The Independent Winery Business - Amy Prosenjak of A to Z Wineworks - e1

Hey, Michael here. You will now hear some episodes of the Michael Girdley Show that we had branded differently, called Unusual Profits or some such like that. Same show, same person, just me interviewing people and producing content that could be helpful on your journey and mine as well. So with no further ado, here's the episode. Hey, Michael here. Sponsor for today's show is actually a product that I'm a part of called DM Bridge. And what DMBridge is, uh, is a service that we built, uh, to solve the problem that Twitter's direct messaging functionality is a total mess. So we built DMBridge to help you fix that. Um, a lot of the other solutions, uh, do things like requiring you to install a whole nother inbox. We didn't want another inbox, so we created DMBridge. And what it does is it takes all of your Twitter DMs and has them appear inside of your email inbox. So you can reply to them just like it's a regular email. You see them just like it's a regular email. You can search them later like it's one of your regular emails, all just by using DMBridge. So, uh, we're currently live with the product. Uh, would love for you to sign up and become a customer, uh, and check it out. So you can find that at dmbridge.app, uh, and go on there, put in your name, uh, and be either part of the beta or join us as part of the live use of the product. And again, check it out, dmbridge.app. All right, everybody, welcome to, well, the podcast that's currently called Industry Anonymous. Amy, I may change the name of this podcast just because everybody that seems to want to come on doesn't want to be anonymous. So my core thesis of, of doing this is, is maybe changing. So I may need to be rebranded, but This is our first episode of Doing This, and it's a podcast about niche industries and businesses and how they work. And today I have a very special guest, Amy Prosenjak, who is, well, CEO of A to Z Winery. Is that right?

A to Z Wineworks.

A to Z Wineworks. Perfect. Well, love to start with how you got into being the president of an independent winery.

Well, it's not a very sexy story, Michael. You too can be the president of a winery. You just apply on winejobs.com. Which is what I did because we loved wine. We'd been to Napa, we've been to Tuscany. We're like traveling. We upgraded, we turned in the kegerator and we got a wine fridge. So we were like, you know, real grownups drinking wine. And, you know, I'm doing the corporate thing and having this great career. And my husband Steve said, well, why don't you work for a winery? I'm like, well, who would hire me? All I know about wine is yum, delicious, love it. And he found the website winejobs.com, and sure enough, A to Z was in the process of buying a legacy winery here in Oregon called Rucks Hill, and they were looking for a CFO at the time. And it was a really funky post that said things like, you know, at A to Z, we are long on responsibility and short on titles. Suffice it to say, the slowest zebra in the herd shall not apply. I'm like, these people sound kind of interesting and weird, like, and not corporate. So I just sent my resume on a whim. I mean, it was— we were, we were having a bottle of Oregon Pinot Noir. I sent my resume through the old AOL, and about a day later, one of the owners, Bill Hatcher, called me and he said, do you understand cost accounting? I said, well, yes, I'm the director of inventory control for a billion-dollar furniture business. I— yes, I understand cost accounting. It's actually my specialty. And he said, I can teach you wine. And we just launched on a conversation. I called in sick for the first time in my life, um, at my current job, and I flew to Oregon for an interview. And Bill and I shook hands at the airport and just, it was like, went from there. I mean, it felt very familiar. The two families own A to Z, and that's, that's still been the case 14 and change years later. And I'm like choked up thinking about it. I mean, it's just, it's a fun story and it's not that complicated. I didn't use recruiters or any of that stuff and it changed my life for the better, both personally and professionally. So glad to be here to talk to you about it.

Yeah. So, well, you were in Columbus, right? And working for a giant multinational furniture company who shall not be named. And then, then you guys, you and your husband moved out to to Oregon just for this job.

Yeah, I, I, so I shook Bill's hand at the airport when I arrived that night. We had the next day, we had a day-long kind of interview. We got to the airport at about 4 o'clock for me to catch my flight home. I shook his hand and I said, look, I need like 5 weeks. I gotta like sell my house, quit my job, and move across country, and I need to call my husband because I hadn't called Steve all day. But I basically accepted the job on the spot. And so I get in the airport, I call Steve, and I said, so we're moving to Oregon. It's going to be great. I'm going to take a 40% pay cut. We're going to sell the house. It's all going to be fine. You're going to love these people.

Other than that, it's going to be great.

Yeah, other than that, it'll be great.

So tell me about how the— so there's the universe of players in the wine industry. So you have, obviously there's the growers, then you have the people, the producers of the wine, the winery themselves. And then there's probably a whole value chain of people getting that out to the consumer, right? There's distributors, and I guess every state is different. Who are the kind of players, cast of characters in the industry that we should know about?

