#Marketing #Sherry

Tradition with a future

SHERRY

THE PERFECT APERITIF

 Poster — the poster should include a website at which people could learn more. In the case of a single producer, this could be their home site. But sherry has a marketing issue as a product — it is extremely unfashionable despite being some of the most complex and interesting wine available at the price point.

Amazingly enough, the domain http://www.sherry.com is unoccupied. The Consejo Regulador should address this omission. If it existed, it would be a good candidate to use on a poster. A web address on a poster needs to be unambiguous and impossible to forget and sherry.com fulfils those criteria.

The major problem for sherry is that it has a brand image which repels younger consumers. This is being exacerbated by health concerns about alcohol consumption. The proportion of fortified wines sold as a percentage of all wines sold has declined from 4% to 2.5% over approximately the last decade.

Sherry is seen as a very old fashioned drinking which would be consumed by one’s grandparents. However, it has a devoted following among critics and high-involvement consumers who see it as providing a very high complexity/price ratio. That makes it a cheap way of enjoying complex flavours and aromas.

The marketing strategy must focus on younger consumers, but must also rely on the heritage of the product. Sherry has an appealing history with the romance of the Solera system and that gives much to work with. The slogan “Tradition with a future” aims to use the historical foundation but also emphasise that sherry will be something to enjoy for many years to come.

There are many different types of sherry which brings two benefits. There is the opportunity for consumers to become “sherry explorers” — trying the various types to see if they prefer dryer styles like fino which have been biologically aged or sweeter styles such as pale cream. There is also the probability that almost everyone could find a style of sherry that they like because of the huge variation between the styles.

The tightly controlled nature of sherry, which may only be produced in a small triangle near Jerez in Spain, is also something that can be used in marketing. Ideally any promotion needs to tie in to the tourism operation into the region.

The essential Spanish identity of the product can also feed into the previous “sherry explorer” idea. It is clear that the styles of sherry which are familiar from the cupboard of the UK grandmother will be likely to be pale cream sweet styles. There is nothing wrong with that and indeed the Bristol blue glass of the iconic Harvey’s brand can only be described as a marketing success. However, this style of sherry is not even half of the story. The campaign must emphasise that most of the sherry consumed in Spain is unlike that which has passed through Bristol. There is an entire world to explore.

The romance of palo cortado should not be forgotten. This fortified wine is probably the best product to be created by accident in the world of wine. Short form video content showing the “broken stick” being chalked on can be produced. Overall, much activity in the bodega is highly visual and can be employed with typically Spanish imagery.

Product — the product for the overall campaign is sherry in general, but it would be valuable to approach producers both major and minor to see what financial and other contributions may be available. Once marketing livery has been established with the generic sherry campaign, it can be further exploited by individual sherry brands — with the overall campaign retaining a central point of control to ensure consistency of appearance and messaging.

The “sherry explorer” theme can be emphasised here with the aim of producers setting out their different flagship products under the generic sherry brand. All styles of sherry — fino, amontillado, manzanilla, oloroso, palo cortado, traditional cream types, PX — lack brand identity. The wider public should first be enabled to know that these are all indeed types of sherry and then told the differences between them.

Two angles which have been successfully used in other spirits are a) use in cocktails and b) use in chilled long-drink formats. Both of these are eminently feasible with sherry. Promotional materials detailing the ingredients and procedures to make sherry cocktails could be prepared and one element of the campaign could show sherry being used as a cooling long drink when mixed with e.g. soda.

Price — price is a major advantage for sherry since it simply costs much less than wines of comparable quality and complexity. This is almost an advantage of being unfashionable which can be employed by successful marketing. The strategy could be to try to leverage off “gateway brands.” This does not mean the traditional cream styles — the houses all have entry-level product which could be an entry point for new consumers and is very reasonably priced. Giving the impression that sherry is cheap should nevertheless be avoided — the range includes vintage product of very high quality.

People — the main target group is young consumers. Market research could be undertaken to examine whether any existing consumers can be persuaded to trade up. It appears unlikely that the archetypical grandmother who has been drinking Bristol Cream for a lifetime is suddenly going to branch out into aggressively dry aged fino. However, there may be an opportunity to reach some high- involvement consumers who have hitherto focussed on non-fortified wines.

Place — since the target group is younger — in the marketing demographic “Millennial Treaters” — it is inevitable that social media must play a prominent role. The poster above could feature on bus stop billboards initially, but must be tested for efficiency of spend against social media. The initial aim of the campaign is to drive traffic to sherry.com so it is essential that there is a great deal of engaging and valuable content there. Driving such traffic can best be done by employing short-form video content in the line of Instagram stories or posts from online infl uencers. Both will be expensive if effective. The poster shown above could be used in timelines with “see link in bio” used as a tag to point consumers to the web page.

