Inside La Place de Bordeaux – Episode Five
How To Build (Successful) Fine Wine Brands
What does it mean for a fine wine to be a brand? How do fine wine brands define and measure success? How much does it cost to be a successful brand? What’s the role of the secondary market in building successful brands?
If you’ve been listening to the previous episodes of this series, you would have heard it: La Place doesn’t build brands. But then, who does? And how do they successfully do it?
In this fifth episode, hosts Felicity Carter and Pauline Vicard explore the concept of branding in relationship to fine wine and review the steps to build successful, desirable and recognised fine wine brands, decoding cultural differences along the way.
From iconic Bordeaux estates to award-winning marketing agencies, game-changing importers and leading auction houses, they all share their unfiltered opinions on how to build, manage and successfully grow a fine wine brand on La Place de Bordeaux and beyond.
With: Polly Hammond, Mathieu Jullien, Guillaume Pouthier, Don St Pierre, Fiona Morrison MW, Amayès Aouli.
In Conversation with Don St Pierre
Don St Pierre was the co-founder, with his father Don St Pierre Snr, of ASC Fine Wines. Founded in China in 1996, the St Pierres were prescient in seeing the boom in Chinese fine wine consumption, which was not yet on the horizon. Over the next decades, ASC Fine Wines became one of the most significant importers in Southeast Asia.
Don St Pierre has since been involved in many cutting-edge fine wine projects, including the development of Vinfolio and Fine + Rare. He is an adviser and investor with Vivino China, an advisory board member to Vinexposium, and an advisor to the Harvard Data Science Review, as has been entrepreneur-in-residence at Harvard Innovation Labs. He was named the 2011 International Man of the Year by Wine Enthusiast, and was named by Decanter as one of the Top 50 Global Wine Industry Power Players. Don now heads AdaptEdge, a consulting firm providing strategic direction for building distribution channels.
Areni Global:
Is there a checklist that any winery needs to have to be successful at fine wine distribution?
Don St Pierre
Well, I really think it starts with the market. Because my experience is related primarily to greater China and the United States markets, and both those markets are incredibly different. So if we take China, we had two elements to our fine wine distribution business. One was agency brands that would fall under the category of fine wine where we had the exclusive rights to import and distribute those brands. And within brands, there are categories of wines that would fall under fine wine, and then there are some wines within that same brand that would be more commercial. But nonetheless, you have agency brands where the producer gives over the rights to sell those brands and exclusivity in a market. The success of working with those types of brands is different than open market brands, which is the second bucket of wines that we would have distributed in China and many of those wines we purchased through La Place.
So if we look at the first bucket, what were the keys to success? The relationship with the producers and making sure that they had confidence in your ability within the market that you’re operating in. You have to be transparent with them. You have to provide information as to where the wine is being sold, and which channels, in as much detail as you can. And in exchange, you get allocations of budgets to help you build and sell into the market they visit, which supports the need to have events and tastings, educational-related events around the brand. So that relationship with the producer is super important. And I think the United States would be similar, where you have an importer with exclusive rights to a fine wine brand.
What were the keys to success? The relationship with the producers and making sure that they had confidence in your ability within the market that you’re operating in.
Don St Pierre
The difference is that the three-tier system in the United States creates a very different operating environment. So when you’re trying to market and sell a brand that you have agency rights over in the United States, you have to convince the wholesalers and the restaurants to work with you. This is very challenging because of the consolidation that’s happened with the wholesalers, where arguably seven or eight families control 80% of all wine and spirits distribution in America. So as a fine wine brand working with your importer, how do you get their attention? And that’s difficult.
In China, the wholesalers don’t control the environment. It’s more the importers that are working with the restaurants, working with the retailers, and — depending on the province — working with wholesalers in areas where the importers don’t want to invest and build their teams. So there is not one or two keys other than strong relationships with the producer.
How different is it for the open market wines?
It’s getting more and more tricky. As your podcast has highlighted, the types of wines and where the wines are from being sold on La Place have expanded dramatically. And so what we’re seeing more and more is if you’re an importer and you represent a fine wine brand, there’s a likelihood that some element of that fine wine brand’s portfolio is now being sold through the Place, which makes it non-exclusive.
In a market like China, that’s very challenging because the importer loses control of how their brand is sold into the market. And so what I’m hearing more and more is that importers that would traditionally be interested in representing selling a fine wine brand, if some portion of that brand is sold through the Place, it really erodes their ability to invest behind the brand because so many others will have access to some portion of that brand.
Also, as we’ve seen, the margins do not work the same way. So if you go from having 30 to 40% margin on the top wines and then suddenly you only have 15% margins because that margin has been divided among many people through the chain, then of course it makes it less interesting for you financially to distribute that. I can see why importers would be less interested, because suddenly they’re losing access to the best wines. How does it change the producer’s strategy?
