Channel Conflict: 3 Tier Battles Heat Up – Stinging Defeat in KY Raises Questions

The headlines and press statements around some of the latest beverage alcohol industry channel conflict are extraordinary and gaining attention across the country.

  • Anheuser-Busch forced to sell its two Ky. distributorships? Source: WHAS11 Bethanni Williams March 4, 2015 – A defeat in Frankfort for Anheuser-Busch after the state senate voted to force the beverage giant to sell its two Kentucky distributorships. The bill strengthens Kentucky’s three-tier alcohol beverage control system, banning brewers from also owning distributorships. Craft breweries worried Anheuser-Busch would only sell and market its own products if it owned distributors. Governor Steve Beshear’s office indicates he will sign the measure. Anheuser Busch says the fight isn’t over.
  • Beer bill passes Kentucky Senate without compromise amendment
  • Under Siege: Don’t Let a Good System Sink statement by National Beer Wholesalers Association (NBWA) CEO, Craig Purser

A new craft brewery is opening up every day, adding to the over 3,000 currently operating in the USA (Brewers Association).   There are 100s of new craft distilleries that have opened up over the past few years with many more in the works (American Distilling Institute). There are more than 7,000 wineries as well (Wines & Vines).

This buds for you

All this growth in new entrants is the result of renewed consumer interest in trying new things. The Millennials have driven much of the new growth and vibrancy. It’s an exciting time in the beverage industry. That said, every large-scale established consumer brand across multiple industries is trying to figure out what to do and how to keep their base, grow it and remain relevant.   Anheuser-Busch Inbev was roundly criticized for their “anti-craft” beer advertisement for Budweise

r during the Super Bowl. As I wrote about, this was them playing the hand they hold and making the best for a giant brand in decline.

These issues are a lot more complex than they appear and have interesting and changing industry alliances. I am constantly asked (last night included) why the laws are the way they are, by consumers and business people who are not from the industry. Here is a brief explanation:

The simple answer is the current legal and regulatory framework in the US is the result of two Constitutional Amendments. The first one was to ban all alcohol aka Prohibition (18th Amendment in 1919). The second one was to repeal Prohibition (21st Amendment 1933). To pass a Constitutional Amendment the Congress must pass it with a 2/3 majority vote in both houses and then it goes to the 50 states and must pass ¾ of the statehouses to become ratified.   A very high bar indeed. Prohibition was a national disaster of epic proportions. However, it was created in response to some significant excesses by the industry and public. A lot of the excesses were blamed on what is known as “Tied-Houses”, whereby the brewers owned the taverns. The drunken excess of many in the public was attributed to the brewers have a direct interest in selling as much beer as possible and controlling the point of consumption. The saying “There is no such thing as a free lunch” came from this era. The brewers would give away free sandwiches at the taverns they owned. Sounds good, but they would salt these sandwiches excessively so that the patrons would drink more beer.

Whether you agree or not that “tied houses” were the root of all evil, this was the majority view when in 1933 the nation’s failed experiment in Prohibition came to an end. Even though it was clear to most that this government intrusion into industry was a disaster, there were still large numbers of anti-alcohol constituents throughout the land. The compromise to get the 21st Amendment passed was to allow each state the absolute right to regulate the sale and distribution of alcohol within its boarders. The 21st Amendment does not have an opinion on tied houses or any other aspect of how the industry does business. The Federal Alcohol Administration Act did spell out specifics on regulations of the industry to insure the revenue and to protect consumers. It did not however, spell out any specifics regarding a “3 tier system”, but rather defers to the 21st Amendment that in turn defers to the states.

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Each state proceeded to set up its own set of laws and regulations.   There are 50 states and 50 sets of laws that while some may resemble each other, none are identical. Layered onto the specific statutes and regulations are the interpretations by alcohol boards or chairmen and the courts.  The most common way in which the states addressed the tied house issue was to legislate a middle tier (wholesaler) to be a buffer between the suppliers and the retailers. This is what is commonly referred to as the 3 tier system. There have always been some states that allowed brewers to own wholesalers, though this was the exception.

In the case of Kentucky’s new law, Anheuser-Busch Inbev has owned distributors there for more than 40 years and had attempted to buy a 3rd. That prompted the wholesalers to attempt to stop them and when other means failed, it ended with this new legislation not only not allowing them to buy the new distributor, but also forcing them to sell their existing businesses. I have no idea of how the courts will view this, but from the sound of it, ABI will not go quietly.

