The acquisition of Bolney Wine Estate by Freixenet Copestick marked the most significant deal in the UK wine sector this year. Wines of Great Britain (WineGB), the industry body for the wine growers and producers of Great Britain, lauded the deal as a ‘key milestone’ that signals an increasing maturity in the industry. The acquisition was also welcomed by other English wineries, who expect consolidation to continue going forward. In anticipation of the incoming wave of deal-making across the UK wine industry, we dive deeper into the advantages and opportunities of sector consolidation.
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Competition
With 897 vineyards and 197 wineries in the UK as of September 2022, there is a clear gap in supply and demand between grape growing and winemaking. Many vineyards in the UK currently rely on contract winemakers, such as Defined Wine and Ithasca Wines. With state-of-the-art facilities and the capacity to produce hundreds of thousands of bottles, contract winemakers offer a quality winemaking solution to local vineyards. It is far more economical for small scale vineyards to outsource the winemaking process, compared to building a winery from scratch, hiring the right staff and purchasing the required machinery. There is also a clear separation in skills and expertise required between viticulture and winemaking.
Large scale commercial vineyards on the other hand may benefit from streamlining their value chain and producing the wine themselves. Chapel Down, one of England's biggest wine producers with 750 acres of vineyards, recently announced their plans to build a new winery that will enable them to organically double the size of the business by 2026. With economies of scale and access to external funding, Chapel Down has an ideal platform to invest in its own winemaking operations and reduce their long-term costs in doing so.
This begs the question: how can smaller vineyards compete against commercial players?
Mergers and acquisitions (M&A) can form consolidated players in a highly fragmented sector to compete with commercial vineyards. With additional scale and scope, vineyards and wineries can reduce costs along the whole value chain by streamlining production, sales, marketing and distribution. They also gain greater negotiating power with key on-trade suppliers and retailers. Back-office centralisation can help to increase business margins by reducing staff requirements and administrative overhead, while product and regional diversification can reduce reliance on vintages and seasonality.
Strategic Repositioning
M&A is often a catalyst for disruption, challenging incumbents with innovation and digitisation. In the midst of challenging macroeconomic conditions, double-digit inflation and rising interest rates, it is even more important for vineyards and wineries to reposition their business model to become leaner operations. A clear separation between business and vineyard management can enable workforce specialisation and translate into greater efficiencies. Marketing efforts can be outsourced to marketing agencies focused on drinks brands, allowing for a higher quality of branding, a broader customer outreach and a content-driven social media strategy to drive customer engagement. The introduction of hospitality & leisure elements, such as on-site accommodation and restaurants, can also allow vineyards to tap into new revenue channels and avoid cyclicality inherent in wine sales.
Brand Awareness
High-profile acquisitions tend to generate media interest, which in turn increases brand recognition and awareness. The Bolney Wine Estate acquisition was featured in Decanter, The Drinks Business, and Harpers, and remains one of the most widely covered news stories in the UK wine M&A space. News of Champagne Houses investing in plots of land for winegrowing in the Southeast of England, such as Taittinger and Louis Pommery, has also contributed to growing recognition of the quality of English sparkling wine in particular.
Exit Opportunities
Many UK wine businesses do not have an exit strategy. A family-owned vineyard looking to sell would typically rely on listing the land and property with a real estate agent. A disparity often emerges between the seller's price expectations for the vineyard and the price that potential buyers are willing to pay. An M&A process can enable such a sale, where a professional advisor establishes a realistic asking price based on a net asset valuation, preparing marketing materials and a data room for the process, while managing Q&A for prospective investors. It remains to be seen as to whether dedicated industry-specific M&A advisors will emerge in the UK, similarly to Zepponi & Company in the U.S. and Wine Bankers & Co in France. Drawing back to the Bolney acquisition, David Blake of Chantry Corporate Finance and Jens Brodersen of Brodersen & Co. Ltd, provided corporate finance and strategic sell-side M&A advice to Bolney Wine Estate.
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