(This editorial is the executive summary of an exclusive VitaBella report)(More wine news on www.vitabella.fr) Wine market in China is growing very fast and specialized wine retail shops still need to develop all over the country. For that reason, new opportunities are considered by wineries willing to gain rapid market shares and brand awareness. An acclaimed Bordeaux Chateau, Domaine de Chevalier, understood this situation very well and decided to move forward. In a recent article, Wall Street Journal wrote that "the premium winemaker has an agreement with China Petroleum & Chemical Corp. to peddle its Bordeaux in 110 stores across China, according a report by Shenzhen Special Zone Newsletter." (you can read the full article in VitaBella Wine Gossip, Edition December 15th)
Can this move be a success in a short term? in the long term? With a strong distribution network throughout China, Sinopec is a big player in the oil industry. So partnering with them and leveraging on a large daily traffic at the pump could make sense for any company that wants to develop sales rapidly in a huge market. Moreover, with the increasing problem of counterfeit wines, Domaine de Chevalier can propose its bottles in some "reliable" shops that chinese fine wine lovers are looking for. In terms of brand image, success will be guaranteed if Domaine de chevalier makes sure that labels are effectively seen and promoted nicely. The impact will not be the same if wine cases stay between oil bottles and car washing products, or if they are displayed in a nice way that would immediately attract eyeballs.
A concern for Domaine de Chevalier may be the professional qualifications of the people working in the gas stations. Does this workforce know about wine or do they need to be trained to talk about wine and more particularly about Domaine de Chevalier? Or do we consider that buying a bottle of Domaine de Chevalier can become an "impulse buy". Knowing that we talk here about wines that cost in the range of 600 yuan to 700 yuan (US$90 to $105), I am not sure that the "impulse buy" effect has much to do in this category level but the Chinese market is so unpredictable...In fact, as Wall Street Journal mentions it, this won’t be the first wine sold at Sinopec. Their gas stations have already displayed and sold Great Wall wines, one of the country’s leading labels.
As a conclusion, this new venture for Sinopec (they have been selling products other than fuel for two years now), seems to develop well. And going high end is a way to answer demands from a chinese market that develops rapidly in fine wines. If, on a long term, Domaine de Chevalier should be aware that its wines may be referred as "the gas station wine" (in fact, this may have a negative impact if communication is not properly handled), selecting a limited number of gas stations (110 stores in China) is a first good step for the wine estate. This may open new opportunities in the future, with a broader distribution. It will also give time to both partners to know each other better. And if today only 15% of Sinopec's 95,000 stations sell nonfuel products, such as wine, we can easily figure out the huge potential for such a deal if China Petroleum & Chemical Corp. decided to implement this approach throughout their network. China is full of opportunities for fine wines and Olivier Bernard, owner of Domaine de Chevalier, understood it very well at an early stage.(More wine news on www.vitabella.fr)
12.15.2010
12.10.2010
Luxury wine: Piper Heidsieck and Charles Heidsieck on Sale...After Remy Cointreau, could a chinese company be the next owner of both Champagne brands?
For wine professionals, this is not breaking news: Remy Cointreau, world's second-largest producer of cognac behind the Hennessy brand of French luxury products group LVMH Moet Hennessy Louis Vuitton, has put its Piper-Heidsieck and Charles Heidsieck Champagne brands up for sale in a deal which could raise as much as €450m. According to the UK wine magazine Decanter: "The news has provoked intense speculation over who will acquire the brands, with Diageo and Pernod Ricard named as possible bidders – although analysts believe a private equity group is the most likely buyer." What should we think about these speculations and what other names could be evoked? With the current strong interest for wine in Hong Kong, a big chinese name could make the deal.
Charles Heidsieck and Piper Heidsieck are on sale. Right but what should the buyer be aware of?
1) On the financial side: Sales dropped to 6.9m bottles in the year to March 2010 (of which Piper accounted for 5.6m and Charles 0.8m bottles). Bottom line: It is understood that Piper has never been profitable in the 20 years that Rémy Cointreau has owned it.