Definitely a cast of characters. That's a good metaphor. It's complicated in so many ways because basically we're farmers. Yeah. We grow grape, wine grapes, and we're dependent on Mother Nature. And that just sets the tone for the whole ball wax, right? So it starts there. Yes, we're a manufacturing plant, so we have a big winery campus here, and, you know, we're running shifts, and we have people, and we have bottling lines, and we have a facilities manager. I mean, we have equipment and stuff, a lot of stuff, a lot of fixed assets. And then the hard part then begins, because now that you have wine and have 600,000 cases in your warehouse, now you have to sell it. And then we're a marketing company because there's about 80,000 domestic wine SKUs. So why do you care about A to Z? And so our main customer on a day-to-day basis are those distributors. So we have about 60 distributors that we work with around the country and 13— around the country in the US and 13 export countries. So our main customer is the distributor, but we're also talking to you as the consumer directly, right? I'm advertising in Food and Wine, and I've got social presence, and we're doing Google search and all the stuff that you do to try to find consumers. But that's not how you really sell the wine. That's how you create demand for the wine. But you have to sell it to the distributors who then are selling it to the restaurants and the retailers. So it's this whole 3-tier system where everybody's taking a piece of the pie. And you have to— that's your main goal every day is that you're selling to distributors. And why do you matter? So distributors will have a book of, say, 5,000 wine SKUs. Y-A to Z. So that's, that's what we work on every day. So you have to remember that whole value chain along the way. Wine's heavy, so logistics comes into play. It takes up a lot of room, both when it's in liquid form and when it's in bottle, in the case form. So you need space and storage, you need trucks, you need logistics to get it from point A to point B. And we have a facility here, so we're a retail shop as well. We have a tasting room for our Rexhill brand, and we You know, have lots of visitors every year, so in non-COVID times. So it's all of those things all the time, every day.

Wow. Okay. So a lot to unpack though. Super good. So y'all are, to some extent, you're vertically integrated all the way down to the distributors, right? You own the land, you own the manufacturing plant, you own the sales and marketing aspect of it. So then I assume, and also where A to Z plays, you guys are, I would say, high-end premium wine and then extremely high-end with of your brands. So you have like the Rexhill brand and the A to Z brand, and then there's, there's Francis Tannenbaum, which is another one. I know this because we drink them all the time. But so is that kind of how you, where you position y'all's business? You're premium up to high end, right?

So A to Z is the brand that was started in 2002 by the two families that are still involved here at the company. And we, all of our wines are about $20 and under. And A to Z is about drink it tonight, have it with your pizza, have it with your burger. It's a great wedding wine. I mean, if you— we've all been to the wedding where you walk up to the bar and it's something that's just like hard to drink and you end up having a beer instead of wine, even though you really wanted wine. A to Z is one of those where you walk up and it's like, oh, this is great. It might not be my favorite wine, but I know it's going to be good quality. So A to Z is that— that's the essence of Oregon. Aristocratic wines at democratic prices. Lots of taglines that kind of tell you about that brand. As we were growing, we needed a facility, and that's when we purchased Rex Hill, which is a winery that's been in Oregon since 1982, has some land here where vines are planted, and had a facility. We've since expanded that facility to accommodate the A to Z brand, but Rex Hill's more handsell. We have the tasting room. It's kind of starts at $38 and goes up to the $100 range. A lot of it is premium single vineyard wines that you can only get at the winery if you visit us or if you're in our wine club. And then yes, we have two family brands. So Bill still makes a little bit of wine called William Hatcher, and then Sam and Cheryl, two of our other founders, make Francis Tannehill, and they make a Pinot, and sometimes they play with other varietals as well. So, and those are really only, really only tasting room unless you're Coach Pop and you like the one of those wines, then we'll put it into a specific account in San Antonio for Coach Pop.

So very interesting. Okay. But there are some people in the industry that dissociate that stuff, right? There's people that are just specialty wine growers, or then there's the Robert Mondavi Group type stuff where they, they play the big games and they're, they're buying blends from all kinds of people and they're just a marketing org. So, so there's, there's those kind of folks, but you, you end up in this Why does it make sense for y'all's business to be vertically integrated where those folks have dissociated? Like, what, what things have caused that, like, that split that you haven't experienced?

Well, it's a good question. And we're really not totally vertically integrated. So we only own 2 vineyard properties, which is about 1% of what we make. And really, one of the unique and I think smart business strategies that A to Z made before my time was that the the plan was not to own vineyards. The plan was to make wine and sell it. And so we are a buyer. We buy from about 55 different growers throughout the whole state of Oregon, from Ashland, which is basically on the Oregon-California border, all the way up to the Gorge, which is on the Washington border. And so that allows us to have a diverse sourcing plan, both that adds to the quality of the wine, but also is a usually a risk reducer, because you normally don't have something happen in the whole state. This past year, we did have wildfires in the whole state. That's a different conversation. But normally, if you have a frost kind of event, it happens in a vineyard, not the whole state. And so then you're able to kind of balance your supply. So we have long leases with a lot of these growers. And they're very important to us both as partners and part of what we do because that's where it all starts from with the quality. So being vertically integrated, I think is just the way A to Z kind of grew up.

