Brothers in the Vineyard: Growing Fraiche Wine Group
The Owner's Box Podcast Episode 5
Listen to this episode in full here - 49 minutes.
Like me, your views of what a family business means might migrate toward the large, multi-generational firm. But these businesses are not the majority of companies, nor are they the only way a family is represented within a business.
Consider this ... there are 30M registered businesses in the US, a country of 330M people. That is one company for every 11 people. While 75% of these businesses are sole proprietorships, once you move beyond these one-person shops, you start to see family showing up in a set of new ways. For example, what about…
A husband and wife who start something together, or
A parent who gives the first check to a child to start their new company. Or, in the case of today’s episode,
Two siblings are starting a business together.
But beyond the fact that this happens.... how is this done well?
I love my siblings, but I am not sure how well we would partner together. My parents are amazing, but how would they deal with a loan to a son when his business isn’t growing quite as quickly as he said it would and their retirement is caught up in our shared success?
Welcome to Episode Five of the Owner’s Box by WashU Olin’s Koch Center for Family Enterprise. This week, we learn from Michael and John Kennedy on how they have worked together as siblings and a broader family to build out Fraiche Wine Group.
Take a look below for a few excerpts from this week’s episode.
The History of Fraiche’s Growth and Evolution
Here Michael reflects on the path of growth for Fraiche as a whole.
So the holding company or the management company is called Fraiche Wine Group. Fraiche Wine Group was kind of born out of a logistical financial necessity. I started our first winery, which was Component Wine Company, in 2016. At the time, we didn't own an vineyard. We didn't own a winery. We produced from really stellar sites with incredible winemakers, but we started on the leaner side.
Two years after that, had an opportunity to start another winery in a similar fashion. And then in 2018, had an opportunity to work with a winemaker named Mark Gagnon and start a third winery called Gagnon Kennedy Vineyards. This is when I started to see that direct to consumer sales were really fantastic. Costs were doing okay. The business was surviving and growing, but there was a lot of overlap between the three wineries. Back office type things, administrative duties, accounting, sales. I would go on a trip to Dallas. and I would bring all three of the wineries with me and it was kind of hard to decide what to sell where and how and then who covers the cost of that. So the idea for Fraiche Wine Group was let's create a family of wines that's comanaged, that can reduce expense, that can help our teams grow, that work for all three of the wineries. On the sales side, office side— reduce overhead, increase impact. Similar to the same reason private equity rolls up.
So we did that in 2019 and we inadvertently created a system to continue to add new wineries, in perpetuity essentially. With that though came a huge benefit that I didn't foresee, that I didn't see coming down. the path, which was as a small winery, it's really difficult to gain distribution in a national sense because you might be able to allocate two cases to the state of Connecticut. Well, no distributor wants to waste their time even having a conversation for two cases of wine, regardless of how expensive or phenomenal the wine is. When you start to have a family of wines and you can now offer 20, 30, 40 cases to a state, then it's really interesting because. they have some real business potential with you as a producer.
The Unique Challenges of a Family in Business
Here John reflects on the intentional effort required to ensure that business does not monopolize the family's attention:
I would say there are moments of tension, moments like, hey, where's my K1? Sometimes those conversations come up. But I'd say 95 % of the time, the family gatherings, the family dynamic has, I think, been strengthened.
While we do have a lot of family members involved, they're not involved to the level Michael is obviously, or even to the level that I am. And so I think that's one thing that we've had to do. And I think maybe it's a reminder, obviously, that you can't just live and breathe only your business.
But I do think that Michael and I have found a natural symbiosis of discussing the business. And I understand kind of what Michael is looking for me to, you know, bring to the table in terms of the business on a daily, quarterly, annual basis. And I think though that that's been maybe the only source of tension really lately is just, you know, how do we not talk about all the time and how do we bring more of the family into some of these discussions?
The Paths Towards Growth & Selection of Capital Partners
As the company continues to grow beyond wine into broader hospitality, one challenge will be doing so with a different mix of capital partners. Here, Michael reflects on those design challenges:
I think the combination of having family shareholders and also outside shareholders can temper that dynamic. We have reporting standards. We have expectations within the family and from outside of the family. And our family being extremely reasonable doesn't tend to put pressure on the business beyond what the outside investors are doing. So we tend to treat all of our shareholders the same way with the same type of benefits, but also the same type of communication and expectation. I think that the one outlier to that would be my father and my brother who are more involved in the business.
But, I don't think that the financial stakeholders in the business want anything but the success of the vision that we've laid out. And unlike other businesses where there's a lot of push toward growth and scale and increased profit, we look at this business and we look at all of the businesses, of course, with a lens of we want this to be financially profitable, but we also want this to be extremely long term. We want this to be a business that becomes generational. And when you have that extreme long term vision, I don't think we make knee jerk reactions based on scale and profit. We make decisions based on the future long -term health of the business and the generational ability of the business to carry down.
Finally, John weighs in on how the capital composition will shape the approach to business growth and decisions on who to let into the owner’s box.
I would say this, I think, you know, in the minutiae, yeah, there's, I think, tension that maybe we should be more conservative in how we spend on this and how we invest in that, or maybe, you know, we should be considering a modestly different curve of how to get into a business, how to ramp up a business, things of that nature. I think that those are just slightly nuanced discussions, nuanced preferences. I think Michael has been very smart and we've been smart, but I think it's really Michael.
Michael has been a student of a lot of entrepreneurs, small and very, very large. And he's been warned from the very beginning to just be cautious how you raise from the outside, because there can be these expectations put upon you that may not align with, as Michael said, generational businesses.
And while we hope that that happens, I think that that's been one of the reasons why we've not had too much confrontational blows. We don't have too much tension between the outside and the inside in terms of kind of the dreamer and the financial side, because I think we have set that long -term goal similarly and Michael's been very careful about how to grow the capital from the outside.
Thanks as always for joining on at The Owner’s Box! Many thanks to our creative producers, Jennifer Wintzer and Austin Alred, for their support in producing the show.
Until next time!