Wine, value of the brand is growing. But, in the top range, everything is linked to the “vineyard”

In a wine sector that changes and evolves together with the world, the brand and intangible assets are increasingly important for wineries, both on the market and in the relationship, for example, with banks and investors. It is valid for all companies, but with some differences, because if for wines that follow more commercial and mass-market logics the brand can even predominate over all the rest, for the most prestigious wines, and not necessarily only luxury ones, tangible assets, starting from the vineyard, remain decisive, not only for the organoleptic quality of the product, but also for the “storytelling”, and therefore for everything that is the part of the “intangible” value around the brand. This is the summary message of the conference “The new value of wine”, organized by Professor Vincenzo Zampi from the University of Florence on behalf of the Cesifin-Alberto Predieri Foundation, an important Study Center on financial institutions, promoted by the Cassa di Risparmio di Firenze Foundation. On which WineNews has collected the reflections of Professor Vincenzo Zampi himself, as well as of Giampiero Bertolini, at Tenuta Greppo Biondi-Santi, the cradle of Brunello di Montalcino, today of the French Epi group, of Lamberto Frescobaldi, at the helm of the historic and prestigious Florentine winemaker group, and Giovanni Geddes de Filicaja, at the top of two companies of absolute value such as Ornellaia and Masseto. The reflection also starts from the number of a phenomenon, that of mergers & acquisitions, which is increasingly high in the world of wine, as we often tell you. According to the data illustrated at the conference, in just a few years, the volume has gone from a volume of 1.5 billion dollars a year driven by acquisitions and mergers of companies, to a peak, in 2021, of over 8 billion. In good part also thanks to the increasingly strong presence of private equity funds, in which investments in wine, as it is estimated, have grown by 75% in a few years.
“Two fundamental aspects emerge: more and more in wine - Professor Vincenzo Zampi (University of Florence) explained to WineNews - investment logics different from the past are emerging, increasingly typical of finance. In some cases, these are investments by groups interested in construction projects of companies capable of generating value through the company's income, while in other cases, especially in France, there are also speculative logics, where those who buy try to grow the value of the acquired company as quickly as possible and then resell it. Another aspect that emerges, however, is that intangible assets increasingly count in the evaluation of the value of companies, and this is true both for those who want to buy or sell a company and in the relationship with banks on the credit front. And intangible assets mean, particularly, looking at the value derived from the prestige of the brand. In short, those who want to invest must be clear that they invest in the vineyard and wine as a product, but also in the brand, and in building an image to be done in an increasingly professional way”.
To form the value of a wine company, therefore, are many factors: the value of the vineyards and buildings, the wine in the warehouse, the historicity, the identity, and, of course, the ability to generate value on the market. And, in a product such as wine, especially top-of-the-range, closely linked to territoriality, what can be defined as the territory's “brand equity” also affects quite a lot. But building a reputation for prestige and reliability, or a strong brand image, is a difficult goal to achieve, given the complexity of the brand's mechanisms in the wine field, considering, how many types of "brands" can exist”- that is, elements of identity capable of influencing purchase decisions - present at the same time on the label of wine. Factors that often inextricably link both the individual dimension (the company) with the collective one (the territory). A complex issue, said Professor Vincenzo Zampi, "which by now many wine companies know, but greater awareness is needed, which can help even more professional and managerial growth in the wine world, a sector that must think in an increasingly modern way: it is no longer an agricultural activity like many others, but is closer to the world of luxury than to that of purely food sector”. A vision supported by Matteo Calegari, managing director of Mediobanca's Branded & Luxury Goods Division, advisor to many of the main mergers & acquisitions operations that have taken place in the sector in recent years. Which highlighted, first of all, how the analysis of the different types of wine companies involved in this type of operation, brings out an apparent paradox: the weight of intangible assets and, in particular, of the brand in determining the value of companies is in a higher percentage in those operating in the mass market and lower in those that, on the other hand, produce wines of the highest range. But, as mentioned, this is explained quite easily: while the first ones are generally companies that do not own their own vineyards, their value is inevitably linked above all to intangible assets such as their brand and the strength of relationships with suppliers and customers, vice versa high-end companies are typically companies rooted in a prestigious area where the values of the vineyards are often particularly high: this means that, in the definition of their value, this “land” component often has a very important weight, as well as the fact that there is also an important warehouse of previous vintages; this means that even the economic value of these companies can be correctly estimated only as the sum of at least these three different components (land-real estate, warehouse, brand). Confirming that, in any case, the share of value explained by the brand is, in any case, always extremely relevant, above all, in the most prestigious and well-known companies.
From the analysis of the Mediobanca database - which covers a sample of companies that generate almost 50% of turnover and over 75% of the sector’s exports - it emerges that, following the so-called "August 2020 decree", the monitored companies have carried out revaluations of balance sheet assets for over 1.5 billion euros but, above all, that these revaluations mainly concerned intangible assets (1.3 billion). In other words, the importance of the brand is also recognized in the financial statements as an expression of the quality of the product and its ability to generate value. The analysis of the correlation between prices and profitability also confirmed that, from this point of view, investment in quality - of product and image - undoubtedly pays off, leading to higher margins; however, it emerged that things often get complicated if we think in terms of return on invested capital: from this point of view, there are some cases in which investments appear not well balanced with respect to their actual ability to generate sufficient profitability or an adequate economic return on the invested capital.