Consider approaching US-based hispanic celebrities to market the product in Spanish to the worldwide Spanish speaking community. This would be a largely untouched group which might be amenable to a heritage-based line.

Promotion — price promotions could be offered which tie in with the campaign. Since the aim of the campaign is to drive web traffi c, one approach might be to offer vouchers on the website. These could be redeemed for discounts on a BOGOF or other basis for people buying sherry.

The redemption could take place in person, but there is no particular reason why it has to be. Online sales are an increasingly important part of every market and will continue to play a significant role. The website could feature separate areas highlighting the products offered by major producers and allowing a central method of buying the product. Major producers will themselves already have a solid web presence and may insist on traffic being directed back to them. This is not a serious problem. It still means that something central and online can be offered to minor producers who will benefit from a clear and well- known online location offering distribution to end customers. Major producers who have an efficient and reliable web operation can be cross-levered by link swaps between their websites and sherry.com. Major producers who it transpires are somewhat behind the curve in terms of online presence can either be gently encouraged by the available comparators or upgrade via the central platform.

It will be valuable if the same promotions can be available across a wide selection of producers on the same discount basis, but this may be difficult to negotiate.

Given the essentially Spanish and indeed regional Spanish nature of the product, it will be useful to promote travel to the region. This can also form the basis of useful promotional spend. The website can run competitions, perhaps on the basis of sherry quizzes or just on the basis of luck, where the prizes will be trips to Jerez including tours of bodegas. Alternatively, rare bottles can be offered as prizes.

There is significant buy-in to the product from major critics such as Jancis Robinson. This is helpful, but it means that it is not easy to say how it can be further improved. Obviously the launch of a central website would be a significant event in the wine world and so should generate coverage which is likely to be positive. Steps could be taken to encourage the creation and nature of such coverage in the right direction.

#Marketing — Creating The #Brand Story In #Wine

Marketing A Premium Bordeaux Blend From #Lebanon

The Most Ancient Region for Winemaking — Begun by the Phoenicians at least 6000 years ago

Our history

We are the most prestigious vineyard in Lebanon, famous since 1930 for producing premium reds based primarily on the equally famed left bank Bordeaux blend of grapes. We lead with Cabernet Sauvignon supplemented with Carignan and Cinsault which selection combines French tradition with attention to local conditions. This unique combination of advantages allows us to make wine of the highest quality in global terms and yet with relatively modest pricing.

We have continued to produce wine throughout the sometimes complex vicissitudes of Lebanese history. We produced throughout the second world war and even during the civil war in Lebanon which began in 1975.

Our wines have excellent ageing potential and we are confident that we will be able to celebrate our centenary next decade while looking forward to another 100 years. The depth of history we have on our doorstep is underlined by the nearby spectacular Roman ruins at Baalbek.

Location of Vineyards

The location of the vineyards is already something of a talking point among wine lovers. They are located some distance away from the winery — about a 2.5h drive. People have asked us why this is, because they know that Lebanon is a hot country and grapes can be damaged by heat stress in transit. While we take every precaution to prevent this, including picking in the cool hours of the morning, the question remains as to why the distance between vineyard and winery is relatively large.

The answer to this again lies in history and the difficult history of our land. Our founder was unsure of what the future would bring. He felt confident in siting the winery close to Beirut, near to workers and customers, handy for shipping links and definitely likely to remain Lebanese territory for the foreseeable future. The vineyards are in the agriculturally favoured Bekaa valley. This area is still in Lebanon today, but this could not have been said to be likely to remain the case at all points in history.

Vineyards in Harmony with Land and People

Our vineyards are amongst the most spectacular and remote in the world.

They are located in the quiet Bekaa Valley, at around 1000m above sea level. This relatively high altitude offsets what would otherwise be excessive heat for winemaking in the Lebanese climate more generally.

Each flank of the valley is made up of a striking mountain range with snow-topped peaks. To the east of the valley is the Anti-Lebanon mountains.  To the west, Mount Lebanon separates the Bekaa Valley from the Mediterranean Sea. The Bekaa Valley is the north-eastern most part of the Great Rift Valley, which runs from Syria to the Red Sea.

The vineyards see 300 days of sunshine a year making for a leisurely growing season. The grapes are cooled by fresh mountain breezes from two directions. We have quite a high continual range despite the mediterranean climate elsewhere in Lebanon: we will often see snow in winter.

The remoteness of the valley has kept it unspoilt and perfect for winemaking in a historical style.

Winemaking: Methods and Philosophy

We aim to be natural and in harmony with nature and people in everything we do. We have a minimal intervention strategy without being afraid of adding value where it helps and does not cause damage to the land, the vines or above all the wine.

