Five lessons from the world of fine wine

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Alexander Westgarth is the founder and CEO of Wine capan investment platform that makes wine investing affordable, transparent and easy.

I have been in the fine wine industry for almost two decades. At first I thought I was becoming an expert in world famous flavours. But the truth is that I learned so much more. I discovered the art of business: what makes a product stand the test of time. How to improve every year. And where to find the most reliable customers in the world.

Sometimes the most valuable lessons come from unlikely places. Here are the five best business lessons I’ve learned from fine wine.

Contents

1. Protect against inflation.

Inflation in the US peaked last year 9.1%. It’s bad news for companies that find themselves paying more for the same materials. For example, the costs of both cement and brick production increased 15% year on year. Unsurprisingly, the US construction industry is expected to contract by 7% this year. In addition, employees rightly want to receive a fair wage that keeps pace with inflation, according to a study 57% of small businesses had to make cuts in the past year.

Fine wine – what is famous less sensitive to inflation – taught me the power of storing wealth in physical assets. In good times, it makes sense to put the money somewhere where it can’t be harmed by quantitative easing. That could be buying back shares, investing in company property, or something else – the best decision depends on the company.

2. Understand your customer.

Knowing your customers and their unique tastes is a fundamental part of the fine wine business. Some customers want to buy a bottle at the birth of their child to enjoy a graduation decades later. This usually means a champagne that has matured nicely for over twenty years. Others may want to strengthen a business relationship with a meaningful gift. Older vintages are especially popular with this group as they are hard to find and extremely valuable.

Every customer has vastly different time frames, occasions and motivations, which will change the type of wine they should opt for.

Wine undoubtedly taught me that understanding your customer is key to future-proofing your business. And research backs it up: 74% of customers in one study reports that feeling understood and valued boosts their brand loyalty. In addition, companies with satisfied customers were able to grow 2.5 times faster than their peers.

Today I have noticed that loyalty is declining. One in three customers do not feel connected to brands and easily switch to competitors. Businesses need to connect with their customers now more than ever, which starts with understanding them.

3. Stay relevant.

Wine is certainly not new. In a museum in Germany you can find an almost 1700 year old vintage. Known as the “Speyer wine bottle”, it predates US independence by over 1,000 years! Yet wine has somehow remained relevant throughout history. I think it’s due in no small part to the attitude of winemakers. They always think one step ahead.

Look at the market today and you will see wineries experimenting with non-fungible tokens (NFTs). You will find them exploring new regions as they try to combat the impacts of the climate crisis. Producing wine in places like England and Sweden might have been unthinkable two decades ago, but now it’s a growing industry due to the effects of global warming. In addition, going carbon negative is becoming increasingly important for vineyards. The art of winemaking is a constantly evolving process that requires passion, imagination and ambition.

If producers fail to capture new trends, they risk becoming irrelevant. For example, Mead (a honey-based beer) fell into disrepair centuries ago, despite being one of the oldest drinks in the world. The same goes for companies. Staying relevant means continuing with new ideas and listening to younger generations. Think Blockbuster or Myspace. Brands can be threatened with extinction because they do not keep up with the times.

4. Improve every year.

We know that good wine gets better with age. Looking at my company’s data as of June 2023, I see that at least 36 wines have returned returns of more than 1,000% over the last 10 years. But it didn’t happen overnight. Becoming exceptional takes planning, time and care.

Like fine wine, some of the most successful companies take decades to develop. The luxury fashion house Chanel has been steadily improving its brand since 1910. Gabriele Chanel started out as a milliner. It would be another 11 years before the first perfume was launched. And another 34 before the iconic tweed suit was created in 1956. In 2022, the brand was valued at $15.3 billion. But it was a step-by-step process.

Improving every year means different things to different companies. For one company, it could be digital transformation. For others, it may mean reaching a younger market segment. I would encourage business owners to set meaningful long-, medium-, and short-term goals. Researchers found that writing down your goals has more chance of success.

5. Focus on quality, not quantity.

Growing up, I heard “quality, not quantity” a million times. Whether I was shooting a basketball, rushing through my homework, or swinging a golf club, the expression emerged. But I didn’t really understand it until I entered the wine market. You can walk down corridors, aisles and warehouses with wine still worth less than one bottle of fine wine.

Quality matters. Much more than quantity. That means the quality of your customer service, the reliability of your products and the passion of your employees. I’ve found that the companies that have grown in a century – from Chanel to Colgate – all have this in common. On the other hand, 80% of customers who left a brand did so because of a poor quality experience. Companies that don’t provide quality interactions and services are missing out.

Quality weathers any storm. And it keeps your most important asset – your reputation – in good shape. True value always wins in the end.


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