Schoolhouse Lane Estates - Development and Industry Maturation of Winery - Term Paper Example

Schoolhouse Lane Estates - Development and Industry Maturation of Winery 1. Overview of the situation Schoolhouse Lane Estates is a winery business owned by Janess (Jan) Thaw which was established in the spring of 1989 and the first harvest was made on the fall of 1994. The grapes were crushed at a local winery which resulted to the production of 60 tons of grapes into 5,000 cases of bottled wine. Initially, the produced wines were sold to local restaurants, catering firms and local businesses for gifts and promotions. In short, the produced wines such as Cabernet Sauvignon, Merlot (red varietals), Meritage (a blend of red varietals), and Chardonnay (white wine) were all sold to local markets at $10 per bottle for Merlot to $36 per bottle for the Meritage. The demand eventually grew and so Jan decided to operate her own winery. Eventually, Jan became a proud winery owner as what she dreamed about. The business continued to operate and since then Jan was able to encounter expansion for her business at the local wine markets such as wholesalers, retailers, restaurants and caterers. Schoolhouse Lane’s products resulted into net growing revenues. Along with its growth comes the increase on expenses such as on sales and marketing and eventually the spiraling growth of inventories considering that red wines and red wine blends would need long period of time for aging in oak barrels. Eventually, Schoolhouse Lane Estates winery is a growing company and is considering rapid expansion as far as there is continued support for its products in the local markets. The case starts with the company history. There are substantial evidences presented about winery and its evolution which was primarily dated back to Long Island’s Wine Industry in 1970s. There are also substantial data on Schoolhouse Lane Estates in line with its income statements, balance sheets, and statement of cash flow from 1999 to 2003. The case also cited the information on recent development and industry maturation of winery, the wine production in the United States, the changing dynamics of the US wine market, the competition involved and specific courses of actions made by Jan in order to continue operate and expand its business. 2. Statement of the main problem Level of Analysis It is clear that the level of analyses that must be involved in the case are combined Level 1 (Industry Issues) and Level 2 (Organization Issues) considering that the demand for wines decreases across California while selling high and eventually more acres of land were converted into fruit trees. This resulted to several wineries gone bankrupt. On the other hand, Jan planed to purchase a new acre of land for her winery expansion yet considering the Industry’s current trend; it would be a problem on her part to look for sources of working capital as far as her financial options are concerned. Problem Type The above stated problems require important solutions. These types of problems should be carefully studied on the basis of the current trend in the wine industry which has greater impacts on individual winery that takes their chances over time. Thus, it is important to consider that the main problem in the case should be on the consideration of expansion of Schoolhouse Lane estates amidst the substantially changing trend in the winery business. The current trend in business winery and the timely expansion of Schoolhouse Lane are intertwined and they must be carefully evaluated and studied for generating solutions. 3. List of critical factors There are two substantial issues that need to be expounded in the case. Strategy Issues Considering that competition in winery turned into an upward spiral but the demand for wine did not significantly increase high enough as year progresses, it is important for Schoolhouse Lane to consider important strategic actions so as to continue gain remarkable market share and continue its operation. This is remarkably needed so as for Schoolhouse Lane to have permanent equity capital to eventually sustain its growth plans. Financial Issues Clearly, Schoolhouse Lane needs capital in order to continue its expansion program. In fact, her accountant and financial manager Laurel Durst was exploring number of working capital financing options with the North Fork Bancorp. Moreover, Jan herself also arranged meeting with her brother Nick for possible advices on her financial options. 4. Alternative solutions 1. Do nothing Doing nothing on the case does not entail good things. In fact, it may just only add up more on the problem. This is just the same way as letting the industry solve the problem by itself and the Schoolhouse Lane by itself. 2. Do not continue Schoolhouse Lane strategy This is the same way of telling not to pursue at all the ongoing business at Schoolhouse Lane. With the said course of action Jan will never be stressed by finding for possible options in order to continue her winery business but this would also entail loss of her winery in the long run. 3. Focus on internal growth With consideration on internal growth, there is a good chance to focus on the company’s financial aspect, marketing aspect and other related strategies. This is more specific since this can have a long chain effect as far as addressing the current problem in the winery industry. With much more focus on internal growth, the company will be able to adapt or even make use of the opportunity as the industry is on its challenging moment. However, Jan must be very specific on what internal aspects she needs to focus on in order to substantially address the problem. 4. Borrow money from the North Fork Bank This is one of the most feasible solutions but unless there is permanent equity capital for Schoolhouse Lane to sustain its growth plans, the bank will be skeptical on money borrowings. 5. Sell equity The good thing about this is that it would be now easy for Schoolhouse Lane to secure working capital. However, Jan is most likely to end up sharing parts of her share to other probable investors as clearly stated in the case that she hated to happen. 6. Complete the expansion and sell the winery later down the road With complete expansion, the Schoolhouse Lane will need to look for working capital and focus on its internal growth in order to survive the current trend in the winery industry. These are all important considerations that Jan will need to take into account. However, it would be hard for Jan to go for complete expansion without taking into consideration her financial capacity and complete evaluation on up to what extent there is a need to enhance internal growth of her company. 7. Sell the Schoolhouse Lane Estates now Another point that might give solution to the problem of Jan is to sell her winery amidst the challenging situation of winery industry, but this would mean a complete shutdown of her business. 5. Recommendation Of the seven alternative courses of actions provided, the recommended action plan is to focus on internal growth. 6. Rationale and Justification As stated, the winery industry is slowly deteriorating. The only way to compete in the industry amidst increasing number of key players yet slow increase in demand is to strengthen internal operation of the Schoolhouse Lane as justified in the case. Focusing on its internal growth is the best possible option since this can strengthen the company which in the long run will lead further to expansion of the business as clearly what it had started prior to its recent development. Focusing on internal growth is an integral part of creating demand for products produced by Schoolhouse Lane. Reference The case. Case 19: Schoolhouse Lane Estates, pp 714 – 727. Read More