Valley Winery

8/13/2019 Valley Winery

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186 Part One ormulationof aSalesProgram

Case1 1The Valley WineryPat Waller, recently hired as sales manager of the SanFrancisco region's chain division, was lamenting theproblemsheinherited. Despitefavorablesales resultsfo rthe San Francisco region, turnover was so severe Wallercouldno tunderstandhowsales increased duringthepastseveral years. He was surprised to learn the average salesrep had been with the San Francisco divisionofValleyWinery foronly seven months andsales force turnoverneared 100 percent a year. Infact, onlyone sales rep hadmorethantwoyears' experience.Wallerhad heard thathigh turnover was a problem nationwide but did not ex-pect such high figuresfor SanFrancisco.Wallersupervisestwoarea managers,who inturndi-rect nine district managers. District managers supervisefive to six sales reps, of which there are 50 in the SanFrancisco division. Approximately50 newsalesrepsarehired each year, but the sales force size remains rela-tively constant. Waller knew the increased competitive-ness in the market would make it more difficult tocontinue to obtain future sales increases. The excessiveturnover problem would command immediate attention.THE COMPANYTh eValleyW inery,founded in 1933inNapa,C alifornia,is the largest domestic producer ofwinein the UnitedStates. Started with onlya$7,500investmentat the endof Prohibition, it has become the leading producer oflow-priced,consistent-quality wines. Favorite brandsin-clude SantoK eyand Valley premium table wines, Astralsparkling wines, Valley brandy, an d most recently theCool Valley line of wine coolers. As is true with mostother wineries, Valley produces a low-grade, fortifiedsherry known in the streets as "SneakyPete. This prod-uctappeals to asmall market nicheandreceivesvirtuallyno marketing support. The Valley name does not evenappearon thelabel,apractice followedbyother wineriesas well. Brandnames for this low-end product includeSnake-Eye, 20/20,and Acey-Deucy. Valley also bottlesa line of pop wines, which have never achieved highsales. Brands in the pop lineare California DreamandMile-High. The Valley Winery sells more than 40 percentofall wine produced in the United States each year.Source:NeilM.Ford.

The Valley Winery is also one of this nation's largestprivatelyheldcom panies.Assuch,it is notrequiredtodisclose any financial inform ation. However, accordingto financial analysts who specialize in the wine and dis-tilled spirits industry, 2004 sales w ere believed to haveexceeded $1 .5 billion. Of the various producers of wineand distilled spirits, the Valley Winery is believed to bethe best managed and most innovative.Valley's phenomenal growth and success can betracedto twobroadfactors.Asalreadystated, itproduceswines of consistently high quality at relatively lowprices.Second,Valley's salesforce,using a push strategy,isconsidered by many to be the most aggressiveandinnovative in the industry. As the manager of a SanFrancisco liquor store states, "Turn your bac k on aValleysalesrep,andyourstorebecomes aValleywarehouse.Heading up thesalesforceis Carl Rom an, whose passionfordetail and success is well known.Valley Winery distributes nationwide through liquorand beer distributors located in metropolitan areas.Valley owns roughly 50 percent of these distributors,mostly those thatarelargerandmore pro fitable. Valley'sfield representatives call on noncompany liquor andbeer wh olesalers across the country. Valley uses amajoraccount system w ith reps calling on the headquarters oflarge chain stores.

Theorganizationof the SanFrahciscodivisionistyp-ical, especially in those marketareaswhereValleyownsthe distributor. There are three sales groups. The firstgroupcallsonliquorstoresand bars. Career-type sales-people dominate this group and most are older. Thesesales repsa repaidastraight commission of 6percentonsales.Almost all,95percent,aremale.TJresecond groupcallso nrestaurants, resorts, hotels,andmotels. This pre-dominantly female sales group is paid a straight salary($29,500 to $34,500) plus a company car.The thirdgroup is the chain division. This group, 99 percent male,receivesastraight salary pluscar and ayear-end bonus.Their salaries range from $34,000to$39,000.Thechaingroup is considered the major source of future salesmanagers.