2) On the Human Resources side: Cost-cutting measures have included the announcement of 45 job losses (one quarter of the workforce) in February 2010, which prompted strike action at the company’s headquarters on the outskirts of Reims. Full measures were not applied.
3) Distribution: Buyer's major objective will be to develop sales internationally. Distribution of Charles and Piper Heidsieck was supported by the strong experience of Remy Cointreau group. The buyer will ideally have its own distribution network or would have tied up strong relationships with distributors in strategic places in the world.
4) Grape resources: Charles and Piper have good long-term contracts with vine growers. The buyer should make sure to pursue these long term contracts by strengthening relationships with vine growers. Then it will guarantee the buyer to maintain quality and volume achieved in the past.
5) Brand assets: Experts praise quality of Charles Heidsieck champagnes. From Brut Non Vintage to Blanc des Millénaires, the quality is very high but low volume makes it a little known brand worldwide compared to Piper Heidsieck. With over 5 million bottles and a new delicious top cuvee called Rare, Piper is a strong brand. But a major issue arises when it comes to branding: Confusing names. In fact, Charles Heidsieck and Piper Heidsieck are two labels along with the Heidsieck Monopole. If the name confuses the champagne connoisseur a little, most of occasional champagne buyers may be confused. This could unfortunatley have direct impact on brand image.
So Charles Heidsieck and Piper Heidsieck are now on sale. But who could buy them?
We can hear and read some rumors. Recently in Dow Jones : "Laurent-Perrier is "watching closely" Remy Cointreau's champagne unit sale process, Etienne Auriau, Laurent-Perrier's Chief Financial Officer said Wednesday. Even though Laurent-Perrier may not be interested for all the assets put on for sale, the company might be interested in the contracts to supply the wine producers, Auriau added."
Ok, very good point! But, in that sense, we can easily imagine that some other champagne brands might be interested in these contracts. So, next! A private equity group? It would make sense in fact but Champagne is a very specific industry and this fund must have a good experience in the Champagne industry. Or this private equity group would partner with a renowned champagne name to make this deal successful. An american company? With euro-dollar parity and economic uncertainty, it may not be the right timing for a US based company to make such an investment. Pernod Ricard? They currently make a great work to develop internationally Mumm and Perrier Jouet and enhance both brand images. So at this period, they are on hard work and they may not think about investing in new brands...
I may suggest 3 other directions. None is french!
First, the spanish Freixenet group: they already know about the champagne market (they own Abele) and have a strong and efficient distribution network. Freixenet is one of the most renowned and largest cava houses in Spain, similar in size and importance to France's Moet & Chandon. Going high-end may be an interesting strategy for them.
Second, the german Henkell & Co: One of the leading sparkling wine, they export to more than 70 countries worldwide. The Group is represented by owned subsidiaries in twelve countries. It has leader position for sparkling wine in seven countries and boasts a turnover of €628.6 million. Moreover they know about the specificities of the champagne market as they own Alfred Gratien and they built up a nice brand.
