In the latest edition of Rabobank‘s Wine Quarterly, Steve Rannekleiv notes that Vino Concha y Toro bucked the trend of lower revenue growth during the Covid-19 pandemic, posting outsized growth of key, premium brands. But it’s not just this year — in 2019, VCT saw wine sales grow 9% and priority brands and markets exceed the norm.
“The improvement in earnings was not by chance,” Rannekleiv, Rabobank’s beverages global strategist, says. “The company has implemented a major change in strategy to better respond to a changing environment, and the strategy appears to be paying dividends.” The change is similar to what Constellation Brands did 10 years ago, focusing on improving efficiency and overhauling its commercial strategy.
Cost savings were generated by reducing the number of distribution centers in Chile to eight from 13, consolidating production facilities and automating processes. These changes saved the company $24 million.
The company also shifted its focus to premiumization of brands, culling unnecessary brands, reviewing personnel, adjunsting pay policies to align incentives.
Rabobank’s Rannekleiv says there are lessons other producers can learn. First, operating structures require updates. “A strategic review of operations with a fresh set of eyes can often identify changes that are both more efficient and more effective.” One reason it went to eight distribution centers from 13 was that the retail market had changed. To quote T. Rowe Price, the Baltimore investment manager, change is a businessman’s only certainty.
Consolidation for CBrands was a result of a number of acquisitions that resulted in four wine companies. CBrands consolidated the four divisions into one, with one set of managers, not four, generating significant cost savings.
Another reason CVT is doing well is it prioritized certain brands and then tracked their growth. “What you measure is what you manage,” says Rannekleiv. After reviewing its brands, VCT decided to cut 83 brands. “A highly fragmented portfolio can make it difficult for the sales force to focus on brand building and to explain to customers the ‘unique role’ that each of those brands plays in the market,” Rannekleiv says.
VCT compensation is changed to driving sales of priority brands, not simply volume in the hope more volume will drive profit. And, Rannekleiv says, it’s important to let people go who won’t — or can’t — change with the change in strategy.
VCT has also let go of customers — it had been ‘selling to too many retailers who generated too few sales.” This, too, is similar to what CBrands did 10 years earlier, consolidating all wine with one wholesaler. Previously, CBrands four wine divisions each had their own wholesaler.
“Investing to create deeper relationships can be more fruitful than having more, shallow relationships, though it is important to remain mindful of concentration risk,” Rannekleiv says.