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Wine cooperatives under “x-ray”: analysis by Luca Castagnetti “Management DiVino by Studio Impresa”

Lower margins than private individuals in order to prioritize shareholder remuneration. But more realities are creating or buying limited company
Wine cooperatives under “x-ray” by Luca Castagnetti “Management DiVino by Studio Impresa”

Although increasingly market- and quality-oriented, in the essence of wine cooperatives is, in the first place, the remuneration of members. And, considering that a large part of cooperative production is destined for the large-scale retail trade, it is not all that surprising that on private wineries, cooperatives have lower economic performance in terms of profitability and added value. No less, the cooperative model, which is fundamental to the maintenance of vast areas of viticulture, and is increasingly, by force of numbers, fertile ground for experimentation in the vineyard as well, increasingly looks to capital companies owned by the cooperatives themselves, but which allow greater freedom of action than the cooperative itself. This is the picture that emerges from an analysis by Luca Castagnetti, director of Studio Impresa’s DiVino Management Study Center and adjunct professor of Vineyard Business Economics University of Verona, for the “Corriere Vinicolo”, a newspaper of the Unione Italiana Vini (UIV). The survey is carried out on a sample of 852 companies with revenues greater than 1 million contained in the Management DiVino Study Center database, 852 entities of which 274 are cooperatives. But “it should be noted that most cooperatives approve their financial statements in July or August, aligning the year with the natural business and financial cycle, while private companies close their financial statements in the calendar year. This mismatch means that when making comparative analyses with each other, the reporting periods do not coincide and the data of cooperatives are generally “older” by six months on the data of private companies”.
In any case, Castagnetti’s analysis explains, if a similarity can be found in the average number of employees (30 for cooperatives and 33 for private wineries), the biggest differences, as mentioned, are in economic performance: first and foremost, in marginality, with Ebitda of 5.4% for cooperatives versus 12.8% for private wineries, a 7.4-point spread that is up on the recent past (it was 6% in 2019). In detail, out of 13.6 billion euros in revenues for the total sample, cooperatives made 5.2 billion euros, 38.1%, with a net profit of 67.1 million euros, compared to 510 for private wineries. For 677 million euros in value added (13%), compared to 1.8 billion for private wineries (21.7%).
A situation that, according to Castagnetti, is mainly explained by two reasons. “The business model of the cooperation that favors the refunds to the grape-giving members: in the “Purchases” item of the balance sheet we find the higher value per kg of grapes recognized to the members thanks to their co-participation in the value created in the processing and marketing of the product. In private enterprises this value reaches the members through dividends, which do not affect the value of Ebitda; in the difference in added value, then, weighs not only the value of the refunds but also the positioning of the cooperation in the overall chain of wine production, since many cooperatives do not complete the chain of value creation up to the bottle stopping at the sale of large quantities of bulk wine. For bottled wine, there is also a price positioning that struggles to enter the medium-high segment of the market, although there are notable exceptions”. From a purely financial point of view, therefore, it is clear that the cooperative model is not particularly successful, but “for the agricultural providers, the model is virtuous because it enhances the value of their grapes by making them share in the greater value developed downstream through processing into wine and subsequent marketing”. However, for social wineries, risks remain from poor capitalization that often leads to heavy debt, with little ability to invest.
In fact, the data analyzed by Castagnetti further explain, cooperatives have lower depreciation (weighing in at 3.7% of revenues compared to 4.93% for private companies) reflecting lower investment activity. "investing in a context in which cash flows are 50% compared to those obtained by private companies and the weight of financial debts is very high compared to the ability to produce flows is not easy. The cooperative system despite having less weight in the market has more debt in absolute value than private enterprises: cooperatives with 38.1% of the market have a NFP of 941,329,525 euros, while private enterprises despite having 61.9% of the market have a NFP that stops at 812,612,246 euros. The Net Financial Position/Ebitda ratio confirms this large difference: 3.35 for cooperatives versus 0.75 for private companies. This situation represents a possible handicap of the system that in the long run may cancel out the various advantages peculiar to cooperation, among which we recall the main one: the tax one. Private enterprises have an incidence of taxes on net income of 37.65% for industrial and 10.58% for agricultural, while cooperatives stop at 2.8 %”.
