IMPERIAL, Kirsten Mireille P.

Frogs Leap Winery

STRATMA K37

Individual Case Analysis

a) Whats going on at Frogs Leap Winery? Have its efforts to become sustainable been thus far
successful?
Frogs Leap Winery is a wine producer from California which appeals to the growing
demographic segment called Lifestyle of Health and Sustainability (LOHAS), consisting of an
increasing number of green consumers. These consumers scrutinized environmental and ethical
practices, focusing on health & fitness, environment, personal development, sustainable living, and social
justice. The company appeals to these consumers through their various green practices. It specializes on
making organically grown grapes picking fruits at their natural ripeness and dry-farmed vineyards,
originating from company owner John Williams belief that dry-farming results in stronger, healthier
vines. Dry-farming also helps them to conserve water and reduce soil erosion. Other green practices of
Frogs Leap Winery include the use of solar power to run their operation, as well as the use of compost
and cover crops to organically enrich the soil.
All of these green practices alone were not enough to set the company apart from its competitors.
The wine industry itself is very green yet its something thats not widely known. Thus, it became the aim
of the company to be recognized by enhancing its reputation for sustainability. Efforts to become
sustainable did not only differentiate the company it also helped them reduce their costs. Sustainability
efforts of Frogs Leap involved a set of practices that created social, environmental, and economic value,
in line with the triple bottom line that consisted of people, planet, and profit factors. Most importantly,
their sustainability efforts are centered on using wine-growing methods that are environmentally sound,
economically viable, and socially responsible.
Its efforts to become sustainable could be said to be thus far successful as evidently reflected in
all the triple bottom line factors, especially in the planet and profit factors. Firstly, practices in their
people factor are directed towards creating a work environment that nurtures a talented and stable team of
work associates. Frogs Leap treats its staff headcount of fifty employees well by providing them the
benefits and salaries they deserve for their work considering their manual labor in the vineyards and
management of different company operations. These employees work in an environment where they are
happy and are motivated to work hard to deliver quality wine to consumers. As a result, more people are
attracted to work for the company and current employees are driven to work.
Secondly, they are able to maintain optimal levels of production while implementing green
practices and contributing to the environment. Expanding their property by 100 acres allowed them to
have more land to grow grapes in an environmentally-friendly manner. Like mentioned earlier, the
company uses cover crops and dry-farming methods unlike other wineries that utilize drip irrigation. In
addition to these practices, the company also utilizes waste and alternate power sources. Through these
practices, the company is not only able to decrease impact on the environment but also to differentiate
itself from competitors, being recognized as a LEED-certified wine tasting and office facility. Investing
in alternate power sources by purchasing a geothermal system and using solar power when possible was
expensive, but worth it. These investments generated a significant cash rebate, low costs for operation,
and excellent warranty policies.
These sustainable practices also led to the creation of economic value, thus being successful in
the profit factor. They are able to save costs and increase sales through their Fellowship of the Frog
wine club, which provided exclusive benefits to loyal customers and wine by the glass program where
they sold larger quantities of wine with kegs, using less glass for bottling. Through these practices, the

company is able to lessen their operating expenses lowering them than industry average while having
above average cash flows.
b) How would you go about measuring Frogs Leaps efforts to become sustainable?
Frogs Leaps sustainability efforts can be measured through the triple bottom line, as mentioned
earlier, as well as looking at operating expenses and the amount of cases produced after implementing the
sustainability efforts. Looking at operating expenses could involve tracking down some of the expenses
incurred during production like the amount of water they use or the amount of waste they are generating
and how they are able to reuse them in order to save costs. It would also be helpful to check if they meet
what is considered as green in the Napa Area, given that they grow their grapes in the Napa Valley. In
line with this is the LEED that set a common standard of measurement of how a green building should be
built. Of the Napa Area requirements to be green, Frogs Leap was able to meet three and was considered
as a winery that is able to care for the environment, to practice agriculture sustainable, to conserve water
& energy, to prevent pollution, to reduce solid waste, to use organic materials, and to have control
measures for erosion. These are specific measures that can be calculated and compared with regards to
other companies in the industry and could be used for benchmarking.
c) Is Frogs Leap a social responsible enterprise? How does it compare against peers?
Having talked about the sustainability practices of Frogs Leap, it could be said that Frogs Leap
is indeed a social responsible enterprise especially looking at its triple bottom line. Reflected in its
practices, Frogs Leap complies with the ethical ways of producing wine and of treating its employees.
The company has always been mindful about the environment and has made sure that they continue
implementing practices that lessen the impact on the environment. Actually, Frogs Leap is among the
wineries that is able to meet all three requirements of being considered a green winery in the Napa Valley
Area. Being environment-friendly has made the company gain a competitive advantage as its practices set
the company apart from competitors. Their practices went against the usual way of producing wine and
despite of being criticized they continued these practices. An example of how their sustainable practice
worked to their advantage is through using less water and making the most of available water sources.
This proved beneficial for the company since it positively differentiated the overall quality of their
products, affecting the flavors of their grapes and their alcohol content. Sticking to its own methods have
been because of their desire to care for the environment. Meanwhile, when it comes to being socially
responsible with regards to how they treat their employees, Frogs Leap is being ethical about
compensating its employees fairly, providing them benefits to support their families, and appreciating
their migrant workers from Mexico.
Frogs Leap is a recognizable social responsible enterprise that implements sustainability
initiatives like their Sustainable Wine Growers conference which they have been hosting each year since
2006. Through this conference, wine growers alike are able to share information and best practices with
regards to winery. However, Frogs Leap could be compared against other wineries that promote social
responsibility by their contribution to the environment. An example is the Willamette Valley Vineyards,
Inc., which is known for being a Low Input Viticulture Enology (LIVE) vineyard that also practices
sustainable agriculture. Willamette Valleys social responsibility is best highlighted through the type of
cork they use and through supporting the use of biodiesel. For their wines, they use corks that come from
trees that are able to regrow. Their corks are certified through the Rainforest Alliance. They encourage
their customers to recycle corks by asking them to bring their corks back in available locations. They also
promote recycling glass bottles, offering ten cents for each bottle returned and one dollar for returned
shippers. Lastly, they support the use of biodiesel through offering it to employees for personal use at no
charge. This is a good way of providing fringe benefits to the employees at the same time being
environmentally-responsible. They also use biodiesel for their delivery vehicles and tractors.

