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| February 15th 2007 |
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| A peek at Roederer through the Cristal ball |
by Joel B. Payne
On the 1st of January 2006, Frédéric Rouzaud took his father’s chair as managing director of the family champagne business, Roederer. Born in 1967, he has been with Roederer since 1996 and was instrumental in the purchase of Domaines Ott and more recently... |
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...Château Pichon-Lalande. A tough act to follow, Jean-Claude Rouzaud, who took Roederer from the backwaters of Champagne to become a key player on the global wine market, remains not only chairman of the board, but also an outspoken observer of the international wine scene.
Wine Business: You are originally from the Pyrenees. What brought you to Champagne?
Jean-Claude Rouzaud: Yes, I was raised in Toulouse. My parents actually wanted me to become a doctor, like my father and grandfather, but I didn’t quite cut the mustard at school. My parents then heard that the faculty at Montpelier was going to expand their agricultural programme and I was in the first class to graduate with a degree in oenology. Afterwards I left for Reims in 1967 at the age of 25 to join the family business.
Wine Business: What was Roederer like back then?
Jean-Claude Rouzaud: We already owned 140 hectares of vineyards, but produced only 900.000 bottles of Champagne a year. Back then we seldom averaged more than 5,000 kilogrammes per hectare, far less than half of what is common today.
Wine Business: And Cristal?
Jean-Claude Rouzaud: Cristal was already one third of total production, but at that time it was barely 50% more expensive than the standard brut. That has changed.
Wine Business: Wasn’t the market for Champagne quite bleak back then?
Jean-Claude Rouzaud: Yes, Champagne was in a state of crisis. A bottle of Champagne sold for only 10 to 12 francs, but many producers were still unable to sell what they made.
Wine Business: Why has Champagne been so successful while the rest of the French industry has been going through such tough times?
Jean-Claude Rouzaud: I wish I knew. There are a number of reasons. First, there’s the image, which has not been dirtied or misused. Second, people have the money to spend on luxury goods. And, in spite of all my criticism, numerous people have contributed to the good politics of the region. Still, we should never think that we are above the fray. Look at the crisis that began in 1991 as prices went up faster than inflation. When petrol prices went up the region went into in a state of crisis until 1997.
Wine Business: Could that happen again?
Frédéric Rouzaud: Certainly, it could. Prices are again increasing faster than inflation.
Wine Business: Patrick Ricard has said that he is not interested in developing French wine brands outside of Champagne? Can you understand his position?
Frédéric Rouzaud: A brand like Jacob’s Creek won’t work in France. That is too bad, but something similar will have to happen for France to return to the position it once enjoyed in the wine world. At present we have too many technocrats trying to solve our problems as if France were not part of a larger world. There are too few realists.
Wine Business: You were once president of the Syndicat de Grandes Marques? Didn’t you essentially kill that beast? What was the problem?
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Jean-Claude Rouzaud: As so often in France, there were brands that didn’t belong and the group didn’t do anything. We needed rules, like the Crus Bourgeois. I told my colleagues when I was elected that we were either to become a group of quality producers or the institution would disappear. We began auditing how the wines were made, controlling grape composition, sourcing, use of press wines and the like. That was not very popular. Although I would have preferred making it work with ten or twelve houses committed to quality, that didn’t happen. In the end, I’m happy to have put it to rest.
Wine Business: How did the purchase of Deutz happen?
Frédéric Rouzaud: At that time I was working for a company that was brokering the sale. Deutz was in the middle of a crisis, with contracts for grapes at high prices that they didn’t need and couldn’t sell. The firm had essentially been pushed to bankruptcy.
Wine Business: How do you differentiate between the two brands? Do consumers understand wine style?
Frédéric Rouzaud: Consumers don’t even know that Deutz belongs to Roederer. And although Fabrice Rosset and his team have done an excellent job in improving the quality, most consumers are less aware of the difference in style between the two champagnes than the 15% difference in the price of their non-vintage brut.
Wine Business: You often control your own distribution. Is it a problem having the two brands in the same portfolio as you do through MMD in the United States?
Jean-Claude Rouzaud: With the three-tier system there it doesn’t matter. You have the same big customers anyway. Otherwise, I would not have accepted having both Roederer and Deutz in same hands.
Wine Business: Would you be interested in adding still another Champagne brand to your portfolio?
Jean-Claude Rouzaud: We looked at Taittinger, but only for the 100 hectares of vines. As our problem is finding the right grapes for Cristal, land is something I’m still interested in. In those areas though, Frédéric starts off with a better hand of cards than I had. I was always too conservative and, because of my position, played by the unwritten rules. I chose not to make waves. Today, we have taken off our gloves. If I can buy the grapes that we need by paying a higher price then we will do so. Supply and demand will begin to have an effect.
