Tags: Viña Concha y Toro | VCO | Brown Forman | BF.B | wine | wineries | Chile

Chilean Wine Giant Aims for USA

By    |   Wednesday, 22 Jun 2011 09:31 AM

With U.S. consumers drinking more wine — even more than the French in 2010 with total sales of 330 million cases — and willing to pay more for it, New World producers are vying to quench the growing thirst for premium wines. One such producer is the Chilean winery Viña Concha y Toro (VCO).

Already Chile’s top wine exporter and the second most-powerful wine brand in the world, according to British consulting firm Intangible Business, Concha y Toro has big plans to grow internationally.

Founded in 1883, Concha y Toro owns around 11,000 hectares of vineyards in Chile, Argentina, and California. Last year it signed a deal to sponsor one of the world’s most popular football clubs, Manchester United, which has helped boost the brand’s exposure in football-mad Asian markets as well as in Europe, Latin America, and the United States.

But with the company’s export revenues hit by the appreciation of the Chilean peso against the dollar last year, Concha y Toro was looking for a way to diversify its production operations and shield itself from exchange-rate fluctuations.

The opportunity came in the form of California winery Fetzer, one of the top ten U.S. wine producers by volume, which Concha y Toro bought from Brown Forman (BF.B) for $238 million in April. The acquisition — the largest in Concha y Toro’s history — includes six wine brands, 429 hectares of vineyards in Mendocino County, and a bottling plant.

Concha y Toro, which has experience producing organic wines in Chile, plans to seek export markets for Fetzer’s premium label Bonterra, the largest organic wine label in the United States.

“We believe this transaction opens additional growth opportunities globally, as well as in the U.S. market,” said Concha y Toro CEO Eduardo Guilisasti.

Analysts also see Fetzer as a good match. “Low current exports — as a result of relatively high internal demand — open a nearly limitless growth opportunity for Fetzer wines in VCO’s current export markets,” said Chilean investment bank Celfin in a report.

According to Chilean ratings agency Feller Rate, the deal “will translate into a stronger business position by improving (Concha y Toro’s) geographic diversification and reducing risks associated with agriculture and exposure to the exchange rate.”

Delayed impact

But the Fetzer deal closed too late to have an impact on the company’s first-quarter 2011 earnings, which slipped 0.7 percent from the same period a year earlier to $13.5 million due mainly to the negative impact of the peso’s appreciation on exports.

Consolidated sales reached $166 million, up 17.5 percent due to higher exports and prices compared to a weak quarter a year earlier when the February 2010 earthquake caused sales to wobble.

Exports of bottled wine increased 25 percent to 4.55 million cases in the first quarter, helped by a recovery in demand for premium wines, including the company’s flagship Casillero del Diablo line, after the global financial crisis.

Concha y Toro’s ADR trades around $50, short of its 52-week high of $52.80 and well above its 52-week low of $38.20.

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With U.S. consumers drinking more wine even more than the French in 2010 with total sales of 330 million cases and willing to pay more for it, New World producers are vying to quench the growing thirst for premium wines. One such producer is the Chilean winery Viña...
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2011-31-22
Wednesday, 22 Jun 2011 09:31 AM
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