186

Part One

Formulation of a Sales Program

Case 1.1

The Valley Winery

Pat Waller, recently hired as sales manager of the San Francisco region's chain division, was lamenting the problems he inherited. Despite favorable sales results for the San Francisco region, turnover was so severe Waller could not understand how sales increased during the past several years. He was surprised to learn the average sales rep had been with the San Francisco division of Valley Winery for only seven months and sales force turnover neared 100 percent a year. In fact, only one sales rep had more than two years' experience. Waller had heard that high turnover was a problem nationwide but did not expect such high figures for San Francisco. Waller supervises two area managers, who in turn direct nine district managers. District managers supervise five to six sales reps, of which there are 50 in the San Francisco division. Approximately 50 new sales reps are hired each year, but the sales force size remains relatively constant. Waller knew the increased competitiveness in the market would make it more difficult to continue to obtain future sales increases. The excessive turnover problem would command immediate attention. The Valley Winery is also one of this nation's largest privately held companies. As such, it is not required to disclose any financial information. However, according to financial analysts who specialize in the wine and distilled spirits industry, 2004 sales were believed to have exceeded $1.5 billion. Of the various producers of wine and distilled spirits, the Valley Winery is believed to be the best managed and most innovative. Valley's phenomenal growth and success can be traced to two broad factors. As already stated, it produces wines of consistently high quality at relatively low prices. Second, Valley's sales force, using a push strategy, is considered by many to be the most aggressive and innovative in the industry. As the manager of a San Francisco liquor store states, "Turn your back on a Valley sales rep, and your store becomes a Valley warehouse." Heading up the sales force is Carl Roman, whose passion for detail and success is well known. Valley Winery distributes nationwide through liquor and beer distributors located in metropolitan areas. Valley owns roughly 50 percent of these distributors, mostly those that are larger and more profitable. Valley's field representatives call on noncompany liquor and beer wholesalers across the country. Valley uses a major account system with reps calling on the headquarters of large chain stores. The organization of the San Frahcisco division is typical, especially in those market areas where Valley owns the distributor. There are three sales groups. The first group calls on liquor stores and bars. Career-type salespeople dominate this group and most are older. These sales reps are paid a straight commission of 6 percent on sales. Almost all, 95 percent, are male. TJre second group calls on restaurants, resorts, hotels, and motels. This predominantly female sales group is paid a straight salary ($29,500 to $34,500) plus a company car. The third group is the chain division. This group, 99 percent male, receives a straight salary plus car and a year-end bonus. Their salaries range from $34,000 to $39,000. The chain group is considered the major source of future sales managers. The San Francisco chain division sales organization has experienced numerous changes. Historically, the company had a wine division and a wine cooler division. Exhibit 1 illustrates this organization. Early in

THE COMPANY
The Valley Winery, founded in 1933 inNapa, California, is the largest domestic producer of wine in the United States. Started with only a $7,500 investment at the end of Prohibition, it has become the leading producer of low-priced, consistent-quality wines. Favorite brands include Santo Key and Valley premium table wines, Astral sparkling wines, Valley brandy, and most recently the Cool Valley line of wine coolers. As is true with most other wineries, Valley produces a low-grade, fortified sherry known in the streets as "Sneaky Pete." This product appeals to a small market niche and receives virtually no marketing support. The Valley name does not even appear on the label, a practice followed by other wineries as well. Brand names for this low-end product include Snake-Eye, 20/20, and Acey-Deucy. Valley also bottles a line of pop wines, which have never achieved high sales. Brands in the pop line are California Dream and Mile-High. The Valley Winery sells more than 40 percent of all wine produced in the United States each year.
Source: Neil M. Ford.

Case 1.1 The Valley Winery EXHIBIT 1 San Francisco division: chain store division organizational chart (December 2003) Sales manager Cool Valley division Wine division

187

I
Area manager

1
Area manager

t-v

District managers

District managers

Sales representatives

Sales representatives

EXHIBIT 2

San Francisco division: chain store division organizational chart (January 2004) Sales manager

Premium division Valley wines Aperitif wines Astral Area manager

Vintage division Estate wines Santo Rey Cool Valley Valley brandy

District managers

Sales representatives

Sales representatives

2004, Carl Roman revamped the structure and created a product line division reflecting premium and vintage products. Within the premium division were the Valley wines, the aperitif wines, and the Astral sparkling

wines. The vintage division carried the Estate wines, Santo Rey wines, the Cool Valley line of wine coolers, and the Valley brandy. Exhibit 2 shows this organization. Less than six months later, Roman introduced yet

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Part One

Formulation of a Sales Program

EXHIBIT 3

San Francisco division: chain store division organizational chart (June 2004)