Wine Business: You have moved to three years of bottle aging before the release of your standard brut. Should others be doing the same thing?
Jean-Claude Rouzaud: If they want to make great champagne, yes. You can do it after two years by using more pinot meunier, fruit from the Marne valley or press wines, but…
Wine Business: The small producers and cooperatives are holding back stock this year. Why?
Jean-Claude Rouzaud: It is not this year. It is every year. Each year they stock more than they call sell. The total volume is becoming dangerous. Imagine what will happen if a financial crisis cuts demand. There would |
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be panic.
Wine Business: The growers want to raise the production limits to 15,000 kilos per hectare. This is over 90 hectolitres per hectare. What does that have to do with quality?
Frédéric Rouzaud: That is essentially a done deal. 15,400 will be officially allowed shortly before the harvest this autumn. But that is only a maximum limit; the average will still be around 12.500. To the growers’ credit, though, the climate has changed and we now have much better sanitary conditions year in year out. Although it might be possible in exceptional vintages to harvest such large quantities and still make fine wines, we are targeting our vineyards to produce at most only 13.000.
Wine Business: Are quality standards high enough in Champagne?
Jean-Claude Rouzaud: Although large companies are constrained by their size, and cannot be as rigorous as we are, Champagne as whole has never been as good as it today. This is principally due to global warming. Most grapes arrive in our cellars ripe and healthy – and we have enough every year. Nothing like 1984 has happened in a long time. No press wines, that traditionally diminish quality, are needed when you have an abundance of healthy grapes. And, although I have been very critical over the years, I believe that Champagne has been reasonably well-managed of late. We have had a lot of good people doing the right things.
Wine Business: Are issues like carbon footprints and ecological or biodynamic production important in Champagne?
Frédéric Rouzaud: We’re looking at these issues, but we’ll never go biodynamic in Champagne. Our ecological footprint is another matter. What we did in the past is now over. We have an obligation to minimize our impact. Again, the climate is helping us. You don’t need to treat the vineyard when the sun shines.
Wine Business: You are restructuring to increase production from 2.8 to 3.5 million bottles per year. Is there a market for more? Where will it go?
Frédéric Rouzaud: That has already been done in production terms, but we are only just beginning the sales. We now lay down over 4 million bottles per year.
Wine Business: Can you go from three to four million without touching your prices?
Jean-Claude Rouzaud: We’ll open new markets that we have never been able to serve before due to lack of stock – and some of our classical markets want more as well. Still, I don’t want our sales force to ever have to sell a bottle. As long as we’re allocating, we’re fine. From 3 to 3.5 million bottles will be easy. For Frédéric 3.5 to 4 will be more difficult.
Wine Business: When you think of appellations that became brands and then disappeared, like Muscadet, it is fair to ask if the same could happen to Champagne?
Jean-Claude Rouzaud: It is possible, but I don’t think it will happen any time soon. Our major fear is a fall in world prosperity. If people stop spending, we’ll be taken down like others whose market is built on affluence. The danger is that no one |
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in Champagne realizes what is happening. We’ve become a bit lazy, a bit too accustomed to success. The current generation doesn’t remember how bad things have been in the past. The president of grape growers association is good fellow, but he has a motley crew that is almost impossible to control.
Wine Business: Frédéric, you took a hit for your remark about rappers not being the consumers that you would like to see drinking Cristal. Has that had a lasting impact?
Frédéric Rouzaud: I never said that. The more people like our champagne, the more we are happy. However, as winemakers, we have sometimes been a little dismayed seeing our wine sprayed around in celebration rather than being savoured in a glass. Be that as it may, we understand that such forms of celebration are a part of champagnes mystique. In the end it has had no effect…and we still have far too little Cristal for the market.
Wine Business: But is it a producer’s role to choose his clientele?
Frédéric Rouzaud: No, of course not, but in your marketing you do set standards.
Wine Business: There are studies that indicate that the success of Champagne lies in its division of labour. That might be said of markets, too. Why did you set up your own distribution in the States and elsewhere? Why not work with an importer?
Jean-Claude Rouzaud: We do both. The advantage of setting up your own distribution company is that, one, you have the focus and, I might add, control of your sales that you might otherwise lack. Secondly, you can chose the other products in the portfolio and, thirdly, you earn the profit at the distribution level.
Wine Business: But have you been successful?
Jean-Claude Rouzaud: For a long time we were not as successful as we are today. We made the decision in the States in order to focus on Roederer Estate. Where colleagues of ours have failed, that has now turned out to be a profitable investment. However, for a long time we were laying down a lot more product than we sold.
