RETAIL JOINT VENTURES: Come together

Joint ventures are increasingly seen in high-volume brands as well as at the top end of the wine market. Sally Easton MW analysis the trends

The UK is a competitive marketplace – and with ongoing consolidation this situation is not going to get any easier. One phenomenon of the last decade has been the joint venture, often between producer and their agent in the destination market.

Joint ventures at the top end of the market for wines marketed as iconic products have become a regular, if not frequent, occurrence in the wine industry. But it is the higher-volume partnership brands that are beginning to make something of a splash.

Classically, joint ventures entail setting up a new company which houses the joint venture brand, with investments and profit being divided up equally between the joint venture parties. The Seña and Caliterra joint venture between Viña Errazuriz and Mondavi was created to take advantage of the quality potential of Chilean wines and to develop two wines in the international markets. Eduardo Chadwick, president of Errazuriz, said, “We created a separate company, which was owned 50% by each partner. We had a business plan and all decisions were taken by the board of directors by consensus rather than giving any partner any special right.”

This can be a tidy arrangement if a joint venture ceases. When Mondavi was sold to Constellation in 2004, Errazuriz bought Mondavi’s 50% share.

A long-term approach

Greg Wilkins, director of Brand Phoenix says, “Joint ventures engender a long-term viewpoint from the guys actually growing the wines in the vineyard. It’s easy to forget wine is an agricultural process and therefore it’s a medium- to long-term view in itself. A joint venture promotes this into building a brand. If you’re just purchasing wine one year, and you may or may not purchase next year, it’s a short-term project. But building a brand is a five- to ten-year project. It seems slightly odd that you buy on a year-to-year basis, when you’re trying to build a brand. Consumers shop for brands on consistency and value for money. The supply base needs to feed that consumer demand on an ongoing basis.

“To build real quality into a brand, that has to come from the vineyard. If the guy who grows the brand owns it, he is prepared to undertake medium- and long-term projects that yield better quality in the long term, such as reduced yield, different plantings or canopy management. They know they have a home for their wines in the foreseeable future. Then the brand can get stronger, because the material gets better each year.”

But you don’t need a separate company joint venture to achieve this sort of long-term view. Blason de Bourgogne is the number one brand above £6 in the UK, just four years since its inception. It is owned by the Blason de Bourgogne group of co-ops.

The idea for the brand was proposed by their agent and the design and marketing developed in the UK. HwCg director Robin Kinahan MW blends the wines at the beginning of each year. He said, “HwCg has been the agent for this group for a very long time. If relationships are that good and the [agency] contract is also a good one, it’s arguable whether you need a joint venture.”  He added, “history shows that joint ventures don’t always work. Blason shows that you don’t always need them.”

Co-operatives and family-owned producers can be the best partner for the long term, as these partnerships don’t need to satisfy short-term shareholder gains each year.

Marital bliss?
The key parameters to a successful partnership are cited as being communication, trust, commitment and emotional involvement with the project. So, a bit like a marriage then.

Cristián Lopez, managing director of Concha y Toro UK, said, “Going back 10 to 12 years, we had no experience of selling icon wines, except Don Melchor, but Almaviva is even higher, especially in terms of price proposition. It was a commercial as well as technical venture, with lots of fusion of knowledge of winemaking, technical aspects and so on.”   

Regarding FirstCape, Wilkins says, “We have daily communication with our South African partners. We have a long-term commitment to each other. To get all that right, the impetus, the commitment and drive, is something to see. It’s a different animal to a company-to-company relationship, people are engaged emotionally. When the South African rand was trading at 11 to the pound for much of the year, such currency fluctuations put brands under commercial pressure, so the long-term ambitions need that emotional and commercial commitment.”

Renaissance is the work of Brand Phoenix and family-owned Bordeaux company Maison Sichel. Export director Charles Sichel explains, “This is our first joint venture. If we’re with the right people we can move mountains. The way UK supermarkets have evolved over the past five to eight years, it becomes more difficult for companies like Maison Sichel, which specialises in wine producing more than the marketing aspect. We continue to supply the high street with more traditional wines.

“There’s not much running before we can walk,” he adds, “we build things as it all happens and develops, having made sure that everyone is contractually linked to each other. It’s more a state of mind, working together to make sure it does work, rather than building something massive from the start and it going nowhere. It snowballs into place.”

The draw of distribution
Even a decade ago, in a significantly less consolidated wine industry, access to distribution was becoming a key element for the success of nascent brands. For Seña and Caliterra, Mondavi clearly provided access to a strong USA distribution network at a time when Chile provided a rose without thorns in viticultural paradise.

Ten years ago a joint venture was struck between Champagne Devaux and the Rathbone family, who had just bought Victoria’s Yering Station. Jean-Noël Girard, export director at Champagne Devaux, said, “Yering Station is the importer and distributor of Château Devaux, so we have a foot in Australia. A benefit for Yering Station is to have a sparkling wine. Yarrabank is one of the top three sparkling wines in Australia. The sparkling wine market is important in Australia, so it is good for the image.”

Gordon Gebbie, commercial director of Yering Station, comments, “Launching a brand-new, highly-anticipated quality [sparkling] wine so soon after the acquisition of Yering Station gave the market a taste of our long-term strategy and commitment – for Yarrabank and Yering Station.” 

Since 1995 with Col Solare, Château Ste. Michelle, in Washington state, USA, has a 50:50 joint venture with Piero Antinori. This has been a fruitful partnership, as Alexandra LaFontaine, business development manager at Château Ste Michelle, explains, “In July 2006, we started distributing Antinori wines in the USA. We’ve built a relationship with Col Solare, we’re very well distributed in the USA and throughout the world.”

Clearly any edge can make a difference in such a competitive industry, and joint ventures provide one avenue, with evident emotional as well as financial investment, but Errazuriz’s Chadwick notes, “I believe there is no difference in building a successful joint venture or building any successful brand.”

© db April 2007