Double bubble: Moet Hennessy
After investing heavily in the Ningxia region of northern China, Moët Hennessy’s gaze is now firmly fixed on producing sparkling wine in north-western India. James Lawrence reports on its latest expansion gamble.
FRANCE’S MOST famous luxury goods empire simply refuses to rest on its laurels. With its first vintage of domestic Indian sparkling due for release this year and confirmation of its desire to produce still red wine in southern China, the conglomerate is perhaps intent on starting production in every major Asian country.
FORAYS INTO CHINA
Moët & Chandon has been making wine outside of Champagne since the 1950s, when it created Chandon Argentina and subsequently founded a sparkling brand in California in 1973. In addition, Domaine Chandon Australia, founded in 1986, has become a respected source of premium sparkling and still wines from Victoria’s Yarra Valley. In addition, Moët- Hennessy’s acquired Chinese brand Wenjun, a large-scale producer of the white spirit, baiju in 2007 and, more recently has begun work on a new sparkling wine venture in China called Chandon Ningxia.
Such an important venture clearly required a trusted and experienced pair of hands to ensure its success. Enter Mark Bedingham, managing director of Moët- Hennessy Asia Pacific. He has been quite candid about the project’s bureaucratic challenges, although Bedingham naturally remains confident that Chandon Ningxia will be a commercial success. “There are a number of regulatory hurdles that need to be overcome, but with time and patience this will be possible and we have been able to develop our projects (thus far) relatively smoothly,” he states.
In the case of Ningxia, Moët-Hennessy was forced to seek inside collaboration and formed a partnership with a state- owned agricultural development company Ningxia Nongken in May 2011. The striking Ningxia-Hui wine region where Moët Hennessy planted, located between the He Lan Mountains and Yellow River in north-west China, came to prominence in 2007 with the inauguration of Silver Heights, China’s first boutique winery. The owner, Emma Gao, had trained in Bordeaux and her investment demonstrated the potential of the area for quality grape growing – there are currently over 8,000 hectares under vine and several major Chinese companies including Dynasty Wine have invested heavily in the area.
The region, Emma Gao explains, is perfectly suited to viticulture, despite the well-documented harsh Ningxia winters. “In Ningxia our complex soils have good permeability, they are rich in minerals and sand blown over from the Mongolian desert but are very poor in organic matter. We bury our vines underground during the winter though, because of the typically very cold temperatures of -25 to -30,” she says.
Bedingham, taking advice from local growers, has not only assimilated this approach but also plans to hire a massive workforce to move hundreds of tonnes of earth to bury the Ningxia fermentation cellars. The labour costs required to bury the vines each year, he admits, “are considerable”, and will be a major overhead for the winery. Emma Gao adds: “The right choice of hybrid is crucial when embarking on a project in Ningxia, to ensure they can tolerate our extreme winters that last for many months!”
Moët-Hennessy has confirmed that the Ningxia methode traditionelle sparkling will be produced from 66 hectares of Chardonnay and Pinot Noir, and that the winery, tasting rooms and a visitor centre should be completed at the end of 2013.
The winery will be located near the city of Yinchuan and the wines will be available from 2014, exclusively for the Chinese market. The development cost is currently estimated at around $5.5 million (HK$43m) dollars, although when asked about the proposed retail price Bedingham says: “We believe that the pricing of the domestic sparkling wines will be affordable to aspiring consumers who are interested in a modern lifestyle and have modern tastes. In the case of China we clearly see an opportunity with women in their 20s and 30s who have professional careers.”
Indeed, a bottle of Moët & Chandon Brut – which currently retails in China for about £48 (HK$563) a bottle – is simply out of the question for the majority of China’s 1.3 billion population. This is where Moët’s key advantage lies; it avoids the cumbersome import duties and regulations and releases branded wines onto the market at competitive price points. It is this potentially lucrative, but currently small, middle market for wine that Moët is clearly able to exploit.
The conglomerate will, nonetheless, have considerable hurdles to overcome. Its foremost problem is the tiny market for sparkling wine in China, which, as Wine Intelligence analyst Maria Troein emphasises, has remained insignificant for many years: “Sparkling wine is a small part of the Chinese market, and we don’t see any signs that this will change in the near future. The taste profile of sparkling doesn’t generally seem to appeal to Chinese consumers, but then again, taste generally doesn’t seem to be what determines the success of wine here, at least not at the early stages.”
But when confronted with Troein’s analysis, Bedingham shows no concern regarding the feasibility of promoting brand Chandon Ningxia in China. “We have had a lot of success with brand building and believe that we can make the Chandon brand highly relevant to consumers in China. We have significant sales forces in China and see these wines being available through retail and restaurants, hotels and clubs.”
However, notwithstanding his confidence in Moët’s ability to expand the sparkling wine category in China, Bedingham is seemingly very keen to point out that this project in China is to be the first of several new expansion developments for the firm. In February 2012, Moët- Hennessy announced the inauguration of the Moët Hennessy Shangri-La (Deqin) Winery Ltd. The project is a joint-venture between Moët and the Chinese liquor manufacture VATS Group, who have planted 30 hectares of Cabernet Sauvignon, Merlot and Cabernet Franc at the foot of the Yunnan Mountains, in south-west China.
The Yunnan region has been planted with vines for over 200 years and is today still a major centre of table grape production with over 2,500ha planted. “We have chosen to lease land with vineyards that are and will be at elevations of 2,400m to 2,700m. These areas in Yunnan have been identified as dry valleys,” Bedingham explains.
