In Vino Veritas: Innovating in the French Wine IndustryPublished: January 26, 2011 in Knowledge@Wharton
How does an entrepreneur successfully introduce innovation to a gastronomic tradition that is a cornerstone of French culture and identity? Stephane Girard, who graduated from the Bordeaux Wine School in 2004, has launched a modern concept in wine degustation designed to make understanding viniculture more accessible by placing the individual's discovery of wine at the center of the experience.
In August 2010, Girard's Facebook profile noted the introduction of "the WINEpad: a tablet computer developed by WINE by ONE providing educational information about wines (a perfect complement to the WINEcard that gives you access to 100 wines by the glass)." WINE by ONE had opened in the spring of that year near Place Vendôme, a sophisticated neighborhood in Paris near the Louvre and the Opera. The backbone of the new concept consists of sleek machines that pour glasses of wine at the push of a button.
Despite a relatively slow summer due to long vacations and the FIFA World Cup, business exceeded both profitability and revenue forecasts; indeed, revenues had reached Girard's early 2011 target by August 2010. However, additional growth and new customers were needed if the bar was to become a franchisable concept. Girard counted on the launch of a full marketing effort, including a paid advertising campaign, to enable him to continue exceeding projections.
Buoyed by the strong results of the first few months, Girard was confident that the risks he had taken to become an entrepreneur would pay off, although he also worried about being able to scale the strategy according to plan.
History of an Idea
A Bordeaux native, Girard grew up surrounded by viniculture. His personal interest in wine developed further after he explored local production while working as an investment banker in Sydney, London, and Paris. At Wharton, where he earned his MBA, his passion for helping others learn to discover and appreciate wine resulted in his being elected president of Wharton's largest extracurricular club -- the Wharton Wine Club (WWC). In a Wharton entrepreneurship class, he led several classmates in creating a business plan to address the fact that wine drinkers often do not know which wines they like and why. He and a few others designed a novel concept comprising a wine bar, a wine store, and a wine club, all in the same location.
After graduation, wine tasting remained a key part of his daily activities, even while he worked as a consultant at Bain in Paris, where he started a wine club to give colleagues the opportunity to socialize while learning. As word spread about the club, friends and professional contacts asked him to establish similar groups at their companies. According to Girard, even self-proclaimed wine connoisseurs found they knew less than they thought about their own personal tastes, relying too often on guides such as Wine Spectator or a restaurant sommelier instead of their own palates.
Girard was also aware that many French consumers had no knowledge of global vintages due to the limited, France-centric selection available at most wine bars as well as the exclusive nature and high fees at wine clubs, expos, and fairs. He identified the opportunity to change how people discover and purchase wine, and decided that the wine bar/store/club concept he had developed at Wharton could work well.
WINE by ONE: A Three-in-one Concept
Imagine that you purchased a bottle or glass of wine, not because the label was attractive or you had read about it in a guide or magazine, but because you had tasted it and found it pleasing. WINE by ONE facilitates that experience through its three-in-one concept of a wine bar, store, and club in a single location.
A typical Parisian wine bar has a selection of 10 to 30 bottles, five to 10 of which are available by the glass. In contrast, WINE by ONE offers 100 bottles available by the glass, including approximately 20 bottles from origins as diverse as the United States, Italy, Chile, Australia, and South Africa -- a novelty in Paris, where international varieties are scarce. In addition to geographic diversity, the selection includes a range of styles from grand crus and full-bodied reds to French rosés and sweet dessert wines. In France, wines are normally categorized by appellation (region of origin). WINE by ONE, on the other hand, organizes its selection by "wine category" (following grape type such as chardonnay, cabernet, shiraz, etc.).
WINE by ONE's day-to-day function relies on distribution machines from the Italian company Enomatic. Each machine holds between four and eight bottles and dispenses wine tastings in three different sizes -- "the impression" (3 cl), "the temptation" (half glass), and "the sensation" (full glass). Customers add money to a personalized WINEcard from which the price of each glass is deducted automatically. Servings cost between €1 and €25 (US$1.36 and US$34), depending on the size and the wine. The machines prevent oxidation, ensuring a constant, ready-to-serve temperature and maintaining drinkability for two or three weeks.
By outsourcing the pours, the machines allow three employees to serve an entire bar. To guide the wine discovery process further, each machine has a WINEpad that provides information about each bottle, including notes from sommeliers, so customers can synthesize what they taste with a wine's technicalities. Unbiased by the recommendations of hovering waiters or barmen eager to fill their glasses, customers can examine the vast array of wines, reading the details of each on the WINEpad before choosing what to drink. By limiting staff involvement, Girard encourages customers to experiment and judge wines for themselves instead of through the biases of wine "experts."