Our grapes are harvested by Bedouins between August and October. We will not move to mechanised harvesting because we want to continue to do things the way they have always been done. We will not abandon our communities of pickers merely to address the bottom line: many families depend on us in a region which is short of work.

We use ambient yeasts rather than adding cultured ones which can lead to homogenous wine production. We keep sulphur additions to a minimum: again, we are not afraid to use what is necessary but we do not keep to a pre-set schedule. What is needed and nothing more.

We do not make wine in a hurry. The premium red takes seven years before it is released. We ferment relatively cool: below 30C. This gives us gentle yet effective extraction of colours and flavour compounds such as tannins. After six months, we give the wine 12 months of ageing in French oak. There is then some blending and four years of bottle maturation.

Musar was the first vineyard in Lebanon to achieve organic certification (2006). We maintain the organic approach throughout the process: from grape growing to wine making.

Conveying the Brand Story in a Marketing Campaign

✦ Lead on history — emphasis continuity and quality

✦  Campaign can be highly visual in nature, using such sites as the Baalbek ruins — these are a USP for Musar since the ruins are only reasonably usable by wineries in Lebanon and Musar is easily the wine with the best brand equity in Lebanon

✦  Focus on the way the winery has continued to produce despite difficult circumstances — gives consumers a sense of connection and history stretching forwards into a bright future as well as having strong roots in the past

✦  Bring out the relative good value of the wines — Bordeaux quality at Lebanese prices

✦  Emphasise natural winemaking and environmental strengths since these qualities are highly fashionable and likely to remain so

✦  All of these factors highlight that Musar is unique — unusual grape varieties and a less- well known region are both highly sought after qualities among high-involvement consumers. This also represents an opportunity to gain greater exposure for the whites, which use grapes which will be unknown even to many experts.

✦  Care must be taken not to dilute brand equity. This is less likely to be a problem with the Arak, which is high quality and a product with a clear distinction to the flagship premium red blend. This is probably also true of the rosé product, though this is starting to encroach on the central territory. There have been efforts to broaden the appeal of the products to younger consumers by launching easy-drinking ranges of wines (“Musar Jeune”) which have less age and power. This is a highly questionable strategy and if it continues, should not feature heavily in the marketing.

✦  The flagship brand, while relatively inexpensive in comparison to Bordeaux, is still premium in pricing. This means that customers will be high-involvement. They are likely to fall into marketing segments of either “Experienced Explorers” or “Millennial Treaters.” The age of the former means that a social media campaign will likely be ineffective, but this is probably a group which in any case already has good familiarity with the brand. There is an opportunity nevertheless to reach Millennials via social media and a highly visual campaign based on the above parameters is recommended.

✦  Short form video on Instagram is the best near term opportunity. Use “Stories” to promote Baalbek and the vineyards. Focus on younger demographics (already partly accomplished by choice of platform) with interest in wine. Emphasis quality and USPs.

✦  Consider joint ventures with bodies promoting tourism to Lebanon — though remain pragmatic since sources of public sector funds are currently not flush.

✦  Look at offering free trips to the winery to influencers who will contract to produce Instagram stories in an “organic” way. It will be helpful if at least some of the resulting posts can avoid the “paid post” tag but this should be possible since the actual experience can be documented by the influencer and not every aspect of it will in fact have been paid for. Consider chartering private jet for super-influencers. This will be extraordinarily expensive but will result in literally millions of page views and will be widely shared by the right influencer. Product placement in the jet is an appealing option. This also adds interest to the region in general and since Musar has a good cellar door operation already. This can benefit from increased high-involvement customer traffic.

#M&A In The #Wine Sector

Private equity involvement has been transformational in the US luxury wine sector, driving consolidation and investment

Define the terms ‘merger’ and ‘acquisition.’

A merger or an acquisition occur when the operations of two companies are combined such that subsequently, all of the operations of both companies are subsumed under a single holding company.

What is the difference between a merger and acquisition, and reasons why a business may choose to enter into both

One difference between a merger and an acquisition in lay terms relates to the relative size of the companies involved. If two companies of similar revenues combine, they are said to have merged. If a company combines with another company and the first company has a significantly larger amount of revenue than the second company, then the first company is said to have acquired the second company.

Formally, a true merger is where the companies cease to exist (new company shareholders get new shares). An acquisition is where both companies continue to exist as entities but the target becomes the sub of the other. It’s not really about the relative strength / revenue of the companies. Maybe in practice you will rarely find true mergers between companies who have vastly different revenues but that’s a statement about a practical matter not a “definition” of a merger vs an acquisition

Obtain synergies — there may be opportunities to reduce overall costs by e.g. eliminating duplicated capacities at the two headquarters; obtaining bulk discounts on supplies; eliminating headcount in operations; combining IT systems.

