This question became a reality earlier this month for customers of New Vine Logistics, a provider of wine-shipping services for leading winemakers. According to an article in the San Francisco Business Times, New Vine “abruptly” suspended operations on May 29th, laid off most of its employees, and informed clients over the weekend (nice!) that it was no longer receiving or processing orders. According to an article in Wine Spectator, “When news broke that New Vine was closing down, it set off a slight panic among its clients. Confused vintners soon gathered at the firm’s shuttered Napa warehouse, trying to gain access to their wines, part of 1.6 million bottles of inventory stored there.”
Some background on New Vine Logistics: The privately-held company was founded in 2001 and it specialized on direct-to-consumer wine shipments for more than 200 winemakers, including Viansa Winery, J Winery, Cline Cellars, Clos du Val Wine Co., Fisher Vineyards and Araujo Estate Wines. Although direct shipping represents a small percentage of the overall U.S. wine market, New Vine Logistics was reportedly on track to capture 20 percent of the market (according to the article, the company expected to reach $20 million in revenues in 2007). New Vine Logistics was backed by several venture capital firms, including Kleiner Perkins Caufield & Byers, Altos Ventures and Thomvest Ventures Inc., and the company had a partnership in the works with Amazon.com to handle its planned wine buying and shipping venture. New Vine’s inability to secure new financing is what prompted its sudden shutdown.
Through a spokesperson, the company issued a statement saying that “New Vine Logistics is currently working with customers to transfer all services to another means of legal direct shipping, and in the meantime, is finalizing all work, including compiling of reports, reconciling inventory and invoices, and performing all of the necessary business operations for the months of May and June. In response to comments that the company knew it was in financial trouble, [Kathleen] Hoertkorn [the company's founder] affirmed that they ‘truly believed that they would have been funded and were not expecting to have to cease operations.’”
As reported in the Wine Spectator article, New Vine was rescued (at least temporarily) a few days later by Inertia Beverage Group, a leading rival in direct-to-consumer services. Inertia agreed in principle to acquire Silicon Valley Bank’s debt position in New Vine and would provide interim financing to restart operations (see Intertia’s press release).
So, what are the lessons learned here?
First, as my colleague Steve Banker highlighted in a related posting (“What If Your Supply Chain Software Vendor Goes Out of Business?“), you must understand the financial health of your 3PL partners on an ongoing basis, and if they are backed by venture capital firms, you should also understand the commitment of the VCs to the 3PL and their investment objectives and timeline. Second, putting “all of your eggs in one basket” is a risky bet, especially in these economic times. In this case, since direct-to-consumer is a small percentage of wine sales, the risk of single sourcing might be justified (i.e., the cost of setting up and managing a second or third 3PL relationship might outweigh the benefits). But if a significant portion of your logistics operations and revenues are dependent on a single 3PL, then make sure you truly have a strategic relationship with that service provider, where clear and ongoing lines of communication (about near-term activities and objectives, as well as long-term strategy alignment) exist between the executive teams of both companies. Finally, you should always have a contingency plan in place for these types of supply chain disruptions. In other words, expect the unexpected, and plan for it.
I work for Cline Cellars and while it’s unfortunate that NVL closed and left many in a lurch, Cline moved to Copper Peak Logistics last October and none of our customers were affected.