Finally, with the strong interest for chinese in wine, a chinese company could be interested in acquiring these 2 brands. Many names could come up and I won't make the full list but I would suggest one name: AS Watson. Watson's Wine Cellar opened its first store in Central Hong Kong and is now the largest specialist wine store chain in the region with 15 stores. A distinctive feature of each Cellar is the Fine Wine Room containing over 300 different vintages ranging from the top Chateaux from Bordeaux to emerging New World Classics from around the world. Watson's Wine Wholesale has grown significantly since its launch in 2000 and is now one of the top suppliers of wine to the food and beverage industry in Hong Kong. With a history dating back to 1828, the A.S. Watson Group has evolved into an international retail and manufacturing business with operations in 34 markets worldwide. Today, the Group operates over 8,900 retail stores running the gamut from health & beauty, luxury perfumeries & cosmetics to food, electronics, fine wine and airport retail arms. Also an established player in the beverage industry, ASW provides a full range of beverages from bottled water, fruit juices, soft drinks and tea products to the world's finest wine labels via its international wine wholesaler and distributor. ASW employs 87,000 staff and is a member of the world renowned Hong Kong-based conglomerate Hutchison Whampoa Limited, which has five core businesses (ports and related services; property and hotels; retail; energy, infrastructure, investments and others; and telecommunications) in 54 countries. So this HK based group is in the fine wine business, in the Manufacturing business with Water, fruit juices and soft drink, and also in the retailing. Moreover 350 - 450 million euros is an "affordable amount" for this giant company. In fact they would just need to sell Marionnaud business (perfume retailing) to get this money and invest it in Champagne!
Charles Heidsieck and Piper Heidsieck are on sale. Right but what should the buyer be aware of?
1) On the financial side: Sales dropped to 6.9m bottles in the year to March 2010 (of which Piper accounted for 5.6m and Charles 0.8m bottles). Bottom line: It is understood that Piper has never been profitable in the 20 years that Rémy Cointreau has owned it.
2) On the Human Resources side: Cost-cutting measures have included the announcement of 45 job losses (one quarter of the workforce) in February 2010, which prompted strike action at the company’s headquarters on the outskirts of Reims. Full measures were not applied.
3) Distribution: Buyer's major objective will be to develop sales internationally. Distribution of Charles and Piper Heidsieck was supported by the strong experience of Remy Cointreau group. The buyer will ideally have its own distribution network or would have tied up strong relationships with distributors in strategic places in the world.
4) Grape resources: Charles and Piper have good long-term contracts with vine growers. The buyer should make sure to pursue these long term contracts by strengthening relationships with vine growers. Then it will guarantee the buyer to maintain quality and volume achieved in the past.
5) Brand assets: Experts praise quality of Charles Heidsieck champagnes. From Brut Non Vintage to Blanc des Millénaires, the quality is very high but low volume makes it a little known brand worldwide compared to Piper Heidsieck. With over 5 million bottles and a new delicious top cuvee called Rare, Piper is a strong brand. But a major issue arises when it comes to branding: Confusing names. In fact, Charles Heidsieck and Piper Heidsieck are two labels along with the Heidsieck Monopole. If the name confuses the champagne connoisseur a little, most of occasional champagne buyers may be confused. This could unfortunatley have direct impact on brand image.
So Charles Heidsieck and Piper Heidsieck are now on sale. But who could buy them?
We can hear and read some rumors. Recently in Dow Jones : "Laurent-Perrier is "watching closely" Remy Cointreau's champagne unit sale process, Etienne Auriau, Laurent-Perrier's Chief Financial Officer said Wednesday. Even though Laurent-Perrier may not be interested for all the assets put on for sale, the company might be interested in the contracts to supply the wine producers, Auriau added."
Ok, very good point! But, in that sense, we can easily imagine that some other champagne brands might be interested in these contracts. So, next! A private equity group? It would make sense in fact but Champagne is a very specific industry and this fund must have a good experience in the Champagne industry. Or this private equity group would partner with a renowned champagne name to make this deal successful. An american company? With euro-dollar parity and economic uncertainty, it may not be the right timing for a US based company to make such an investment. Pernod Ricard? They currently make a great work to develop internationally Mumm and Perrier Jouet and enhance both brand images. So at this period, they are on hard work and they may not think about investing in new brands...
I may suggest 3 other directions. None is french!
First, the spanish Freixenet group: they already know about the champagne market (they own Abele) and have a strong and efficient distribution network. Freixenet is one of the most renowned and largest cava houses in Spain, similar in size and importance to France's Moet & Chandon. Going high-end may be an interesting strategy for them.