Well, theoretically, one outcome could be that the producer is capturing more margin by selling a portion of its portfolio through the Place. If you take the courtier and then the negociant and the margins that they would take, and you compare that to what a typical importer might take, that would mean to me that the producers are capturing more of that margin on their side. Therefore, they would have more money to invest in that portion of the brand that’s not being sold through the plus into the different markets. So that could be a benefit depending on how the producer wishes to use the additional profits it’s making on the sale.
But I think, in general, what our experience has been with the wines we are purchasing through the Place, the expectations of investment behind the brand as an importer to that producer really changes dramatically.
You’re primarily dealing with your négociant. Depending on how strong a relationship you’ve been able to create with the Château, for example, you’re working with them for an event in the market, but the négociant is really the primary go-between. The expectations of resources from that négociant, given that they’re operating at a 15% average margin, obviously are very low.
Theoretically, the wines that are sold through the Place are so well known that the need to invest behind the wine in your market is less. The demand is already there. So you’re allocating the product in a way that is good for you as an importer and theoretically good for the brand, but there’s less need to invest behind it.
How much is it true that once you get to that level of reputation, you can relax a bit and not invest so much in your brand? When you are at the top of the pyramid, do you still need to invest relentlessly in your brand?
I don’t think you’re ever safe because you’re dealing with consumers that are coming into the market and they don’t know very much about the category of the brands that are the most well-known, because they’re brand new consumers. This is especially true in a market like China. I guess you could argue it’s perhaps a little less true in the United States, but I think in both cases the producers must continue to invest.
But I think one problem that’s happening, is that there are more and more wines being sold through the Place, and a number of these wines just really aren’t well known in these markets. So in those cases, there’s a very important need to invest. And I’m not sure how that works. Now, what I’ve seen in some cases is a producer will be highly selective about which negociants they work with on the Place. Maybe they’ll choose three. And with those three, they will have a more concentrated and focused effort of distribution, and then they’ll be more willing to invest in the brand.
It would seem that we’ve just ended a period where the objective was desirability, and brands needed to create or manage scarcity. And instead of being distributed in 40 countries, they worked to be distributed in 80 countries. And so by mathematical effect, you would have less wine in each country, therefore more scarcity, and more desirability. But talking to importers in key markets, they are now saying that they don’t have enough wines now to maintain these brands today in their market. Are we now entering a cycle of going back to fewer people/markets, but better?
Going back to your original question, what are some of the keys to success for fine wine distribution? You have to have enough allocation in your market to be successful. Having very, very small amounts of allocation makes it difficult. If a brand went from 30 markets to 120 markets and therefore had to allocate much less into each market, that would make it more challenging for professional distribution companies to get behind the brand.
It’s a very complex situation because if I’m a producer, I want to have a more targeted approach. That doesn’t mean you can’t use the Place. I think you can, but you have to be targeted in your use of the Place. But to what extent is the Place willing to embrace that type of strategy from producers that may not be that well known? I don’t know.
Do you have a benchmark or bracket of how much you need to develop a brand to develop or maintain a brand in markets like the US or the UK?
It’s always difficult to quantify that into dollars. Generally speaking, we were investing let’s say 10 to 15% of the sale into the [Chinese] market, but our margins were in the 50% range, so we had more room than perhaps one has today. And so the emphasis then shifts more from the importer, shouldering the burden of brand-building activity to the brand owner working with the importer. And to some extent, that makes more sense because the brand owner has more control.
I think one of the key elements to this is the digital marketing strategy for brands, particularly as it relates to new consumers. What are they doing with YouTube? What are they doing with Douyin? How do they communicate their messages effectively to new consumers entering the category that have the money to spend, but just don’t have the awareness or understanding of what makes these brands these producers special?
One of the key elements to this is the digital marketing strategy for brands, particularly as it relates to new consumers. How do they communicate their messages effectively to new consumers entering the category that have the money to spend, but just don’t have the awareness or understanding of what makes these brands these producers special?
Don St Pierre
Are there two different ways of building a brand depending on your scale of operation and the volume that you’ve got to sell?
I think for those really small producers with obviously limited amounts of money to invest, it shifts more towards events, tastings, dinners. You’re doing those selected events, and then hopefully when the people leave those events, they come away with the stories and they want to tell their friends about it. It’s more word of mouth through physical experiences that are building the brand, in the case where the producer has very limited quantity. The larger the brand is, the bigger the need to be selling into restaurants and retailers. And then you start to shift your focus away from just having in-person tastings and events. And that obviously requires more capital.
When you’re looking at promoting something into a restaurant channel or retail channel, you’re also looking at what’s the underlying way with which you’re building the brand using a digital strategy? So it’s got to be a combination of both.
We’ve heard a lot through the different interviews that we’ve been doing that selling your wine through La Place makes it a commodity. Do you agree with that statement and why?
The idea of La Place is to effectively create distribution in a wide range of markets using the strength of this incredible network that’s been created over a very long period of time. And so does it effectively commoditize the wine? It depends on the quantities that are being sold through the Place. I think in the case of smaller quantities, the answer is no. In the case of much larger quantities, to some extent, yes, but then the secondary market plays a role in this as well. And ultimately I think you need to ensure high-quality distribution. And in my mind what that means is instead of a large number of bottles going into a few hands, it’s a large number of bottles going into a large number of hands.