Unlike at a typical wine bar, all 100 bottles can be purchased to take home from WINE by ONE. Moreover, unlike other wine stores that close in the early evening, WINE by ONE is open from noon until 10 p.m. These extended hours present a competitive advantage, as professionals who leave their offices late have the opportunity to purchase wine after other outlets have closed. Furthermore, when an individual discovers a bottle of wine, he or she can then purchase additional bottles to drink at home, making the connection between the consumer and the wine more lasting. These individuals are more likely to return to WINE by ONE to further their oenological education, Girard says.
The final component in the WINE by ONE equation is its wine club, a community of members with a shared interest in discovering wine. Loyal customers have access to themed tastings with producers and sommeliers as well as wine classes for connoisseurs at all levels. Typically, wine clubs are private communities arranged through institutions and corporations. WINE by ONE, on the other hand, offers the educational advantages of a wine club without the exclusivity or prohibitive fees. A first-time visitor to WINE by ONE becomes de facto a member of the club by getting a WINEcard. As a result, the WINE by ONE community has been building up very quickly. More than 5,000 "WINEcards" were issued over the first eight months, Girard says.
In its first few months, more than 70% of WINE by ONE's sales came from wines by the glass, approximately 20% from the sale of bottles, and 10% from the sale of food and other accompaniments.
Wine Consumption in France
Understanding the evolution of wine in French daily life is essential to fully understand the shop's success. Despite a central place in French culture, the consumption of wine in France has been falling over the past few decades.
In 1980, the French consumed wine in quantities greater than both tap and bottled water. Three decades later, however, wine is now served at only one meal out of four, and bottled water is the most commonly consumed beverage. While wine remains the primary alcoholic beverage in France -- representing approximately 60% of all alcohol -- per capita consumption has decreased from 61 liters per year per person in 1995 to 48 liters in 2009, the result of changing societal patterns such as longer commutes, a crackdown on drunk driving, and increasing concern about the health effects of excessive alcohol consumption.
Regular consumers are being replaced by occasional ones. This is significant because, although regular consumers represent only 21% of the population, they consume nearly 75% of volume (or five to six times the amount of an occasional consumer). In contrast, occasional consumers frequently split their alcohol consumption between beer, wine, and aperitifs; infrequent consumers (those who drink wine less than once a week) tend to prefer sparkling wines, cider, and liqueurs. The other significant trend that developed over the last decade is the increasing preference of young people, ages 18-35, for hard alcohol and spirits.
These changes in wine consumption patterns have created a new culture of less frequent consumption but greater appreciation. Sophisticated wines are being consumed at festive occasions more often than table wine at every meal. Now that French wine drinkers consume less frequently, they are willing to pay more per bottle, and they are also beginning to explore foreign wines.
As the culture of consumption has evolved, wine bars in Paris have undergone a modernizing transformation over the last decade. While it is impossible to quantify the exact number of wine bars in Paris, given the variety of formats and constant turnover, they fall into two broad categories: (1) traditional, those that replicate the Auvergnat model dating to the early Industrial Revolution, and (2) modern, those focused on innovative food, décor, and sometimes biodynamic wines.
A traditional wine bar is centered on the owner/sommelier's preference for wines and his relationship with long-time customers. Traditional wine bars serve French wine exclusively, typically from key regions such as Beaujolais, the Loire Valley, Burgundy, Côtes du Rhône, and Bordeaux. The average French person associates wine with food, so traditional wine bars focus on simple and robust cuisine (including cheese, charcuterie, and a few regional dishes) to frame the wine.
At the same time, entrepreneurs are modernizing the wine bar scene in Paris by introducing unique bottles and creative food. Several key trends include a focus on natural, "eco-friendly" wines and "locavore" foods, specially chosen from local farms to complement the selected wines. Despite their differences, both traditional and modern wine bars share a similar structure and strategy -- sommelier- and French-wine-focused.
In keeping with traditions of conviviality and family, the largest volume of wine consumption still occurs at home, and the 5,000 local wine shops in France are critical to serving this need. Sales at small, unique outlets have steadily declined over the last decade, due primarily to the expansion of supermarkets and hypermarkets (over 85% of the volume of wine sales) and large franchised distributors (e.g., Nicolas, with 464 outlets across France). Nevertheless, independent wine shops have benefitted from the increased consumption of more expensive bottles.
The traditional independent wine stores work with other independents to purchase wine at wholesale from the vineyards. They generally stock 300 to 500 bottles of almost exclusively French wines. Recently, new players like Lavinia, a Spanish firm, have introduced novel concepts such as large spaces, wide selection (over 6,500 bottles), modern designs, significant variety (including obscure grapes and organic wines), and occasionally Enomatic machines.