I can’t help but think the latest turn in the 3 tier beverage alcohol industry channel conflict is an example of overreaction that will do nothing but cause further escalation. When one considers all the new brands that have launched and keep launching in beer, spirits and wine and the need for each to find ways to market, it is clear that broad based full line distributors provide a viable route to market for many. All of the main distributors have giant books of brands now, and they serve some very large suppliers and many smaller ones well. In many cases they serve these needs of smaller brands by creating specialty sales divisions. They do not serve every brand well, nor can they. This has created market conditions in most states where a new crop of smaller start up distributors have emerged, primarily handling specialty or craft brands. Where specialty/craft distributors have emerged, they have become a necessary escape valve for small and new brands getting distribution to retail. In markets that allow it, and many states have provisions up to a certain size, craft breweries can self distribute. This is expensive but a necessary option in cases where there are no viable distributors to carry a new brand. Stone Brewery in San Diego and Sun King in Indiana seem to be examples of self-distribution that has been successful. I wonder if this will become more prevalent with spirits as the number of craft distilleries grows.

2015-01-21 11.18.45  IMG_6561The current approach, though ugly at times, has worked to provide a route to market for a thriving craft community.   The pressure to get new brands to market is only going to increase. It is unclear to me where the craft community will end up better off – with strict laws that don’t allow suppliers to own distribution (of any size) or with looser laws that give options. I tend to think most small/new brand will end up supporting a more flexible system, but the bigger brands, that are doing well in the traditional 3 tier system, will support the stricter system.

It may be that there are simply too many competing interests to work out viable solutions to everyone’s satisfaction on these issues. It would certainly be better for the industry if there were agreement as opposed to legal or legislative fights. ABI is a powerful entity as are all the major suppliers. Poking them in the eye with a local legislative win, may end up being a case of winning the battle but losing the war in some ways. It is unclear to me that the KY law actually helps craft brewers or simply hurts ABI or it it even does that. ABI can still control largely the activities of an independent distributor, as they have been able to do, in many other states. What is clear is that this KY battle is not the end to this fight.

It will be interesting to see how this continues to play out. Love to hear your comments or questions. Cheers! Smoke

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Smoke has worked in all 3 tiers of the industry, built beer wine and spirits distributors, owned a craft brewery, a winery, and multiple craft spirits brands.  He built the leading technology for pricing between suppliers, distributors and retailers. He also represented the WSWA as Chairman & President and the Brewers Association on the Government Affairs Committee.

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My Appreciation for Joel Covington and my Vanderbilt Journey

The world lost a good man this week. I did not I stay in touch with Joel frequently after attending Vanderbilt Owen Business School in the early 1990s. I do, however, remember him well. Joel with a wry humorous wit, always had a comment when I’d see him in passing on my visits back to school. He seemed to be on the inside of a joke, that one was never sure if it was about you, but it didn’t matter, as he said it with a smile.   But most of all for me, Joel, who was Director of Admissions at the time, had the wisdom to look beyond a checkered undergraduate academic career, and understand a young aspiring business person who demonstrated his passion but little else. When others looked only at the black and white on paper, Joel met with me in person and consulted with Nick Whitcombe, my Cornell wrestling pal who was already at Vandy, and was able to see my potential and gave me a chance when it mattered. For this I am grateful.

“At twenty years of age the will reigns; at thirty, the wit; and at forty, the judgment.” – Benjamin Franklin.  Joel, thanks for having the judgement to recognize my will would turn into something.

Here is a nice story remembering Joel in Vanderbilt News

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YPO Food & Beverage Roundtable 2015

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I spent the past week in Orlando, FL with an inspiring group of CEOs from the food and beverage industry. The roundtable is a once a year gathering of presidents involved in or interested in the industry. The network consists of over 1800 leaders doing everything from farming to production to distribution to food service/restaurants. It cuts across industries, from my world of beer, wine and spirits into the vast world of food (we merged the Global Beer, Wine and Spirits network with the Food & Beverage Network in 2013), so the network is truly from Farm to Fork and from Grape to Glass. A roundtable of thoughtful leaders from so many diverse areas is as much about learning from each other as it is the specific resources and education programming.   I come away from my 7th such meeting with a renewed vigor for pursuing my business and life goals, and an appreciation for the many friendships, old and new, I have through YPO. Here are some of the highlights:

