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New Money 11/06/19 The establishment of "Union of International Chateaus"

06-19-2011 13:48 BJT

 

 

The establishment of “Union of International Chateaus”

One day in a small, remote town near Yantai city in Shandong Province, a group of mysterious, blue-eyed visitors gathered. Clad in business suits, they came bearing top shelf vintages that were each worth more than 10 thousand yuan. Why had they come to that small town?

These foreigners are owners of world-famous wineries. They came all the way to that small town from France, Italy and New Zealand at the invitation of a wine company – Changyu Pioneer Wine. Changyu Pioneer Wine’s General Manager Zhou Hongjiang announced the establishment of the “Union of International Chateaus,” with Changyu at the core of the alliance. Since then, Zhou Hongjiang has established an ambitious plan to develop this alliance of global brands.

Zhou Hongjiang, General Manager of Yantai Changyu Pioneer Wine, said, "This is an inevitable trend. We hope to become a world-renowned enterprise. What should we do? We should get a foothold in the Chinese market by holding a large market share. To gain international recognition we should have wineries based in other parts of the world to process and produce our wine."

In just two years, Zhou Hongjiang established the “Union of International Chateaus,” consisting of Chateau Liversan and Chateau Burgundy Santenay in France, Chateau Changyu Pioneer Sicily in Italy, Chateau Kely Estate in New Zealand, and joint-ventured wineries Chateau Changyu AFIP Global, Chateau Changyu Golden Icewine Valley and Chateau Changyu Castel.

"By building an alliance, we can get high-quality wine produced in the region. Through our cooperation, we can also learn their winemaking techniques. We vowed to make the best wine in China and to make our wine join the ranks of the world’s best-known alcoholic beverages. That’s why we decided to build wineries." Zhou said.

Build winery

The world's most famous wine producers all have their own chateaus. It is an internationally-recognized practice to build wineries and promote Chateaus.

"To put it simply, a chateau is a place where high-end wines are produced. In the making of wine, the grape varieties and the pressing process are carefully controlled. French wineries set even higher standards. For instance, a chateau should only be made from grapes grown in its own vineyard. Wines produced with grapes from other vineyards can only be sold as sub-brands. In other words, Chateau is a high-end product." Zhou said.

“Chateau” is a French word, which means “castle.” The world’s most renowned winery is Chateau Lafite in the Bordeaux region of France. Chateau Lafite was found by a member of the Lafite royal family in 1354. In the 18th century, the wines produced there were serviced for King Louis XV of France. When speaking of Lafite, one can hardly avoid mentioning the Rothschilds, a family that has enjoyed great fame in the financial circle till today. In 1868, the Rothschilds purchased Chateau Lafite, which was under public sale, and renamed it Chateau Lafite Rothschild. In the overseas market, the chateau is a symbol of high-quality wine. However, there was no such decent winery in China until ten years ago.

"To make Chateaus, a large production line and a large fermentation facility are needed. It will take a long time and a huge investment, so the cost will be extremely high." Zhou told us.

In the late 1990s, foreign wines didn’t have much access to the Chinese market because of the high tariffs. The wine market in China was occupied by domestic companies. After the reduction of tariffs in 2001, great changes took place in the Chinese wine market. The high profits generated by imported wines prompted quite a number of people to become wine agents. Domestically-made wines couldn’t compete with foreign wines in both brand recognition and quality. Therefore, they had to launch a price war in the low-end market. Various kinds of wines suddenly flooded the Chinese market. However, Changyu Pioneer Wine decided to take a different approach by establishing the first professional winery in China.

Zhou Hongjiang said, "The managerial staffs of Changyu made the decision in accordance with the evolving situations in the market. It’s a path that suited our market position. We positioned ourselves as a high-end wine producer. What is a high-end wine? It should be a Chateau."

