1

Creatin

g a Susta

inable

Wine Busin

ess

2017 Oregon Wine Symposium

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Approach – 90 minutesDEB – SETTING THE STAGE

KEITH - WHAT DRIVES VALUE IN DIFFERENT BUSINESS MODELS?

DEB - KEY TIPPING POINTS: WHAT HAPPENS WHEN I GROW?

PANEL

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Who is in the audience?1. Who is over 5k cases? 2. Who is going through transition?3. How many would like to become more

profitable?

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Sobering but provocative headlines‘About 28 percent of Oregon wine producers said they were in poor financial health, compared to 16 percent for the industry overall.’MATEUSZ PERKOWSKI, CAPITAL PRESS

‘A quarter of winemakers say the financial health of their operations is poor, and many are considering exiting the business. More than 40 percent of Oregon winery owners say they may sell in the next five years.’ PETE DANKO, PORTLAND BUSINESS JOURNAL.

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WHAT is keeping you up at night?1. Understanding how to drive cash flow.2. Concerned about profitability.3. Understanding whether we are spending

enough. 4. Establishing realistic sales goals. 5. Do we have the right people in place?

WHAT does a healthy business look like?

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3 KEYS to success1. Proactively drive revenues and contribution

margins – with 3 levers: Cases Produced/Sold + Price + Product/Channel

Mix2. Optimize metrics before trying to grow.3. Develop a detailed and well capitalized

action plan, before growing.“IF you understand these keys, you can move

from breakeven to a sustainable business at any size.”

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“IT’S NOT WHAT YOU MAKE, IT’S WHAT YOU KEEP”

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What drives value in different business models?

Keith Meyers, Perkins & Co

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Shift to running your business (rather than having your business run you)

1. Understand the dynamics of 3 scenarios.2. Case premise:

Applying best practices ‘What a winery of a certain size and composition

can achieve when they are driving sustainable results.’

3. ‘Doing it with purpose.’ OK to have cash flow or profitability constraints

IF you understand key cost drivers in different models

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5,000 Cases

MetricsAverage Revenues/cs 234$ Breakeven cases 4,221 Average COGS/cs 106$ Revenues 1,171,350$ Average GP/cs 129$ Gross Profit 643,017 Gross Margin 55% Operating Profit 100,179 Operating Margin 9% Net Cash Flow 89,741$

Return on Equity 11.2% Return on Assets 6.9%

Grape Costs19%

Production26%

Selling Costs25%

Overhead17%

Owner Comp4%

Interest0%

Taxes1%

Profits8%

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5,000 Cases - - Maximized

MetricsAverage Revenues/cs 260$ Breakeven cases 3,721 Average COGS/cs 106$ Revenues 1,301,500$ Average GP/cs 155$ Gross Profit 773,167 Gross Margin 59% Operating Profit 197,792 Operating Margin 15% Net Cash Flow 153,190$

Return on Equity 19.1% Return on Assets 11.8%

Grape Costs18%

Production23%

Selling Costs25%

Overhead15%

Owner Comp4%

Interest0%

Taxes3%

Profits12%

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10,000 Cases

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20,000 Cases

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Summary: 3 scenarios

5k Baseline 5K Max. 10k 20kRevenues 1,171,350$ 1,301,500$ 2,429,467$ 4,511,867$ Gross Profit 643,017$ 773,167$ 1,372,800$ 2,398,533$ Operating Profit 100,179$ 197,792$ 388,317$ 655,923$ Net Cash Flow 89,741$ 153,190$ 285,294$ 475,600$ Channel mix: Case Volume 5,000 5,000 10,000 20,000 Wholesale/National/FOB cases 2,500 2,500 6,000 14,000 DTC 2,500 2,500 4,000 6,000 Key MetricsAverage Revenues/cs 234$ 260$ 243$ 226$ Average COGS/cs 106$ 106$ 106$ 106$ Average GP/cs 129$ 155$ 137$ 120$ Gross Margin as % of sales 55% 59% 57% 53%Operating Margin as % of sales 9% 15% 16% 15%Return on Equity 11.2% 19.1% 19.7% 18.3%

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Key Tipping points: what happens when I grow?

Deborah Steinthal, Scion Advisors

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I. Entrepreneurial – ‘working IN your business.’

II. Formalization – ‘working ON your business.’

III. Maturity – ‘developing a team of leaders.’

Tipping points…

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Cousin partners

Sibling partners

Controlling Owner

Entrepreneurial

Expansion/ Formalizati

onMaturity

Owne

rshi

p St

age

Business Stage

WHAT STAGE ARE YOU IN?

82%

11%

2%

CristomAdelsheim

PONZI

Bethel Heights

Brittan Vineyards

Bergstrom

Sokol Blosser

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Key decisions: 5,000 growing to 10,000 casesStrategic

1. Plan with 5-year horizon2. Sales plans driving

consistent revenues3. Timing of key personnel?4. Capital expansion trade

offs + timing!

Operational

1. Banking relationships2. Simple cost

accounting and COGS reporting process

3. Simple sales reporting

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Key decisions: 10,000 growing to 20,000 casesStrategic

1. Cash flow and higher returns

2. Strong brand and customer experience

3. Optimized investments to build scalability

Operational1. COGS and financial

reporting 2. Strong banking partnership3. Agility in sales4. Culture of accountability

through management team

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Take aways about growth

1. Hire the right people and develop your own leadership skills.

2. Focus brand and build a sales machine.3. Manage complexity at every stage.4. Embrace analytics before making key

decisions.The more you have at risk,

the more costly the mistakes!

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Beware of growing pains Increasing production capacity Expanding into new markets Cash drain from inventory build-up

NEED FOR CAPITAL!

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Q&A - Panel: 60 minutes

3 Panelists1. Deb Steinthal, Managing Director, Scion

Advisors2. Erik McLaughlin, Director, Exvere Inc.3. Gary Mortenson, President, Stoller Family

Estates

How to build sustainability at each stage? Moderator: Keith Meyers, Perkins & Co.

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Questions?

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Vision IncentivesSkills Resources Action Plan CHANGE

IncentivesSkills Resources Action Plan Confusion

Vision Incentives Resources Action Plan Anxiety

Vision Skills Resources Action Plan Resistance

Vision IncentivesSkills Action Plan Frustration

Vision IncentivesSkills Resources False Starts

Managing growth: What is the organization feeling?