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2012 Midwest Grape _ WIne Conference - Allied Grape Growers

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					Marketing & Contracting-
        Tips for
Successful Negotiations

MIDWEST GRAPE & WINE
    CONFERENCE
          Nat DiBuduo
     Allied Grape Growers
      February 12, 2012
  Allied Grape Growers, 2012. All rights reserved.
Allied Grape Growers, 2012. All rights reserved.
Allied Grape Growers, 2012. All rights reserved.
http://www.nass.usda.gov/Statistics_by_State/California/Publications/




               Allied Grape Growers, 2012. All rights reserved.
Allied Grape Growers, 2012. All rights reserved.
            Making Contact
• Start with a list of wineries that you believe fit your
grapes profile.
• Research and make sure you get the right contact
person.
• Be prepared with good quality information about your
vineyard. Such as a map with things like – Variety, Clone,
Rootstock, Spacing, Vine age, Soils information, Etc.
• Wine Samples may be appropriate and helpful.
• Make arrangements to get them out to your vineyard.

            Allied Grape Growers, 2012. All rights reserved.
                 Winery Relationships
• If you don’t have one, start with finding the right business partner
(winery) to sell your fruit to.

• If you have one, your relationship can become the most important
component of marketing your fruit.

• The relationship will help you understand where your fruit fits into the
wineries brands. It will allow you to communicate freely with the winery
on things like quality, tasting the wine from your grapes, discussing
viticultural practices.

• The relationship will enable you to provide fruit the winery wants,
needs and plan for future marketing opportunities for your fruit.

• The relationship will provide the means for the winery to understand
your needs to make your business sustainable as well as theirs.



                 Allied Grape Growers, 2012. All rights reserved.
Allied Grape Growers, 2012. All rights reserved.
       Contract Considerations
• Ask as many questions as you can about what the
winery is looking for in quality, such as Brix, PH, TA
and other quality standards.

• Make sure you are on the same page with the winery
as far as your ability to achieve their quality
standards, Especially Brix.

• Be in the right price range.

• Make sure both parties are comfortable with the
terms of the contract.

• Your willingness to provide favorable terms to the
winery may help market your grapes.
          Allied Grape Growers, 2012. All rights reserved.
              The “Parts” of a Grape Purchase Contract

Grape “Parts”                              Law “Parts”
   Grapes & Specifications                   Risk of Loss
   Term of Agreement                         Entry onto Seller’s Property
   Price Determination                       Encumbrances
   Payment Terms                             Force Majeure Provisions
   Quality Standards                         Entire Agreement, Waivers, Notices &
   Inspection & Adjustments                   Modifications
   Viticulture Practices (Farming Plan)      Representations & Covenants
   Harvest & Delivery                        Disputes & Waiver of Jury Trial (Attorney’s
                                               Fees)
                                              Specific Performance & Liquidated Damages
                                              Indemnification (Damage to Equipment, etc.)
                                              Compliance With the Law; Warranties
                                              Severability
                                              Assignment; Successors
                                              Recordation
                                              Governing Law &Uniform Commercial Code



                       Allied Grape Growers, 2012. All rights reserved.
Grape Part #1 – Grapes & Specifications

 Identifies EXACTLY what is being traded
 Considerations:
    ◦   Acreage vs. tonnage contract
    ◦   Tonnage limits
    ◦   Limitation on changes
    ◦   Proper variety and appellation identification




                  Allied Grape Growers, 2012. All rights reserved.
Grape Part #2 – Term of Agreement

 Identifies how long the agreement lasts
 Considerations:
    ◦ One-year vs. Multi-year
    ◦ Evergreen vs. Fixed term
    ◦ If evergreen, what is the evergreen term?




               Allied Grape Growers, 2012. All rights reserved.
Grape Part #3 – Price Determination
 Identifies the price or the basis for pricing
 Considerations:
    ◦   Fixed vs. Negotiated
    ◦   Is price determination mutual?
    ◦   Is there a remedy if there’s no price agreement?
    ◦   Can it be tied to an index or bottle price?