d) Evaluate Frogs Leaps strategy. Use financial ratios and VRIO analysis to support your evaluation.
What is working well and what could be improved?
Frogs Leap implements a differentiation strategy, with which it is able to differentiate itself from
competitors by offering high-quality premium wines and practicing sustainability. Their wines are best
known as comparable with European wines that have less fruity taste. Frogs Leap is also well-known for
their organic farming and environmental management system involving the use of environmental-friendly
methods for wine production and promotion of taking care of the environment by recycling waste.
Notably, Frogs Leaps overall sales of $9.2 million in 2001 was comparably low due to
recession. Despite of this, they were able to increase sales to $10 million in 2009 to $12.15 million in
2010. Alongside this increase in overall sales, cost of goods sold also increased but to a minimal extent
only, since sustainability efforts have been aimed towards at keeping costs low. Through this, gross profit
margin steadily increased from 53.15% to 59.18%. Aside from the gross profit margin, total assets,
working capital, and current ratio also improved. These data show a growth in Frogs Leaps assets.
Significantly, from 2001 to 2009, total assets increased from $21.3 million to $39.9 million, while
working capital increased from $855 thousand to $8.32 million. Current ratios for each period are above
1.0, and two periods surpass 2.4. This shows that Frogs Leap is more capable of paying current liabilities
with its assets converted to cash. Nevertheless, Frogs Leaps increase in its long-term liabilities might
indicate that an increase in their costs due to sustainability efforts required them to borrow money for
their investments. Long-term liabilities increased to $20.4 million in 2009 compared to $7 million in
2001. In line with this, Times Interest Earned ratio fell down to 0.80 in 2009 compared to its amounts last
2000 and 2001. Even though it increased to 1.67 for 2010, Times Interest Earned ratio was still less than
2, meaning the company only makes enough income to pay for its total interest expense less than 2 times
over. In other words, Frogs Leaps income for 2010 was less than 2 times higher than its interest expense.
This also means that they are not strongly capable of paying interest fees. Lastly, Frogs Leap also needs
to reflect about its inventory and monetary collections. Inventory turnover rates decreased in 2009 while
average collection period lengthened from about 15 days to 60 days. All in all, despite of these decreases
based on the financial analysis, increases in its sales and assets as mentioned imply that Frogs Leap is
doing well with regards to its current strategy. Their strategy is working to their advantage.
According to the VRIO analysis, Frogs Leap is able to gain a sustained competitive advantage
since it satisfies all the four facets. Firstly, Frogs Leaps natural resources are valuable for the company
and help them increase the perceived customer value. Through its efficient use of natural resources,
Frogs Leap is further able to differentiate itself. This contributes to the competitive advantage of the
company. Given that they are able to wisely use their natural resources by recycling and avoiding wasting
them, they are able to save costs in the process. Secondly, their skills and techniques in executing a highquality environmental management system are rare since only a few of its competitors follow the same
system or have the same sustainability practices like that of Frogs Leap. For example, like mentioned,
Frogs Leap does not use drip irrigation unlike most wineries and instead utilizes dry-farming and cover
crops. This further differentiates them from competitors. Thirdly, given these rarity in skills and
techniques, as well as their natural resources that deplete in the future, the resources that Frogs Leap
utilize are overall costly to imitate. I think what makes it costly to imitate for competitors is that Frogs
Leaps resources and capabilities have long been integrated on the culture of the company in line with the
vision of owner John Williams. No one else could have the same capabilities, experiences, knowledge of
winery, and decision-making skills like CEO Williams. Lastly, all of these resources and capabilities
mentioned are organized to capture value both for the customers and for the company. Overall, their
management systems, processes, organizational structure, and culture work harmoniously with each other
and help them achieve a sustained competitive advantage.

e) What should Frogs Leap do in the short term, mid-term, and long-term as it pursues sustainability?
As it pursues sustainability, Frogs Leap should continue contributing to the environment by
recycling natural wastes for compost, utilizing alternative sources of energy like solar power, and saving
water by using less and using it wisely. Monitoring and controlling their resources would be beneficial for
Frogs Leap since this could help them save costs. They should also consider their initiative of hosting
their wine growers conference each year. For the next five years, Frogs Leap could have a rewards
program for those customers who would recycle wine bottles, like its peer Willamette Valley Vineyards,
Inc. They could also promote this cause through their conference. They could offer discounts for
customers who bring recycled wine bottles and invite them to exclusive events like wine tasting for the
more loyal customers who continually visit with their recycled wine bottles. Lastly, based on the financial
analysis, Frogs Leap should have a long-term goal of paying off their long-term liabilities so as not to
have an amount that continuously piles up per year. They should pay off within some fifteen years to
avoid paying excessive interest. After paying off their debts, they could invest in newer sustainable
technologies that is in line with their current sustainability practices.