DailyFinance: What's the best decision you've made guiding the winery through the economic downturn?
Silva: That quality is the ball you cannot take your eye off of, all the more so in a difficult economic environment. We have made the decision to invest time, expertise and capital into quality, at a time when other companies are cutting corners.
Better grapes that are 100% hand-picked in Sonoma, hand-sorting tables, smaller tanks, French oak barrels, night-picking our Chardonnay. . . . Most people who purchase St. Francis wines won't hear me talk about our passion or our enhanced quality efforts, but they will taste it. And they will like what they taste as a result. I have never been more convinced of that, and it inspires us greatly.
Is it important to be a risk-taker during the current economic climate? Why?
I think it is important to be lean and mean and efficient, and put whatever costs are saved right back into product quality. We are willing to take smaller margins in order to create better wine quality. Investing in better grapes and hand-sorting tables and French oak barrels and so on might not be the best short-term approach in a down economy, but the only way to build a premium wine brand is by creating a realistic impression in consumers that the brand is getting better with each vintage. We take that approach, and our business is in the black despite the current economic environment.
How has St. Francis fared during the recession?
Our sales have actually increased over the past 24 months. For example, our Sonoma County Cabernet Sauvignon was just named one of the 20 most popular U.S. restaurant Cabernets [in Wine & Spirits Magazine's annual restaurant poll]. I attribute this to two things: quality and value.
I don't think wine consumers are concerned only with price. I travel nearly 100,000 miles per year, and what I see is concern about value, which is different than price. Value can be had across the pricing spectrum. Make a consistently great bottle of wine and price it a few bucks less than it is worth and that wine will sell. That has always been our premise at St. Francis, and our winery is doing pretty well in a difficult economy for precisely that reason.
What advice would you give other CEOs about operating successfully in this environment?
First, the CEO's job is to connect the internal organization with the external world. He or she has to understand the marketplace and the products or services offered that resonate in that marketplace -- as well as those that don't. Even when I am not traveling, every day I make it a priority to talk to consumers and salespeople and other trade throughout the country, not for "happy talk," but for discussions of what is going well vs. what our challenges are. That includes careful analysis of what our very good competition is offering.
Never settle for mediocrity in employees or anyone with whom you do business, because mediocrity, like excellence, is entirely contagious. The lowest level of performance allowed in the workplace will be quickly perceived by everyone to be acceptable, so make sure you settle for nothing less than outstanding performance.
Can you talk about the market? Where have consumers cut back?
Proper channel management has taken on additional importance in the changing economic landscape. One area where we have seen significant pullback is in restaurant wine purchases during the economic downturn. More people are opting to save money by eating at home instead of going out, and business travelers are tending to cut back on expense account spending. This means we've had to focus even greater efforts in small and midsize independent wine shops throughout the country, where our brand was built, and where the hand sell by salespeople who know us and appreciate our wines is alive and well.
Can you discuss strategies you employ with your distributors?
A key component of our sales strategy is to ensure that every one of our salespeople has heard and tasted the specifics of our quality story. I remind them how important their job is and how our mutual success depends upon them believing in the product we have asked them to sell.
So we discuss and taste our quality at every one of my sales meeting across the country. No graphics, no splashy charts, no PowerPoint. Just bottles of St. Francis, wine glasses, a corkscrew and a sip-by-sip discussion of what they are tasting as a result of our specific quality enhancement efforts in the vineyards, on the crush pad and in the cellar. No green flavors in the Cab we are tasting? That's because of our fruit-dropping and leaf-pulling efforts under our farming plan that gives us maximum ripeness and structure. Creaminess as well as balanced acidity in our Chardonnay -- that's because we night-pick these grapes.
We have some terrific, talented, experienced salespeople across the country. They have taught me that there are two critical moments of truth between a winery and a customer. The first is when the customer sees the bottle on a store shelf or wine list and chooses to buy it over other wines, and the second is when the customer actually tastes and enjoys the wine. Word of mouth, brand familiarity, ratings, price and other issues often come in to play, but a salesperson who has tasted, understands and believes in that bottle of wine will stand behind that bottle and get it in front of customers, either on a wine list or on a retail shelf so that the customer's decision to buy that bottle -- the first moment of truth -- becomes more likely.
The second moment of truth, when the customer tastes and enjoys the wine, is what creates the relationship between the customer and the winery. That's our job, and the relationship will be a long one if we make sure it's all about quality.
What's your philosophy in running St. Francis, and what have you changed at there since stepping in as CEO?
