Cameron Hughes Wine: fine wine for everyone

Premium wine at a not-so-premium price makes for a happy customer

For the past half decade, Napa Valley wineries selling premium plus wines have had an increasingly difficult time selling their top tier wines. As the consumer demographic switches from Baby Boomers, who are willing to buy these premium wines, to Millennials, seeking to try international wines and find quality discount deals, the change is creating trouble for Napa wineries as their wine continues to build up with no demand growth in sight.1 That is where Cameron Hughes Wine (CHW) enters.

Company Background:
Cameron Hughes Wine was founded by Cameron Hughes and Jessica Kogan in 2001 to bring exceptional wine to market at reasonable prices. By seeking out premium quality wineries with excess inventories, Cameron Hughes purchases the wines cheap and re-sells them at a discount under their own label. However, Cameron Hughes signs a non disclosure agreement with all of its partner wineries to ensure that their brand equity is not compromised.

Business Model:
Cameron Hughes Wine acts as an intermediary between its two customers: premium quality wineries and consumers in the economically valued wine sector.
The high end wineries are caught in a bind because the demand for their exceptional wines is not large enough to consume supply. Consequently, they are unable to discount their prices since it risks cheapening their label. As a result, Cameron Hughes Wine creates value for the wineries and producers by offering the opportunity to sell their excess inventory at a discount price without releasing the name of the winery or producer.
On the other side, wine enthusiasts are continuing to seek out top quality wines but are not willing to pay large sticker prices that first-class wines command. Subsequently, Cameron Hughes creates value for these value focused wine aficionados by offering the wine they seek at the price they are willing to pay.
By not having to worry about large capital investments in their own winery or large overhead, Cameron Hughes Wines combines these factors to capture the value difference between the sourced wines and the prices consumers are willing to pay them.

Operating Model2:
Cameron Hughes

  • establishes relationships with high end wineries and producers around the world
  • purchases from the wineries and producers and signs a non disclosure agreement to protect the brand’s equity
  • will make the sourced grapes, wines, or bottles theirs by either
    1. processing the grapes and bottling the wine (recent add)
    2. blending and aging the wines
    3. re labeling the bottles under their own label
  • establishes a collection of brands and labels with high quality consumer perception at a discount price
    1. their Lot series is the largest project, where they assign a new Lot number to each wine they release
  • combines their low overhead and insider knowledge to deliver an amazing value of $100 plus retail priced wines at a large discounted price

Alignment:
The operating and business models, as described above, are well aligned. Because the operating model enables Cameron Hughes Wines to offer premium quality wines at a large discount, CHW is able to follow a profitable business model without risking exposure to low margins or the potential losses that have been characteristic of other wine companies in the past. However, Cameron Hughes did fall into the trap of expanding their operating model into segments that are greatly disjointed from what made them successful. Recently, CHW moved into purchasing cheap quality grapes and attempting to make their own. Unfortunately, they quickly realized that remaining profitable in wine making is incredibly difficult, resulting in their bank demanding they sell their assets off at a loss.3 After a tough couple month, Cameron Hughes has been able to recover and returned to its original operating model, resurfacing and profiting again from its business model.

 

1 http://www.cnbc.com/2014/01/15/wine-sales-growth-to-accelerate-in-fine-wine-report.html?__source=yahoonews&par=yahoonews

2 https://chwine.com/about

3 http://blog.wblakegray.com/2015/05/wine-is-bad-business-cameron-hughes.html

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3 thoughts on “Cameron Hughes Wine: fine wine for everyone

  1. Very interesting business model, sounds like the Priceline of wine! Some of my thoughts:
    1) Cameron is profiting from the information gap between the customer and the winery on the wine’s quality, and a trustworthy system is needed to guarantee the gap – which is probably the non disclosure agreement you mentioned.
    2) How did Cameron manage the risks from the variety in the supplier’s quality? How do they make wine with consistent quality from the wine from different wineries in different years, of which the quality may vary a lot? Probably through its expertise in making mixed wine and its flexibility of pricing?

    Again thanks a lot for sharing this company’s story!

  2. Thanks for the great post! I know what I’ll be looking for next time I do my wine shopping.

    I would hate to go too far into MKT territory, but your post made me think of the conundrum that Château Margaux faced with the introduction of their third wine. Their circumstances are obviously different from Napa producers—even premium ones—but I am curious: do you think there is a risk to Cameron Hughes that its suppliers might find creative ways to offload their excess inventory in other ways? Might they introduce a wholly distinct brand, or rebrand the excess product as a downmarket line from the main one? Perhaps they could reformulate/reblend the product slightly to prevent criticism that they are simply repackaging existing products.

    Such a strategy would obviously be risky for producers and would have to generate returns in excess of what Cameron Hughes (a firm with an operational model built around repackaging) pays. But as an unsophisticated wine consumer, I could foresee myself reaching for a rebranded but somewhat familiar brand, while being wholly unaware of the valuable Cameron Hughes bottles sitting elsewhere on the shelf.

  3. Thanks for the introduction to this interesting business!

    As you outlined in the post, Cameron Hughes has two “customers” for which they create value – the high end wineries and the end consumers. I think the value they create for the suppliers is enormous, as they are able to offload excess inventory that would have gone to waste otherwise. It would be interesting to know how much they pay the suppliers (how big of a discount to the winery-labeled wine?) I imagine Cameron Hughes has pretty substantial bargaining power on that side of the equation.

    However, the consumer side is a less rosy picture for me. As an unsophisticated wine consumer (which may not be their primary target clientele), I would be skeptical of the quality of the wine if I knew that the wine is sourced from different producers every year.

    I would also be wary of the sustainability of this company. It has a fairly low barrier to entry given the asset-lite strategy. One could argue that the relationship with wineries are hard to replicate, but I can also picture a scenario where an incumbent enters a price war with Cameron Hughes and attempts to gain market share by paying suppliers slightly more.

    Lastly, I think the risk of supply fluctuation is fairly serious for Cameron Hughes’ business model as well. As we learned from the Chateau Margaux case in MKT, wine production is highly dependent on weather conditions of a given year. Since Cameron Hughes’ suppliers are all concentrated in one region (Napa), the “excess volume” for a given year is highly correlated for all of its suppliers. If there is a bad-weather year for wine production, it is possible that Cameron Hughes will get no wine at all, and vice versa. Hence, the company should think about diversifying its supply risk!

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