Growth culture

Despite tough market conditions for its core product, Gonzalez Byass has bucked the trend and posted record profits, thanks to a policy of acquisition and brand extension. Charlotte Hey reports

When the Gonzalez Byass (GB) team took the plunge and rebranded Tio Pepe 18 months ago, their mission was not just driven by their need to revive the brand, but by a desire to refuel interest in the entire sherry category. As Pedro Rebuelta-Gonzalez, international sales director of Gonzalez Byass, explains: “We know we have attracted new customers to the product. But investment on that scale benefits the whole category long-term and we were fully cognisant of that fact when we embarked upon the project. Being a family company we can afford to take that view.”
It is clear, from first to last impressions, that Rebuelta-Gonzalez’s ambitions for Gonzalez Byass are not modest. “Our aim is to be among the top three Spanish independent family companies in the wine and spirit world,” he exclaims, but adds quickly, in a more realistic mood, that “it’s not the easiest of tasks but eminently achievable given our portfolio of products”. You would be misguided in thinking that GB is just about sherry and fino. A brief look at the company interests reveals a diverse portfolio including wineries in Rioja, Chile and La Mancha, two distilleries, an olive oil company and of course the recently acquired Croft operation. Rebuelta-Gonzalez firmly believes that their success in the past and that of the future relies heavily on diversification of company interests coupled with increased investment in non-traditional products.
“By concentrating commercial efforts in one product category,” he says, “our opportunities would be severely limited.” He is absolutely right, of course, considering that sherry sales are stagnant and up until a decade ago, the future for Brandy de Jerez was decidedly gloomy.

Growth by acquisition
Despite having the odds stacked against it in its region of production, Gonzalez Byass has been very active during the past decade. While Tio Pepe was one of the biggest stories to come out of the company in recent years, a lot of preparation and hard work has been going on behind the scenes within many other aspects of its varied portfolio. The purchase of Croft, however, is the most recent and most daring.

“Key projects at the moment continue to be our focus on Tio Pepe, but Croft is the next,” says regional sales director, Martin Skelton. “We will continue to invest in research in order to help make consumers change their philosophy about the way they perceive sherry. Our focus for Tio Pepe was definitely away from the traditional sherry drinker and towards the younger, wine-drinking end of the population and our success is evidenced in that sales have increased in all markets. We are now selling more than with the old packaging.”
So, can we expect the same with Croft Original?
“We purchased Croft because we believe that we need to obtain critical mass in the category in order to continue to grow,” intercedes Rebuelta-Gonzalez. “With the purchase of Croft we were able to obtain synergies from production and concentrate on GB assets with Croft. But for the moment we are going to leave Croft as it is.”
Both Skelton and Rebuelta-Gonzalez admit that the principal Croft brand suffered at the hands of being part of an enormous portfolio. For the short-term, their efforts will be focused on building sales via traditional means, working closely with their importers First Drinks in the UK and those in other key markets.
Skelton explains: “Before we do anything with the brand there is a lot to be done building sales and researching how the brand is perceived. As with Tio Pepe it is crucial to understand sherry consumers and what the triggers to drive new consumers to the category and our product are.”
However, concentration on rebuilding listings is paying off for the time being in the UK, at least. Sales of Croft Original have increased by 223% between January and June  in 2002, compared with the same period in 2001.
“Last year we sold an extra 60,000 cases,” says Skelton, “that’s an enviable increase in just over a year and shows what a little care and attention can do.”

Biggest brandy rebrand
It may surprise many that the Brandy de Jerez brands Soberano ’5’ and ‘8’ are the biggest volume and value brands for Gonzalez Byass, as well as being the company’s leading brands in the domestic market. Regardless of market dominance, the Soberano range has not been allowed to rest on its laurels. As with Tio Pepe, research showed the Gonzalez Byass management team that the profile of the average drinker was situated at the older end of the drinking population, not too good a proposition for increasing sales over the next decade.
As a result of this data, the company decided to revamp the package and presentation of the brand and develop a brand extension with the Soberano ‘5’ and ‘8’ (the numbers denoting the ageing period for each brandy).
They drew their inspiration for the new-look Soberano range from the Rum category, seeing it as a key model to introduce a younger population to the possibility of drinking the brand. A number of focus groups were carried out with target consumers in order to test the difference between Soberano, whisky and gin with a classic youth mixer such as Coke. The results showed that when tasted blind, almost every consumer preferred the taste of Soberano and Coke to the other two options. “We knew then that if we invested a little in encouraging trial of Soberano and Coke in the bars and clubs we would be able to increase sales,” says Skelton. “In the core markets like the domestic one, that is where we are focusing our efforts to access the youth market. By following the Soberano and the mixer model we have seen sales increase in all key export markets including Mexico, Slovakia, Germany and the UK.

“The brand was relaunched in 2001 and at the moment volumes stand at 800,000 cases – though as with all other brand projects for Gonzalez Byass the current levels of investment are aimed to produce long-term results. Consequently, we are looking to be producing over 1m cases in the next three to five years,” he says. It appears that this target is not too ambitious when you consider the statistics; Spanish brandy sales have increased from 40,000 cases to 140,000 in the last 10 years. No mean feat considering other brandy categories such as Cognac and Armagnac continue to lose market share year on year.

New attitude
For Rebuelta-Gonzalez, all the new developments that have been going on during the 1990s were building towards what is now happening within the company. “The last 30 years have seen a lot of change in Jerez and for the sherry category. As a company we have had to develop and adapt, a process which means that now we have an open attitude and willingness to think about the consumers before the product. This is what has inspired our diversification and enabled us to continue to grow,” he says. It is apparent that Gonzalez Byass is now trading through one of the most positive periods of its history and by instigating change in one sector of the business, ie, Tio Pepe, other aspects have seen mutual benefits.
In order to continue to compete on an international level Gonzalez Byass has realised that understanding the needs and desires of the consumer is key. Many of its compatriots would do well to take a few leaves out of its book. “We knew we had a problem with sherry, we did the research and we’re still making the investment,” Rebuelta-Gonzalez adds. “Frankly, you can never stop learning. You must never sit back and think you’ve got it all right.”
For him, “heavy investment in advertising is the only way to survive and grow. These factors combined with a desire to learn and expand along with a keen business plan will, I believe, enable us to achieve our goal”. If current performance is anything to go by, the company seems to have got its formula right.

db March 2003

The shareholders
Gonzalez family   95.71%
Mercian     2.86%
Haecky     1.43%

Company data
Turnover:      E154m
Volume:     3.2m 9-litre cases
Domestic market:    63%
International markets:   37%
Cashflow:    E16m
Advertising investment:    E17m
Employees:   437

Company history
1835: Founded by Manuel Maria Gonzalez
1844: Tio Pepe created
1855: Byass family, the UK distributors, become shareholders
1886: Creation of Soberano Brandy de Jerez
1970: Purchase Alcomasa
1972: Purchase Alcoholera de Chinchon
1982: Purchase Bodegas Beronia, Rioja
1990: Purchase Castell de Vilarnau, Cava
1998: Purchase Altozano, DO Mentrida
2000: Joint Venture Conde de Aconcagua, Chile
2001: Purchase Croft