One of the big challenges that the fine wine industry faces is effective distribution. The pendulum is shifting now from using importers and exclusive agencies towards the Place for many producers around the world. But does that constitute effective distribution? Does that mean that the wines are in more people’s hands versus fewer people’s hands? Because ultimately, if a few number of people have most of the wine, the wine’s not going to get consumed. It’ll then flow into the secondary market in ways that are difficult to control or understand.
If the bottles of wine just are sitting in someone’s cellar collecting dust and not consumed, that’s a real problem. And this issue exists in Napa as well, through the models that have been created. Too few people are getting direct access to the wines for the wine clubs, and subsequently people just have way too much inventory within their own home cellars.
If the bottles of wine just are sitting in someone’s cellar collecting dust and not consumed, that’s a real problem. And this issue exists in Napa as well, through the models that have been created. Too few people are getting direct access to the wines for the wine clubs, and subsequently people just have way too much inventory within their own home cellars.
Don St Pierre
Do you see the secondary market being a hindrance or a help for fine wine?
The secondary market is important. You’re never going to achieve the type of distribution where every bottle you sell into the primary market will be in the hands of people that will consume it. But I think there’s a happy medium, and some brands have achieved this happy medium, but most have not. And to me that happy medium is more people have access to the product. So there are fewer bottlenecks in distribution where a few number of people have large quantities sitting in their cellars.
Now, to your point about is the secondary market a help or a hindrance? Well, first of all, I think the producer must understand where their pricing is at in the secondary market if they’re to make intelligent decisions as to where they should be priced in their primary releases. So it’s not something that producers can afford to ignore. It’s something that I think they’re increasingly interested in understanding and engaging with.
Is there anything else that produces or importers can do in order to make sure the wines are drunk?
It’s critical that producers understand that the global environment for selling fine wine is very diverse. And so regardless of working with an importer or négociant, the producers have to be willing and able to put effort into understanding those key markets. And that effort takes many shapes and forms.
Sitting back in their vineyards and not having the resources and the interest to help explore and understand the markets with their partners is not a strategy that is going to result in success. So I think the key issue from my perspective is the interest the producer understands in what’s happening within your market. And that takes resources, people, time. But that’s critical.
Sitting back in their vineyards and not having the resources and the interest to help explore and understand the markets with their partners is not a strategy that is going to result in success.
Don St Pierre
You mentioned earlier that some brands have achieved the balance between having a healthy relationship with the secondary market. How do you know, how can one brand know if they have achieved that balance?
One way is looking at the amount of volume available on the secondary market of your product. And that’s not so difficult to understand these days. So I think if you see a large amount of your product available relative to what an annual production might be, that should tell you you’ve got a problem with your distribution. There are brands that I think have achieved a very, very good quality distribution. I’ll give two examples. In California where I’m at now, one is Dominus and the other is Ridge. You just don’t see a lot of Dominus and Ridge available on the secondary market. And it’s a testament to their rigorous approach to distribution.
Is it really good distribution or is just a moment in the cycle of their distribution?
I would believe in the two cases that I’ve indicated that there’s enough history going back years and years that we would’ve seen larger quantities come onto the market by now if the distribution had not been efficient. So if you look at both of those, they have very active approaches to working with the on-premise, working with the off-premise, their wholesalers. They have, in Ridge’s case, a quality direct-to-consumer relationship, and they have a clear understanding. If we’re allocating wines to you direct-to-consumer, you really need to drink them. And if we start to see wines come up on the secondary market, that means you’re probably buying too much from us, so let’s cut back. So you have to be looking at the primary market. You have to have effective distribution and different channels in the primary market working with partners that have transparency, and then you have to have discipline and effectiveness in your direct-to-consumer relationships.
What’s the easiest to sell: the small quantity wine with high demand, or medium demand with large quantity?
I think if I look at my experience in China, it’s most certainly the medium demand with large quantity because we would have the resources with which to build more demand. And without that additional supply it doesn’t make sense. And we want to have strength of distribution with our key brands in multiple channels.
How do you see the role of importers/distributors in building fine wine brands in the future?
I feel like there’s a lot of things that are in the midst of change as it relates to the distribution of fine wine today. I think that producers are more and more interested in connecting with the end consumer. They’re more interested in ensuring that the stories that they have to tell can be effectively disseminated and told to the end consumer, particularly new consumers. They’re interested in capturing more margin in the channels. And so the traditional way of multiple layers between the producer and the end consumer I think is undergoing a lot of change. And I think technology is playing a big role.
Can we imagine a theoretical world where producers will be able to go direct in most markets?
I think producers are always going to need to have a partner or partners, but I think what you could envision is the consumer having a relationship with the producer and then the producer having partners in different markets to effectively ensure the logistics and the fulfilment to those end consumers happen correctly, both from a legal perspective and an efficiency perspective. I think the role of the negociants is changing dramatically from the standpoint of the products they sell.
This transcript has been shortened and lightly edited for clarity.