The world-famous Wine Report forecasted that middle- and high-end wines would see the highest growth in the market. By 2010, high-end wines would will take up 50% of the total wine consumption in the Chinese market, while middle-end wines would will seize 40% of the market share, leaving low-end wines only 10% of the market share. Without a doubt, Chateaus will be the key product to open up the high-end market. Zhou Hongjiang believes that tapping into the chateau market would be a significant move both in terms of development strategy and market expectation. However, to everyone’s surprise, Zhou Hongjiang built the first winery on gneiss soil.

Place option

Building a chateau on gneiss soil seems impractical. But Zhou Hongjiang has his reasons. In the winemaking industry, there is an old saying: Technique contributes 30 percent to the quality of wine, while raw materials contribute the other 70 percent.

"Before choosing the site, we studied where we could grow high-quality grapes. Good wines are made from good grapes.
All plants need an appropriate environment, say, soil and temperature, to grow. The quality of grapes determines the quality of wine. In 1892, when Changyu was founded, Zhang Bishi, the founder of the company, traveled across the country. Why did he choose Yantai? Because the geographic environment there is similar to that of Bordeaux, making it suitable to grow grapes. Zhang Bishi made a huge investment and introduced foreign grape varieties to the area." Zhou said.

In 1892, overseas Chinese Zhang Bishi invested three million liangs of silver to establish China’s first wine company, “Changyu Pioneer Wine,” in Yantai. He introduced 124 grape varieties from abroad, and finally succeeded in growing them in Yantai. Since then, the wine company has taken front stage in China’s modern wine making industry.

A different Chateau

Zhou Hongjiang built not only a winery, but a multi-functional complex. What's the value of having such a winery for Changyu?

In 2002, Chateau Changyu Castel was established in Yantai. Different from traditional western wineries, Chateau Changyu Castel is a multi-functional project with tourism, wine training and leisure activities apart from winemaking. This is a very creative business mode.
 
"Our winery not only grows grapes and produces wine, but also educates about wine culture. Western wineries don’t provide such education, because nearly all Westerners know very much about wines and winemaking. But in China, wine culture needs to be promoted." Said Zhou Hongjiang.

Zhou Hongjiang positioned the Changyu brand as as a high-end wine producer. Cooperation with Castel Group - France's largest, and the world's second largest wine supplier - helped Changyu make the first step towards internationalization. But some people say Changyu disguised itself as a foreign wine supplier by building wineries and seeking cooperation with foreign brands. Critics say it's a change in form but not in content, and so Changyu shouldn't consider itself a truly premium wine brand. How could Zhou Hongjiang proved himself?

Quality

Changyu established its own wineries, constructed Chateaus and built an alliance with big overseas names in the industry. Zhou Hongjiang knew those measures were required for brand building and gaining access to the high-end market. That's how Changyu built itself into an international brand. However, the strategy also sparked controversy.

Some winemakers make use of the selling strength of Chateaus. They don’t have their own wineries, but claim their products are Chateaus. There were also questioning whether Changyu is also building only an image project.

Zhou Hongjiang: We should have our capacity recognized by others. In fact, the internationalization strategy of Changyu is not a simple one. For example, Changyu’s capital structure fits the internationalization trend. Both Italian capital and the International Finance Corporation, a subsidiary of the World Bank, invested in our company. We also have an international technician team. Since the very beginning, the founder of Changyu hired brewmasters from abroad. Now we have recruited foreign tasters to teach people wine tasting. We also cooperate with our international counterparts on research and development. For instance, we have cooperation programs with the International Wine College in France.

In 2008, Zhou Hongjiang flew to France to ask Robert Tinlot, honorary president of the International Organization of Vine and Wine (OIV), to be the honorary lord of Chateau Changyu AFIP Global. Tinlot, who has headed the OIV for 11 years, is a notable figure in the wine industry. It’s a common practice for world-renowned wineries to invite celebrities to be their honorary lords.

Apart from asking a celebrity to be honorary lord, Zhou Hongjiang sold the first barrel of future wine and the first wine estate in China. The sales of wine futures is a common practice in the marketing of top Chateaus. Chateau Changyu AFIP Global announced the selling of 100 barrels of future wine, with each selling at 288,000 yuan.

