Michael Shaps Winery: Evaluating the Custom Crush Opportunity
(8 pages of text)
By 2010, Virginia had become the fifth-largest wine-producing state in the United States and Michael Shaps had developed a reputation as one of Virginia’s premier winemakers. He had recently doubled his annual production capacity and was considering whether to increase production of his own “Michael Shaps”-label wines (MS), or accept offers to produce private-label wines (PL) for customers — a service he dubbed “custom crush.” He could increase his profits by selling PL wines at higher margins. However, it would take time to grow this new business, and any capacity reserved for a “custom crush” operation would reduce the number of cases of his own MS wines that he could produce. The financials of custom crush looked very promising, because in addition to higher margins, revenue from PL would be guaranteed by contracts prior to harvest — a situation of unusual security in the volatile wine business. Although his MS wines were of high quality and regionally popular, producing his own labeled wines was more of a speculative business, subject to myriad factors. Beyond the short-term financial impact, he also had to consider how a PL business would affect his own MS brand. Finally, Shaps had the opportunity to package wine in a box at significant savings over bottles and had to decide whether or how to introduce MS or PL wine in a box.
The case focuses on growth strategies and emphasizes the links between branding, pricing and distribution. With careful numbers work, students can determine the contribution from MS wines and the potential contribution and breakeven price for PL wines. Students must then decide how to balance financial results with brand building and make a recommendation on whether to develop the custom crush business, what price to charge for the service, whether to introduce wine in a box, and how to protect and build the Michael Shaps brand.
The case can be taught as-is, focusing on the full set of issues described above. However, instructors may prefer to exclude the boxed-wine decision and concentrate on the MS versus PL decision. It is also possible to use the discussion of boxed wine to help students understand the issues of segmentation, targeting, distribution and pricing that would be involved in boxed-wine production.
The case is appropriate for a core MBA marketing course as an introduction to growth strategies, or could be used in a brand management course, as it highlights the tradeoffs between own- and private-label production. It could also be used in courses or sections focused on marketing management, distribution, pricing or corporate strategy.
Agriculture, Forestry, Fishing and Hunting
United States, Small, 2011
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