Philip James is the founder and CEO of Penrose Hill – a wine company aiming to bring the wine industry into the 21st century. Click on the underlined text to jump to the section you want to read!:
1. Background on Penrose Hill their algorithm-based business model and the 3 branches driving growth.
2. Wine pairing advice from Penrose Hill CEO, Philip James.
3. Q&A with an entrepreneur: advice, startup breakthroughs.
4. Cheddar video interview (and transcript) with Philip James on Firstleaf wine club.
The use of data analytics means that Penrose Hill has gained unconventional perspectives into a somewhat conventional industry – to see wine differently and in ways that allow them to eliminate inefficiencies. James says his goal is to “provide consumers a better product for a better price”.
Data is at the heart of what Penrose Hill does. They use feedback from customers and partners to optimize every aspect of the winemaking process; from label design to flavor profile. As an independent winery, Penrose Hill eliminates the layers of middlemen between the producer and consumer, giving customers exclusive access to small-batch wines for less, while delivering higher margins to their partners.
There are three distinct branches driving Penrose Hill’s growth. The first and largest being the Firstleaf wine club. James says, “Penrose Hill wants to build the world’s most customer-centric wine company, and Firstleaf is our key to achieving that. Using a specially designed algorithm that combines machine learning and wine chemistry into an AI-based platform, we are able to match wines to customer’s tastes with unprecedented specificity. We’re constantly innovating new ways to please customers.”
The second branch driving Penrose Hill’s growth is a line of direct-to-trade wines. The company diversifies their sales base by venturing into the largest segment of the wine market: traditional, distributor-driven sales to retail and restaurants. Leveraging the savvy gleaned from market testing by Firstleaf, new packaging options and dynamic customer experiences allow them to “Breathe new life into this segment of the industry. We are introducing several new brands in 2018”. Canned wine Right Now Red no. 8 is already in some stores in New York, “it’s made to be enjoyed anywhere you are it is perfect for a busy city.”
Another of their wines to look out for is Bodewell—a collaboration with the charity Wine to Water. The proceeds from the sales fund their mission to provide access to clean water to those who need it the most globally. For Bodewell, Penrose only sources from exciting and distinct wine regions, “in an effort to highlight our interconnectedness through the land.”
The third branch of Penrose Hill is corporate partnerships. They have been working to launch wine clubs and build labels for brands interested in diversifying client outreach, for example, a “really fun” Loeb NYC “family” partnership with the team from Thnks.
Here is some practical wine pairing advice. In my opinion, wine pairings are all dependent on what you are eating and what you like, but here are a few quick tips that may help lift any meal or dinner party. The most important “rule” is to have fun and drink what you like, there are no hard-and-fast rules when it comes to pairing wine! That said, here are a few typical recommendations:
● Start with something sparkling! Champagne is often saved for toasts, but sparkling wines deserve a place at any dinner table, as they pair well with nearly all foods. Our Clarabelle Sparkling Wine was a club favorite this past holiday season.
● For whites, we love anything with higher acidity. Acidity allows a wine to highlight and mix with the food’s flavors. Our Play Riesling is a great option for such a meal.
● If you prefer reds, I’d suggest a Pinot Noir, like our Cassiday Blare, or a medium-bodied blend. You want wines with the fruit and acidity to stand up to a meal with a lot of different flavors present.
I’ve been in the wine business for almost 15 years and have started several companies. With every iteration, I’ve grown more and more focused on delivering quality and value to the end customer. With Penrose Hill, we focus on making wines that our members love and that are incredibly high quality at a fair price. We want to offer the best of both worlds (quality and fair pricing) because we believe it can be done.
In 2015, while raising our seed round of funding, Primary Ventures introduced me to Michael Loeb and Rich Vogel as people who could give expert insight into running a successful direct to consumer business. Our first meeting was in the construction site of what is now the “rainforest” floor of Loeb NYC.
One of the things that drew me to Michael is his ability to perceive customer pain points and inefficiencies and work to find a way to fix them. Loeb has a proven track record of success with subscription economics and consumer-focused goods, and we feel incredibly fortunate to be working with Loeb Enterprises.
There have been a few notable breakthroughs at Penrose Hill. Most recently, it has been focusing on offering even more robust services to our customers. We grew our Member Experience team from 2 to 15 employees in the last 12 months, and are starting to offer more ways to buy and enjoy our wines. Very soon we will be launching our online store and selling wines by the bottle. Our members will be able to easily reorder wines or order a gift for someone else. It will also allow prospective members the opportunity to try out our award winning wines before joining the club!
Cheddar Interviews Penrose Hill
Watch Cheddar’s video interview of Philip James, Penrose Hill CEO. Cheddar asks about how Firstleaf differs from its competitors, Philip’s background in computational chemistry and how Firstleaf uses an algorithm to match subscriber’s taste preferences.