Mm-hmm.

We started with 2,600 cases, the first vintage that we made, and now we're making about 400,000 cases. So it's just what we knew and how we continued to go at the business. We've invested a lot of capital here at the winery on the manufacturing side that kind of size of winery didn't really exist in Oregon at the time. So as A to Z was growing pretty quickly, there was nowhere to make the wine in Oregon in one place. We were making wine in 11 different places at one point before we bought Rexhill. So that takes a lot of coordination, and at some point you have to bring it all together in order to bottle it. And that Rexhill had a bottling line, and that's how we got to know the owners of Rexhill, is that we were bottling here. Eventually purchased the property from them when they retired. So again, that space issue, when you're making that much wine, it's a lot of gallons. I mean, we have over a million gallons of wine on site at the end of harvest.

Well, yeah, so that, that totally makes sense because I think if you were to own the manufacturing and all the inventory carrying costs and the risk around that, and then also try to own the land and then deal with like, okay, well, how do you deal with dynamics of demand and production? And so by not owning the land and working with the producers or the grapes, you guys are in a position where you can really at least keep yourself in a capital-intensive business and not a crazy capital-intensive business. Right.

Farming's tough. That is a tough business. It's pretty low return. And I mean, wow, it's tough. And manufacturing on a growth curve is also very capital intense because as most of you know, wine, you don't sell, it's not like shampoo where you blend it up and then sell it. Like, oh, there's a big demand for shampoo. Let's make some more and then we'll sell it tomorrow. I mean, we're making wine now that we won't sell for 3 years. So if we're on a 15% growth curve, you're investing in a lot of out years that you don't even know how the sales cycles— you didn't know there was going to be COVID 3 years from now. And so now what do you do? You have all this wine. So it's a big risk that you're taking, especially when you're growing so quickly. And it's a huge— our balance sheet, it's crazy. I mean, winery balance sheets, do not look like normal industry balance sheets. And that's part of the reason why we have a great partner in Bank of the West. They understand winery finances and what those leverages look like, 'cause it's kind of atypical to a normal industry that's on a growth curve.

Well, you know, we're in the fireworks business. And so I understand that like massive capital investment and inventory, and then you sit around and wait until it monetizes at some point. So you have to have bankers that understand that. Absolutely. And it is interesting. I think people that are in those kind of niches with weird things, you get this, you get this weird kind of moat around your business where your banking relationship becomes a moat because it takes so long for the banks to understand that you're trustworthy. That's a new entrant couldn't really ever do that because, well, for example, we've worked with the same bank for 40 years. And so it sounds like you guys have a similar kind of relationship. So typically businesses that have that kind of capital intensity, and then intermittent kind of revenue streams. Like, I see them with oftentimes with very high gross margins. So just curious, like it— and you don't have to tell me if it's, if it's trade secret or whatever, but is it 80, 90% or is it lower? Or where does wine, wine gross margins tend to be? I was giving you the benefit of the doubt.

80 or 90. Oh, now I'm dreaming. Now that, that, uh, that sounds so nice. Sounds dreamy. No, I mean, because you're in that three-tier system, for the majority of what we do, everybody's taking a portion. So no, it's—

so $20 bottle of wine.

Yeah.

And we may be going to a place where you're like, I don't want to say this, but okay. So then what is— what does the distributor pay you guys for a $20 bottle of wine?

Well, it's about a 40% reduction. Well, 60% reduction. We're getting, you know, we're getting 40% and they're they're getting a 60% reduction.

So you get $8 and then another, say, $6 goes to distributor, sells that to the retailer, and the retailer makes $6 on you. That's kind of the—

yeah, every, you know, everybody's in that 30 to 40 kind of percent kind of range of, of margin of taking a piece of the puzzle.

Yeah, yeah, yeah. And so, wow, so then y'all are hoping— well, it's— I mean, I could just do the math.

Our old joke was like, lose a dollar on every case and make it up in the volume. I mean, that's part of why A to Z— it's part of why A to Z grew pretty quickly, because you, at that margin rate, you have to have enough volume coming to have cash flow, and you have to have enough quantity out there in the world where people care about you, right? Like, you don't get into H-E-B just because you have a couple cases and, you know, it tastes good. It's like you have to have enough to distribute it and have a presence.

Yeah.

On the retail shelf.

It totally makes sense. Super cool. Well, so it seems like all of this, as you describe it, creates pretty big barriers to entry for serious competitors to come in at scale. But every time I go to the store, like, there's like a bazillion wines there. And so how should I think about that from a— what are the competitive moats that an A to Z has besides brand and scale and banking relationships?

