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Frog's Leap Winery
Transcript of Frog's Leap Winery
Napa Valley and the Premium Wine Industry
Frog's Leap: Background and Peformance
What is Frog's Leap generic strategy?
Frog's Leap Philosophy of Sustainability and Corporate Social Responsibility
Frog's Leap Winery
Consumer Segments for Premium Wines
Overview of the premium wine industry
Sustainability of California's wine industry
Introduction and analysis of Frog's Leap Winery
Sustainability and corporate social responsibility of Frog's Leap
How sustainability has affected Frog's Leap SWOT
Family Oriented Work Structure
EMS is best in Napa Valley
Long-term debt associated with the 100 acre land purchase
Too focused on being "Green", might be severely hit if such "Green" trend fades away
Growing LOHAS consumer segment, Frog's Leap sustainable practices can help the company attract more consumers from this segment.
Focusing investments made from the extra acres in Rutherford could provide a hedge against shortages and rising prices of grapes.
Consumer Demographics in the United States
Source: Silicon Valley Bank, State of the Wine Industry Report 2015, pg. 49
Classification of premium wineries:
Boutique wineries (fewer than 50,000 cases per year)
Midsized wineries (between 50,000 and 499,999 cases per year)
Large wineries (499,999+ cases per year)
Between 1999 and 2010, the number of premium wineries increased from 329 to 1,250.
92% of premium wineries can be classified as "boutique"
Sustained real strength in the US economy posits a favorable environment for wineries.
"Trading up" has been a clear trend since mid-2014 and is expected to continue in 2015.
Growth of sales of wines priced above $20 was driven by increasing volume despite the increase in prices.
The fine wine category of the industry is expected to experience an annual growth rate in the 14-18% range.
United States: World's largest consumer of wine by volume and dollar value, consuming 340 million 9L cases of wine in 2014.
Italy: World's largest consumer of wine per capita, reaching 48.1L per capita in 2014.
2015 Wine Industry Outlook:
Green consumers by gender...
and by ethnicity...
In the year following the Great Recession, the premium wine industry experienced a small but significant rebound. This trend has been sustained in the past four years.
To be a meaningful consumer of fine wine, you need to be in the top 25% of wage earners in the U.S. However, the vast majority of the nation's wealth lies with baby boomers.
According to the Silicon Valley Bank...
Health awareness trends have contributed to higher red wine sales across all age groups, especially among baby boomers.
Overrepresentation of college grads within the wine-drinking population.
Accounting for 24.3% of the population, but 39.9% of the wine-drinking population.
Consumers belonging to the white ethnicity accounted for 78.5% of the wine-drinking population in 2010...
...while accounting for 68.9% of the general population.
Another contributing factor...
Part of an emerging demographic segment called LOHAS.
LOHAS: Lifestyles of Health and Sustainability
LOHAS consumers embrace concepts of natural, sustainable and socially conscious shopping and are more selective of what they buy and where they shop.
As of 2013, LOHAS consumers represented more than $300 billion in buying power.
Relatively younger, with an average age of 40 years.
Relatively more educated since 31% have a college degree.
Relatively richer, with a median household income of $65,700.
Green consumers are
Growing grape vines without using drip irrigation
Minimal water use
More European style and wine flavor profile
Lower alcohol content and fruitiness than other wines
Organic and Biodynamic Growing Techniques
Cover crops and compost
Resistance to disease
Natural-based soil fertility
Cases Sold Increased
Growing Net Sales
Gross Profit Increased
Byproducts of winemaking, coffee grounds, garden waste and vegetable scraps
Saved money by not paying someone to haul waste away
Geothermal and solar power
Solar power system generated electricity to power 150 homes
Excess power generated was sold back to public utility
No cost to operate geothermal heating and cooling
Pumps use electricity from their own solar power
Do you think Frog Leap's philosophy of sustainability and corporate social responsibility provides them with a sustainable competitive advantage?
Potential market saturation: everyone jumping into the "sustainable bandwagon" might leave the company with no differentiation basis.
Possible "green fatigue"?
Bias against organic wines: early experiences with non-sulfite organic wines sometimes have been negative.
Three Overlapping Principles
Leadership in Energy and Environmental Design
Industry's first LEED-certified wine tasting and office facility, primarily from recycled building materials
lower operation costs
approximately 30 to 40 percent less energy use
40 percent less water
Rob McMillan. State of the Wine Industry 2015. Silicon Valley Bank.
From 2004 to 2009 the number of Vineyards organizations grew from 813 to 1,237
Companies were forced to differentiate
Caused an increase in new brands
A focus on reducing costs
"Green" Wine Market Trends: From Green Roots to Great Wines. Ann Thrupp.
Frog's Leap provided full-time, year round employment and benefits for winery personnel, who were mainly immigrant laborers.
Worker's don't have to be laid off
In between seasons, the workers prune rees, turn compost, bottle wine, harvest broccoli, rack and wash barrels
Work full time - get paid three-week vacations, 401(k) plans and health benefits
Fewer safety isssues, because they're well-trained and experienced.
Reduction of workfroce hindered industry
Focusing on cost
Decrease investing in capital
Sustainability of the California Wine Industry
Issues With Sustainability
Industry entered a "Hyper-Competitive" trading environment
Issues with growth due to problems with wholesalers and distributors
Triple Bottom Line Effect
Industry was defined by this term
Means producers need to be aware of impact on external factors
Social, Environmental, and Economic value created by organizations
In 2009, 329 winery owners participated in sustainable winegrowing program
Paticipation of Wineries
404 premium wineries in Napa Valley
only 60 were classified as "Green" or "Sustainable"
Frog's leap hosted sustainable wine growers conference every year since 2006
Number of members grew from 10 to 250 in five years
Looked to share information and best practices to the industry
California Sustainable Winegrowing Program
Long term mission
Establish high standards of sustainable practices for whole community
Enhance education to improve the future of the industry
Working together to address concerns and maintain positive results
(Hint: not low-cost or best-cost)
Started production in 1981 with 653 cases of Sauvignon Blanc.
Founder and CEO: John Williams
Staff headcount grew 100% over 12 years, from 25 to 50 employees.
Quietly developed the industry's most sophisticated environmental management system (EMS).