News

FRANCE UPDATE: Two become one

05 September 2007 By db staff writer

“standfirst”>Consolidation is the name of the game for French wine producers as the country strives to regain market share from the New World. Fionnuala Synnott looks at the restructuring and investment involved in France’s revival

For French wine, increased competition has led to a loss of market share in Britain and eroded producers’ already tight profit margins. Their desire to regain sales share from the New World has driven French producers to revise their business models and reorganise their supply chain, and such changes have accelerated consolidation.

Tim North, UK director at Les Grands Chais de France, thinks this rationalisation is necessary: “France needs to consolidate its wine offering because medium-sized companies are finding it difficult to secure a route to market.”

French producers’ new strategic approach to the export markets has led to a polarisation between the large companies that have global reach and the small, boutique wineries that can offer a foil to the mass-market offering. The victims of this change are the medium-sized companies, which, unlike the boutique brands, cannot rely on niche listings in the on-trade and lack the economies of scale to compete with the large multinationals.

Anne Burchett, managing director of Castel UK, which purchased the Friedrich company, a leading bag-in-box manufacturer based in Nantes, earlier this year, thinks the ongoing consolidation of the market is inevitable: “With wine businesses becoming more professional and margins eroding, it is difficult for medium-sized companies to compete with the large groups and they are being swallowed up.”

According to Dominique Vrigneau, buying director for Thierry’s: “Castel buying Friedrich and Les Grands Chais de France buying Calvet is a response to the likes of Constellation coming into the category. But new independent small estates are also doing well as people look for something different.”

Languedoc
An area where this trend is particularly obvious is the Languedoc region, where the biggest players are the wine cooperatives. According to Jan Panman, who, with his wife, Caryl, owns Château Rives-Blanques, the day of the clapped-out wine cooperative in the Languedoc is over: “Generally speaking, many of the cooperatives are unable to hold their ground, either through lack of quality or lack of marketing ability, so they are being pushed by force of circumstance to amalgamate, consolidate and restructure, while also improving quality and marketability. Those that were dead are now well and truly dead and buried, and those that have life in them are getting bigger.”

The region is attracting a considerable amount of investment from private individuals, smaller groups and some well-known French names. Limoux is a prime example of the new investments in the Languedoc, which are bringing energy and innovation to the area. Panman adds: “There are also other Languedoc négociants/producers moving into Limoux, such as Bertrand (Domaine de l’Aigle) and Jean-Claude Mas (Domaine Astruc), who bring a lot of marketing know-how in their wake, in addition to well-known French groups such as the Rothschilds (Domaine de Lambert).”

Other factors are also helping to breathe new life into the Languedoc region, according to Panman: “One is a perceived renewed interest in wines of terroir, which plays into the hands of small Languedoc producers, who offer very good terroir wines at very reasonable prices. Another is heightened interest in ‘authenticity’ and ecology, which is also to our advantage.”

AXA Millésimes, the wine arm of French insurance giant AXA, has spent €4 million (in addition to the price of the property) rejuvenating its Languedoc domaine, Belles Eaux. It has added modern wineries to the 16th-century buildings and new plantings are underway, alongside very old Carignac vines, in the 70 hectares of vineyards. Commercial director Aymeric de Gironde explains: “We have taken a very long-term view. It took [MD] Christian Seeley nearly two years to find the right terroir. We are building a high-quality brand by building distribution little by little among independent retailers.”

The inflated prices currently being charged for top Bordeaux wines have made the region an even greater magnet for investment for non-Bordelais groups.

Earlier this year, the Louis Roederer Group acquired iconic Bordeaux château Pichon Longueville Comtesse de Lalande. (The deal also included Château Bernadotte.) Charles King, MD of Maisons Marques et Domaines, comments: “The size of the investment was very large as the domaine is a trophy asset. But we see it as a good long-term investment as there is a terrific future for top-quality Bordeaux.”

In the past, Louis Roederer has made some significant investments outside Champagne. In 1993, the group bought Château de Pez and Château Haut-Beausejour, while in 2003 it acquired Domaines Ott in Provence. It also owns Champagne Deutz, Maison Delas Frères in the Rhône valley, as well as Douro wine and Port producer Adriano Ramos Pinto. According to King, the group is happy to expand its portfolio further, given the right opportunity. “If other iconic names come up for sale, we’re happy to look into acquiring them,” he says. “But we are very keen not to be seen to be teaching grandmother to suck eggs in Bordeaux. We are treating this acquisition as a learning opportunity for both the Roederer and the Pichon winemakers. We are taking a softly, softly approach.”