Increase negotiating power — the merged entity will be a larger player in all its operations and may be able to drive a harder bargain with suppliers, landlords, distributors, finance providers or retailers.The general aim of M&A activity is to produce a strengthened combined operation. This may be targeted in various ways, as outlined below.

Expand capacity — the merged entity will have a broader portfolio of capabilities or opportunities: the acquiring entity may gain e.g. vineyards/ grapes/locations that it previously lacked; a state-of-the-art IT system; a broad and well-designed distribution network; politically advantageous connections in an emerging market.

Conduct financial engineering — often, acquisition targets will be under- geared. This means that they fund their operations more with equity than with debt. This is inefficient because dividends payable to shareholders are not tax deductible whereas interest payments on debt are by contrast tax-deductible. This angle is often of interest to private equity players.

Enable investment — often target companies have lacked sufficient cashflow to develop and enhance their operations and the acquiring company can supply this to allow the combined company to fully exploit its opportunities. Again, this angle is often interesting to private equity.

Add expertise — an acquisition will also afford an opportunity to attract best-in-class management talent and employees at all levels together with improvements in training and staff development.

 Brief overview of an example trade

Duckhorn Wine Company

The history of Duckhorn is a good example of how private equity activity has shaped the sector.

Duckhorn is based in Napa with 243Ha of vineyard estates in California and in Washington State; it had been family-owned and run since inception in 1976.

In 2007, it was acquired by GI Partners, a middle-market private equity fund originally aimed at providing investment diversification to major Californian pension funds. The purchase price was $300m.

GI worked on developing the management team during its ownership, both via external hires and internal promotions. Also, the product lineup was expanded, with the additional focus on the Decoy brand causing it to become “one of the industry’s top luxury wineries.” GI also invested more than $60 million in Duckhorn during their ownership. This money was used to:

  • Add 140Ha of vines, allowing a significant expansion of production under both existing brands and new ones;
  • Create state-of-the-art winemaking facilities via construction and acquisition;
  • Introduce Canvasback, a boutique Cabernet Sauvignon from Washington State’s acclaimed Red Mountain;
  • Expand distribution to a wider base of customers locally and internationally;
  • Achieve significant industry recognition: Duckhorn now has what is recognised as the premier US luxury wine portfolio.

GI exited the investment in 2016 by selling Duckhorn for $750m to TSG Consumer, another private equity firm focussed on opportunities in the branded consumer sector. Given the initial purchase price of $300m and the stated investment of $60m, this represented an attractive IRR of 9.1% for GI assuming that the $60m of investment was distributed equally over the eight non-initial and non-final years of ownership.

Examples of how this merger/acquisition changed the broader wine industry.

The profitable nature of this investment for GI underlined the appeal of this sector to private equity investors more generally, as shown by the subsequent exit to a different private equity house.

It also showed that the opportunities to create value in the sector by adding investment and expertise were genuinely achievable in a relatively straightforward fashion.

Consequently, the deal increased the value of a restricted number of ultra-luxury US wine operations and brands while emphasising the importance of some scarce qualities such as quality vineyards in key locations and a brand portfolio which is ripe for expansion. That means not fully exploited yet also it was helpful for the purposes of the acquisition that Duckhorn had significant high-end brand identity and wide awareness among high-involvement consumers and specialist industry players.

The deal showed management teams that private equity could be an appropriate steward of assets, adding value while not impeding the expression of core values and creating rather than destroying employment. Finance of appropriate quantum and patience was shown to be available.

Duckhorn ended its period under GI ownership with greatly expanded distribution in all US states and in 50 countries on five continents. This showed the sector how distribution could be positively impacted under private equity ownership and investment.

The transaction stimulated further transactions in the US luxury wine sector.

In 2018, Duckhorn (still under the ownership of TSG) acquired Kosta Browne Winery from a Boston-based private equity firm JW Childs Associates. Thus Duckhorn has now become almost a private equity payer in its own right in the wine industry.

The President of Duckhorn Alex Ryan observed that “you can’t market your way out of a lower category into a higher one” which indicates that one motivating factor for the transaction was to expand product availability without dilution of brand identity. It has been noted elsewhere that it is possible but very difficult to improve brand identity — Symington’s has been attempting to move its Cockburn’s Port brand upmarket through significant and extended investment.

The stated aim of the transaction was to operate Kosta Browne as a separate unit but expand it via both organic growth and acquisitions, thus further underlining the likely future importance of M&A in the sector.

Ryan noted the importance of private equity in the wine sector, stating that it was “good to have scalable, professional investment coming in to the space” which illustrated “maturation.”

We can therefore for all of these reasons expect private equity involvement in the wine sector to continue to be of major and growing importance.

A banker involved in the sector commented as follows on the likely effects of further private equity involvement on the sector.