Analyses that, in fact, confirm the vision of those who lead companies. “Today it is quite obvious that the value of the brand - Giampiero Bertolini told WineNews, at Tenuta Greppo Biondi Santi (the winery that invented Brunello di Montalcino, ed) - is increasingly important. Obviously, when we talk about different segments the value, the weight of the brand varies in an important way: if one is in the highly prestigious wine segment, the vineyards component, for example, is important and is reducing the percentage of the weight of the brand, while in other segments the brand value is much more important in percentage terms. But it is, in any case, an increasingly important value both in exchanges between companies and towards the bank, which today finances you, if you have positive cash flows. And you do these if you have a brand that makes you sell better, which means higher values. Starting to think about the value of the brand is important, it is an aspect of corporate culture on which we must all work together, to increase the value. Like Biondi Santi we have always valued it, otherwise Epi would not have bought the Greppo di Montalcino estate only for the value of the vineyard and cellar assets, albeit very important. And also, the choice that the French made to hire a CEO like me, who has a background that is not technical, from an oenological point of view, is an indicator of the value they give to the brand, which is the aspect to work on. Making the top wine is the basis, it is the pre-requisite, but then you have to make a careful distribution, a centered price, selective communication: all actions that increase the value of the brand ". And the issue of price is one of the most delicate, because a company can establish its prices at the origin, but then it is difficult to control the policies of those who bring the wines to the shelf. “Consumer price control is essential - explains Bertolini - even if everything starts from your original price. But it is not easy to do, because then everyone has their margins. We have an equal price for distributors and resellers all over the world, we constantly check the prices and try to intervene when we see something that does not fit, but it is not easy to check the final price at 100%. Even if it is a very important variable, the one that communicates most immediately to the consumer, the one that creates value. Having said that, on the same level there is the story of one's values and history, because if the value, the price, has no content behind it, it doesn't hold up. Just as it is not good to have important values to tell, which, however, do not pay off. To summarize, wine, in our case, must be a red liquid of excellent quality, but the added value gives it everything that is before and around the bottle, because when you spend certain amounts you buy the history of the product, not just the product. Brand management is something that needs to be planned, nurtured day by day, but it is complex”.
But when it comes to high-end wines, as mentioned, all start from the vineyard, which remains the primary asset. As Lamberto Frescobaldi explains to WineNews: “great wines are linked to the territory. It is true that there are companies that have become brands almost in their own right, such as Tenuta San Guido with Sassicaia, for example. But it is unimaginable that if one day, absurdly, they disengaged from the territory of Bolgheri, they would have the same value. And it also applies to wines that are Igt, such as our Masseto: talking about the brand is fine, but it is the territory that has elevated the product to a certain level. Then the people, the producers, elevated it to the status of a brand. The one in the territory - continues Frescobaldi - remains the biggest investment to be made: making beautiful vineyards, managing them with wisdom and precision, doing everything that needs to be done to make a wine that is unique, recognizable, inimitable, and this then creates the success. Then the brand is created, but everything comes from the vineyard.
In a sector like ours, belief in the value of the territory and that of people. But I look at what happens in a different sector like fashion, and we between Florence and Siena are in an important district for this too, with big brands: the fashion districts are returning after a few years in which, perhaps, we searched to produce in other countries because it cost less. We observe the return to territories where there is the wisdom of doing, knowledge, sensitivity passed from one generation to another. And so it is in wine. Brand value is a market reward, but it all starts with the territory. Otherwise, we would be crazy to invest in vineyards and properties in territories where a patch of land is worth millions of euros”.
Vision shared by Giovanni Geddes de Filicaja, the creator of success of top companies such as Ornellaia and Masseto (which are part of the Frescobaldi galaxy, ed): "the value of wine, of the product, is a whole between vineyards, cellar, communication we do, and of course the brand. A bottle of wine without a label has no value. The label tells and communicates what to expect, but the non-material values are inseparable from the intangible ones. It is no coincidence that the vineyards, in areas such as Bolgheri, but not only, continue to grow in value”. But not everything is the same, of course: “the lesser-known companies - underlines Geddes - need more of the territorial brand, of the DOP, while others prevail over that of the territory, as can be the case of Ornellaia. But they are, however, linked, everything grows together.
From 2015 to 2021, according to an IRI study on large retailers, there is an increase in the value of the bottle by 20% as an average price, and there was a particular jump, from 2019 to 2021, with an increase of 8%. And even in a high price range, for large-scale distribution, which is between 8 and 12.99 euros per bottle, whose sales in 6 years have almost tripled, from 6 to 17.2 million bottles, it emerges that the consumer goes to look for the best-known brands. It is a circle: the most important companies increase the value of the territory, which, in return, increases the value of the companies”.
But then Geddes introduces a distinction, because if the value of the denomination in absolute is very important, sometimes, for some, very few top brands, even in important territories, the name of the Denomination can be a little homologating in terms of value. And if, in some way, it can help not to go below certain economic values, it can also be a limit to exceeding them. As if to say that “the champion must also know how to play alone, while being within and together with the denomination. And what happens in the Bolgheri area is a tangible testimony”.
In any case, the fact of quality made wine, which is now a prerequisite for wine to create value, it must be distributed on the markets in a coherent and organic way. This does not always happen, as underlined by Sergio Dagnino, CEO of Prosit, a holding controlled by the Made in Italy Fund of Quadrivio & Pambianco (which, in a few months, entered the capital of wineries such as Torrevento from Puglia, Abruzzo Nestore Bosco and the Venetian Collalbrigo, which has acquired the US importer and distributor Votto Vines and, recently, the Cantina di Montalcino, a cooperative winery in the Brunello area). Dagnino underlined the asymmetry existing in Italy between the ability to produce quality wines now comparable to most French wines and the inability to achieve comparable average prices. Highlighting how this gap can be largely linked to the widespread difficulty in the Italian system of making the most of successful brands, also due to the difficulty of developing on a large scale a national and international wine distribution system, capable of supporting often busy entrepreneurs on too many fronts at the same time, towards achieving this goal.