Lower down the scale, Bordeaux and Bordeaux Superieur are attracting new interest from the press, buyers and consumers. Nadine McCallion, sales director for Guy Anderson Wines, says: “Exciting things are happening in Bordeaux. Whereas in the past, producers worked with the négociants, now they want to be completely in control and remove some of the links in the supply chain in order to get closer to their customers.”

Burgundy
Burgundy has also attracted considerable investment, with the likes of Louis Jadot and Blason de Bourgogne continuing to expand their winemaking infrastructure. Louis Jadot has invested €4m in new winemaking facilities in Givry (Saône-et-Loire), which will be used to make generic Burgundy wines. The group has also spent €6m on extending its winery in Beaune in order to separate the vinification of red and white wines. Next month, Louis Jadot will start building a winery in Givry in the Côte Chalonnaise, which will be dedicated to making Pinot Noir. The first vintage should be 2008. “There are also plans to increase the size of the winery (cellars, winemaking and storage) in La Sablière, Beaune. This will give us the opportunity to vinify more white wines,” says Lynn Murray, marketing director for Hatch Mansfield.

Also in Burgundy, the Blason de Bourgogne cooperative has added premium wines to its portfolio following the addition of Caves des Hautes-Côtes to the group. Robin Kinahan MW, director of HwCg Specialist, says: “With cooperatives, investment is often needed when new members join. Additional space is particularly important.” Blason de Bourgogne spent €3m on modernising the winery in order to get more cellar space. “Before, we had small amounts of wine in tanks scattered across the winery, this was a logistical nightmare, particularly at harvest time.” Now, the wine that needs “micro attention” has been moved to Château de Bligny. “The winemaker is no longer distracted by these small lots of wine and can focus on producing the mass-volume wine in the caves,” adds Kinahan.

Also in Beaune, Bouchard Père et Fils has spent around €14m on improving the vinification and storage facilities at Cuverie St Vincent over the past two years.

Easy pickings

For the most part, the financing for these investments comes from within France. With the high number of French wine companies currently under administration, some of these deals can prove to be a bargain for the new owners. “The sad thing is that if the company is indebted, it doesn’t necessarily take that much capital to make the investment,” says Les Grands Chais de France’s North. “On the one hand you see dynamism and investments from private individuals and wine companies that know how to invest in quality vineyards. On the other you see companies that might not have all the potential to invest in key elements. Not everyone can afford the best terroir and some small vignerons are still suffering,” adds AXA’s de Gironde.

As McCallion puts it: “France is more dynamic than people give it credit for.” But the ongoing consolidation in the French category has led to fears that the consumer will suffer as choice becomes more limited. Vrigneau at Thierry’s observes: “France needs to be more competitive, but consolidation brings with it a risk for the consumer. This does not mean, however, that consolidation translates as a lack of choice. After all, the producers who were not doing well were not delivering high enough margins for themselves or delivering what the consumer wanted. But once the acquisition is completed, it is up to the new owner to deliver what the market wants.”

Vrigneau does not think consolidation is likely to lead to homogeneity. He says: “The French offering is very varied. We have a lot of different varietals and appellations. A Côtes du Rhône will never taste like a Bordeaux, no matter who makes it.”

North sees the rationalisation of the French category as a positive development: “This consolidation will result in wines that are more adapted to what people want. At the moment, only relatively large companies can meet the needs of today’s consumers. But there is no reason why the offer should be reduced – there will always be a market for something different.”

Rugby World Cup

To get Londoners in the mood for buff men in shorts (the Rugby World Cup, for those of you who haven’t guessed), Inter Rhône is sponsoring a guide on how and where to enjoy the championship.

In total, 250,000 guides will be distributed free alongside the Evening Standard newspaper on Friday 7 September – the day of the first match of the tournament. The guide will advise readers where to watch the matches in London, including restaurants with wine lists featuring Côtes du Rhône wines. The booklet will also give those who choose to watch the matches at home some simple French food ideas.

The Inter Rhône guide will act as a platform for the new advertising campaign focusing on Côtes du Rhône, Rhône Villages and seven of the crus wines, to highlight the diversity of the region.

Mont Tauch, a Languedoc cooperative, is also taking advantage of the tournament by sponsoring a Fantasy Rugby World Cup competition in the wine trade press. This follows on from the first Mont Tauch Rugby Challenge tournament of non-contact tag rugby, which took place earlier this year and involved members of the UK wine press and trade.

Bordeaux producers are also making the most of the occasion. In honour of the Irish team, which will play two first-round matches in the city, some châteaux with Irish links will host special events for the public. Four Margaux châteaux (Rauzan-Gassies, Kirwan, Prieuré-Lichine and La Tour de Bessan) will also be running gourmet day tours for the duration of the tournament.

Up to 50,000 spectators are expected to attend the 2007 Rugby World Cup.