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I’ll start with the integration of outstanding dining experiences with world-class beverages. We enjoyed a beautifully done dinner at Il Mulino at the Walt Disney World Swan (Walt Disney World Swan, 1200 Epcot Resorts Boulevard, Orlando, FL 32830). Il Mulino is world famous and their flagship restaurant in Greenwich Village remains top rated in New York’s elite dining scene. The Orlando Trattoria version is well executed. Of course, the making of a perfect meal is all about pairing the right flavors with each other and with the right beverages. Banfi Vintners, one of the largest importers of wine and a major producer of Italian wines was the perfect resource for our evening. I’d like to give a special shout out to Bill Whiting, Wine Education Director from Banfi who gave a delightful narrative to the wines and business as we progressed throughout the evening. All of the pairings were enjoyable, but my personal favorite was the 2009 Banfi Brunello Di Montalcino with Primo Piatto Tagliatelle (Lamb Ragu, Mirepoix, Pecornino). Wow.

menulogo-BLK il mulino Orlando dining room IMG_4969 IMG_5013

We went in a completely different direction at Fulton’s Crab House (A YPO company, Levy Restaurants) and a thoroughly enjoyable evening of one of Oregon’s greatest wine producers, Sokal Blosser. A special shout out to YPO member and winery leader, Alison Sokal Blosser who not only educated our group on the Oregon wine business and her wines, but entertained us with personal stories growing up in the vineyards in a wine family.   As a Pinot Noir fanatic, I was certainly in my element as Alison shared their outstanding 2012 Dundee Hills Pinot Noir and then dipped into the very limited production Goosepin block 2010 and 2011. Capping off the evening was a special treat of her 2013 Dessert Riesling. It was, on the whole, an enjoyable evening interacting with members.

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On our final evening together, we were able to visit member and Chef John Metz Jr.’s Marlow’s Tavern. As they describe it “Marlow’s Tavern features the “Best of the Best” in American tavern fare served in a modern atmosphere.” I would call it a modern gastro pub and simply a great place to enjoy high quality food in a very relaxed atmosphere. John and his partners now have 13 Marlow’s in Atlanta and 2 in Orlando. Craft cocktails accompanied the expertly executed appetizers and my friends at the Belhaven Brewery from Scotland provided us with some Belhaven Black Stout and Belhaven Twisted Thistle IPA.

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From Marlow’s we moved on to a tequila pairing dinner at the vibrant (one might say ROCKIN!) Rocco’s Tacos. Our friends at Brown-Forman were the perfect partner as we enjoyed a full range of their Casa Herradura tequilas. Thanks to both Michael Ring and Greg Stewart of Brown Forman. The tequilas matched the courses nicely but the final offering of Selección Suprema Extra Anejo, aged 49 months on oak was spectacular. This is a true sipping tequila.

IMG_5008roccos tacos

The educational aspects of the meeting were a mix of in industry (Food & Beverage) and outside industry but all focused on “president level” education. In other words how do I perform better as a president and how do I make my organization more effective. I share here a few non-confidential highlights from the many outstanding educational sessions:

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  • Celebrity Chef and Top Chef season 11 fan favorite Nina Compton, gave a personal account of her journey as a chef from growing up in St. Lucia to chopping carats in the back of kitchens to a becoming major TV celebrity. I have had the opportunity to enjoy the four-star food at Scarpetta in the Fontainebleau where Nina was chef de cuisine until June 2014. She has a great energy and I cannot wait to try her new restaurant she is opening soon. Details to come once it is announced!
  • We had an only in YPO discussion on family business with four leaders from YPO companies who are all in the same family. It was fascinating watch their interaction and how they have tackled the jugular issues any family business faces in success and succession.
  • WPO member, industry leader (and recent National Restaurant Association Chair) and Executive Chairman of Miller’s Ale House, Phil Hickey gave us compelling insights into the election results and the importance of each of us to be involved politically. There are a lot of bad for business movements that are well organized and need to be countered by the people that actually create the businesses that support jobs and the economy. If we don’t do it who will?
  • A leading expert in risk management, Richard Shanks of Aon Risk Solutions, gave a compelling if not disturbing talk on the risks to the food supply and what leaders in industry are doing to mitigate and prevent problems. This is a topic that anyone in the food and beverage business at every level (farming, production, retailing, serving) need to be knowledgeable in and prepared for.
  • Richard Van Warner of the Parquet Group, a leading restaurant consulting firm, gave a talk that brought the risks of not handling a problem, in a timely and well-considered way, to life. His war stories and examples of what not to do were entertaining and at the same time a wake up call to everyone in the room.
  • If we did not have enough to be concerned about with the food supply risks and the PR issues in handling problems, the truly scary world of cyber security came to life in Tom Noonan’s talk. Noonan is Chairman of Tessentee Capital and a WPO member, and has had a lot of experience dealing with cyber threats. His deep dive into the Target fiasco was telling. People are involved in every business. People are the biggest risk. In many cases, the very basic, simple steps that can be taken, and need to be taken to encrypt sensitive data and manage the outside access to the web, are simply ignored. Any company leader not taking this serious threat at the CEO level is risking not only their job, but their company.
  • The recent changes President Obama has made with regard to Cuba, has made it a very interesting topic indeed. We enjoyed a briefing by business intelligence experts Javier Ortiz and Marty Martin of Crane & Crane Consulting. The bottom line is Cuba is opening up, but there is a lot of uncertainty on how fast. It has unique potential as a destination for Americans with its close proximity to the US, natural beaches and friendly people. I think there will be a lot of investment flowing into Cuba from all over the world as the relations with the US continue to normalize.
  • Marshall Chiles of Humor Wins gave us a methodology for injecting humor into our presentations. It was a fun (and humorous) walk through the mind of the comedian. I don’t think any of us will give up our day jobs, but the approach he shared can certainly liven up our presentations. Thanks Marshall!
  • Our behind the scenes tour of Disney’s EPCOT Center “Land Exhibit” was interesting. EPCOT has had a sustainable farming operation for over 25 years and continues to do extensive research on best practices. With the world’s population growing at the current pace, it is clear that food supply and conservation of clean water is going to be among the biggest concerns going forward. I don’t think enough people are thinking about this or doing anything to prepare for it. I’m glad Disney is playing some part and I hope they think of more ways in which to spread the word.

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  • We had an interesting talk from a senior executive at Disney, Elizabeth Ann Williams General manager F&B for Disney’s Hollywood Studios/Walk Disney World Resort -who shared the “DISNEY WAY” = Safety, Courtesy, Efficiency and Show.   Her passion for the EPCOT Food & Wine Experience was great to see, as it is one of the coolest events in our industry and Elizabeth had a hand in its creation.
  • Michael Pavone, a friend and YPO member, gave us an updated summary of his “Trends in Food & Beverage” report his agency puts together annually. It is always an interesting check on the pulse of what is happening in F&B.
  • In her “inside the mind of the millennial woman” (my title), Cindy Judge of Sterling-Rice Group shared insights and observations of the largest generation to date, that is increasingly driving decision making globally. As the father of three millennials and one of whatever comes after that, her research rang true. Anyone leading a business, who does not take into account this generation and their ways of making decisions around brands and life, does so at their own peril.

 

3 or 4 Cornellians at YPO F&B 2015

3 of 4 Cornellians at YPO F&B 2015

As always, the biggest benefit of YPO comes from the interaction and learning among the members. As event champion for the 2016 F & B Roundtable in Napa Valley, CA, I’m looking forward to putting another world-class program together to build upon this year’s successful event.

My 2015 Superbowl Ad Recap

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That was a great Super Bowl! Well, as great a game as it could be without the Colts in it. That said, I’m sure many of you joined me watching the actual big game – the commercials. I did not evaluate every one, but the most notable discussions (I posted on Facebook and Twitter as the night went on and had lots of interesting interaction) I recap below.

My comments denoted with @smokewallin. Where others commented or tweeted I list their Twitter handle.

Interesting Comments and Un-categorized:

@smokewallin: Pretty close.. RT @jack_welch: Product Managers….every day try to design a perfect product like NFL

@smokewallin: Really? RT @adage: Whoa RT @LoctiteGlue Hey, @BUDWEISER! Stop bidding on our ad keywords. Love, Loctite

@smokewallin: Wix.com websites.. Farve & Carve… nice ad! Worked

Farve & Carve

NASCAR

@smokewallin: Nice @NASCAR @nbc ad at end… @DISupdates coming soon! #SuperBowl #superbowlcommercials

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BUDWEISER:

The horses saving the puppy from wolves was beautifully done.  There was a lot of push back from the craft beer world on the This BUD’S FOR YOU slaming craft beer. My sentiment was ABI (Anheier-Busch Inbev) is simply playing to their strength and their core audience with the through-back ad.   The PacMan ad for Budlight did not work for me though.