Well, I think that's why we're talking, right? I mean, we're trying to uncover this. We're trying to figure this out. I mean, in some ways, the barriers to entry are really low. Anybody can make wine. It's really easy to get a permit. There's places to make small quantities of wine. I mean, you can make wine in your garage, right? I mean, it's easy, and most people can make good wine at this point. That wasn't true probably in the '60s or '70s, but the science has caught up, and most places. You're— I mean, you're rarely— are you going to get a bottle of wine regardless of the price point where it's just not made well. Um, there's a few out there, I'm sure, but then it becomes more about your consumer, like what your personal choice is versus is this good or bad. It's just do you enjoy it or not? Does it work for your palate? So I think the barrier to entry is pretty low. The barrier to success depends on what your strategy is. So a lot of wineries get into this business and their strategy is direct sales. So tasting room, selling directly to consumers, the margin is better because you don't have the distributor in the mix of it, but you're at a lower quantity of how much you can sell. But lots of Screaming Eagle examples where you're charging huge premiums and have a waiting list and sell everything you make and all those kind of things. So it can work on that direct model. The other thing that's kind of interesting with the wine business is that there's a couple of really big players. That own lots of brands and have multiple winery sites and millions and millions and millions of cases. I think Gallo sells something like 20 million cases of wine or something.

Wow.

So that's a different barrier from a competitive standpoint, right? Because who's going to get more attention from a distributor? Someone with 200 cases or someone with 10 million cases? Because it's different profit margin to the profit dollar amounts to the distributor. So that makes it hard. I mean, Part of why A to Z grew was to be able to have enough quantity to have attention when and where we wanted it. You know, you don't get an appointment with Target very easily, so it's hard. But then someone sends me a screenshot from the list from the aisle in Target and says, which wine should I buy? And I'll say, I don't know any of those brands. And they're like, well, but you're in the wine business. I'm like, never heard of them, don't know any of those. There's just so many, and they change all the time. And that, you know, a lot of the shopping is done by the label or the price point. And there's a lot of private labeling happening for big retailers. So a winery can make a wine for Target and it doesn't have our name on it. It has some other name on it that's proprietary to Target or whomever. Lots of retailers do that. And those change frequently.

Yeah. Have you guys been approached to do those kind of white label things? And how have you thought about it?

We have and we've done them. So I mean, part of what helped fuel A to Z's growth early on was we made the Kirkland Pinot Noir.

Okay.

For Costco. And we did that for several years and it was great because they were really interested in quality wine. They bought it all at once. It was one big check that came once a year and it helped fuel the branded business of A to Z. So we will look into those types of things when it kind of is in tandem with our branded business. It's not our business model. There are wineries that that's all they do or that's what they choose to go after as their strategy. We look at them strategically and like, will you also support A to Z? Then maybe we would look at a private label for you. So it just kind of depends.

Well, I think that it sounds like that we keep coming back to this idea that what matters so much in this business is brand, right? And you could see it from people texting you and asking like, what is the brand? You know, which of these brands should I trust? And you're like, I don't know.

So yeah, it's all relationship. It's all entertainment. You know, when I took this job coming from a furniture business where you would travel around to look at distribution centers and maybe go out for a steak, afterwards with a glass of red wine or something. And then you get here and like the first thing I get invited to is some dinner with some of our investors. And like I figured out within the first 3 minutes, I'm like, oh no, I'm supposed to entertain these people at a dinner party while we're talking about wine so that tomorrow they buy our wine. Okay. I thought I was coming as the CFO. I didn't understand I now have to like sell the wine too.

Right.

So Part of our kind of motto with our whole team, we have 75 employees, is that we all work in sales. Regardless of what your job is, you work in sales because wine is that interesting, sexy thing at a cocktail party when somebody asks you what you do and you say you work at a winery. Now we're having a conversation. And so hopefully you know how to talk about A to Z or Rexhill as a brand. It's, it's an entertainment business, the relationship business all the way.

Yeah, well, it's so interesting. One of the things I talk about a lot is a lot of people don't really think about what business they're really in. And it's interesting to hear you talk about that because you're— it sounds like you're totally in touch with it. Like, I am now.

I had no clue when I accepted that job at the airport.

Yeah, you thought we're just in the wine business.

I thought I was coming as the CFO. I'm a numbers gal, no problem.

So what transition— I mean, was it that first night? I mean, you're, you're really smart. So like, what did you catch on to it that quickly? It took me years to figure out like, oh, you know, I'm not really in the XYZ I'm actually in the this business, you know?