Since 2006, Zhou Hongjiang has accelerated the pace of building Changyu into an international brand. Changyu signed an agreement with Aurora Ice Wine Co., Ltd, Canada’s top wine exporter, to build a joint venture Chateau Changyu Golden Icewine Valley. It also established a partnership with Chateau Liversan in the Bordeaux region of France. Zhou Hongjiang was trying to open up the high-end market in China through cooperation with big, international names in the industry.

Control stock

Strategic alliance is a double-edged sword. While cooperating with foreign companies, how did Zhou Hongjiang protect his own interests and continue to expand the company? His determination to remain the majority shareholder in the business had a lot to do with this.

The birth of Chateau Changyu Castel was the first step for Changyu to go global. However, in 2006, Castel built partnership with another Chinese winemaker, which made Changyu fall into a passive position. Changyu had no choice but to adjust its strategy. Thereafter, Zhou Hongjiang set a rule that Changyu must hold the majority of stocks in any joint venture.

Zhou Hongjiang has been pushing for the internationalization of Changyu, by building an international managerial team and forging alliances with foreign wine makers. In recent years, annual sales of Changyu has seen a rapid growth of 20 percent. In 2007, it became one of the top 10 wine companies in the world. But Zhou Hongjiang didn't rest on his laurels, because a war in the wine market was brewing.

Growth

The growth of wine consumption has outpaced that of other alcohol beverages in China. There are some eight million hectares of vineyards in the world, producing 27 million tons of wine every year. That means each person in the world can consume 5.3 bottles. But average wine consumption in China is just 0.3 liters, less than 10 percent of the world's average.

In October 2008, Chateau Junding was established by COFCO. In May 2009, Chateau Sungod made its debut in the market. COFCO is ambitious to get a foothold in China’s high-end wine market.

COFCO has reorganized its wine plants such as Shacheng and Huaxia to avoid internal competition. Now it is also establishing wineries and building its brand.

China has become the world’s eighth largest wine consumer, with a consumption of some 72 million cases annually. According to a forecast, the wine consumption in China is expected to reach 1.2 billion bottles in 2012, with an annual increase of 36%. Both domestic and foreign wine companies are hoping to have a finger in the pie.

Profit

Zhou Hongjiang was dedicated to building high-end wineries and wine products. But the Chinese wine market is not yet mature, and Zhou Hongjiang had to figure out a business model which ensured sustainable profits.

In addition to fierce competition, Zhou Hongjiang is also concerned over the problem of profits. In China, low- and middle-end wines are still the main pillars in the market. High-end wines, which are at the top of the pyramid, haven’t seen rapid growth in sales volume and profits for a long time. Obviously, high growth can’t be generated by high-end wines overnight.
 
Zhou Hongjiang said Changyu will keep adjusting its strategy to cope with the evolving market. With this in mind, Zhou Hongjiang worked out a strategy of “Chateau plus Cabernet.” Chateaus mainly target the high-end customers. Changyu Cabernet, China’s first dry red wine produced in 1937, has always been the core brand of Changyu’s middle-end wines. The sales volume of Changyu Cabernet accounts for two thirds of the cabernet wines sold in China.

There is a saying that high-end wines help build the brand, while middle-end wines generate profits.

Preview

The ancient hero Cao Cao once said Only Dukang liquor can relieve people from their sorrows.” For Changyu, Zhou Hongjiang took the strategy of developing wineries to relieve concerns regarding its growth model. At the World Expo in 1915, Changyu went abroad, taking Chinese wine to the outside world for the first time. More than 100 years have passed, and China has become the main competition ring for wine producers. Changyu finally found a strategy to secure its market position.

Through international cooperation, it went global and introduced advanced methods into China. The internationalization strategy gave Changyu a firm foothold in the market, and built momentum for its development into the next century.

Editor:James |Source: CNTV

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