But in addition to the interesting and in some ways unprecedented general overview, the analysis also identifies the “champions” of cooperation, dividing them between cooperatives that turnover more than 50 million euros, and those below this threshold. At the overall level, in terms of turnover, the Caviro Group leads the way, with 408 million euros (and a growth, in three years, of 16.3%), which also stands out in terms of profitability, with an Ebita of 8.8%, out of a cooperation average of 5.4%. With 264 million euros in sales, in second place is Cavit, the leader of the Trentino cooperation, which stands out for its negative net financial position of -39 million euros (and thus in fact with positive cash), followed by Cantine Riunite-Civ with 260 million euros, ahead of another benchmark in Trentino and Italy such as Mezzacorona, at 213 million euros, and Terre Cevico with 167 million euros. Still, in this group of “over 50 million euros in revenues”, “emerging cooperatives” with important growth results in the last 3 years are also reported, such as Cantina di Soave, among the main players in Veneto wine, with 143.8 million euros in revenues (+25.5% in the three-year period), the Sicilian Cantine Ermes with 118.8 (+36.2%), again the Veneto-based Vi.Vo Cantine with 104.6 (and a growth of +87.5%), followed by Cantine Vitevis with 64.9 (+38.7%) and Cantine di Verona with 58.9 (68.6%).
But if this is the picture reserved for the “bigs”, the cross-section reserved for social wineries, with revenues between 10 and 50 million, a sample made up of as many as 90 realities, is also interesting. If at the top in terms of turnovers are the Sicilian Cantine Settesoli (48.9 million euros), the Abruzzo-based Tollo (45.5) and the Veneto-based Cantina Valpolicella Negrar (42.7 million euros), in terms of growth rate, over the three-year period, stand out the Cantina Produttori di San Michele Appiano (+39.7%, at 28 million euros), Girlan (+33.4%, with a turnover of 13.3 million euros), and Terre Cortesi - Moncaro (+31.4%, with a turnover of 35.5 million euros), while the best figure on profitability is that of Cantina dei Vignaioli del Morellino di Scansano, the only one in double figures with 10.6%, and a turnover at 14 million euros.
But as mentioned, “a new aspect to be analyzed is that more and more cooperatives are starting and/or acquiring limited companies. The phenomenon is little known and never highlighted in industry studies. The reasons that lead a cooperative to start a limited company are many and depend on opportunities offered by this type of company and constraints that depend on their being a cooperative that can be overcome by limited companies. LLCs and SpAs do not have the capital constraint (one member-one vote) that characterizes the cooperative world and lend themselves well to financial transactions even with different entities. They can make profits, distribute them or reinvest everything without having to answer to members and their income needs. The dilemma of choosing between defending the member’s profitability and developing the Cantina Sociale enterprise finds in the investee companies a very useful “shortcut” to develop projects that would otherwise be difficult to implement”.
Strong growth in markets also leads many cooperatives to saturate their members’ grape conferring capacity, Castagnetti’s analysis explains, and any further growth is subject to the constraint of “prevalence”, which obliges them not to exceed the quantities of grapes conferred with grapes purchased on the market. This situation suggests that many social wineries set up external and parallel corporate vehicles in which to develop oenological and commercial projects otherwise unfeasible within the cooperative’s own vehicles. The same situation happens in cooperation that we often find in private “agricultural” enterprises, which are also subject to the constraint of prevalence: the presence in the group of “commercial” enterprises made in order not to make “agricultural” enterprises lose the favorable taxation recognized to them. “In our database of wine enterprises we also have information on companies subject to control and coordination by another company. We looked at the most significant ones, excluding pure commercial ones. These are 22 companies with revenues of 825 million euros in 2021 (2022 financial statements are not yet available). The volume is significant and shifts the cooperation’s “own” market share from 38.1% to 44.1%, decreasing the private share from 61.9% to 55.9%. The volume is important, but it is worth mentioning that in this list we also find leading enterprises such as Gruppo Italiano Vini owned by Cantine Riunite & Civ Società Cooperativa Agricola”.
While revenues are significant, the analysis goes on to explain, the financial results are not so significant, however, and are lower than those of the private companies: this group of companies records an Ebitda of 7.53%, which brings the overall result of the cooperative world to 5.7% against a 13.4% of the private ones net of the cooperatives’ subsidiaries. Even from the financial aspect, these 22 companies retrace the characteristics of the parent cooperatives more than the private “sisters”. The NFP is significant and shows an NFP/Ebitda ratio of 4.33, which brings the overall result of the cooperative world to 3.53 against 0.53 of the private ones net of cooperative subsidiaries.
“The weight of financial debt that we have seen to be a characteristic of Italian cooperatives is also found in the investee Srls and Spas: these data would seem to show that cooperatives use in their investees the same economic and financial logics used “at home”, assimilating or slightly improving the results of their own Srls and Spas to the results of the cooperatives themselves. Perhaps a missed opportunity to imprint the world of social wineries with a more pronounced development trajectory in line with the world of large and small private Italian wine companies”, concludes the analysis by Luca Castagnetti, director of Studio Impresa’s DiVino Management Study Center and adjunct professor of Wine Business Economics University of Verona.

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