  • Further consolidation between companies already involved in the sector
  • More focus on capital appreciation under private equity than “lifestyle” under family ownership
  • Consequent higher level of focus on expansion of businesses
  • Higher production of existing brands — which may require broader distribution which in turn may increase compliance issues within the US three-tier market and internationally
  • Expanded portfolio of brands with concomitant additional expenditure incurred in marketing, market research, segmentation analysis and advertising
  • Interest in the question as to whether the successful strategy shown in the GI transaction is scalable viz. can the Duckhorn approach be replicated successfully at Kosta Browne? Are there saturation effects at the luxury end of the market?
  • Are there opportunities at the value end of the market? Or are these already fully exploited by the major conglomerates? We may assume they have been running their businesses at maximum efficiency and with no lack of investment capital and management expertise.
  • Continuing high multiples will be paid for established luxury wine assets which are now sought after by private equity as well as already established family owners and individual wealth family offices. This business is attractive since it is tangible, easy-to-understand and recession-proof, with potentially some lack of correlation to financial markets more generally.
Photo by Life Of Pix on Pexels.com

Logistics of Selling #Wine From #Lebanon

General

Lebanon; no GI; vineyards are at some distance from the winery for historical reasons (founder was unsure of the future borders of Lebanon and so the winery is in Beirut while the grapes are grown more than 60km away)

This has the disadvantage that the grapes must be transported a considerable distance under conditions of some heat; however, there are good supplies of inexpensive labour available and it is possible to harvest in the early morning

Against that, the location of the winery in a major city means there is good availability of skilled labour where it is required

Red grapes are grown in the Bekaa valley

White grapes are grown in the foothills of the Anti-Lebanon mountains and on the seaward side of Mount Lebanon

Grape varieties

Cabernet Sauvignon, Carignan and Cinsault (red); Obaideh and Merwah (white)

Styles of wines and price point


Premium: the house has a very strong historical reputation built up since its foundation in the 1930s. The reds may be seen as competing with Bordeaux which means that they can be quite expensive when compared to the median bottle sold and yet relatively inexpensive when compared to classified growths. The house has been carefully expanding its range while aiming to maintain brand identity which would suffer from any decline in quality. The white and rosé production of the house is much less well-known than the flagship red blend, but wine critics have described this as an unfortunate situation. There is therefore an opportunity here.


Notable viticultural/vinification practices, climactic factors or location details that may be used in the marketing of wines.

Vinification practices: there are no specific vilification practices which are unique to the house but the marketing will nevertheless note that care is taken throughout as one would expect from a premium product. All wines are made “naturally” on a minimum interventionist basis. Grape growing achieved organic certification in 2006. The wines ferment in concrete with some time in French oak (nevers) and are released after a generous seven years of maturation.


Climatic factors: The vineyards are located at 34N which would normally be too warm for viniculture; the altitude of the vineyards is 1000m which offsets this. The marketing can note this as an unusual though not unique quality factor/differentiator.


Location: The house is not the sole wine producer in Lebanon, but it is clearly the most well-known and has by far the best reputation. This forms the underpinning of the marketing. Many consumers at high and moderate levels of expertise are interested in trying wines from new locations and new grapes. The reds are without doubt the highest quality wines made in Lebanon or indeed the middle east region while the fact that they are basically made from a Bordeaux blend means that they can combine quality and a new experience without being too radical a departure from established premium benchmarks. The whites benefit from the novel location details and are made from two grapes both of which are likely to be unfamiliar to even quite experienced consumers. The “brand story” of the wine is extremely strong, being unusual and interesting. For example, the cellars of the house were used as air raid shelters during the civil war in Lebanon between 1975 and 1990 and there was no interruption in wine making during hostilities. The general location has an extraordinary long history of winemaking which may potentially be traced back to the Phoenicians in ca. 4500 BCE.


Specific social, economic, political or legislative factors that would impede/assist the sale of wine


As a general remark, it should be noted that the wine will be primarily sold overseas. While Lebanon has been up until very recently a relatively wealthy country, it has experienced a sovereign debt default in 2020 for the first time in its history. It has also been a relatively liberal country given its location, but it should still be noted that Muslims make up more than 2/3 of its population and that group consumes less alcohol than other groups. Given these factors, the social, economic, political and legislative factors obtaining in the international arena are of more significance to the fortunes of the house.


Social factors

No current discussion of social factors can omit the effects of COVID19. While there is no very stringent lockdown in place in Lebanon at present, this could occur at any moment if infection rates become elevated. Such a lockdown would present a significant threat if it took place around the harvest; while agricultural workers in general would be exempt, it is quite conceivably that harvesting of grapes for wine production would be deemed non-essential in the unique circumstances of Lebanon. Similarly, the house relies on transportation via sea from Beirut port. Loading ships is a labour intensive operation but also is highly computerised and containerised. The house is therefore relatively optimistic that there are reasonably chances of being able to maintain shipments. Failing that, it would be appropriate to develop financial buffers to weather any income interruptions; the increased average maturity of wine that would be available post-crisis would be valuable and can be used as a negotiating point in seeking interim credit facilities from banks.