@smokewallin:Big Beer fights back Craft beer .. @Budweiser “Let them sip their Pumpkin, Peach Ale we’ll be brewing golden suds” nicely done4 target!

This buds for you This Buds for you horse

@smokewallin: I think @Budweiser bringing back old school works better than Pacman @budlight hard to see how it connects #upforanything #SuperBowl commercials

@smokewallin: Play to your strength? RT @businessinsider: People are slamming Budweiser ad that mocks craft beer http://read.bi/1BR2DGF 

@smokewallin: Play your strength? RT @adage: Look what came back at the #SuperBowl: An old slogan http://trib.al/oYGzM1N 

Here is one example of the craft beer world reaction from the Ashley V Routson aka “BeerWench”

https://twitter.com/TheBeerWench Hazzah ‪#craftbeer! Budweiser has officially admitted to being threatened by us, albeit passive aggressively though a Super Bowl commercial.

Soft Drinks

Coca-Cola a big win with their positive message. Love the reply to negative tweets and see message. Oh and thanks for the retweet Coke! Pepsi with their half time extravaganza with Katy Perry did well. Most seemed to like the show and it was well executed.

@smokewallin: Coca-Cola #makeithappy nice sentiment. #superbowlcommercials

@smokewallin: Thx RT @CocaCola: @SmokeWallin #MakeItHappy is more than a # Reply 2 negative Tweets + see! http://bit.ly/1BgZw8b 

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AUTOS

Fiat had the best ad, hands down. The little blue pill told a whole story in a short spot. Loved it! Liked the Harry Chapin ad (and song), but the message might be mixed up a bit… I expected the kids to leave at end and become a race driver, just as the dad was hanging it up – it would have matched the story of the song. Mercedes-Benz tortoise and the hare was cute and effective.

@smokewallin: The @FIATUSA 500 and the little blue pill… told a whole story.. nicely done! #SuperBowl commercials

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Mercedes-Benz USA nice touch on old tortoise and hare fable.. tortoise gets the “girl”.. cute

@smokewallin: Nissan Kid growing up with Racing dad while Harry Chapin Cats In the Cradle plays… worked #superbowlcommercials

nissan racing growing up

@smokewallin: This land was made for you and me.. @Jeep Nice touch making it international! @FIATUSA #SuperBowl commercials

@smokewallin: Ok, Being a Dad… @Toyota USA hits home… Nice.. but did all these companies discuss the Dad theme? #SuperBowl commercials

@smokewallin: concur RT @adage: We’ve reached Peak Dad with that one. #withdad @nissan #SuperBowlads

@smokewallin: the BMW i3 ad with Bryant Gumbel and Katie Couric flash back to what is the internet was cute. #superbowlcommercials

Fast Company @FastCompany @BMW‘s #SuperBowl ad takes @katiecouric and Bryant Gumbel back in time: http://f-st.co/t3jR3wa  by @jeffcbeer

katie and bryant - BMW electric

The Kia ad with Pierce Bronson was actually pretty good as well.

Insurance

Nationwide was a fail mainly because it was such a serious ad and using a horrible thought like losing a child to an accident did not fit Superbowl. The American Family Insurance ad with Jennifer Hudson was cute, but pretty short and kind of got lost.

@smokewallin: Didn’t like Nationwide Insurance kid who will never grow up- I get it but not really mood of the Superbowl to me. #SuperBowl commercial

 

Medicine and Soap:

Dove was a great feeling ad, but kind of letdown when it got to the product. Jublia did not work and was not cleaver.

Dove

@smokewallin: exactly RT @marcmalkin: That dad’s commercial was good until they showed it was for soap. Kinda killed the emotional buzz #SuperBowl

 Jublia

@smokewallin: Jublia… uhm.. no. #SuperBowl commercials

@smokewallin: My sentiment… ugh RT @adage: Talk about turf toe. @kenwheaton gives Jublia commercial 1.5 stars.

jublia toe

Vegas – Insights, Casinos, Fine Dining, Nightlife, Zappos & Adventure

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There is something about Vegas that brings everything good and bad in America front and center. Though I’ve been many times, my adventure in Vegas last week was extraordinary. It combined the expected – great restaurants, nightlife and gambling with the unexpected – awe inspiring nature, mind blowing business culture, and valuable take home business insights.