Wine Business: Aren’t you now setting up your own structure in Switzerland?
Frédéric Rouzaud: Yes. The old distributors always took their allocations and sold the product, but the portfolio mix, with lots of spirits, did not make us comfortable – and the chemistry didn’t work.
Wine Business: Is that a solution for all markets?
Frédéric Rouzaud: Perhaps not in all markets, but I can well imagine that we will have our own structures in six, eight or ten major markets in the years to come.
Wine Business: How large would a market have to be before you start your own company?
Frédéric Rouzaud: We have yet to look at it from that point of view, but I would say that we need to be selling 200.000 bottles a year in a market before it makes much sence.
Wine Business: You are bitterly opposed to seeing your Champagnes in supermarkets? You sell directly to private customers at €25.50, but become upset when you see Brut Premier at Cora in Germany |
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for €27.50. Why?
Jean-Claude Rouzaud: We sell directly only to a few very old friends.
Wine Business: You said that you were uncomfortable with spirits in the portfolio mix. What other products work well with your champagnes in distribution?
Frédéric Rouzaud: Of course, the things we like to see are estates like Romanée Conti, but we work well in many markets with Faiveley, Ladoucette, Casa Lapostolle, Dominus and others.
Wine Business: Do wine and spirits not work together in distribution?
Jean-Claude Rouzaud: This is a tough question, but we think not. Most of spirits are mass market products. We, as Roederer, are not.
Wine Business: Patrick Ricard put his champagnes into the spirits division rather than with the wine brands. Why?
Jean-Claude Rouzaud: Traditionally, he is right, champagne has been sold more like spirits, in a branded way, but other wines are beginning to fulfil this function as well. I would rather see us in that universe, targeting the same consumer.
Wine Business: Do you think publicly traded companies can manage wine brands?
Jean-Claude Rouzaud: Are you asking whether, with its high capital investment and the vagaries of supply, wine is a long term business? Publicly traded companies can do well with wine, even with Champagne, but only when the market is going up. Wine demands long term commitment. Markets have no patience when times are tough, so you have to find a way of using the market’s money without it overly influencing your decisions. Shareholder value today and shareholder value tomorrow are often two different things.
Wine Business: Will the new generation of Rouzaud take an interest in spirits?
Frédéric Rouzaud: No.
Wine Business: Mumm, Chandon and Roederer all use their brand domestically in certain foreign markets, such as the States, but do not use the name internationally. Isn’t this a holier than thou sort of attitude? Soaking up the margins in the world’s largest and most profitable market while pretending to be pristine?
Jean-Claude Rouzaud: There is some truth to that, but it is historical. Today we want our brands tied to the origin, to the place they are produced.
Wine Business: Studies by global brands like Lindemans, Mateus or Blue Nun, however, indicate that the consumer does not really register the origin.
Frédéric Rouzaud: At entry level price points the origin of the wine may be unimportant. I believe that what we do falls into a different category.
Wine Business: After the States, you also tried to make sparkling wine in Australia. What went wrong with your investment?
Jean-Claude Rouzaud: Under the extreme climatic conditions in Tasmania, we were making an excellent product, but yields were generally as low a two tonnes per hectare. That is never profitable. As long as you are making money, people find a way to solve their differences. When you are losing money, the situation becomes untenable.
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Wine Business: You were one of the first French to invest in Portugal. Why there? Why Port?
Jean-Claude Rouzaud: I saw that every serious Champagne company had a port in their portfolio for distribution in France and thought that sales and marketing of a port would be similar to that of a champagne. I was wrong, dead wrong. It was one of the worst mistakes of my life. I bought the group for the people, who I believed in, and the fabulous Quinta Ervamoira - and that has turned out to be my saving grace.
Wine Business: Wouldn’t life be more difficult there today if it were only Port? Don’t the wines work better?
Frédéric Rouzaud: Yes, and we are now happy to be in Portugal. The wines have not yet run their distance and we expect to see a lot more coming out of this investment in the years to come.
Wine Business: If Port then Sherry?
Jean-Claude Rouzaud: Never.
Wine Business: And what of a liqueur such as Vedrenne or a Lillet type of product?
Frédéric Rouzaud: No interest.
Wine Business: What then brought you to Bordeaux?
Jean-Claude Rouzaud: I have always thought that the wines from Bordeaux are inimitable – and still do.
Wine Business: Château de Pez, now that it has been classified as a cru bourgeois exceptionnel, brings you a bit prestige, but is it profitable?
Frédéric Rouzaud: Oh, yes. It is not like champagne, but we have a 5-6% return on investment, which is good for Bordeaux.