Yeah. It was pretty stark that first dinner. I think I'd been here 2 or 3 weeks and we had that dinner and it just, not only I had had too much to drink, right? You're in the alcohol business. So I'm just going to dinner. And I had like, I'm drinking at the dinner. And then I realized like, uh-oh, I've had too much wine. I'm in the entertainment business and I didn't realize it. And I have to help with the dishes afterwards because we're very lean and mean. So I'm in there like doing dishes at the end of the night. I mean, It was very confusing. I'm sure it took me a little while to kind of piece it together, but pretty quickly I realized what was happening here. And I think that helped us define that only as we started to grow and hire people to be a part of our team, having that in mind. I mean, we, we had an outsourced sales force for a number of years that sold multiple Oregon brands, and it worked really well for a while. And then we decided we wanted to bring that in-house and have our own dedicated team. And so that was back in 2010. And as we were interviewing folks that had worked for big brands, like we've been talking about, that have sold millions of cases with multiple brands in their book and so forth, all the questions were about, you know, do you have enough quantity? Do you have enough this? Very numerical based.

Yeah.

And I said, look, that will figure itself out if we hire the right people. That's all, that's all we can look for right now. We can't worry about if we're gonna have the exact right number of cases 3 years from now. We have to hire the right people. And so having that kind of perspective, I think has helped us is hire the right people. You get a lot of people that apply to wineries with wine in their eyes. They want to work at a winery, and we need to hire— we can teach you the wine. Just go back to Bill's comment, right? We can teach you the wine, but if you're good at customer service, you'll be good at customer service with wine. If you're good with accounting, you'll be good with wine. If you're good with, you know, maintaining our HVAC system, we'll teach you the wine.

So, so this, this sounds like a hard business. This does not sound like an easy business. You guys, especially in the model that you have, you have all these tensions that you can't control, like what's Target going to try to do to you? The retailers have all these— I think they have the leverage over you because they have the shelf space. You have this huge gap from when you have to decide you're going to produce the wine to when it's going to be delivered. You have to be in the brand management business. You have to be in the entertainment and deliver, you know, deliver on that value business, like, and then distribution and then B2B sales. Like, this sounds hard. I don't mean that about it, so.

And we love Target, by the way. Target's a great, great— Yeah. It is. So good thing we make wine, 'cause at, you know, at the end of the day, somebody, you know, in my old life, someone would call me to the showroom and say, what do you think about this sofa fabric? What do you, how does this sound? You know, it's like, "Okay, I'll give my opinion." Now the call is, "Hey, can you come and taste this 1982 Pinot Noir? We want to decide what to price this for our library club." Yes, I will be right there. No problem. Drop everything. So I think the fun part of it is always just that fun balance between the complicated hard part about it. And, you know, business is all about solving challenges and opportunities every day, right? If we didn't have things to solve, I mean, what are we going to do all day, right? So I, I'm interested and invested and feel fulfilled when we're, we're noodling things out and figuring it out. Um, so yes, it's complicated.

Yeah, for sure. Well, it— I don't think— I see that I, as knowing you, right, very detail-oriented, very mission-driven, very matter-of-fact. And there, there's this beautiful tension with the other half of the business, which is the, the owners who recruited you with this very hippie-dippy type thing. You know, it's a fascinating, fascinating thing, how it's got to— it's super admirable that those folks knew their limitations. I don't mean in a bad way, just they're not, they're not you, from everything I've seen and from everywhere.

But I'm also— I'm not the entrepreneur, right? I didn't put my house on the line with the bank as a guarantee in the beginning. They did.

Yeah.

And so we definitely have talked through the years of that. It's a good combination of They took that initial risk, and then as they started to grow, they realized they needed different professional management. You know, we hired a great president of sales, um, that in 2010, that is my partner in crime in this. And so the family is all still really involved, but yet they let us professionally manage the business because they like the results, right? And we can all have a lot of fun doing it. So yes, I give them all credit for whether they knew it or not, they needed help. And they've allowed me to take that responsibility on. They've been super generous with the opportunity, and I've worked hard for it, but they've also— were very generous to give it to me at the same time. So, you know, this— if you go to the A to Z website, I'm not like— my picture's not there, right? I mean, the story is about the founders and how that came to be, as it should be, and that's fine with me. And that may not be fine with all other CEOs out there because You do have to have broad shoulders and an ego and confidence to run things, but I also don't need to be the story. Yeah. Happy to do these kinds of business interviews and so forth. People always are like, oh, how do you make wine? Well, I don't really know how to make wine. I mean, I read the book, the book about it, and I've studied it, but I hire a great winemaker. That's my superpower.

Yeah.

And then he makes the great wine. So it's, yeah, it's a good combination.