Economic factors

Similarly, the international economic situation in all key markets is dominated by the COVID19 shutdown, which is predicted to cause GDP declines of 30% or more in Q22020 and which count potentially continue into Q3 and beyond. The position of wine as a product which is extremely important to many consumers but nevertheless not actually essential is a difficult one. There are no ways for the house to mitigate this; it can only be observed as above that the markets will return and the house will be ready with product when they return. Given the global nature of the crisis, there are no clear new markets to explore. However, since the crisis appears to be closest to resolution in China, and there is a burgeoning middle class there which is anxious to display its status and wealth, this could be an opportune moment to focus marketing efforts in China. This could further benefit from the 2012 prohibition on “lavish gifting” promulgated by Xi Jinping. That severely affected sales of super-premium wines such as premier cru classé Bordeaux; there could be an opportunity for the house to benefit given its niche as a premium wine in a similar style which is nevertheless perhaps more “under the radar” as far as official perceptions of excessive luxury are concerned. Such an effort would need to be conducted with a high level of discretion and local expertise.
Away from COVID19, the international economy has been under strain in any case for some time. The aftermath of the global financial crisis had in some ways not ceased: interest rates were historically very low prior to the onset of the virus crisis and the US expansion was becoming very long. Economic conditions could therefore have been expected to turn negative in the next couple of years in any case. The house will rely on its strong reputation built up since 1930 to see it though this crisis and note that there could be further opportunities later since some producers will not survive this downturn.

Political

Given the many international markets in which the house sells wine, there are not really any specific factors to note. However, Lebanese politics is a source of major instability and this could easily give rise to problems for the house. The political structure is unique — some might say uniquely unstable — with a sectarian basis for political appointments. There are three major religious groups in Lebanon (Shia, Sunni and Christian) and the top three political positions are divided accordingly. However, population numbers have changed significantly since the epoch when this arrangement was made. Young people who are highly educated had been protesting the poor economic performance of Lebanon, the concomitant unemployment and the widespread corruption. The recent debt default is likely to result in what is known as a “doom loop” between the sovereign and local banks. This places the house in an exposed position in terms of being a highly visible generator of cashflow which is not in a position to relocate. Any threat to the stability of the local banking sector can be generally mitigated by placing funds overseas, but this presents problems in funding the ongoing operations of the house. All of these factors could present the house with difficulties sever enough to prevent or impede production or sale of wine.

Lebanon has historically had good relations with most countries and has accordingly not suffered a great deal from trade embargoes or tariffs. There appear to be fair prospects of this continuing. There are slightly strained relations with Saudi Arabia but this country is not a customer for the house in any case. A resolution of the conflict in Syria appears to be in prospect and this would eliminate a major local source of instability.

Legislative

There have been no local legislative threats, but in the context described above, it is clear that the government is desperate for funds. Its very survival was threatened by an ill-judged attempt to place a tax on WhatsApp messaging; the house could present a much easier target for taxation and other informal methods by which officials seek funding.

The house has historically sold a great deal of wine into France, partly because of the long shared history between the two nations. This has somewhat been impeded by the advent of the Lot Evin, which in 1991 greatly reduced the allowed advertising of alcohol. Nevertheless, the house has a strong enough reputation which continues to spread by word of mouth and expert opinion and so has suffered less than it might have done as a result of this factor.

Restrictions on social media are less in evidence currently so this represents an important opportunity to address new consumers. It would be valuable to explore engaging an appropriate celebrity/online influencer. Such an individual must fit with the high quality brand image and add brand awareness in a way which reaches likely new customers. These will need to be relatively affluent groups so some research on where high-earning Millennials are allocating their social media attention will be useful.

Costs associated with getting wine to the specific market: packaging, transportation, importation, sales and marketing

In general, costs within Lebanon are relatively modest since inexpensive labour is widely available.

Packaging: costs are relatively high since the house is a premium brand. Sales actually generated in Lebanon at the cellar door are important and require premium packaging. This consists of branded padded boxes and other branded accoutrements. These high costs are more than offset by the sales revenue however, since the premium nature of the house allows it to command high prices especially for older vintages.

Transportation: the winery is actually located adjacent to the major seaport of Beirut and so wine can be despatched there by road with no difficulty or expense. The house is fortunate in that its location in the eastern Mediterranean allows the easy transport by ship to many significant markets such as France, Italy and the UK. The US is more of a challenge, but again since the house is producing premium high priced product, air freight is an option.