The San Francisco chain division sales organizationhas experienced numerous changes. Historically, thecompany had a winedivisionand a wine coolerdivi-sion. Exhibit 1 illustrates this organization. Early in


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Case 1.1 he Valley inery 87

E X H I B I T 1 San Francisco division: chain store division organizational chart December2003)

SalesmanagerCool Valleydivision

Wine divisionAreamanager

t-v r

Districtmanagers

Salesrepresentatives

Area manager

Districtmanagers

Salesrepresentatives

E X H I B I T2 SanFrancisco division: chain store division organizational chart January 2004)

Premium divisionValley winesAperitifwinesAstral

Sales manager Vintage divisionEstatewinesSantoReyCool ValleyValleybrandy

Area manager

Districtmanagers

Salesrepresentatives Salesrepresentatives

2004, Carl Roman revamped the structure and createdaproduct line divisionreflectingpremiumand vintageproducts. Within thepremiumdivisionweretheValleywines, the aperitif wines, and the Astral sparkling

wines.Thevintage division carried theEstate wines,SantoR eywines,theCoolValleylineo fwine coolers,and the Valley brandy. Exhibit 2shows this organiza-tion.Less thansixmonths later, Roman introducedy et


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Case 1.1 Th e Valley Winery 89

E X H I B I T 4 Cases ondisplay:quotaversusactualresults bysales representativeProduct:CoolValleyStore: Safew ay711

F M Mi A S0 50 75 100 110 125 125 115

Month J F M A M J j A S O N D JQuota 40 15 40 75 75 100 125 125 75 25 25 40 40Mike Fisk 28 15 32 50 0 0 terminated)TomRhea 22 45 39 25 30 27 0 45 62 94 94 96 100 120 70

Product:SantoKeyStore:Albertson42Month JQuota 30StanSmitff fOJohnMahornSteveAndersonNeilJohnson

F M0 750 12

A00

M7550

00

J A S O60 0 80 060 terminated)

0 21 0

N9028

D J0 30

terminated)

F M0 75

0 18 42 0

A M0 75

0 60

A S0 80

0 terminated)50 0 50 0 85

Product:Valley WinesStore:Cala 572MonthQuotaPaulBarlingMark Beringer

-J5030

F M0 600 27

A M0 750 60

J j0 500 45

A S0 800 45

O N0 900 - 50

D J0 50

F M0 60

A M0 75

J J0 50

A S0 80

0 terminated)33 0 45 0 50 0 50 0 75

tactics as spraying hair spray on competitive displaysand bottles so that they will gather dust and so dis-couragesales.Waller'sconcern abouttheturnover problem led to aseries of conclusions. First, recruiting and trainingcosts approached $25,000p eryearper representative.Wallerknew that with less turnover, Valley Wineryandthe San Francisco division profitability would improve.Second, Waller believed sales would improve. The$25,000 figure does not include opportunity costs as-sociatedwith lostsales resulting from not having ac-counts called on. And these costs do not include thetime itwould takefor a new rep toadequately developrapport with the accounts. Considering all these fac-tors, Waller felt confident that decreasing turnoverwouldimprov e salesandcompany profits.On theotherhand, Waller knew Carl Roman was pleased with thedivision's improving performanc e.

Pat Waller decided at least to investigate the situa-tion. As a start, he examinedtwopossible sources tosee if they were the crux of the problem. These in-cluded the recruiting and hiring process and the natureof the position. To research the recruiting and hiringprocess, Waller contactedthepersonneloffice. Tolearnabout the nature of the position, he traveled with anumber of the sales reps.

Mike Wehner, personnel manager for the San Fran-cisco division, was responsible for hiring all personnelfor the division, including warehouse workers, truckdrivers, office personnel, and the sales force. Wehnerused avariety of methods to attract sales candidates.Recruiting college graduates from a number of areauniversities was common. This generally resulted in 10to 15new sales reps a year. New spaper advertisementsand posting job notices on selected job search Web sitesusually produced 10hires per year. The use of six localemployment agencies, with fees of approximately$2,000 per hired individual, resulted in 15 to 20 newreps per year. Last, any employee recommending afriend or anacquaintancewho was subsequently hiredreceived a $200 finder's fee . This practice typically costthe company $2,000 per year. Wehner claims not to re-cruit personnel from competitors or customers. Hethought those hired through em ployment agencies werethe most successful, but he was not positive.The hiring process generallyfolloweda similar pat-tern. The selected applicant com pletes a simple appli-cation form and is then interviewed by Wehner or hisassistant for approximately 30 minutes. During thattime, if the candidate seems mo tivated and enthusias tic,and asksfor thesales job, the applicantisasked backfor additional interviews.