I don't mean this in an insulting way, but you're the classic bean counter CEO, like Like, and it's a good, it's a good thing because the way you describe the way this business works, low margin, high, high, high degree of difficulty and lots of different things that, that, that your profits are, you know, whatever your, whatever your, your net profits are, it's, it's 0.1% times 20, right? Like you got to do it all. You got to do all these little victories at the margins to do this. This isn't a, this isn't a come in. Like, if you look at investment banking on the other end of the spectrum, where it's like, come in, make one deal happen a year and talk big thoughts, and then you move on. There's no whale hunting here. This is, this is wealth by minnows. You know, it's super good.

Wealth by minnows. All right, I'm gonna use that, Michael.

Well, it's, it's why I'm not like an awesome CEO for, for peacetime businesses. So you have this wartime peacetime idea. Like, I'm good at wartime, but peacetime, I suck because I get I get attracted to shiny objects and I'm totally bored by all the little things at the margins, but that's where peacetime businesses make all their money. And you, this is a peacetime business that you're in on hard mode. So I think it's perfect, perfect job, job opportunity fit, if that makes sense.

I think so. And I don't take offense to being a bean counter. That's, I mean, I fell in love with accounting right from the start, man. I took that high school class and we're like putting little things in the purchase journal and the sales journal. I'm like, I understand this. This is like, these are my people. What I also, I think I have a good balance of is I do enjoy the people part. And not all bean counters like that. I manage by walking around. I mean, I know our team really well, and that's both interesting to me and important to me. And so I think I can balance both of those. You know, I'm, I'm an introvert kind of by trade. I'd rather be at home reading a book, refueling myself, but I also understand when I have to be the extrovert and I actually get a lot out of it. I just need to recharge from it sometimes. So being aware of that kind of dynamic is important. Yeah, I definitely get worn out and it's like, enough's enough, I can't talk to anybody else. You know, you get home and it's like, I gave it the office. How was your day? Fine, fine.

I'll be in a dark room by myself for 30 minutes, gotta recharge. I feel you. So, so where do you think, where do you think the business is going? I mean, there's some stuff on the horizon. Labor is always a challenge, changing consumer tastes. Climate change is probably something of, of a mind. What, what's keeping you guys up at night in terms of where the wine business is going?

That's a big question.

Everything.

Yes, all of the above. Labor continues to be a challenge, um, both with availability due to, um, what was— what's been going on the last couple of years with immigration and kind of cracking that down. I mean, the whole West Coast operates off of this amazing seasonal labor force that kind of starts in the north and travels all the way down to the south with different agricultural crops, grapes being one of those. That's been hard the last couple of years. Specifically in Oregon, we have cannabis as a legal crop. And so that came on whatever, several years ago, 4 or 5 years ago. They pay more, they pay in cash. It's a different kind of competition for some of that similar skilled labor. You know, so how does the winery business or the see a grape growing business evolve into mechanization, what works, you know, we're taking a lot of insight from Australia who had to do this several ahead of us because of a labor shortage. It'll be interesting to see what changes with this new administration and how that— if that feels different this year when it's harvest time in September. So labor is always a challenge, whether it's availability or just rate of pay, because that's a huge piece of what goes into the cost of the grape, of course, is the labor to grow it and and harvest it. So yeah, definitely on our mind. Climate change for sure. I mean, wildfires continue to be a problem, specifically in California, but also last year in Oregon. So how does that work? That relates to forest management and all the other things that are not even related to grape growing, but of course affected. So that's— I think that's definitely something that keeps us, keeps us up at night. And so where— what are we looking for for the future? I mean, we want to continue to try to balance supply with demand. We're just— it's just this constant thing that we analyze because we're thinking about demand 3 years from now. And so it's, it's, it is a challenge, but that's what's fun. We're in this for the long haul. So we're trying to make a great company, a great place for people to work and have their career. We're a B Corp, so we, we try to model that we care about the whole and all of our stakeholders. And we try to be, you know, a company that's creating good in the world and doing good work both for our, and our employees and our community. So yeah, that's the fulfilling part, really.

Yeah, it sounds cool. It sounds like more than just being a wine business.

See winejobs.com, Michael. You could come work harvest. It's, it's not during fireworks season. You could come do a little—

oh, I don't know how to make fireworks either. So, so I guess one question that came up as you described this, so when, when do you guys actually take possession of the grapes? Are you— or do you contract with the farmers and you say, I want this And then are those your grapes when, when, when they're harvested? Or is it your responsibility to get them harvested? Does that change depending on who the farmer is and what your deal with them is?