                 Allied Grape Growers, 2012. All rights reserved.
Grape Part #4 – Payment Terms

 Shows exactly when and how grapes will be paid for
 Considerations:
    ◦ Tax implications of payments/receipts
    ◦ Who’s going to “float” the money




               Allied Grape Growers, 2012. All rights reserved.
.
Grape Part #5 – Quality Standards

 Provides written explanation of grape quality
  expectations of buyer
 Considerations:
    ◦ Quality standards can be OBJECTIVE OR SUBJECTIVE
    ◦ Brix, MOG, rot, mildew, raisining, etc.




               Allied Grape Growers, 2012. All rights reserved.
Grape Part #6 – Inspection & Adjustments

 Provides written explanation of inspection method
  and how price may be adjusted for “non-
  conforming” grapes
 Considerations:
    ◦ Brix deductions and bonuses
    ◦ Load-by-load vs. Field average




               Allied Grape Growers, 2012. All rights reserved.
Grape Part #7 – Viticulture Practices
(Farm Plan)
 Provides written explanation of which viticulture
  practices are recommended and/or required by
  the buyer
 Considerations:
    ◦ Bottle price vs. grape price vs. cost to perform
    ◦ Risk of loss



                Allied Grape Growers, 2012. All rights reserved.
   Risk of Loss
   Entry onto Seller’s Property
   Encumbrances
   Force Majeure Provisions
   Entire Agreement, Waivers, Notices & Modifications
   Representations & Covenants
   Disputes & Waiver of Jury Trial (Attorney’s Fees)
   Specific Performance & Liquidated Damages
   Indemnification (Damage to Equipment, etc.)
   Compliance With the Law; Warranties
   Severability
   Assignment; Successors
   Recordation
   Governing Law &Uniform Commercial Code
               Allied Grape Growers, 2012. All rights reserved.
       Negotiating 101-
  Tips for successful negotiations

Points of Discussion Regarding Negotiating

•Information
•Timing and Tempo
•Deadlines
•Communication
•Assumptions and Perceptions
•Behavior


      Allied Grape Growers, 2012. All rights reserved.
               Negotiating 101-
        Tips for successful negotiations
                            Information
•Information is Power – Ask questions
   •Learn as much as possible about the other party
   •Programs, pricing, distribution, etc.
   •Other customer interactions
   •Financial stability
•Do your homework with regard to the item or service being
negotiated
   •How does it add value to their operation or yours?
   •How does it compare to others (competition)?
   •What program are your grapes going into?


              Allied Grape Growers, 2012. All rights reserved.
               Negotiating 101-
        Tips for successful negotiations
                    Tempo and Timing
•Don’t rush a negotiation
   •Quick decisions many times lead to regret
•Let the other party make the first offer
•Start high (or low) on your first counter-offer
   •Leave yourself some “wiggle room”
•Don’t give up too much too quick
   •Be stingy – Small concessions set up a more reasonable pace for
   true negotiations
•Normally you don’t want to “split the difference”
   •Shows what you are willing to give up
   •May not maximize the deal for you.

             Allied Grape Growers, 2012. All rights reserved.
              Negotiating 101-
        Tips for successful negotiations
                            Deadlines
•Avoid making a decision because of a deadline!
   •Imposed deadlines vs. natural deadlines
   •Create “outs” and options for yourself
      • “I need to consult with others”
      • “I need to do some research/fact finding”
   •Negotiate the deadline!
   •For natural deadlines (like harvest), create options
   ahead of time
      •Example: Be prepared to make bulk wine


            Allied Grape Growers, 2012. All rights reserved.
             Negotiating 101-
       Tips for successful negotiations
                        Communication
•Never hesitate to ask for a concession
   •Never assume something is non-negotiable
•Don’t reveal ANYTHING that can weaken your negotiating
position
   •However, it is OK to justify your requests
•You DO want to “over-communicate” and over emphasize
your concerns about the other party’s weaknesses as you
see them




            Allied Grape Growers, 2012. All rights reserved.
              Negotiating 101-
        Tips for successful negotiations
            Assumptions and Perceptions
•Don’t let you fool yourself!
   •Examples of assumptions:
      •The other party doesn’t “need” me
      •Can’t negotiate more/less than the “market”.
      •I am easily interchangeable/replaced
   •The power the other party has is almost insignificant
   compared to the power you perceive them to have.
      •Stay focused on YOUR strengths and THEIR weaknesses,
      not the opposite!