Penrose Hill’s algorithm is able to ascertain on a chemical level what an individual likes or doesn’t like about the wines they try. The algorithm also adapts when a person’s taste changes.
[Edited for clarity]
Cheddar: Philip, Firstleaf is not the only wine subscription service on the market. So what makes you different from the others?
Philip: There are a lot of places to buy wine. You want to set up two things. You want to make sure that the place you buy from has very good wine, and then you also need someone or a service to help pinpoint which of the wines is right for you. And I think we do both those things very well. We have a very talented team, a very good wine, but our algorithm also helps us figure out the perfect wine for you.
C: You’ve got a very interesting background to be able to successfully do this. A Master’s degree in Computational Chemistry and Business at both Oxford and Columbia. Tell us what that means for the service that you provide?
P: I have an undergraduate degree in chemistry and then I have a Master’s thesis in the mathematical modeling of chemicals. I don’t actually build the algorithm, we have a data science team that does it, and they are much smarter than I am. So my hope is that I’m the one who can help set the goals, and they’re the ones who have to go build the algorithm.
C: I know the Sommelier tests are incredibly difficult to do. How does that background that you have maybe help with your understanding of how to pair flavors together and to suggest flavors to your customers?
P: I think having a science and math background is helpful. I mean, the service we have created – like I said, having great wine is like table stakes, you have a start there, but having an understanding at the chemical level of what’s in that wine, and maybe there’s someone who doesn’t like tannin, or you know, like acidity and they don’t like the feel or it gives them a stomach ache or whatever it is, being able to use the algorithm. So when someone says, “I didn’t like this wine, I liked that wine” to be able to understand chemically what it is about those wines that they like and then we can go recommend a fourth or fifth wine, based on –
C: – You apply it to everything in your catalog.
P: Yes, that’s right.
C: There are two different types of wino’s out there, there’s the ones that are consumers and the ones that think they’re connoisseurs but really they are just consumers, and then there’s – well, there’s perhaps three, there’s the ones who are actually the really good connoisseurs. How do you make sure that the ones who are the consumers and the ones who are the connoisseurs who are really just consumers, how do you make sure that you’re maturing their tastes and diversifying their experience in the right way as they do go along this process and the algorithm arguably will stay the same but match them up with something new as they go along?
P: I think this is something we actually do really well, right. So your tastes change and they might change just stylistically in the summer you’re going to BBQ a lot and maybe you’re going to be outside and you want rosé or maybe with the heavy meats that you BBQ you’re going to want big red wines or maybe you got on a health kick and now you want a different kind of a wine because you’re having lighter food. The algorithm is constantly updating. It’s kind of like Pandorafor wine, so you don’t just stay at the seed song that creates the station, but as you rate songs the radio changes over time and so for us as you rate wines up or down, as you give us reviews, humans read them and the computers process it and it is continually updating as your tastes evolve.
H: Yeah, I love that analogy a lot. Speaking of kind of Pandora, one of the benefits of using Pandora is that they have a lot of data on you and what you like. What about on the supply side, we talk a lot about big data with our other guests, big data in healthcare and obviously in social, is there data in the wine industry? Are wineries getting more, I don’t know, sensors, uploading more of that information into a service like yours to make it easier for you to select the wines and to offer it to customers?
P: There is a lot of data, so our head winemaker has a masters in oenology and a masters in chemistry as well, and I talked about our data science team, and that’s led by a guy with a PhD in Chemistry so there is a strong, so we have a strong focus on the wine and the chemistry of the wine. We take a lot of chemical analysis of the wine. So wine has acid right, but what kind of acid? There’s citric acid and malic acid, right. You have to get down to a really deep level. Some of that comes from the wineries that we work with and some of that is our own chemical testing then all of that gets fed into a database along with customer ratings.
H: How many of these databases are out there for wine? Is there like a central one? Or like an open source?
H: How do you guys all work together, then? I find it fascinating.
P: There is no universal, centralized, like rating system or information about wine like that, not at that level. So wines that we are making or wines that we are buying we have to run the chemistry on them and we have to take that data and we work with wine laboratories in California to do that.
H: Is that where the highest concentration of the wineries that you work with are? In California?
P: Yes, about half the wine that we sell is from California and the other half is from the rest of the world. Our facilities, our production, and shipping, our winemakers are in California.
H: And how much does your service cost?
P: We sell an introductory box of 3 wines for $15 and we lose money on that, but the idea is that’s what gets the algorithm going, it seeds it for us and then thereafter, shipment is 6 bottles and it’s $79 plus shipping.
H: Philip James, CEO of Firstleaf joining us here today on set – very interesting stuff.