He continues: “In fact it is comparable in rainfall and temperature, during the growing season, to areas such as Bordeaux and the Yarra valley. Thus the disease risk is no more than in those areas. Our experts have also noted some striking similarities between the gravels (facilitating good drainage) laid down by the Mekong river and those found alongside the Gironde in the Medoc.”
The Deqin project is still in its infancy, making it highly premature for Moët to discuss pricing at this stage. “We expect to release the Deqin red between 2016-2017, although this has yet to be confirmed,”says Bedingham. It is apparent though that if Moët tailors its marketing strategy effectively for both wines – at appropriate price points – then it will have an unprecedented opportunity to build brand loyalty with a demographic that cannot currently afford imported Moët-Hennessy wines, but may well progress up to drinking Champagne and Cloudy Bay Pinot Noir in future years.
Meanwhile, as the Chinese imported wine market continues to rapidly grow, Moët-Hennessy is increasing its market share across the urban centers of Shanghai, Beijing, Guangzhou and to a lesser extent, China’s emerging tier two sites. “Focusing on brand duality is key,” says Bedingham. “We believe that building Chandon in the Asian markets is highly complementary to building all our Moët-Hennessy brands, as can be seen in the case of the US and Australia where we have built strong Champagne brands and a strong Chandon brand.”
Chinese critics and consumers can reach an initial decision in 2014, with the commercial release of the Chandon Ningxia sparkling wine.
BANKING ON INDIA
If Moët’s venture into domestic Chinese production is to be considered a medium/low-risk investment, then surely its decision to release an Indian domestic sparkling this year is sheer hope over experience? India is a notoriously difficult market to conquer, with extremely high tax rates on alcohol, ranging from 30% to over 100%. Many of the Indian states prohibit the sale and consumption of alcohol completely, justifying the IWSR’s prediction that wine consumption in India may reach a paltry 2.4m cases by 2020. A tiny amount, when you consider that India is a country of over 1.27bn people. Moët’s 2020 projection for China is well over 200m cases.
This fact, however, has not discouraged Moët-Hennessy from investing in India’s foremost wine growing region – Nashik. Moët’s project started in 2011, when the company began scouting for vineyard locations and building relationships with growers in the area. Three hours drive from Mumbai in north-west India, the region has a long history of table grape growing that was turned around when Sula founder Rajeev Samant planted his first Sauvignon and Chenin Blanc vines in the late 1990s. Today, there are over 40 wineries in Nashik and it has increasingly attracted the attention of global investors.
“In the case of India we can see a strong demand for Champagne, but that demand is constrained by high import duties. We believe that, therefore, there exists a strong opportunity for a premium brand of (domestic) sparkling wine in India – this will be encouraged by the celebratory occasions that are important in Indian life such as weddings,” Bedingham enthuses.
According to Cathryn Boudiak, brand manager for Moët-Hennessy Estates & Wines: “Nineteen hectares of Pinot Noir, Chenin Blanc and Chardonnay were planted by Moët in 2011, to provide base wines for the Chandon Nashik methode traditionelle Brut.” The vineyards are located in the Dindori sub-region of Nashik and the first bottles are expected to be released in the summer this year. The Chandon winery is due for completion in 2014, and will have a capacity of producing 50,000 cases a year exclusively for the Indian market, Moët has said.
Bedingham is unable to discuss exact pricing or market positioning, but he is keen to stress that the Chandon Nashik Brut will be a considerable step up from the sparkling output currently emanating from the region. Nashik – which has not proven itself a beacon of anything other than charmat sparkling wine – typically has late spring temperatures of around 40 degrees centigrade and a monsoon season that runs from June to September. Such conditions don’t appear conducive to crafting excellent methode traditionelle wines, which tend to emanate from cooler climates.
The solution to this problem, Bedingham explains, is to behave like you are working in the Southern Hemisphere, despite the fact that Nashik is above the equator: “In the Nashik area the growing season is in the cool, dry part of the year (effectively winter). The day maximums are in the high 20s to low 30s and the minimums are in the low to mid teens. This provides excellent growing and ripening conditions for Chardonnay, Pinot Noir and Chenin Blanc. The grapes are harvested in February and March before the heat of summer sets in.”
SENSE OF OPTIMISM
Sula and others have welcomed the news that Moët-Hennessy will market a sparkling wine from the end of this year, hoping that it will benefit their own ambitious plans to further the category with Indian consumers. Indeed, two other Indian wine companies – Four Seasons and Fratelli – will launch a sparkling brand this year. The category, although a current tiny 4% of total wine sales, is growing in India. According to ISWR managing director Alastair Smith the total sparkling market in 2012 was 94,000 cases – a rise of 24% over 2011.
Indian wine professionals also remain optimistic and are convinced that Moët’s plans will help to expand the tiny market in India for sparkling wine. “In a country of 1.27bn there is always reason to celebrate something, somewhere, but Champagne is frighteningly expensive [INR6000 / HK$822 in retail], Prosecco and cava are not as well known, and Franciacorta entirely inconspicuous. Pricing is key and Indian wines can crack exactly that,” enthuses Delhi based wine writer Magandeep Singh.
The outcome of this expansion, of course, remains to be seen, but with Moët- Hennessy’s seemingly limitless resources and influence, brand vigilance, and astute marketing strategy, its success and market growth is probably assured.