Case 1 Valley Winery

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2. Work with your group members to answer the following questions: a. What are the problems faced by Pat Waller? Identify each in detail. b. What are the causes of each problem identified in the previous question? c. What steps should Pat Waller take to resolve each of these problems? d. What kind of strategy should Pat Waller use to organize the chain store sales force? 1. Should the organizational strategy be horizontal or vertical? Why? 2. Which sub-strategy of horizontal/vertical (depending on which one you choose) should be used? Why? e. What changes would you make to the sales quota structure, if any? The Valley Winery Pat Waller, recently hired as sales mannger of the San sales. Brands in the pop line ac California Dream and Francisco region's chuain division, was lamenting the Milo-High. The Valley Winery sells more than 40 per- problems he inherited. Despite favorable sales results cent of all wine produced in the United States each year. for the San Francisco region, turnover was 90 severo The Valley Winery is also one of this nation's larg- Waller could not understand how sales increased dur- est privately held companies. As such, it is not required ing the past several years. He was surprised to learn to disclose any financial information. However, accord- the average sales rep bad been with the San Francisco ing to financial analysts who specialize in the wine and division of Valley Winery for only seven months and distilled spirits industry, 2009 sales were believed to sales force turnover neared 100 percent a year. In fact, have exceeded $1.3 billion. Of the various produoers of only one sales rep had more than two years experi- wine and distilled spirits, the Valley Winery is believed ence. Waller had heard that high turnover was a prob- to be the best managed and most innovative lemn nationwide but did not expect such high figures for Valley's phenomenal growth and success can be San Francisco traced to two broad factors. As already stated, it pro- Waller supervises two area managers, who in turn daces wines of consistently high quality at relatively direct nine district managers. District managers super- low prices. Second, Valley's sales force, using a push vise five to six sales reps, of which there are 50 in the strategy, is considered by many to be the most aggres- San Francisco division. Approximately 50 new salessive and innovative in the industry. As the manager of reps are hired each year, but the sales force size remains a San Francisco liquor store states, "Turn your back on relatively constant. Waller knew the increased competi- a Valley, sales rep, and your store becomes a Valley tiveness in the market would make it more difficult to warehouse." Heading up the sales forct is Carl Roman, continue to obtain future salos increases. The excessive whose passion for detail and success is well known. turnover problem would command immediate attention, Valley Winery distributes nationwide through liquor and beer distributors located in metropolitan areas Valley owns roughly 50 percent of these distributors, THE COMPANY mostly those that are larger and more profitable. Val- ley's field representatives call on noncompany liquor The Valley Winery, founded in 1933 in Napa, California, and beer wholesalers across the country. Valley uses is the largest domestic producer of wine in the United a major account system with reps calling on the head. States. Started with only a $7,500 investment at the end quarters of large chain stores, of Prohibition, it has become the leading producer of The organization of the San Francisco division is low-priced, consistent-quality wines. Favorite brands typical, especially in those market areas where Valley include Santo Rey und Valley premium table wires, owns the distributor. There are three sales groups. The Astral sparkling wines, Valley brandy, and most recently first group calls on liquor stores and bars. Career-type the Cool Valley line of wine coolers. As is true with most salespeople dominate this group and most are older, other wineries, Valley produces a low.grado, fortified These sales reps are paid a straight commission of sherry known on the streets is "Sacaky lete. This prod. 6 percent on sales Almost all, 95 percent, are niale. The uct appeals to a small market niche and receives virtually second group calls on restaurants, resorts, hotels, and no marketing support. The Valley name does not even motals. This predominantly female sales group is pard appear at the label, a practice followed by other wineries a straight salary (539,532 to $46,233) plus a company as well. Brand names for this low-end product include car. The third group is the chain division. This group. Saake-Eye, 20/20, and Acey Dency. Valley also boties 99 percent male, receives a straight salary plus car and a line of pop wines, which have never achieved high a year-end bonus. Their salaries range from 545563 to $32,263. The chain group is considered the major Source No M. Ford, 2009, source of future les managers, Cool Valley dision Wind divlon Area manager Aras manager District managers District managers 12 OOOO Sales representatives Sales representatives EXHIBIT 2 San Francisco division: chain store division orgunicational chart (January 2019) Sales manager Premium division Valley wines Aperitif wines Astral Vintage division Estate Wines Santo Rey Cool Valley Valley brandy Area manager Area manager District managers District managers Sales representatives Sales representatives The San Francisco chait