             Allied Grape Growers, 2012. All rights reserved.
            Negotiating 101-
      Tips for successful negotiations
                           Behavior
•Fight the urge to “play fair”
   •One of our culture’s foundations is “fairness”
•Use body language to indicate dissatisfaction
   •Acting can be more convincing than saying
   •Silent treatment (the awkward pause)
•Minor concessions keep negotiations going
   •When even a minor concession is offered, it becomes the
   other party’s “turn”
•Begin negotiating before you need to
•Blame something/someone else for your “limits”

           Allied Grape Growers, 2012. All rights reserved.
 Negotiating 101-
               Summary

 The question isn’t
whether or not you
learned something,
 but rather or not
   you will use it.

Allied Grape Growers, 2012. All rights reserved.
Allied Grape Growers, 2012. All rights reserved.
• Allied Grape Growers is a grape marketing
  cooperative that believes there is strength,
  efficiency and benefit in numbers.
• A marketing cooperative can utilize its
  size/strength/scope to negotiate grape
  contracts and maintain grower/vintner
  relationships.


          Allied Grape Growers, 2012. All rights reserved.
• By definition, cooperatives are grower owned.
  They exist to serve their grower-members through
  the mutual commitment of the cooperative and
  the member.
• Differences between the old traditional wine
  industry cooperative and today’s marketing co-op:
  – No grape “pooling” in the coastal regions.
  – Members’ vineyards are marketed on their own merit
  – No production facility and associated capital investment/risk



             Allied Grape Growers, 2012. All rights reserved.
• Works exclusively for its members
• Exposure to numerous wineries throughout the state
• Can utilize regional & varietal diversity to the member’s
  benefit in grape marketing and contracting
• Evaluates credit worthiness of buyers and is responsible for
  collecting crop payments
• Uniform payment schedule (90% in 30 days, 10% in
  February), regardless of winery payment schedule
• Protects the contractual interests of members and effectively
  represents members in contract disputes




              Allied Grape Growers, 2012. All rights reserved.
• We don’t “buy” grapes.
• We don’t “guarantee” a market for grapes
  where there is no market.
• We don’t spend time and resources on grapes
  that are not signed into membership.
• We don’t represent interests other than the
  grower’s or the co-op’s as a whole.




         Allied Grape Growers, 2012. All rights reserved.
• The cooperative has title to the
  grower’s grapes for marketing
  purposes.
• The relationship is a mutual
  commitment between the co-op and the
  grower that grapes will be contracted
  through the co-op

        Allied Grape Growers, 2012. All rights reserved.
• Example (assuming $50,000,000 in grape sales):
  –   $50,000,000 X’s member’s 2% = $1,000,000 in co-op revenue
  –   $50,000,000 X’s winery’s 1% = $500,000 in co-op revenue
  –   $100,000 interest earned on equity balance in the bank
  –   Total of $1,600,000 in co-op revenue
  –   Assume $1,000,000 in expenses (employee salaries & benefits, autos,
      rent, etc.)
  –   $600,000 in profit (this amount allocated back to the members)
  –   This $600,000 is placed in the equity fund and will be revolved out in the
      future.
  –   Each year, with Board approval, equity payments (dividends) are paid to
      co-op members of past years who contributed to the equity fund via their
      membership
  –   Equity fund is made up of a composite of profit from multiple crop years



                  Allied Grape Growers, 2012. All rights reserved.
• Full-time, year round field staff
    – Viticulture consulting
    – Market updates and information
• Facilitate & negotiate “other” marketing alternatives
   • Bulk wine
• Group “discounts” on products/services
• Grape sales are administered through one entity, even if there are
  multiple buyers of the grapes
• Other financial benefits:
    – Harvest advances upon request
    – Deferred payment ability




                Allied Grape Growers, 2012. All rights reserved.
 This presentation is
      on-line at:

alliedgrapegrowers.org



  Allied Grape Growers, 2012. All rights reserved.

				
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