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Joint Ventures

Argentinian winery owners become partners with major wine companies

July 21, 2008 by Gabriela Malizia | in Business

E&J Gallo, Constellation Brands and Lafite (France) are some of the great names that have entered different types of agreements with Argentinian wineries. A look into the undertakings that multiply the presence of Argentinian wine around the world.

In order to import Argentinian wine without having to make it, and to position it in the United States, the United Kingdom or Europe, without enduring the usual commercial effort, some wineries in Mendoza have signed agreements with multinational companies, with advantageous results for both parts.

Last year, Constellation Brands (the major wine producer and trader in the United States) purchased the Destino brand from O. Fournier and Carlos Pulenta, and within two years it doubled this Malbec’s distribution to 50 North American States. A month before, E&J Gallo had entered an agreement of different characteristics with Escorihuela Gascón. The winery presided by Ernesto Catena entered this joint venture, granting E&J Gallo all the import rights of the brand. However, the winery’s export manager, Matías Fraga, stated that they maintain control over the brand’s property. “In this agreement, they concentrate in imports and distribution, while 100% of the brand belongs to Escorihuela”, he added.

This is not the first time that major trading companies sign this kind of agreement. Gallo, owner of six wineries in the United States, has signed agreements with Italian wineries producing the typical Chianti, Brunillo and Montalcino varieties and with Australian wineries producing the country’s famous Sauvignon Blanc.

Constellation Brands, which is a beer and spirits trader, also owns wineries in California and New Zealand, and has partners in Spain and Chile, making emblematic wines for the brand. Nonetheless, Malbec was the only varietal missing in its portfolio. Federico Ballester, Constellation’s representative in Argentina, explained that this is not the first time the multinational company is signing an agreement with a winery from Mendoza. It has another significant agreement involving Fecovita, which has been underway for ten years. Fecovita produces varietals for the Marcus James brand, whose annual US exports add up to about 500 thousand cases at a retail price of u$s 5,99 (750cc bottle).

With this new agreement involving O. Fournier in the Uco Valley and CAP Vistalba in Luján de Cuyo (owned by Carlos Pulenta), Constellation seeks to position its Malbec Destino in the u$s 10 retail price segment. “We expect it to become a national distribution brand present in the 50 states; during the first year we mostly worked in stores, now we are focusing on supermarkets. In May, we will enter the Publix chain, that has presence in Florida, Georgia, South and North Carolina”, Ballester highlighted.

Malbec’s multiplication

Last year, E&J Gallo, a family winery that ranks as the second major wine producer and trader in the United States, distributed 40,000 cases of Don Miguel Gascón Malbec 2006, 70,000 cases of the same wine’s 2007 harvest and they plan to continue growing at the same rate with the 2008 harvest.

The powerful Gallo company sought an Argentinian winery that shared its family philosophy and focused on Escorihuela, which is presided by Ernesto Catena. “They did not want something impersonal, that is why they chose to enter an agreement with us,” the winery’s export manager, Matías Fraga, explains.

As part of this business, Catena and its partners decided to build a winery in Agrelo, with a 1.5-million liter capacity, located within the 180 vineyard hectares owned by the company. The grapes for the production of this Malbec are sourced from these vineyards, from the ones the company owns in Altamira and from associate producers. The estimated investment for this project was u$s 3 million.

Don Miguel Gascón is an exclusive Gallo brand in the United States, but Escorihuela markets it through other importers in Canada and other countries. “Although FOB prices may change from one importer to the next, trading conditions are basically the same,” Fraga explained. Currently, California, New York and Florida are the strongest distribution points for the brand that so far comprises only Malbec, although both partners are analyzing the development of new products such as a Reserve Malbec, a Rosé Malbec and a white varietal, Fraga anticipated.

This wine, marketed in the u$s 10,99 to 12,99 retail price segment, is shaped after Escorihuela’s style. “We make the wine we want to make, and we are going to modify the style according to market feedback provided by Gallo, but they give us total freedom to work.” In this segment, the brand competes with Alamos, the number one brand in the United States, belonging to Bodega Catena Zapata, as well as with Terrazas, Norton and Altos Las Hormigas, among others.

Constellation twice over

Last year, Constellation Brands Inc. sought premium wineries producing good Argentinian Malbec. Their research process took two years and included 250 wineries, 13 of which were selected and, finally, two of them -O. Fournier and CAP Vistalba- entered the Blends of Mendoza society. José Manuel Ortega Fournier, owner of the winery located in the Uco Valley, indicated that last year they produced 25,000 cases of the 2006 harvest of the Destino brand. “They were sold out very fast, so we sent 45,000 cases of the 2007 harvest. The undertaking is doubling, we seek to reach 5 million bottles in five years or so,” Ortega explained. The Spanish-capitals winery had to make an important investment in labor, which was largely rewarded by the backing of the powerful Constellation.

The wine, whose retail price ranges between u$s 9 and 10, is sourced from the vineyards owned by both companies, that contribute half of the wine, depending on the year. Then, a blend is produced with both wines and bottling and blending occur at one of the two wineries, in turns -the first time they were carried out at Fournier and in 2007 at Pulenta.

“This is a very interesting experience for Argentinian wine, due to Constellation’s sales and entry capacity in the United States -similar to that of Gallo- it was possible to introduce Argentinian Malbec in all the great commercial chains,” Ortega claimed.

The 2008 wine selection will be conducted in August by Constellation winemakers in order to determine the volumes and blends for 2009. However, it is estimated that in the upcoming year, distribution will be around 80 to 100 thousands cases as this year saw the incorporation of the  great commercial chains.

 “At the trade and consumption level, the brand has been really welcomed; there are markets importing directly that have already asked for a third or fourth container. This wine is well-positioned in the price-quality ratio and offers a different, innovative and colorful packaging that sets it apart from other products,” Federico Ballester emphasized. He also highlighted that in the past year, both Don Miguel Gascón and Destino have received a lot of attention in specialized media such as The New York Times, Bon Appetit, Wine Spectator and Wine Enthusiast. “It is very positive that these two great players have decided to see Argentina as the great future player.”

From nobility to Mendoza

In 2000, executives of Domaines Barons de Rothschild (Lafite), considered the most prestigious winery in the world, arrived in Mendoza and joined efforts with Catena Zapata in order to create CARO, a Cabernet Sauvignon and Malbec blend. The joint undertaking produced the CARO brand, which is currently exported at u$s 40 per bottle and Amancaya, sold at u$s 15 retial price.
The winery is active since 2003 in its own facilities; even though it lies beside Escorihuela, it has its own building and equipment. They only share their entrance. The investment added up to $ 3.5 million, “but it is still growing; in fact, there is a project to continue improving and broadening production capacity,” Silvana Corbellini, CARO’s accountant, explained.

The winery has a crush capacity of 6,000 kilos of grape per hour and a vat capacity of 700,000 liters in stainless steel tanks as well as 1,200 liters in French oak barrels.

From the 60,000 bottles produce at the outset, the winery sought to expand to 240,000 bottles by 2005. In two additional years, its reception by international consumers surpassed expectations: 360,000 bottles are currently produced, 95% of which are exported to the United States, France, Germany, the United Kingdom, Switzerland, Denmark, Brazil, Mexico, Japan, Taiwan, Hong Kong and Australia, among others.

“Lafite is our CARO exporter in France and our commercial advisor on foreign markets,” Corbellini explains.

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