division sales organization structure and created a product line division reflecting bus experienced numerous changes. Historically, the promium and vantage products within the premium company had a winc division and a wine cooler division division were the Valley wines, the perill wines, and Exhibit) Yarly in 2000, Carl Roman revatped the the Aureling wines. The vintage division Card Safeway division Lucky and Alpha Beta Hvision Area manager Area manager OD District managers District mnager ODDI Sales representatives Sales representatives the Estate wines, Santo Rey wines, the Cool Valley line for a specific number of stores taken from all major of wine coolers, and the Valley brandy (Exhibit 2). Iess grocery chains. Thus, a sales rep will call on Safeway, Lisan six months later, Roman introduced yet another Albertson's, and Cala stores. The total number of out. modification reflecting the importance of key custom- lets constitutes the sales rep's teritory, ers, which were classified as major accounts (Exhibit 3). The sales rep is responsible for reaching monthly Sales reps calling on major accounts represented the dispiny quotes on each line of products. For instance, entire Valley line of wines and distilled spirits. The one month the representative is responsible for display San Francisco division is responsible for sales to all ing 50 cases of Santo Rey wine in 1.5 and 4.0-Tier of the major grocery beadquarters, such as Safeway, sizes. The next month the rep may have a display quota Albertson's, and Cala Foods. of 50 cases of Santo Rey in 30-liter sizes. This partem Forward integration decisions are a function of how peats itself throughout the year. Fxhibit 4 illustrates well the independent distributor covers the market and monthly quota patterns for different display results to the size of thu taket potential. Rottuu had been very sales rep and the extent of the timover problem crncemed with the chain store sales performance in Sales ropa call on either be store manager or the wmie the San Francisco area for some time. The previous cluik, using proprepared sales sheets. The two matager distributor assigned 15 sales reps to call on the chain or wine clock it then order the beverages for the outlets and had recited Velicy's plous to crease the chain's Warehouse, where all wines and distified spirits salesforce to 30 to 35 rops. After Valley Winery bought are stored Ahe sales rep is csponsible for all merchant out the San Francisco distributor sales of Valley Wines dising, crvice, and anything else plated to Valicy War increased dramatically, pnmarily due to the increased ery that is needed in the chain outlet number of sales reps calling on chain stores from 15 Rumors are abundant about the aggressiveness - up to 50. None of the steps who worked for the pre played by saics reps in die wine and liquor industry vame owner was datter Valley purchase the specially Valley sales reps, who have been accused distributorship of Tolocating competitive display and products to The buying prufus thac major chain accounts obtain the best space for Valley winta, Salse fairly standard. Each rules rep is personally promile from other winnes dislike the roompetitive open Month Quota Mke flash Tom 10 2015 3.98 3 Cool Valley Stors Salwar 211 M 100 125 126225 226 2540 50 75 100 110 125 125115 ternity AS 362 3945 194 en 96 100 120 70 Products Sanito kay Store: Albertson 42 . 30 OSOMOS Month Quota Stan Smith John Mahorn Stive Anderson Ned Johnson D 8090720 30 600 60 Clerminated 052110 28 terminated 1800stterminated 5098 Pediduct Valley Wines Store: CaldS72 ND FMMAS M 500 800 900 500 0275 0 50 445 D45 0500 terminated 32450 50 0 50 0 Month Quota Paul Baling Mack Beringe AM 50 600 3002760 0 80 . T O. 75 shown by Valley reps, who have also been accused Mike Wehner, personnel manager for the San of such tactics as spraying hair spray on competitive Francisco division, was responsible for hiring all displays and bottles so that they will gather dust and personnel for the division, including warehouse work so discourage sales, ers, truck drivers, office personnel, and the sales force Waller's concern about the turnover problemi led to a Wehner used a variety of mothods to attract sales series of conclusions. First, recruiting and training costs candidates, Recruiting college graduates from soum- approached $30,000 per year per representative. Waller ber of area universities was common. This generally knew that with less turnover, Valley Winery and the San resulted in 10 to 15 new sales reps a year. Newspaper Francisco division profitability would improve. Second, advertisecents and posting job motiven en selected job Waller believed sales would improve. The $30,000 fig- scarch Web sites usually produced 10 hires per year. ure does not include opportunity costs associated with The use of six local employment agencies, with fees lost sales resulting from not having accounts called flapproximately $3,000 per hired individual, insulted on. And these costs do not include the time it would in 15 to 20 new reps per year. Last, any employee take for a new rep to adequately develop rapport with recommending a friend or an acquaintance who was the accounts. Considering all these factors, Waller felt subsequently hired received a $300 rinderts toe. This confident that dooroning turnover would improve sole practice typically cout the company $3,000 per year. and company profits. On the other hand, Waller knew Welwer claims not to recruit personnel from con- Curl Roman was pleased with the division's improving petitors or customer. He thought those hired