Normal cycle is that you can— so we finished all our renewals in January for any contracts that needed to be addressed. And then the growing season really is starting about that time you start pruning in January or February. And we have to— so even though we're buying from these growers, we have a lot of viticultural standards that are within these contracts of agreements of how we're going to— how they are going to grow the grapes. And then we have two viticulturalists here on staff, plus this amazing winemaking team, including Sam and Cheryl, and they travel to all these 50 vineyards throughout the season. So we're having about 12 touchpoints in each vineyard throughout the year. And we're monitoring, we're discussing, we're looking for disease, we're reacting to whatever, to whatever's happening with the weather, that we're making sure that different sulfur sprays are going on to protect the grapes. And so you're growing it with the grower all the way along, and you're having discussions and checking in and so forth. We've been looking into all sorts of different technology about photos and RFID and how can we, like, have some of that stuff feed to systems so that you don't have to physically be there. But so looking into all that cool stuff. But right now we're driving around visiting. Right. And then you get to that August, September timeframe as the grapes are now getting ripe and they're full of great juice and sugar and acid and phenolics and all the good stuff you taste when you finally drink the wine. And so we harvest that. The grower is responsible for harvesting it and getting it to the winery. And so we have some of our fruit comes in half-ton bins, some of it comes in big 1-ton bins, some of it comes in big 8-ton gondolas, 3 to a semi that we then dump with a crane. So we were receiving all that fruit, and that's when we take ownership of the actual grape. And that the contract terms are, you know, that's when the ownership changes. So we are now creating— it's called must in the beginning, but it's basically turning into juice. And as that sugar becomes alcohol, that liability is now on our bond as a winery because alcohol is all federally and state regulated for all that. So yes, so that's how it happens. And then you normally have payment terms because you're paying by the ton for the most part. Some, some contracts are by the acre. Most A to Z contracts are by the ton. So if you deliver 1 ton of grapes, then I pay you our set price for that ton of grapes over a couple of months.

Right. So there's a handoff that happens at a certain point there. But then before that, it's interesting to hear that you guys— well, you have to be super involved because you need to know everything that's happened to that grape in order to be sure it's what you want by the time you get it.

You don't have to be. We choose to be. We invest a lot of money in that. To be part of the growing cycle.

Well, and that's the difference between you and like random 2 Buck Chuck stuff. Maybe comes in theoretically, you don't have to poop on somebody else's business, but I'm here for you.

There's room for all of us, all 80,000 SKUs, no problem.

Uh, and then so as you think about, as you think about the other end of it, right? So we're starting the thing that the tail is the grape growing. Actually, you start with a demand prediction from 3 years down the road. How are you guys figuring that out? Or is there software? Or is it just like, hey, we think grapes are— we think it's gonna be 20% better, and that's our revenue target, we're going to figure it out. And we're starting with that and working our way back. Are you actually— is there a level of like science and data science that's being applied to prediction, prediction of demand and that sort of thing?

Remember, the margin isn't so high. So I don't have a lot of sophisticated software. That would be very cool. There's a lot of bean counter spreadsheets, that we have developed over time. You know, Ron, our sales president, and I spend a lot of time working on that, thinking about how many points of distribution, you know, where can the growth come from, where are we saturated, where are we not. We do a lot of comparison to understand, you know, the wine drinking population in different states. Like, is there more opportunity in Iowa than there is in Manhattan? You know, might be easier to get distribution there than in Manhattan and so forth. So we do a lot of that kind of analysis. We do have software where we understand what each of the distributors and who the distributors are selling to. And so we can do universe kind of analysis and understand that there's 9,000 points of distribution in Iowa and we're only in 500 of them or whatever. Maybe we only want to be in 2,000. But so we're doing a lot of that kind of calculation to understand what the growth potential is for our brand at our price point. And so then you can kind of back into that. And you also, because we are Mother Nature, right, I also can't make too little and run out. And you never know, like sometimes the yields are really high, and sometimes the yields are really low in a harvest. And so if your yields are down 30%, like they were in 2020 for us because of the wildfires, hopefully I had enough stock from the prior year where I'm not going to run out at some point, because I'm on a growth curve. So you have to take that all into account, hence the capital intensity on your balance sheet. Don't look at my leverage, Yeah, no, I hear you.

Well, and that's where the right banking partner makes a ton of sense who understands. It sounds like, you know, I think a lot of businesses can think on a quarter-by-quarter results or even an annual results. And a banking partner for a business like yours has to think decades at a time. Like, it feels like that's a huge moat, right? The difficult— the branding, the difficulty, the degree of difficulty here, just like, and then the timescales, right? The feedback loop for you is just so long. To go between 3 years from—

It is. And I don't really feel like the normal kind of wine consumer that just enjoys wine really understands that. I mean, even if you've traveled to wineries and been in wine country at different places, I mean, you don't really get the grasp, or at least I didn't get the grasp of like what all this takes. And part of what I try to do, I mean, like early on in my career, right? I'm down on the bottling line. I'm like, this cork is 80 cents. So when you drop the bag of corks, like this is how much money we're talking about. Yeah. Understanding, you know, with our winemaking team, like, there's $2 million worth of wine in that tank right there. So if it leaks, yes, we have insurance, but that's $2 million of future revenue for us in that one tank. I mean, trying to put perspective around things in my bean counter way to make sure people make good decisions on a daily basis. And things happen, like, I get that. And so then, then at least we know what we're dealing with that we would have to solve. If something happens. And so I don't even remember what the question was, but yes, there's like, there's so many pieces to this that that's what makes it fun to me. But it's a constant kind of keeping up with all of those types of the business.

