. • Decision-Making Process • Decision to go to party based on friendship and social desires. • Most people will purchase something at these types of parties to not be “rude” (peer pressure). • Purchase decision more influenced by peer pressure than price (up sell to more expensive wines). • People generally become more forthcoming with funds after several glasses of wine. • Current Market • Options are to go to vineyards or to brick and mortar tasting room to try new wines without purchasing bottles first. • Either option can be far away and not in a home setting. • Purchase wines by the glass at a restaurant (risky and expensive). • Purchase wines at a liquor store by the bottle without tasting new wines, without education, and without food.

5. Unique Benefits

6. Competitive Analysis • Brick and Mortar Liquor Stores • Hawaii Liquor, Superior Liquor, The Wine Experience, Liquor Mart, Seed Wineshop, and other liquor stores. • These stores are split into discount, specialty, and small local liquor stores. None of them have significant brand loyalty. • While all of these stores do some form of tasting, none of them promote it. They wait to be asked to host a wine tasting. • It is all ancillary business for all of them, used more as a marketing tool for their stores. • This group of competitors poses the greatest force because they are highly diversified and many operate on volume. Some would be willing to heavily discount wine at a loss to drive out competition. Finally, the liquor board says that competitors are the ones who report each other with respect to liquor board violations. • None of them offers the same value proposition we are proposing. • Most charge for the time of the “instructor”. • Others do not take advantage of the opportunity to have orders placed immediately. They merely suggest people should visit their stores. • Almost all of them charge for the wine upfront at their standard price. • Special Event Tastings • From a competitive perspective, special event tastings are probably the second biggest threat to The Grapevine tastings/ordering. • Liquor stores can decide to have tastings and they can partner with caterers and restaurants who can serve the wine and food. From there, they can take orders or direct customers to their store for a discount. • Distributors/Wholesalers can have tastings where they offer the wine for consumption. The liquor store can be a partner in this and can take orders or direct the customer to their store. • These tastings can happen almost anywhere – festivals, restaurants, hotels, homes. • The Grapevine’s main competitive advantage is that we plan to have tastings regularly and at the convenience of our customers. These special events are held at the convenience of the owners or for a specific event/festival and therefore have virtually no brand loyalty. • On-line Ordering/Vineyards • Grand Junction – Colorado has wineries as do many states in the US. You can order from them, however, you would usually make a trip to one of these places in person. In the Boulder-Denver area, this type of trip would not happen in an evening. • Out of state – Colorado is a reciprocal state, which means you can order a small amount of wine for personal use. You have to know what wine you want, and that the vineyard accepts online/mail orders. • Direct on-line wine ordering – Many more of these are now appearing at severe discounts. Sometimes you can select the wine, some select the wine for you. If you are looking for something specific, you may be able to get it at a significant discount, but you will have to pay for shipping. This is a direct competitor with our website and not our core tasting business. • Value propositions are completely different for an on-line business. Our value add is the presence of instructor to help you through the education. Additionally, since we will have reps across the country, delivery will always be free to the customer. • Bars/Tasting Rooms • Pour, Trios, Trilogy – While these bars/tasting rooms all have unique and aesthetically pleasing atmospheres, they are still bars. The intimacy of being with friends at home is not available from this product. • They can have tastings, but they can not take orders for wine. • This is also a different model than the Grapevine. They can have the tastings that draw the crowd, but they must ultimately send people elsewhere to get “uncorked” wine for consumption at a later date.

7. Competitive Advantage • Prices • In the liquor industry, prices are very competitive, with margins of ~30%. The Grapevine will be price competitive or better though because of the focus on smaller vineyards that have less overhead. Most competitors can not afford to carry these wines, because they will sit on their shelves due to lack of customer awareness. • Costs • The Grapevine intends to have significantly lower overhead. Instead of making the liquor store the primary business, the focus is on sending representatives into the field for direct selling. As a result, the rental costs should be significantly lower than specialty wine shops. Additionally, since we expect virtually no in-store customers there should be very minor levels of inventory due to the 2-day turn around available from distributors, which further protects the cash flow. • Channels of Distribution • Delivery to your Door - This is The Grapevine’s most significant sustainable competitive advantage. The representatives always deliver the wine for free. This is significant because it means the representative can get direct interaction with the customer to build a relationship which can generate a huge amount of referral business. Other firms deliver, but their delivery people are just drivers, not representatives interested in customer service and satisfaction. • In-Home Presentations – Customers get the education about the product, the reduced price, and the ability to order in the comfort of their homes. Other liquor stores are focused on serving their primary revenue stream (retail storefront). • On-line ordering – Easy to get what you already love. Other online ordering doesn’t give you the try before you buy option. • Barriers to Entry • Obtaining a liquor license – This process can take several months and does have a significant cost associated with it. • Training and hiring representatives – There are many people looking for part time. Finding appropriate personality/interest should not be difficult, but selection must be made very carefully. The Grapevine is confident that we can deliver wine education if the right corporate fit is found. Potential reps don’t need to be wine experts, they just need to like it. • Barriers to Competition • Customer Loyalty • The time barrier (barriers to entry) provides The Grapevine with an opportunity to develop customer loyalty. That brand loyalty will make it difficult for customers to switch from a brand/representative they know and trust to a new unknown entity. This is the primary defense against duplication. • Free gifts for the host of the party. No one else offers this type of incentive. It is one of the core principles of The Grapevine to reward its customers for the effort of bringing their friends together. • Control of Distribution Channel – Due to direct sales, the representatives are in control of their commissions. • Response of Competition – Initially, they will have little response. As the company begins to grow, they will either discount their wines that compete directly with us, complain to the liquor board to get the laws changed, or jump into the business themselves. In the short term it allows us to build a customer base, in the long term it could mean significant trouble. • Resources • Human - The Grapevine will hire people from the psychographic “enjoy life”. They will get training to intelligently instruct others about the finer points of wine. • Intangible – The network of representatives combined with distribution and the lack of inventory are the “know-how” The Grapevine will use as the framework for the model. • Contacts – This will be referral driven. All customer contacts are key factors in the growth of the business.