Above all else, my philosophy is that our success will continue to be about passion and quality. I have simply continued -- and hopefully accelerated -- our internal culture of quality and of Sonoma here at St. Francis. One of the principles I came here with is that effective marketing must be both internal and external. . . . everyone making the product has to practice and believe the quality message before we can expect the public to believe it.
Our industry is rich in stories and lessons. I made an appointment and sat down with Robert Mondavi in his office 10 years ago. He wrote me a note before I left that day and told me to keep it and remember it. The note said, "Interest is not enough -- you have to be passionate."
I tell business students to this day that they shouldn't buy anything from someone who's not passionate about it. We put our wine-making team in charge of grape-grower relations, put members of our sales team in our blind tastings and asked our very bright, talented pool of employees to come up with ideas as to how we can further increase our wine quality. In the process, we made some difficult personnel decisions that left us with a team of only those who are passionately committing to making better wine. In doing so, we have further solidified a culture of quality at the winery and in our vineyards.
Every member of our team knows the mission: better wine. No mixed messages. It's all about the wine. This is what we do, and we must do it well. Period.
What was your background before joining St. Francis. How have you applied it at the winery?
I practiced law for nine years, first in Los Angeles, where I started practicing banking and entertainment litigation, then in Sonoma County, where in continued in financial and real estate litigation and trials. As a lawyer, I had represented a number of wineries. I had known the founder of St. Francis Winery since I started bagging his groceries in 1979 at age 15. In 1998 he asked me to help him with management and marketing, so I retired from practicing law at age 33 to join St. Francis Winery. I loved the chance to tell people how we grow grapes and make wine in Sonoma, and pretty soon I was traveling all over the world telling our story. I learned from our founder, Joe Martin, that even in this age of computers and videoconferencing and email, there's no substitute for a handshake and a personal visit.
What inspired you to leave law and Los Angeles, and return home to Sonoma to run a winery?
I left L.A. and moved back to Sonoma County when I was 28. Believe it or not, we had a small group of friends who were going to help me run for Congress back home when I turned 30. We eventually abandoned the plan when we -- make that I -- eventually realized that we had neither the experience nor the money to mount a successful campaign. In other words, I would have gotten clobbered.
The funny thing is that despite other interests, I was quite happy trying to be a good lawyer. I loved the law, and I very much enjoyed being in court. I had already had over 20 trials by the time I retired from practicing law at age 33 to join the winery.
Did you have a background in wine? How has that served to your advantage?
I grew up in Sonoma County, and wine was always around. I had represented a few wineries as a lawyer and found the wine business fascinating. . . . I kept seeing that the most successful wineries were the ones comprised of people who were passionate about wine and about quality. As an attorney, you have to be quick on your feet and master details and be able to peel away whatever layers surround a problem in order to specifically address the issue or question being presented. A trial judge wants an immediate, concise, 30-second answer to her question. That training and intensity has helped me tremendously in business.
What are a few of the defining moments of your career?
Silva: I started working when I was 11 years old. I had a paper route and delivered newspapers on my bicycle. I wanted a better job than my paper route, so I ordered business cards when I was 14. In 1979, when I turned 15, I walked into Petrini's, the best supermarket in town, and asked the manager to hire me. He told me I was too young and that there was no position for me, so I handed him my business card and asked him to call me when he could hire me. He called three days later and said he couldn't believe a teenager actually had business cards, and told me to start work the next day.
I started working at the store as a box boy the next day, and within six months, I was the youngest cashier in the company's nine-store chain. I realized that the business cards were a way to stand out from the rest of the pack. I worked 30 hours per week throughout high school and at holiday and summer breaks in college and law school. I loved that job.
Another defining moment was when I learned the "four corners rule" from Mr. Share, the senior partner of the 68-lawyer firm I started with in Beverly Hills. As a young attorney, I drafted briefs and other pleadings for Mr. Share to review. In a settlement offer in a case we were working on, I referenced the settlement without listing the amount and conditions. Mr. Share told me that any letter or pleading should have "all the information the other party may need to accept the offer or close the deal within the four corners of that letter or pleading."
In other words, if someone has to look at anything other than the document in front of them to settle the case or close the deal, the four corners rule has been violated because that pause to search for information could lead to a lot of things other than the close. Give the reader of your document everything he or she needs to close or settle within the four corners of that document, and you will be far more likely to close or settle the case. Invite them to get up and look elsewhere for necessary information, and you have minimized your chances to resolve the matter.
As a result of this, my emails, recaps and other correspondence are thorough and inclusive -- times, dates, locations, amounts, conditions -- you name it. I preach this approach constantly at the winery, as it saves countless time and confusion for everyone involved.