through performance employment agencies were the ful, but he Par Waller decided a lot to inyweate the vitu was not positive Hon. As a start, he wined two porrible sources to The hiring procesowy followed see if they were the crux of the problem. These included tem. The selected applicant completes a simple appli the recruiting and himng process and the nature of decation form and is then interviewed by Wehner of his position. To rurch the recruiting and hiring procesactus for approximately 30 minutes. During that Waller contacted the personnel office. To learn about time, if the candidate veeme motivated and enthusiastic the pature of the position, be traveled with a number of and asks for the sales job, the applicant is asked hack the sales reps for additional interviews The candidate the interviews with the distributor When Waller congratulated Flanigan on the 50-case ship's top manager for no more than 10 minutes. The display, Flanigan quipped, "Thanks, but unfortunately San Francisco distributor is owned by Valley, and the it's not enough to make quota. Nobody, but nobody, new sales rep works for the distributor. Valley can rots ever makes quota. That's 25 cases short, and that store sign the sales rep to wholly owned distributors. All sales is one of my best accounts. And did you see may Santo reps interact with the area distributor and often partici- Rey quota-90 cases-10 way!" pate in training programs with the other two sales groups. During their aftemoon together, Wallez observed Waller learned the distributor's top manager regards & very aggressive sales promotion that Finnigan pre- youth and physical characteristics as the most important sented to a wide clerk at a Safeway store (#724). traits an applicant should have to pass this stage. Afterward, Waller questioned the tenuous sales figures The next step involves an interview with Walier's Flanigan quoted to the wine buyer. He responded by predecessor, John Ruppert, who was promoted to a claiming "John (division's previous sales manager) home office assignment as a major account manager. and Rick (Mary's current area manager] told me to The recruit is then whisked off to spend a day in the stretch the sales estimates. Continuing, he revealed, field with an experienced salesperson. Woller ques. "They said it's the only way to make my numbers. Rick tioned whether this day in the field, during which the even told me to pump up the numbers on the recup I recruit is 'wined and dined," is an accurate representa- send to Napa." tion of the job. If all of these hurdles are passed, the Pumping up the numbers meant a salesperson would applicant is then offered the job. claim a 50-case display had been installed when the store Before being promoted to the sales manager posi- manager or wine clerk would only order a 25- to 30-case tion for the San Francisco division, Waller had moved display. The display would only look like a 50-case dis- through the ranks, starting as a sales rep in the Seattie play, center boxes in the display would be empty. division. As a sales rep, Waller servod primarily in a On September 23, 2009, Waller worked with Bill missionary capacity, calling on liquor stores and tavers. Murphy. Murphy, a six-month veterani, arrived grun- He then advanced to district manager for the Seattle bling. He said his district manager called him at 10:30 division. Next, Waller moved to the Phoenix division, the night before complaining about the condition of where he served as area manager before accepting a Safeway #507. After 30 minutes of specific instructions home office assignment as a product manager assis. and other messages, Murphy had agreed to visit the tant. This progression was typical for a person selected store early that moming to correct the deficiencies. He to move into sales management, except that most sales mentioned that he received calls at night from his dis- managers are promoted from the chain store sales force.trict manager about two to three times a week, often to Waller's new assignment represented his first exposure check his progress on winery directives. These usually to major account management. occurred, he claimed, during the hour or two he spent On September 8, 2009, Waller traveled with Mary op preparation each night Flanigan, a nine-month veteran. Although scheduled During lunch, Murphy discussed his desire to move to meet at 7 A.M., Mary was late, stating his hour into management. He said, "Although district mapag- long drive was delayed by a terrible accident. Flani- ets are often considered to be no more than baby sit- gan said the latest territory change created a longer ters for the neares. Trally think that I can do a great commute for him. Since he was late, they started to job. The pay doesn't even bother me. (District manag- work immediately, forgoing the customary cup of ers received $5,000 to $6,000 32.) I mean, with all coffee Waller intended to buy ns a warm up tutio the cases I've sold, if I were paid on commission, I'd to learn about Flanigan's plans for the day. Waller already be rich I think I can really train these new repe and Flanigan spent nearly the entire moming at an just as the manual says Albertson's store (561) building a so-case display Pet Waller's work with the sales reps provided we for Valley wines, tesetting the cold box, and servio- ful information. At this point, Waller thought he was ing the shelves. After a 15-minute presentation to the starting to get a good sense of the situation. What de wine clerk, Flanigan and Water left for the next call you think is happening at Valley Winery