PPT Slide
Control Costs / Improve Efficiency
- Divest / write-down non-strategic assets
Notes:
- Our third strategic imperative is to cut costs, and, in fact, we have already taken some significant steps, including a 10% reduction in our work force that is now saving us more than $6 million dollars a year.
- We have also been actively reducing production costs, primarily by centralizing control of winemaking operations to ensure best practices in our vineyards and wineries.
- We are also reducing product costs by sourcing a higher percentage of fruit from our own vineyards. This is something we have been working on for several years, and our investments are now paying off. In the 2002 harvest about 7% of our grapes came from vineyards we own; in 2004 it will be about 22%.
- The long inventory cycle of wine means we don’t see all these product cost savings on our income statement right away. That said, these various initiatives should eventually generate $30 million dollars in savings annually.
- This sounds good, and it is. But in the current environment, it still isn’t enough to generate the kind of profit growth we want. So we will continue to cut and shrink our core cost structure even as we make the necessary investments in sales and marketing to drive revenue and margin growth.
- One way we are doing this is by shifting our balance sheet focus away from vertically integrated operations to higher-return assets. In fiscal 2003, for example, we sold non-strategic fixed assets with a net book value of approximately $21 million dollars, and going forward, we intend to divest another $45 to $50 million dollars in additional non-strategic assets.