While WINE by ONE offers a smaller selection of wines than traditional wine stores, the focus on the complete discovery and introduction of foreign wines differentiates it from both traditional wine stores and innovators.
The Challenges of Entrepreneurship in France
With months of work completed and his market and concept ready to be rolled out, Girard quickly discovered that commercializing an entrepreneurial concept in risk-adverse France would be an uphill battle. Selecting the right location, securing the necessary financing, and pulling everything together for the construction phase all required local support and knowledge.
In the affluent business and chic tourist neighborhoods that WINE by ONE was targeting, vacancies are infrequent, competition is fierce, and rents are exorbitant (particularly for an entrepreneur). Furthermore, Parisian property holders are extremely reluctant to rent to an innovator, preferring luxury retailers with established brands and assured revenue streams. After nearly three years of searching, in June 2009 Girard finally identified a suitable location near the Place Vendôme in the First Arrondissement.
An initial round of equity fundraising (primarily from friends and family) provided 40% of the necessary capital of approximately €1 million. However, obtaining the remaining funds through debt financing was particularly challenging, not only due to the ongoing financial crisis of 2009, but also because Girard lacked direct experience in the hospitality industry, and his three-in-one concept was untested. All the major French banks refused to fund his endeavor.
He turned to Oseo, a French non-governmental organization dedicated to helping entrepreneurs and small business owners through the provision of low-cost loan guarantees, which significantly reduces the risk to traditional bank lenders. With a guarantee from Oseo in hand, Girard secured financing from LCL bank and finalized the lease of his ideal location in July 2009. Construction got underway in January 2010 and was completed for a soft opening in mid-March and the official opening in spring of 2010.
The Road Ahead
Following on these initial successes, Girard aims to expand WINE by ONE's operations by opening new locations -- not only in different Parisian neighborhoods but also in other international cities. These efforts will allow him to recoup the initial investment and achieve the desired scale and reach of WINE by ONE's concept and brand. These new bars will rely substantially on shrewd decisions regarding location and cultural acceptance of the wine dispensing machines. Girard's second foray will prove whether the concept is scalable -- a critical component to his overall business plan -- and whether WINE by ONE will succeed without his presence behind the counter.
While the first location took more than three years to open, Girard is confident that strong financial results from the inaugural WINE by ONE endeavor will accelerate the process in the future. The skill set necessary to thrive will change as he attempts to scale his idea, and he hopes his newly acquired real estate selection acumen and his ability to bring a second bar online will accelerate with experience. Although it is still too early for studied consideration, a franchising model might help to mitigate these risks.
Girard's growth prospects are buoyed by positive word of mouth as well as substantial interest and positive reviews from leading cultural tastemakers, including ELLE, Le Monde, Le Figaro, and Luxos International travel guide. World famous French chef Alain Ducasse also selected WINE by ONE for its recent book "I Love Paris: My Gourmet Paris in 200 Addresses." Other publications have described the new concept as "innovative," "playful," and "chic". As for Girard, through the use of new media marketing strategy -- including Facebook, Twitter, and blog reviews -- he has targeted an upscale audience that he says is interested in a novel approach to traditional French wine culture.
WINE by ONE's long-term viability is still to be confirmed. Other reviewers have been slow to embrace the sleek, modern feel of the bar, one of them citing "an icy ambiance" that could drive away potential customers. With a cutting-edge concept, Girard has created buzz but has also found that the edge cuts in two directions, intriguing modern and hip customers at the risk of alienating the more traditional ones.
With the launch of its three-in-one concept, WINE by ONE has successfully created a "blue ocean" in the wine industry, with little competition in the market. Parisians can now access global wines, tourists can sample French appellations, and all clients have the opportunity to discover their personal preferences anonymously without revealing a lack of wine knowledge (a major faux pas in France and other sophisticated milieus). WINE by ONE has also captured a younger clientele as well as a greater proportion of women compared to traditional wine bars or stores. Many opportunities exist for WINE by ONE, including geographic expansion, the creation of official corporate wine clubs, and monetizing card member/loyalty programs.
To support WINE by ONE's expansion, Girard can adjust the ambiance to capture both innovative and traditional patrons (simultaneously modern and convivial) and expand the food offerings to assuage those traditionalists searching for a framework in which to discover wine flavors, while simultaneously encouraging all patrons to linger longer. More broadly, the marketing program can be expanded further by closely targeting specific segments such as high-end hotels, business professionals, and wine aficionados. Finally, the hours can be extended, consistent with a bar (10 p.m. is late for a store to remain open, but early for a bar to close).
Proving the concept is scalable without Girard's presence behind the counter is the crucial next step to long-term success.
This article was written by Christián Blackaller Retamoza, Ian Campbell, Kathryn Harrison and Michelle Larivee, members of the Lauder Class of 2012.