Second, the german Henkell & Co: One of the leading sparkling wine, they export to more than 70 countries worldwide. The Group is represented by owned subsidiaries in twelve countries. It has leader position for sparkling wine in seven countries and boasts a turnover of €628.6 million. Moreover they know about the specificities of the champagne market as they own Alfred Gratien and they built up a nice brand.
Finally, with the strong interest for chinese in wine, a chinese company could be interested in acquiring these 2 brands. Many names could come up and I won't make the full list but I would suggest one name: AS Watson. Watson's Wine Cellar opened its first store in Central Hong Kong and is now the largest specialist wine store chain in the region with 15 stores. A distinctive feature of each Cellar is the Fine Wine Room containing over 300 different vintages ranging from the top Chateaux from Bordeaux to emerging New World Classics from around the world. Watson's Wine Wholesale has grown significantly since its launch in 2000 and is now one of the top suppliers of wine to the food and beverage industry in Hong Kong. With a history dating back to 1828, the A.S. Watson Group has evolved into an international retail and manufacturing business with operations in 34 markets worldwide. Today, the Group operates over 8,900 retail stores running the gamut from health & beauty, luxury perfumeries & cosmetics to food, electronics, fine wine and airport retail arms. Also an established player in the beverage industry, ASW provides a full range of beverages from bottled water, fruit juices, soft drinks and tea products to the world's finest wine labels via its international wine wholesaler and distributor. ASW employs 87,000 staff and is a member of the world renowned Hong Kong-based conglomerate Hutchison Whampoa Limited, which has five core businesses (ports and related services; property and hotels; retail; energy, infrastructure, investments and others; and telecommunications) in 54 countries. So this HK based group is in the fine wine business, in the Manufacturing business with Water, fruit juices and soft drink, and also in the retailing. Moreover 350 - 450 million euros is an "affordable amount" for this giant company. In fact they would just need to sell Marionnaud business (perfume retailing) to get this money and invest it in Champagne!
12.03.2010
Should you sell your bottles of Chateau Lafite Now as the top China economist Andy Xie would advise?
(More wine news on www.vitabella.fr) Luxury wine and Lafite prices...If there is one article to read over the week-end, that may be the well documented post that Andy Xie - an economist who left Morgan Stanley after writing an email that described Singapore as a money-laundering hub - wrote in his blog. His conclusion is unambiguous: Sell your bottles of Chateau Lafite, Now. After reading this interesting analysis, I give here some comments on a few points he makes before giving his personal conclusion.
1) "Like other assets, the force for the bubble is the low interest rate environment. Bernanke is a bigger reason for the fine wine price than 1.3 billion Chinese." Andy Xie is certainly right on a short term but on a longer term, we can imagine the Chinese market becoming a huge population of wine consumers (and not only of fine wines).
2) "In the 2000 internet bubble, a lot of companies were worthless but were trading at billions of dollars of market capitalization. Some were really good companies but were priced several times higher than their intrinsic worth. Lafite is like the later." At the time of the internet bubble, share prices for all companies (all and not only a selection of them) were skyrocketing. This is in fact what explained the burst of this bubble in 2000. Today, if there is a bubble on wine prices, it is strictly limited to a very few wines which are in fact of very high quality. For wine - which makes the comparision with internet companies a bit biased - quality is still a major focus when it comes to investment.
3) "The crash happens when the US treasury market crashes, which forces the Fed to tighten monetary policy. That is probably in 2012. Still, now is the right time to sell your Lafite." Right but in this disastrous scenario, we can easily understand that not only Lafite or luxury wines will be concerned. In fact, all assets in general will be more or less impacted by this situation.
4) "By weight Lafite is more expensive than silver even for a bad vintage, and almost ten times as expensive for a great vintage like 1982." This is a very good point and shows how Chateau Lafite created its own bubble in the luxury wine market.