Sales manager Safeway division Lucky and Alpha Beta division

Area manager

District managers

Sales representatives

Sales representatives

another modification reflecting the importance of key customers, which were classified as major accounts. Exhibit 3 illustrates this change. Sales reps calling on major accounts represented the entire Valley line of wines and distilled spirits. The San Francisco division is responsible for sales to all of the major grocery headquarters, such as Safeway, Albertson's, and Cala Foods. Forward integration decisions are a function of how well the independent distributor covers the market and the size of the market potential. Roman had been very concerned with the chain store sales performance in the San Francisco area for some time. The previous distributor assigned 15 sales reps to call on the chain outlets and had resisted Valley's pleas to increase the sales force to 30 to 35 reps. After Valley Winery bought out the San Francisco distributor, sales of Valley Wines increased dramatically, primarily due to the increased number of sales reps calling on chain storesfrom 15 up to 50. None of the 15 reps who worked for the previous owner was retained after Valley purchased the distributorship. The buying process for these major chain accounts is fairly standard. Each sales rep is personally responsible for a specific number of stores taken from all major grocery chains. Thus, a sales rep will call on Safeway,

Albertson's, and Cala stores. The total number of outlets constitutes the sales rep's territory. The sales rep is responsible for reaching monthly display quotas on each line of products. For instance, one month the representative is responsible for displaying 50 cases of Santo Rey wine in 1.5- and 4.0-liter sizes. The next month the rep may have a display quota of 50 cases of Santo Rey in 3.0-liter sizes. This pattern repeats itself throughout the year. Exhibit 4 illustrates monthly quota patterns for different display results by sales rep and the extent of the turnover problem. Sales reps call on either the store manager or the wine clerk, using preprepared sales sheets. The store manager or wine clerk must then order- the beverages from the chain's warehouse, where all wines and distilled spirits are stored. The sales rep is responsible for all merchandising, service, and anything else related to Valley Winery that is needed in the chain outlet. Rumors are abundant about the aggressiveness displayed by sales reps in the wine and liquor industry, especially Valley sales reps, who have been accused of relocating competitive displays and products to obtain the best space for Valley wines. Sales reps from other wineries dislike the "competitive spirit" shown by Valley reps, who have also been accused of such

Case 1.1

The Valley Winery

189

EXHIBIT 4

Cases on display: quota versus actual results by sales representative Product: Cool Valley Store: Safeway 711

Month Quota Mike Fisk

J 40 28

F 15 15

M 40 32

A 75 50

M J j A S 75 100 125 125 75 0 0 (terminated)

O 25

N 25

D 40

J 40

F 0

M 50

AM i J A S 75 100 110 125 125 115

TomRhea

22

45

39

25

30

27

45

62

94

94

96 100 120

70

Product: Santo Key Store: Albertson 42

Month J Quota 30 f Stan Smitff O John Mahorn Steve Anderson Neil Johnson

F 0 0

M 75 12

A 0 0

M 75 50

j 0 0

J A S O 60 0 80 0 60 (terminated) 0 21 0

N 90

D 0

J 30

F 0

M 75

A 0

M 75

j 0

j 60

A 0

S 80

28 (terminated) 0 18 42

0 (terminated) 50 0 50

85

Product: Valley Wines Store: Cala 572

Month ,-J Quota 50 Paul Barling 30 Mark Beringer

F 0 0

M 60 27

A M 0 ! 75 0 60

J 0 0

j 50 45

A 0 0

S 80 45

O N 0 90 0 - 50

D 0 0

J F M 50 0 60 (terminated) 33 0 45

A 0 0

M 75
50

J 0 0

J 50
50

A 0 0

S 80
75

tactics as spraying hair spray on competitive displays and bottles so that they will gather dust and so discourage sales. Waller's concern about the turnover problem led to a series of conclusions. First, recruiting and training costs approached $25,000 per year per representative. Waller knew that with less turnover, Valley Winery and the San Francisco division profitability would improve. Second, Waller believed sales would improve. The $25,000 figure does not include opportunity costs associated with lost sales resulting from not having accounts called on. And these costs do not include the time it would take for a new rep to adequately develop rapport with the accounts. Considering all these factors, Waller felt confident that decreasing turnover would improve sales and company profits. On the other hand, Waller knew Carl Roman was pleased with the division's improving performance. Pat Waller decided at least to investigate the situation. As a start, he examined two possible sources to see if they were the crux of the problem. These included the recruiting and hiring process and the nature of the position. To research the recruiting and hiring process, Waller contacted the personnel office. To learn about the nature of the position, he traveled with a number of the sales reps.

