Where our hero Marcus works his magic in record time.
Link to Video.
Amazing Grapes is an Orange County, CA wine bar and shop started by a successful real estate developer. It was launched 9 years ago but has never shown a profit despite current sales of $3.5 million. It also owes $570K to its vendors. The main problem is that all of the owners are distracted by other business interests and personal activities. The most active of them, Greg Schroeder, only drops by once or twice a month, according to staff. Another invisible owner, Bill, had to be shamed by Marcus into meeting with him. Greg and Bill have invested $750K. There are five other investors who invested another $500K but they are only mentioned once in passing.
This particular episode is an example of the tycoon game at its finest. Captain Marvelous (aka Marcus Lemonis) comes across a very nice business with great potential that can be turned around quickly. The business is already in an affluent area packed with the right type of customer. It just needs to do a better job of catering to them and utilizing its expensive floor space which costs $14K per month.
When Marcus arrives the store has a huge variety of wines for customers to choose from. Indeed, the selection can be said to be too big with around 1800 SKUs. As a result much of the $340K in inventory is collecting dust rather than selling. Marcus is not impressed by the stacks of wine cartons cluttering the entrance and retail floor.
Marcus quickly grasps that the business is split into three departments. There’s the retail store, a wine bar that also serves meals, and the Internet sales arm. The retail section is the most costly to maintain because it takes up about 80% of the floorspace while basically selling wine at little over wholesale. It’s the big money loser. The wine bar occupies only 10% of the total floor space but generates $500K of the total revenue at a margin close to 40%. It’s the most profitable contributor. The online sales department is responsible for $2 million in sales out of the total $3.5 million but has the same low margins as the store. What it does have going in its favor is a much lower overhead due to the fact that it has one employee and requires next to nothing in floor space.
The wine bar is also too small and tucked away in the back where it can’t be seen from the front. Its kitchen is ridiculously small.
Here’s the old layout:
As mentioned, the main people problem is a lack of leadership from the top due to the fact that all of the owners appear to have little if any interest in the business. At best it’s an afterthought for Greg who drops by once or twice month to check in and do everyone the honor of jamming for free with his garage band.
Basically the only thing that’s kept the operation afloat is the employees. The 17 staff members and managers have been fighting hard to save their jobs.
Unlike a few of the other episodes, there are no villains in this story just a few owners with their heads buried in the sand.
Marcus’ Growth Plan
When Marcus meets with both Greg and Bill, he offers $300K for 51% of the company for himself and 25% for the employees. All of the original owners are to be left with only 24%. Greg fights for about 30 seconds before accepting the offer. Bill basically shrugs his shoulders and says “whatever, man”. This shows how little emotional investment they actually have in Amazing Grapes.
After the deal is done, Marcus tells the Internet manager, Dan, to hold a sale and blow-out the old inventory. He also gives Dan full control over purchasing and tells Greg to butt out. Marcus then does a deal with a local winery to create a private label wine that will provide higher margins to the store.
It also looks as if Marcus sinks another $323K into the renovations.
After the rebuild which took 30 days, or so, the results are phenomenal. The business is transformed from a run-of-the mill wine store into a hip vibrant place to go to with friends. More importantly, the sales and profit picture start turning around from the very first weekend.
It would have been interesting to meet the person who came up with the new design. In the Hotel Impossible series, you get to meet Anthony Melchiorri’s team of specialists. However, keep in mind that people like Marcus don’t have to be experts in a lot of areas. All that they need to be is the generalist who knows the right specialist to bring in on a project. That’s why you see Marcus bringing in accountants and designers to help him when needed.
-Business is all about getting the best return on your money. If you have it invested in two different areas where one provides a 15% ROI and the other only a 5% ROI, you shift your capital over to the first. This is what Marcus does with the three departments at Amazing Grapes by rearranging the floor space. In a nutshell, he turns the entire place into one huge and attractive wine bar because it offers the 40% margins. The old retail store is shrunk down to wine displays along the walls. I assume that Dan and the Internet department are left pretty much as they were before.
-While working in business brokerage I discovered that many businesses have owners like Amazing Grape. The founders are only capable of growing it to a certain level and there they get stuck. After that point operations often go on automatic pilot for years with everyone doing just enough to keep the business at a comfortable plateau. In these situations, the objectivity that an outsider has is a huge advantage. They can look at the business and quickly assess what’s not working and how to improve things. The tycoon game is a team sport. You will have to get the balling rolling by yourself, in most cases, but will quickly start to collect a team of specialists.
Here’s the new layout. It’s all wine bar now.:
This episode worked out for the best for everyone. The staff have more job security in a profitable business than in a money loser. Marcus has another good investment in his portfolio. Greg and Bill can now relax and enjoy being silent partners.
It’s too bad that we never got a chance to hear Greg’s band play. As a result I did some extra research and dug up a YT video of the band. It’s called Pickleback Shine. You can see Greg at center back in a white-shirt and jeans strumming away on his guitar.