5) "Wine drinkers become hoarders.(...)The top Bordeaux chateaus behave like internet companies in 2000. They sell a small proportion for each release. The shortage triggers market frenzy." At such a high price, you think twice (or even more) before opening a bottle and prefer to keep it for a very special occasion if you do not sell it. So at the end, less bottles may be drunk than in the past, even if it said that these wines are made for entertaining business relationships.
So Bubble? Yes. Burst? we do not know. In fact, due to its rapid and impressive growth, China is facing inflation problem. A fivefold increase in China's M2 supply in the past decade is part of the problem. Raising interest rate will immediately impact investment strategies. And fine wines are more or more acquired to make an investment. In that sense, Lafite prices and prices of some other top wine estates will be affected. But China is a growing market of wine consumers. When you get back to history, you always find good reasons for a specific market to have developped a large population of wine consumers. In China, a broad communication around wine has been made particularly thanks to exclusive and very expensive wines. Chinese read and learn about wine through the stories of the most famous estates and the prices of their wines. So will this bubble burst or not? Only future can tell. But what history will tell is that thanks to this huge hype around top wines, China has discovered a taste for wine and this market will develop nicely in the future to become an important business destination for any wine estate. Without this big hype around Lafite, the aspiration of a large chinese population to discover the great world of wines would have certainly developped much more slowly.(More wine news on www.vitabella.fr)
1) "Like other assets, the force for the bubble is the low interest rate environment. Bernanke is a bigger reason for the fine wine price than 1.3 billion Chinese." Andy Xie is certainly right on a short term but on a longer term, we can imagine the Chinese market becoming a huge population of wine consumers (and not only of fine wines).
2) "In the 2000 internet bubble, a lot of companies were worthless but were trading at billions of dollars of market capitalization. Some were really good companies but were priced several times higher than their intrinsic worth. Lafite is like the later." At the time of the internet bubble, share prices for all companies (all and not only a selection of them) were skyrocketing. This is in fact what explained the burst of this bubble in 2000. Today, if there is a bubble on wine prices, it is strictly limited to a very few wines which are in fact of very high quality. For wine - which makes the comparision with internet companies a bit biased - quality is still a major focus when it comes to investment.
3) "The crash happens when the US treasury market crashes, which forces the Fed to tighten monetary policy. That is probably in 2012. Still, now is the right time to sell your Lafite." Right but in this disastrous scenario, we can easily understand that not only Lafite or luxury wines will be concerned. In fact, all assets in general will be more or less impacted by this situation.
4) "By weight Lafite is more expensive than silver even for a bad vintage, and almost ten times as expensive for a great vintage like 1982." This is a very good point and shows how Chateau Lafite created its own bubble in the luxury wine market.
5) "Wine drinkers become hoarders.(...)The top Bordeaux chateaus behave like internet companies in 2000. They sell a small proportion for each release. The shortage triggers market frenzy." At such a high price, you think twice (or even more) before opening a bottle and prefer to keep it for a very special occasion if you do not sell it. So at the end, less bottles may be drunk than in the past, even if it said that these wines are made for entertaining business relationships.
So Bubble? Yes. Burst? we do not know. In fact, due to its rapid and impressive growth, China is facing inflation problem. A fivefold increase in China's M2 supply in the past decade is part of the problem. Raising interest rate will immediately impact investment strategies. And fine wines are more or more acquired to make an investment. In that sense, Lafite prices and prices of some other top wine estates will be affected. But China is a growing market of wine consumers. When you get back to history, you always find good reasons for a specific market to have developped a large population of wine consumers. In China, a broad communication around wine has been made particularly thanks to exclusive and very expensive wines. Chinese read and learn about wine through the stories of the most famous estates and the prices of their wines. So will this bubble burst or not? Only future can tell. But what history will tell is that thanks to this huge hype around top wines, China has discovered a taste for wine and this market will develop nicely in the future to become an important business destination for any wine estate. Without this big hype around Lafite, the aspiration of a large chinese population to discover the great world of wines would have certainly developped much more slowly.(More wine news on www.vitabella.fr)
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