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 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.
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
Case 1.1 The Valley Winery
EXHIBIT 1
187
San Francisco division: chain store division organizational chart (December 2003)
Sales manager
Cool Valley
division
Wine division
I
1
Area manager
t-v
Area manager
r
District
managers
District
managers
Sales
representatives
EXHIBIT 2
Sales
representatives
San Francisco division: chain store division organizational chart (January 2004)
Sales manager
Premium division
Valley wines
Aperitif wines
Astral
Vintage division
Estate wines
Santo Rey
Cool Valley
Valley brandy
Area manager
I
District
managers
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
Sales
representatives
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
188
Part One
EXHIBIT 3
Formulation of a Sales Program
San Francisco division: chain store division organizational chart (June 2004)
Sales manager
Lucky and Alpha Beta
division
Safeway division
Area manager
District
managers
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 stores—from 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,
Sales
representatives
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
EXHIBIT 4
The Valley Winery
189
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
22
25
30
27
0
45
62
94
94
D
0
J
30
F
0
M
75
A
0
M
75
28 (terminated)
0 18 42
0
TomRhea
45
39
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
j
0
j
60
A
0
S
80
0 (terminated)
50
0 50
0
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
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.
O
N
0 90
0 - 50
D
0
0
J
F
M
50
0 60
(terminated)
33
0 45
A
0
M
75
J
0
J
50
A
0
S
80
0
50
0
50
0
75
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.
190
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
quota—90 cases—no 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?