The major issue is that the 60km from the vineyard to the winery is time-consuming given the quality of local infrastructure, but this is a fact of life rather than an addressable cost issue.

Importation: costs are in-line with market conditions generally. It must be observed that the climate globally has moved in a protectionist direction, partly as a result of the advent of the Trump admininstration and the subsequent US-China trade war. The election due in Nov-20 may ease this situation if the incumbent is not reelected. Brexit continues to be an event with extremely unclear outcomes; however the signature of a continuity trade deal between Lebanon and the UK in Sep-19 offers some reassurance that no new tariffs will be imposed in what is a major market for the house.

Sales: costs are in-line with market conditions generally. The cellar door operation is relatively expensive in that there are no charges currently made and free samples of vintages going back to 1974 are made available. However, in a group of 12-15 attendees, on average 3-5 will make purchases. Since these can be in the range of $1,000 to $2,000 — bearing in mind that most attendees will have travelled from Europe to attend the cellar door — this activity is highly viable economically.

Marketing: costs have been historically relatively modest because the house has been able to rely on its reputation. However, given the extremely challenging environment described above, this is likely to change. The engagement of a celebrity/influencer will be extremely expensive because of the requirements of the role. The house continues to incur expenditure on items such as branded corkscrews but it is unclear how rewarding this is.

Is selling wine in the assigned market a valuable business proposition?

Overall, despite the extreme challenges presented by the current environment, there are good prospects that the house will be in a position to continue to thrive. It is even conceivable that the difficulties of the situation will be offset by some positive factors. These include the possibility that houses in lockdown will consume more wine. The affordability will increase because restaurants are closed. This means that consumers will be buying the wine with a typical retail mark-up (ca. 20%) rather than a typical HoReCa mark-up (ca. 66%). It can also be expected that the end of lockdown will be greeted with enthusiasm by customers; wine can be expected to play a major part in the celebrations that will doubtless follow. The house can consider now how it can position itself to take advantage of this factor alongside champagne producers, who can be expected to take the lion’s share of such post-crisis celebratory revenues.

Omission Bias and Financial Markets

Omission Bias is the tendency to favour the omission of an act over its commission.  It is widely studied in psychology and has been reliably replicated in a variety of scenarios.  In the context of financial markets, this can have adverse effects because there is no practical difference between investing $100 in a stock that declines 10% the next day and failing to buy one that appreciates 10% the next day.

This of course assumes that you actually have $100.  If you don’t have a float of cash available at all times, then you will not be in a position to seize opportunities.  So that would be the first piece of advice.  Maintain a certain percentage of your investable assets in the form of cash —  perhaps 10%.  Alternatively, you could arrange for a line of credit in a similar amount but make sure you do not do too much of this because it is high risk.  Conversely, holding 10% cash acts to reduce risk.

Another adverse effect of Omission Bias is that it impairs your ability to assess performance.  This is of crucial importance.  Many investors do not have clear enough data of what has worked for them and what has not.  It is essential to have a good focus on this for a number of reasons.  

One benefit is that you can only manage your portfolio appropriately if you have been examining its performance precisely.  A second benefit is that you might be able to identify some specific sorts of trade that you are particularly good at.  You can then seek to identify relevantly similar situations and exploit them.  Also — you might have a chance of avoiding disasters from the past occurring again!

Photo by Alexander Krivitskiy on Pexels.com

Our ability to look at our failures and learn from them is also impeded by our natural distaste for thinking about the unpleasant — but failures are always more instructive than successes.  One might almost say that any fool can succeed — but only an expert can fail well…

A major practical impediment to any attempts to correct for Omission Bias is due to the sheer scale of the problem.  The number of shares you did not buy yesterday is absolutely huge.  There is no way you can think about all of those.  Nor should you.  The more useful comparison is to think about the shares you could have bought or the ones you almost did buy.  So that tells us that you should be looking at several buy options at a time.  Look at what factors led you to choose the one you did choose.  

Maybe you were looking at three oil companies.  You compared them on price/earnings ratios, dividends and price/book value.  You made a choice.  Did that work out?  (Don’t do this next day.  Wait for a reasonable period.  Otherwise you will just be looking at noise.)

What fundamentally is going on with Omission Bias is a sort of agency effect.  If something bad happens and you could have prevented it but did not, this is seen as morally less culpable than if you did something which caused a bad outcome.  After all, “you didn’t do anything.”  I think this perception might be strengthened by the fact that the law says a lot about what we cannot do but rarely says anything about what you must do.  You are at liberty to walk past a baby drowning in a pond.  You are not at liberty to throw a baby in a pond.

This might be fine morally.  But stock markets are not outlets for moral action.  They are locations where you can profit.  Or not.  Bear in mind the possibilities of Omission Bias affecting your judgements of your own decision-making and your decisions will get better and more profitable.