8. Risk Analysis HIGH = Must happen/Cannot go wrong, MEDIUM = Must make adjustments to survive, LOW = Minor threat, easy to work around

9. The Grapevine Corporation Independent Consultant Independent Consultant Independent Consultant Independent Consultant Independent Consultant Profitability • Assumptions • Independent consultants paid on commission • Further incentive for representatives is that they can deduct many of their expenses (mileage, home office, insurance) because they are self-employed. • Training provided to representatives • 5 representatives/1 staff in YR1 • 75 representatives/5 staff in YR3 • 5 parties/rep per month in YR1 • 8 parties/rep per month in YR3 • New reps report to upper level reps for mentoring. Ordering still centralized at The Grapevine • Inventory held by distributors. “Just-in-time-wine”. Most wines delivered within 2-days to retailer and within a week to customers. • Expand to other states in YR3 • Wine mark-up of 50%, then discounted 10%. • Wine margins at 26% • Average price per bottle $13.50 • Free bottle to host for every 24 bottles purchased • Typical purchase: 4 bottles/person in YR1 and 6 bottles/person in YR3 • Accessory mark-up of 100% • Accessory margins of 50% • Average price per accessory $8 • Typical purchase: 0.5 accessory/person in YR1-YR3 • On-line business not represented in these numbers. See financial section. They were harder to forecast and as such have been left out since they represent additional profit/revenue and no increase in costs.

10. Conclusions • Opportunity Driven – Yes. • Wine/Wine Tastings are very popular in the affluent, 30+ demographic. • Wine choices are almost unending, making the decision making process useless and primarily random. • Competitors are not currently focused on serving the needs of the market and enabling them to make better wine selections. • Compelling Need – Yes. • There is a compelling need from customers to be able to try something before they buy, in order to understand its value. • Combining education, try-before-you-buy, and affordable product in one service enables people to more easily make choices. • Delivering the value proposition to their homes further increases the comfort level of a sometimes complex product. • Product/Service Features – Well Understood. • In-home delivery of the product and education – Convenience and comfort for host and guests • Competitive price and rewards – Economic incentives for guests (10% discount) and hosts (10% discount and free wine). • High Quality – Excellent taste, smell, and appearance of wine for an overall conclusion of “high value” by the customer. • Target Market – Interested. • The customer surveys indicate a huge amount of interest, particularly among women over 30. This is most likely the largest demographic that would serve as a host and also as a representative of the company. • Most customers were very interested to know if this was only a class project or if we were going to become a business. • Further proof of the market is that other competitors are offering similar products even if only on a limited scale. • Unique Benefits – Yes. • Benefits are unique, but could still be copied by a competitor. • The marketing mix allows for emotional, educational, economic, and fun benefits to be realized in a unique way from other products. • Sustainable Competitive Advantage – Yes. • Customer loyalty – Being first to market and developing face-to-face relationships. • Barriers to entry – Liquor license and time of development can allow more time for customer loyalty to develop. • Risks – Yes, but can be mitigated. • Significant areas of concern are for expansion into other states. This increases the complexity of the business for each state, but it should be the major function of the corporate office to solve this problem (in addition to securing distributors and product line). • Getting to customers initially appears to be the hardest part. Difficult to “start” the word of mouth effect. Need to infiltrate neighborhoods and network with friends of friends. • Profitability – Yes. • Very dependent on actual customer volume. • Additionally, requires significant scaling to realize the benefits of many independent representatives. • Investment Requirement - $25k in YR1 • Due to the structure of the model and the benefit of efficient distributor networks, the initial investment is fairly low . • Primary costs include staffing, marketing, training, and licensing. Additional significant outlays will be for the monthly rent expense.

11. Recommendations • The feasibility plan has shown that this idea is feasible and profitable. It is opportunity driven to a market that has expressed a need. The decision to move forward would be more likely dependent on the individual entrepreneur rather than the feasibility of the idea. • There are two possible paths for this venture: small lifestyle business or large scalable model. The profitability for the purpose of this plan was based on a large, scalable model. • While there is profitability, it has a very low profit margin. The fundamental question for the entrepreneur is: how much profit is enough? It would be difficult to realize a profit on a small scale with low volumes. On a larger scale, there are many opportunities to develop into a national brand and to extract greater profits. • If the team were to move forward to further develop The Grapevine concept, there would still be significant work required to develop this into a fully operational business. • The final recommendation would be to develop The Grapevine into a larger scale operation which could leverage the greatest expenses (marketing and training) into high volumes. Next Steps • Apply for a liquor license • Select location for inexpensive retail liquor store • Develop a business plan • Identify key personnel and initial representatives • Develop more detailed financial analysis • Increase market research • Begin to build customer base • Survey Target Market • Develop multi-state expansion plan