Yeah. Well, I think we were, I was just hinting at one of the moats around your business is how hard it is. Like there's a degree of difficulty, moat of specialized knowledge that, and kind of what's it called? The knowledge that you build up inside of an institution over time. Like, those things are—

well, somebody's like, oh, that wine's too expensive. I'm always like, well, not really. Do you know what it took to make that $20 bottle? I'm like, I'll pay $20 to try it, sure, you know. But I have a different sense of it. So I think that's what I was responding to. It's like, yeah, you don't really know. I mean, when you're buying an iPhone, you may not understand how it was put together, but you know it was complicated and it took this. I mean, you kind of like have a sense. With wine, you're like, didn't you just make that in your garage? Like, it's fine.

Yeah. Well, and it does come back to kind of that there's a pendulum that happens through your career where early on you underprice everything you take to market because you, you, you, it's like, well, it was easy for you. And then as you get older and you spend more time in your career, you're like, do you know how hard this was? You know? And if you're pricing stuff, I think at a point where you're like, well, if somebody else wants to give it, sell for cheaper, like, go ahead. Like, I know how hard this is. Like, good luck to them. Like, give it a try. So it sounds like you've reached that level of like, enough beatings by the market to be like, okay, yeah, cool, I'll do it that way.

I think that's helped us stay focused as A to Z. We've looked at, should we make wine from a different region? Should we acquire another brand? I mean, should we go into alternative packaging? I mean, we've looked at all that stuff and continue to, but we a lot of times get back to the answer of like, stick with what you know. We're good at this.

Yeah. That's a very bean counter approach to business in the nicest way. Well, it's one of the things that frustrates me often And it's interesting to hear you talk about it, but the people that want— that they're, they're really good at making hamburgers, and then they all— they want to make chicken sandwiches or filet mignon. And I'm just like, can we just make hamburgers? We're really good at this. Like, let's just focus on what we're doing.

Interesting you say that, because yes, but so the story of McDonald's, right, is they made hamburgers. They were only open for lunch and dinner. They were trying to make more money, so they came up with the breakfast hamburger. With the Egg McMuffin and can, you know, use the same facility and all that stuff. And so I used that. We were trying to think of ways to expand our business, and somebody came up with something. And I said, well, what's your Egg McMuffin idea? Like, we, we have a winery, like, what else can we do? And we came up with the A to Z Bubbles, which is Pinot Noir-based, pink, fuzzy, frizzy wine. Lovely, delicious, fun, with a crown cap. And if you look on the back of there, there's EMM on the back of every bottle of that A to Z Bubbles because that's our Egg McMuffin idea. It was Pinot Noir, it was wine in a bottle that we could make, and it was pink and fun and was able to expand our portfolio without getting outside what we do. So yes, I'm a bean counter, but I'm open to ideas when good ones come up.

No, it's super good. Well, and kudos to you for understanding how good a business breakfast is. Right, people, breakfast is super high margin, very narrow menu. That's why chefs hate cooking it and restaurateurs love selling it. So pretty funny. Well, great, you have been amazing. Thank you so much for this. So where, where can people go to buy A to Z Wines?

Well, hopefully somewhere near wherever you live. We do have a wine finder on our website so you can put your zip code in, but we're in lots of the traditional retailers of Kroger, Safeway, H-E-B, Publix. Who else are our friends? Target, Trader Joe's. I mean, lots of those kinds of places. Hopefully we'll be back in some of the restaurants near you soon on a buy-the-glass pour. It's always available at a2z.com, a2zwineworks.com. But it's really about the value that you can find when you're buying it, when you're buying your groceries.

Yeah. Well, this is super cool. If anything, in closing, I will tell you, I would be scared to get into the wine business against you guys. This is terrifying. There's no way I want to compete with people as good as you guys appear to be. And it's pretty impressive what you guys have built. So thanks for telling me about it. It's fascinating. And as you can tell, I came in with the assumption that you were growing all the grapes there at the winery. And I totally didn't— thank you for educating me on that because I didn't realize that you aren't as vertically integrated as I thought you are. Uh, it's super cool.

No, well, thanks for the opportunity. Come and visit again. We have a new tasting room here at Rexhill, so we have new things for you to see, and we'd love to just host you out here anytime in Oregon. So anyone that's listening, you're welcome to come. Rexhill.com.

Great. All right, thank you so much, Amy.

Thanks, Michael.