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Views
Concentrations
in business
By Brandes Elitch
Cross Check Inc.
n banking, and most other industries, a concentra-
tion is not a healthy thing. Generally, you do not
want to have more than 10 percent of your capital
I and surplus loaned out to one borrower or group of
related borrowers.
Merchants estimate that 20 percent of their customers
generate 80 percent of their revenues, which is another
form of concentration. And then, there is the other side of
the coin: monopoly, or more likely, monopolistic practices,
that can dominate an industry. These factors affect both the
wine and payments industries.
Concentrations in wine Today, roughly 35 to 40 percent of the grapes are harvested
by machine, which is expensive. So it is a reasonable
The Santa Rosa Press Democrat published an article by Cathy prediction that the larger wineries will continue to pay the
Bussewitz on Dec. 8, 2012, indicating there are about 1,500 highest prices and get the more desirable vineyards as they
grape growers and 500 wineries in Sonoma County. The come up for sale. But the 1,500 growers are still powerful
annual crop is worth about $400 million. Yet the top five and important, and contribute much of the vitality and
vineyard owners control about 20 percent of the harvest, innovation to the industry.
and they control the price wineries pay for grapes.
Concentrations in payments
The two largest players, the Gallo family and the Jess Now, what about concentrations in the payments industry?
Jackson family (also known as Kendall-Jackson), own about Do a small number of players dominate the business? Well,
3,200 acres apiece. They began to buy land in quantity Visa Inc. and Mastercard Worldwide are monopolies, so
about 20 years ago. Over this time vineyard acreage in the that would qualify them on the face of things. It would
county more than doubled, from 28,000 to 63,000 acres. It be virtually impossible to start a new payment network
should be no surprise that today the cost of raw land is like these two – not impossible, but it would take a new or
at least twice what it was then. Recent prices have ranged different model.
between $60,000 and $125,000 per acre.
VeriFone Inc. seems to dominate the POS device market,
The remaining land is not so desirable; it might lack enough but there are a few other players with healthy market share,
water or the right soil or climate, and the county has including MagTek Inc., RDM Corp., Panini, and Ingenico.
adopted a more intensive environmental review of hillside The issue there is compatibility. ISOs and developers want
planting, wetlands and, of course, endangered species. to certify to one or two vendors but not many more.
Vitality from smaller players
The lines between acquirer and processor are blurred. But
Jackson and Gallo took different approaches. Jackson generally, the processor does the transaction authorization,
contacted every vineyard owner that had over 100 acres capture, clearing and settlement from the POS to the
and asked if they would sell their property. Gallo bought network for front-end processing. Then, it handles the
land and reshaped it with huge earth-moving equipment back-end processing: sending the money to the merchant.
like that used to build the Alaska pipeline. Gallo was less
focused on premium wines and more on supplying bulk Some acquirers do their own processing, and some resell
wine to its Modesto, Calif., factory. for a third-party processor. To make it more complicated, an
acquirer might use one processor for front-end processing
Two - thirds of our vineyards are still owned by independent and another for back-end processing, and there might even
growers. Conversely, in Napa County, only one-third of the be different merchant accounting systems. Because of the
vineyards are owned by independent growers. The big processors' complexity, there have been large barriers to
wineries want to control their supply, and of course the entry for at least the last 15 years, and it is unlikely there
quality, but increasingly it is becoming a capital intensive will be any new entrants anytime soon, at least in the
business. traditional sense.
32
Concentrations
in business
By Brandes Elitch
Cross Check Inc.
n banking, and most other industries, a concentra-
tion is not a healthy thing. Generally, you do not
want to have more than 10 percent of your capital
I and surplus loaned out to one borrower or group of
related borrowers.
Merchants estimate that 20 percent of their customers
generate 80 percent of their revenues, which is another
form of concentration. And then, there is the other side of
the coin: monopoly, or more likely, monopolistic practices,
that can dominate an industry. These factors affect both the
wine and payments industries.
Concentrations in wine Today, roughly 35 to 40 percent of the grapes are harvested
by machine, which is expensive. So it is a reasonable
The Santa Rosa Press Democrat published an article by Cathy prediction that the larger wineries will continue to pay the
Bussewitz on Dec. 8, 2012, indicating there are about 1,500 highest prices and get the more desirable vineyards as they
grape growers and 500 wineries in Sonoma County. The come up for sale. But the 1,500 growers are still powerful
annual crop is worth about $400 million. Yet the top five and important, and contribute much of the vitality and
vineyard owners control about 20 percent of the harvest, innovation to the industry.
and they control the price wineries pay for grapes.
Concentrations in payments
The two largest players, the Gallo family and the Jess Now, what about concentrations in the payments industry?
Jackson family (also known as Kendall-Jackson), own about Do a small number of players dominate the business? Well,
3,200 acres apiece. They began to buy land in quantity Visa Inc. and Mastercard Worldwide are monopolies, so
about 20 years ago. Over this time vineyard acreage in the that would qualify them on the face of things. It would
county more than doubled, from 28,000 to 63,000 acres. It be virtually impossible to start a new payment network
should be no surprise that today the cost of raw land is like these two – not impossible, but it would take a new or
at least twice what it was then. Recent prices have ranged different model.
between $60,000 and $125,000 per acre.
VeriFone Inc. seems to dominate the POS device market,
The remaining land is not so desirable; it might lack enough but there are a few other players with healthy market share,
water or the right soil or climate, and the county has including MagTek Inc., RDM Corp., Panini, and Ingenico.
adopted a more intensive environmental review of hillside The issue there is compatibility. ISOs and developers want
planting, wetlands and, of course, endangered species. to certify to one or two vendors but not many more.
Vitality from smaller players
The lines between acquirer and processor are blurred. But
Jackson and Gallo took different approaches. Jackson generally, the processor does the transaction authorization,
contacted every vineyard owner that had over 100 acres capture, clearing and settlement from the POS to the
and asked if they would sell their property. Gallo bought network for front-end processing. Then, it handles the
land and reshaped it with huge earth-moving equipment back-end processing: sending the money to the merchant.
like that used to build the Alaska pipeline. Gallo was less
focused on premium wines and more on supplying bulk Some acquirers do their own processing, and some resell
wine to its Modesto, Calif., factory. for a third-party processor. To make it more complicated, an
acquirer might use one processor for front-end processing
Two - thirds of our vineyards are still owned by independent and another for back-end processing, and there might even
growers. Conversely, in Napa County, only one-third of the be different merchant accounting systems. Because of the
vineyards are owned by independent growers. The big processors' complexity, there have been large barriers to
wineries want to control their supply, and of course the entry for at least the last 15 years, and it is unlikely there
quality, but increasingly it is becoming a capital intensive will be any new entrants anytime soon, at least in the
business. traditional sense.
32