First, renting a house off the strip was a first for me. We used AirBnB and had a 7 bedroom mansion that was a little dated (furniture/fixtures) but was perfect for a group that wants to spend quality time together and have options away from the Casinos. The back and forth was a 10 minute ride and really no issue for anything we wanted to do. I would rent the place again in a second and if you want the link to the house, just contact me.

I’ll bet most of you who have gone to Vegas never leave the strip. That was my feeling until a few years ago I visited (and got married in) the Valley of Fire State Park and well, wow. So now it is a must to get out of town and enjoy the incredible nature surrounding Las Vegas itself. Hiking in the Red Rock Canyon Park is a must do and only about 25 minutes away. Further out is the Valley of Fire (60 min) but well worth the ride. We opted for an ATV ride through the park, which was exciting and enjoyable. We had some nice stops along the way to take in the beauty in between our daredevil ride. Kudos to Adrenaline ATV Tours! –They have a totally professional and cool staff and great equipment made it enjoyable all around. I highly recommend them.

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The week of my visit there were many conventions in the city, but the two most notable were the Shot Show with 67,000 attendees and the Adult Entertainment Expo with 25,000 attendees. The SHOT Show® is the Shooting, Hunting and Outdoor Trade Show and Conference for the firearms, ammunition, hunting and shooting accessories industry. The AEE is well, if you don’t know I won’t discuss it here. Naked people shooting guns you might ask? You can be the judge of what is good or bad, but it is indisputably interesting.

Vegas has arguably the highest concentration of fine dining anywhere in the world. I visited several of note:

  • Estiatorio Milos at the Cosmopolitan- I agree with their own description: “Touted aestiatorio-miloss one of North America’s finest Greek restaurants, Estiatorio Milos by restaurateur Costas Spiliadis features fine Mediterranean cuisine at its best and has a longstanding reputation for serving the freshest, most pristine seafood imported daily in New York City and Montreal.” My group did family style and enjoyed everything served. Appitizers of particular note – The grilled Octopus and Greek Meze Plate with Tarama, Tzatziki, Htipiti, manouri cheese, olives & cherry tomatoes blew us away.images-3
  • Katsuya at the SLS Las Vegas- Their description “KATSUYA MARRIES MASTER SUSHI CHEF KATSUYA UECHI’S FRESH TAKES ON JAPANESE CLASSICS WITH DESIGN ICON PHILIPPE STARCK’S SLEEK AND SULTRY INTERIORS.” Among the top sushi restaurants in the country, I put it right up with Nobu, Sushi Ran and our regular favorite Sushi Den.
  • Rao’s at Caesar’s Palace- As they describe it “Step in to a legendary institution—or at least the Vegas offshoot—when visiting Rao’s. The original Rao’s in New York City opened in 1896 and is one of the oldest family owned restaurants in the city, and at 12 tables, is one of the hardest places to get into.” Great family style Italian. Particular favorites include the Sausage & Peppers, Meatballs, the Roasted Red Peppers and the Penne Ala Vodka. Everything is solid and traditional.
  • Buddy V’s Restorante at the Venetian- As they describe it “Buddy Valastro, of TLC’s Cake Boss, has brought his first restaurant to Las Vegas at The Venetian. Buddy V’s Ristorante, a partnership with veteran restaurateurs Elizabeth Blau and Kim Canteenwalla, is inspired by Valastro’s family gatherings and features recipes passed down from his mother, grandmother and aunts.” Well worth the trip!

Our nightlife included visits to The Sayers Club for live music (awesome) and LIFE for craziness (also awesome in a different way) both at The SLS Casino Vegas as well as a great comedy show at the Flamingo by Vinnie Favorito. Don’t go if you are easily offended, he literally offends everyone, every race, religion, size, shape, origin or whatever. By the end, it would be hard to be mad as he left no stone unturned in his attacks. Its quite an enjoyable show and highly recommended.

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One of the coolest things I’ve done in Vegas to date was to visit the offices of Zappos, the online shoe company bought by Amazon in 2009 (I know the date well as I won a prize for remembering the date from the video presentation). Zappos made the reputation and built their business around uncompromising customer service. As they put it – “Customer Service Isn’t Just A Department!

We’ve been asked by a lot of people how we’ve grown so quickly, and the answer is actually really simple… We’ve aligned the entire organization around one mission: to provide the best customer service possible. Internally, we call this our WOW philosophy.”