Learn more in the video below:

Au Pied de Cochon, Montreal

This is a quite spectacular world-class restaurant which somehow combines new world informality with a completely unique focus on quality. Nothing could express more fully, intensely and joyfully the spirit of its home. If Michelin came here, it would definitely get a star. The question of whether it got two would depend on whether they said “but this is not Paris.” Of course, we don’t want it to be Paris. We want it to be Quebec. On that basis, it would get two stars. (You don’t want three. That means six staff standing behind you at all times and a “cathedral of food” atmosphere. Here it would presumably be three ice hockey players and some big dogs pulling a sled full of ice wine, which would be less disturbing…but that’s not the ideal approach…)

The evening began with a couple of Canadian wines which were the only part of the evening which was less than stellar. These one would have put in the category of “I am glad I tried some Canadian wine but there is more development time needed.” Both lacked a little structure and depth. However, this was instantly forgotten when our amazingly friendly and informed maitre’d, Sam, brought out a Canadian white which could stand up to competition from anywhere.

This was the Stratus 2014 White from VQA Niagara Lakeshore from winemaker J-L Groux. Chardonnay-led, it had an extraordinarily satisfying viscosity without losing punch and sharpness. This turned out to be because of an unusual combination of grapes. The list was headed by Chardonnay at 52% but was then followed by a significant 32% Sauvignon Blanc component. There were further floral notes added by minor but important elements of Semillon, Viognier and Gewürztraminer.

Then to the food. You can order from the menu, but why not let the experts do their thing? Sam offered to just bring us stuff and we agreed.

Poutine is a legendary Canadian dish made up of fries, curd cheese and gravy. In snowy climates, one needs fat, salt and sugar and this dish does that and does nothing else. The version at Au Pied de Cochon however, is the Rolls Royce variant, because it adds their signature element of hot foie gras. This combines a light crust with an intensely flavoured liquid interior and matches perfectly the underlying poutine elements. Naturally, the fries were cooked in duck fat. And the punch through of the Sauvignon-assisted Chardonnay was clear in a wine very well chosen by Sam.

This was combined with a quite extraordinary salad which had citrusy zing, apple, walnuts, cabbage and blue cheese. A very arresting combination which managed to be intense but also very light so as to offer some good contrast with the poutine. There was also a very intense mushroom dish to round this section off.

For the main courses, Sam brought us items we would never have ordered, which was another reason to let him make the choices to both showcase the items of the day and match them with each other and the wine. There was a pig’s trotter from which the meat has been extracted, braised and reinserted coated in breadcrumbs. This was accompanied by a mushroom/tomato/herb led sauce of great depth and intensity. We drank a Burgundy with it which was superb but I am not going to say anything about it because we’ve all had good Burgundy. Though note that Jancis says 80% of Burgundy is disappointing and this wasn’t…

We then realised we had not had one of the signatures: Duck in a Can. We were told that this would need another 32 minutes but that was fine. In fact, leisurely pacing of courses was perfectly done throughout the evening. Rushing a sequence of what are after all some very rich foods would be a terrible mistake.

This duly arrived and was spectacular in a fatty yet well-contrasted manner. Again it had elements of depth added to it by foie gras which was perfectly placed in the context of the dish.

And the final wine of the evening was really remarkable. I had a lot of trouble answering the challenge from Sam as to whether it was New World or Old World because it was extraordinarily complex and interesting yet came in a. screw cap. (I have nothing against screw caps, it’s just it almost always tends to be a New World method. And this wine drank like it had centuries of experience behind it.)

Here is what I wrote about this wine:

Le Cigare Volant Central Coast CA 2012 Mourvèdre/Grenache/Syrah/Cinsault nose: dark cherries, vanilla and a quite extraordinary amount of smoke. Plus forest floor/mushroom (on advice!). Palate: again remarkable yet well integrated smoke reminiscent of a high end Pauillac.  Strong but balanced acidity, fruit back in the mix somewhat so well aged.  Very subtle tannins. Quality: outstanding — great balance, length, intensity and complexity 18.5 

A massive wine like that needs massive food to complement it and this was there.

Further highlights: some insanely deep Italian spirits, some dark shots, amazing pecan pie with caramel ice cream, and the world’s only dessert with foie gras. (It worked.)

The wine list runs to six pages (Burgundy, French Red, French White, World Red, World White) and is brilliantly chosen but if you have a great Sommelier like Sam you can just let him decide and read the list for fun.

In sum: one of the best restaurants in the world yet totally informal. This place is only about the food. It doesn’t care about the inessential. It isn’t even that expensive. Being anywhere in North America and not coming here is a mistake. Actually, being on the planet and not coming here is a mistake. Vive le Québec.