Cameron Hughes is no fool, and he had a decade of success building a unique business model. But we learned last week that his company has been placed into receivership and he may be forced to sell.
The problem wasn't Hughes' initial innovative idea: buying wines out of tanks and barrels that famous wineries couldn't sell for nickels on the dollar, then selling them at Costco under his own name with lot numbers; i.e., Cameron Hughes Lot 218 Rutherford Cabernet Sauvignon 2008. That line of business is still profitable.
The problem also wasn't Hughes' innovative direct sale business, where right now you can buy 2012 Russian River Pinot Noir, Napa Valley Meritage or many other choices for under $20. As Hughes expanded his market, he moved into buying excess quality grapes in big vintages like the last three and having the wines made in custom crush facilities. These opportunistic buys are also profitable, according to court filings.
Where Hughes fell down was in two things: 1) entering the mainstream battle for ordinary cheap supermarket wine and 2) getting financing to do it from a bank that apparently wasn't really acquainted with wine industry.
It's just the latest sign that wine is a bad business, if your grandparents didn't own vineyards, and if you hope to make a profit on the kind of schedule that pleases a bank or traditional stock investors.
Hughes is not insolvent, and he may be able to right the ship. But the bank he owes $15.3 million isn't helping. His representatives told the San Francisco Superior Court the bank forced him to sell bulk wine at a loss, rather than bottle it and sell it on his website. His side also said he and the bank agree he needs to get out of the mainstream "broad market" business, but disagree on how to do it.
I'm rooting for Hughes. But let this tale be a reminder to people who want to make a small fortune in the wine industry, because we all know the prerequisite for that.