We took the ZapposInsights Cultural Tour and added in the Q&A session. I’d like to give a special shout out to Erika Newman aka @ZCulture_Equine who guided our tour with ease and grace and to Jon Wolske aka the Evangelist @bassred who led our Q&A session warmly. The people really do believe in their motto and live their culture. Their core principles guide their every action and EVERYONE is empowered to make decisions as long as they are consistent with them.

zappos offices

Tony Hsieh the CEO is well known but here is a little background on his story: In 1999, at the age of 24, Tony Hsieh (pronounced Shay) sold LinkExchange, the company he co-founded, to Microsoft for $265 million. He then joined us as an advisor and investor, and eventually became CEO, where he helped us grow from almost no sales to over $1 billion in gross merchandise sales annually, while simultaneously making Fortune magazines annual Best Companies to Work For list. In November 2009, Zappos.com, Inc. was acquired by Amazon.com in a deal valued at $1.2 billion on the day of closing.

I really found it interesting that the #1 hire was Fred Mossler from Nordstrom. Fred brought knowledge of the shoe business. But I can remember back at Cornell doing case studies on Nordstrom (formerly Nordstrom & Wallin but that is for another day) and their famous customer service. It was one of the most used examples in the 1980s of who to do retail right. In particular their shoe department was famous for service like no other. That Zappos is all about service and started in shoes has Fred’s Nordstrom finger prints all over it. Pretty cool how old school excellence inspired a next generation disruptor.

Here are the 10 core values:

Zappos Core Values

 

While it was infectious to be around such a motivated team, I don’t think this exact culture would work for many businesses. That said, their commitment to core principles, from top to bottom is a difference maker. Any organization that can distill its core values and get its entire work force believing in them (whatever they are) would out perform any normal organization. I think that is the critical insight that Zappos gives – if you can build a core team who all believe in the core values and remain true to them, you can do extraordinary things. Asked several times does the culture make the company or do the people make the it… we got the same answer from different people – they hire people that are consistent with their values. They DO NOT try to hire people and then change them to work within the Zappos culture. It really is all about fit at the front end or they don’t hire you. Simple yet powerful.

Going from next generation internet retailer with a cult like culture to one of the top luxury hospitality operators gave me further insight into what makes for excellence, in any industry. We had the good fortune to experience a VIP corporate tour of the Venetian and The Palazzo. What an incredible operation. These properties and the Sands Expo & Convention Center are the Las Vegas properties of Las Vegas Sands Corp (NYSE:LVS). The Venetian® Resort~Hotel~Casino and The Palazzo® Resort~Hotel~Casino are in addition to being the world’s largest Five Diamond rated resort, the properties offer not only luxury and entertainment but when combined with Sands® Expo and Convention Center, The Venetian | The Palazzo also make up the largest LEED certified building on the planet, a testament to our commitment to sustainability. As they describe it, their values are:

“Our integrated resorts have become premier destinations for travel enthusiasts around the world. Why do they insist on us? Because they know they can count on unmatched service, a luxurious atmosphere, and superb hospitality every time. They also know that at the heart of our company are unshakable values. We’re committed to listening to our guests and employees, to considering the environmental impact of our decisions, and to contributing to the well-being of the communities in which we do business.”

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The tour took us behind the scenes of an operation that not only has all the visible food and beverage offerings to customers but also serves over 3,500 employees as much as 3 meals a day. It is quite an operation and Executive Chef Olivier Dubreuil took his time explaining how they feed so many team members and serve such a large-scale operation. The large scale sous-vide (French for Under Vacuum) that enables them to slow cook meats slowly for banquets of 1000s of people was mind blowing. Thank you Chef for your commitment to excellence and the care you took explaining and showing us your operation.

John Caparella President and Chief Executive Officer, The Venetian| The Palazzo which along with the convention center and shopping mall form a $1.25 billion revenue business within Sands Corp, shared some of his personal insights into being successful in a luxury gaming operation. Its pretty basic, he said “I look at business as a 3 legged stool. They consist of customers, employees and profits. It only works if all three legs are solid and working together.” In other words, the customer is everything but that only works if your employees, the team that is responsible for serving them, are happy and bought into the mission of excellence. What follows when executed properly are profits. Here is an interview of John by his friend Chuck Wolfe on leadership and emotional intelligence. It was great spending time with John and his team! Thank you.

Well that’s all I may write about from Vegas… I hope you enjoyed and do let me know what you think.

 

Cheers

 

Smoke

 

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