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190 PartOne ormulationof aSales rogram

The candidate then interviews with the distributor-ship'stopmanagerfor nomore than 10m inutes.The SanFrancisco distributor is owned by Valley, and the newsales rep works for the distributor. Valley can reassignthe salesrep towholly owned distributors.Allsales repsinteract with the area distributor and often participate intraining programs with the other two sales groups.Waller learned the distributor's top manager regardsyouth and physical characteristics as the most importanttraits an applicant should have to pass th is stage.The next step involves an interview with Waller'spredecessor, John Ruppert, who was promoted to ahome office assignment as a major account manager.Th e recruit is then w hisked off to spend a day in thefield with an experienced salesperson. Waller ques-tioned whether this day in the field, during which therecruit is "wined anddined, is an accurate representa-tion of the job. If all of these hurd les are passed, the ap-plicant isthenoffered thejob.Beforebeing promotedto thesales m anager positionfor the San Francisco division, Waller had movedthrough theranks, startingas asalesrep in theSeattledi-vision. As a sales rep, Waller served primarily in a mis-sionary capacity, calling on liquor stores and taverns. Hethen advanced to district manager for the Seattle division.Next, Waller moved to the Phoenix division, where heservedas area managerbeforeaccepting a home officeassignment as aproduct mana ger assistant. This progres-sion was typical for a person selected to m ove into salesmanagement, except that most sales managers arepro-moted from the chain store sales force.Waller's new as-signment represented hisfirstexposure tomajor accountmanagement.On September 8, 2004, Waller traveled with MarvFlanigan, anine-month v eteran. Although scheduledtomeet at 7A.M.,Marv was late, stating his hour-long drivewas delayedby aterrible accident. Flanigan saidthelat-est territory change created a longer commute for him.Sincehe waslate,they started towork immediately, for-going the customary cup of coffee Waller intended tobu y as awarm-up tactic to learn aboutFlanigan'splansfor the day. Waller and Flanigan spent nearly the entiremorning at an Albertson's store (#561) building a 50-case display for Valley wines, resetting the cold box, andservicing theshelves.After a 15-minutepresentation tothe wine clerk, Flanigan and Wallerleft for the next call.

WhenWallercongratulated Flanigan on the 50-case dis-play,Flanigan quipped, Thanks,bu t unfortunately it'snot enough to make quota. Nobody, but nobody, evermakes quota. That's 25 cases short, and that store is oneof my best accounts. And did you see my Santo Reyquota90cases no way "During their afternoon together, Waller observed averyaggressive sales promotion that Flanigan presentedto a wine clerk at a Safeway store (#724). Afterward,Waller questioned the tenuous sales figures Flaniganquoted to the wine buyer. He responded byclaiming,"John [division's previous sales manager] an d Rick[Marv's current area manager] told me to stretch thesales estimates." Continuing,he revealed, Theysaid it'sthe only way to make my num bers. Rick even told me topumpup thenumberson therecapIsend toNapa.Pumpingup thenumbers meanta salesperson wouldclaim a 50-case display had been installed when thestore manager orwine clerk would only ordera 25- to30-case display.Thedisplay would only look likea 50-case display; center boxes in the display would be empty.On September 23 , 2004, Waller worked with BillMurphy. Murphy, a six-month veteran, arrived grum-bling.He saidhis district manager called him at 10:30the night before complaining about the condition ofSafeway#507.After 30 minutes of specific instructionsan d other messages, Murphy ha d agreed to visit thestore early that morning tocorrectthedeficiencies. Hementioned thathe received calls atnight from hi s dis-trictmanager about two to three times a week, often tocheckhisprogress on winery directives. These usuallyoccurred,he claimed, during thehouror two he spenton preparation each night.During lunch, Murphy discussed hi sdesire to moveinto management.Hesaid, "Although district managersareoften considered to be no more than baby sitters forthe new reps, Ireally think thatI can do agreat job.Th epay doesn't even bother me. [District managers re-ceived $3,000 to $4,000more.] Jmean, with all thecases I've sold, if I were paid on commission, I'd al-ready be rich. Ithink I can really train those ne w repsjustas themanualsays.Pat Waller's work with the sales reps provided usefulinformation.A tthis point, W aller thoughthe was start-ing to get a good sense of the situation. Whatdo youthink is happening at Valley Winery?

Valley Winery

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