Mike Wehner, personnel manager for the San Francisco division, was responsible for hiring all personnel for the division, including warehouse workers, truck drivers, office personnel, and the sales force. Wehner used a variety of methods to attract sales candidates. Recruiting college graduates from a number of area universities was common. This generally resulted in 10 to 15 new sales reps a year. Newspaper advertisements and posting job notices on selected job search Web sites usually produced 10 hires per year. The use of six local employment agencies, with fees of approximately $2,000 per hired individual, resulted in 15 to 20 new reps per year. Last, any employee recommending a friend or an acquaintance who was subsequently hired received a $200 finder's fee. This practice typically cost the company $2,000 per year. Wehner claims not to recruit personnel from competitors or customers. He thought those hired through employment agencies were the most successful, but he was not positive. The hiring process generally followed a similar pattern. The selected applicant completes a simple application form and is then interviewed by Wehner or his assistant for approximately 30 minutes. During that time, if the candidate seems motivated and enthusiastic, and asks for the sales job, the applicant is asked back for additional interviews.

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Part One

Formulation of a Sales Program

The candidate then interviews with the distributorship's top manager for no more than 10 minutes. The San Francisco distributor is owned by Valley, and the new sales rep works for the distributor. Valley can reassign the sales rep to wholly owned distributors. All sales reps interact with the area distributor and often participate in training programs with the other two sales groups. Waller learned the distributor's top manager regards youth and physical characteristics as the most important traits an applicant should have to pass this stage. The next step involves an interview with Waller's predecessor, John Ruppert, who was promoted to a home office assignment as a major account manager. The recruit is then whisked off to spend a day in the field with an experienced salesperson. Waller questioned whether this day in the field, during which the recruit is "wined and dined," is an accurate representation of the job. If all of these hurdles are passed, the applicant is then offered the job. Before being promoted to the sales manager position for the San Francisco division, Waller had moved through the ranks, starting as a sales rep in the Seattle division. As a sales rep, Waller served primarily in a missionary capacity, calling on liquor stores and taverns. He then advanced to district manager for the Seattle division. Next, Waller moved to the Phoenix division, where he served as area manager before accepting a home office assignment as a product manager assistant. This progression was typical for a person selected to move into sales management, except that most sales managers are promoted from the chain store sales force. Waller's new assignment represented his first exposure to major account management. On September 8, 2004, Waller traveled with Marv Flanigan, a nine-month veteran. Although scheduled to meet at 7 A.M., Marv was late, stating his hour-long drive was delayed by a terrible accident. Flanigan said the latest territory change created a longer commute for him. Since he was late, they started to work immediately, forgoing the customary cup of coffee Waller intended to buy as a warm-up tactic to learn about Flanigan's plans for the day. Waller and Flanigan spent nearly the entire morning at an Albertson's store (#561) building a 50case display for Valley wines, resetting the cold box, and servicing the shelves. After a 15-minute presentation to the wine clerk, Flanigan and Waller left for the next call.

When Waller congratulated Flanigan on the 50-case display, Flanigan quipped, "Thanks, but unfortunately it's not enough to make quota. Nobody, but nobody, ever makes quota. That's 25 cases short, and that store is one of my best accounts. And did you see my Santo Rey quota90 casesno way!" During their afternoon together, Waller observed a very aggressive sales promotion that Flanigan presented to a wine clerk at a Safeway store (#724). Afterward, Waller questioned the tenuous sales figures Flanigan quoted to the wine buyer. He responded by claiming, "John [division's previous sales manager] and Rick [Marv's current area manager] told me to stretch the sales estimates." Continuing, he revealed, "They said it's the only way to make my numbers. Rick even told me to pump up the numbers on the recap I send to Napa." Pumping up the numbers meant a salesperson would claim a 50-case display had been installed when the store manager or wine clerk would only order a 25- to 30-case display. The display would only look like a 50case display; center boxes in the display would be empty. On September 23, 2004, Waller worked with Bill Murphy. Murphy, a six-month veteran, arrived grumbling. He said his district manager called him at 10:30 the night before complaining about the condition of Safeway #507. After 30 minutes of specific instructions and other messages, Murphy had agreed to visit the store early that morning to correct the deficiencies. He mentioned that he received calls at night from his district manager about two to three times a week, often to check his progress on winery directives. These usually occurred, he claimed, during the hour or two he spent on preparation each night. During lunch, Murphy discussed his desire to move into management. He said, "Although district managers are often considered to be no more than baby sitters for the new reps, I really think that I can do a great job. The pay doesn't even bother me. [District managers received $3,000 to $4,000 more.] J mean, with all the cases I've sold, if I were paid on commission, I'd already be rich. I think I can really train those new reps just as the manual says." Pat Waller's work with the sales reps provided useful information. At this point, Waller thought he was starting to get a good sense of the situation. What do you think is happening at Valley Winery?