Struggling Businesses: How a wine store restores a struggling profit margin
The success of a business relies on more than just a product or process - it's about leadership. Our discussion in this article takes us to Orange County, CA to a wine and bar location called Amazing Grapes. This story was highlighted in the hit show on CNBC, The Profit. Marcus Lemonis, an investor who specializes in helping struggling businesses, documents the process of working with leadership and staff issues as well as how to increase profitability in a business.
Amazing Grapes has been in business over 9 years now and is co-owned by two partners.
The business generates over $3.5 billion dollars in sales but sadly enough, since it opened doors 9 years ago, has never seen a profit in the balance sheets.
Before the show aired, the business had over $540,000 in outstanding payables.
Amazing Grapes sells wine and operates a subset of the business as a bar/restaurant.
The generating product for them is wine, which accounts for a majority of the sales. However, wine sales operate on 14-17% margins. The bar/restaurant area, operating at a much higher margin of 37-40%, only generates 14% of the business revenue.
1. Non-present Leadership: The underlying problem with this business not being able to generate a profit was due to a lack of leadership. Both owners left the 17 employees to oversee many, if not all, of the day-to-day operations. Both owners ran multiple businesses and, at best, visited the store once a week. Furthermore, it was reported that no staff meetings ever took place, making communication and direction almost non-existent.
2. Dead-weight Inventory: This location had over $350,000 in inventory and way too many selections, making it near impossible to differentiate driving brands and hot sellers in their wine list.
3. Picking the wrong margins: Selling wine as the main revenue driver is a good example of picking what you love as your main focus of the business when it doesn't generate enough profit. It's ok to go after something you are passionate about, but measuring your success and looking at your numbers can tell you how you're doing.
The strategy was to deliver a cash infusion of $350,000 investment and strategy by Marcus Lemonis to take over as major shareholder and offer 25% shares to employees as an incentive in the business.
After eliminating the past payables and debt, Marcus removed the bar from the back corner of the business, positioning it at the entrance of the building. Before the re-structure, the employees were non-engaged and very aware of the lack of direction and leadership. As distributions of an inventive plan rolled out, you could really sense the change in tone and excitement to be a part of the decision making in running and taking care of their place of work.
The restaurant business, before, used to have the owner's band come in and play on Friday nights'. After seeing poor performing sales, the staff indicated that clients didn't come because it just didn't fit into the environment. In addition to moving the bar, they were able to almost double their seating area. They also expanded the kitchen area, which was in a dire need for more space.
The changes in leadership and staff had dramatic effects on sales. Now, the company reports $4.2 million in sales with an average of $80,000 per week - a $700,000 increase in revenue. The bar area on opening night saw sales jump through the roof!
What turned things around for Amazing Grapes was utilizing sensible sales profit margins for small businesses that could drive a profit. Not all business mistakes are fatal and not all businesses need an investment strategy to revive their financial position. Some just need to create profit sharing programs for their employees to make them more productive. Including more voice in decisions and better collaboration can go a long way, including the occasional praise for a job well done. Don't let passion get in your way of being paid for what you love to do. Look at the overall numbers in your financials to determine if what you love to do pays the bills.
LUXA Enterprises is a group specializing in outsourced accounting services for small and mid-size businesses in the Tulsa and surrounding areas. LUXA Enterprises provides help in accounting services for small businesses to increase each entity to grow from a trusted provider.