Wine Business: You almost bought Château Réault la Gravière in Premières Côtes de Bordeaux and were planning to build a Bordeaux brand. Why did you pull the plug?
Frédéric Rouzaud: We didn’t pull the plug; we merely reversed the order of priorities when we bought Château Pichon Lalande.
Wine Business: Do you see a future in Bordeaux brands?
Jean-Claude Rouzaud: Oh, yes! I think Jean Marie Chardronnier has already done a good job with Dourthe N° 1. With the reputation that we acquire with Château Pichon-Lalande and our world wide distribution, I think that we can one day be very successful. The world needs a solid, dependable Bordeaux brand, but to make it you must control the production.
Wine Business: Although the sum remains undisclosed, you certainly paid a premium price for Pichon-Lalande. Can that be profitable ten years down the road?
Jean-Claude Rouzaud: I was for a long time sceptical of that kind of estate’s long term value and often said that I would never buy what I considered over-priced luxury objects; but I’ve changed my tune. I think the market has changed, too. These estates in Bordeaux are as close to upscale brands as we can come in France. Quantity is limited and demand in Russia, China and India is rising. Robert Parker is right when he sees Château Margaux at a $1,000 a bottle in the long term - and this is a long term investment. This is something for the next generation of our family.
Wine Business: Will you continue to sell Pichon |
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Lalande on the place de Bordeaux or incorporate it in your sales structures?
Frédéric Rouzaud: Of course, we will leave Pichon Lalande on the place de Bordeaux. However, we will ensure that those shippers who are selling to supermarkets lose their allocations in 2006 and find ways for our distributional structures to help improve the quality of the distribution of Pichon Lalande.
Wine Business: You’ve always wanted to be number one. Wouldn’t reviewing 1855 and making Pichon-Lalande a 1st growth and Pez a 4th be a nice retirement gift?
Jean-Claude Rouzaud: It will never happen.
Wine Business: You also own a negociant in Bordeaux. Do negociants have a future?
Jean-Claude Rouzaud: To be honest, I have never understood the structures in Bordeaux, but I believe in people. When Jean-Francois Moueix asked me if I would like to participate with him in Descaves I opened my check book without even studying the file – and it turned out to be one of the best investments that we have ever made.
Wine Business: But how does that align with having your own distribution companies?
Frédéric Rouzaud: It is clear that these are two different approaches, but we will have to find ways to make both work for our properties.
Wine Business: You said that your purchase of Pichon-Lalande was in part due to your belief in emerging markets. Did Cristal’s reputation help you in building your market in Russia? How is that developing?
Frédéric Rouzaud: Cristal helps, of course, but Russia is still a small market for us – and we haven’t had the volume to allocate it more. The coming years will be crucial in this development.
Wine Business: And China? Could you imagine, like Swarowski, owning your own winery and distribution structure there? The Chinese are very brand conscious.
Jean-Claude Rouzaud: Let us first establish our brand there. I don’t want to be putting the donkey before the cart.
Wine Business: And India?
Frédéric Rouzaud: With Brindco, I believe that we have the best importer. In the coming years they will have a bit more volume to prove their mettle.
Wine Business: Brazil is the fourth of the major emerging markets. Has Ramos Pinto helped in Brazil?
Jean-Claude Rouzaud: Of course, but Brazil is quite a different market. There are far fewer consumers with the money or the culture to take a true interest in wine.
Wine Business: You once said that you were not interested in Domaines Ott and left that to your son, Frédéric. Why?
Jean-Claude Rouzaud: This is the brand from Provence and there is a lot that we can do, but its long term and so I have left that to the next generation. The vineyards were in good nick, but we have had to invest in the cellars and tweak the winemaking in order to have a more internationally palatable product with out losing the old style.
Wine Business: Will it not be difficult to maintain high prices and grow volume for wines from |
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the Provence?
Frédéric Rouzaud: This will not be big business, but we are talking about only 600,000 bottles. I think that we can provide Ott a worldwide distribution that it deserves.
Wine Business: Does the international market need Provence?
Frédéric Rouzaud: We sell Ott, not Provence.
Wine Business: With several different châteaux and even two appellations all being sold as Ott, the brand appears very eclectic. How do you envision marketing the product?
Frédéric Rouzaud: There is probably a bit more information on the label than is necessary, but does it harm anything? A hundred years ago the Ott family were one of the first to create a high-profile brand based on three outstanding châteaux – and with great success.
Wine Business: On the Rhône, how is Delas performing?
Jean-Claude Rouzaud: We are improving, but it is tough going. Jacques Grange is doing an excellent job, but it takes a generation for the message to have reached the final consumer. We can’t yet compete with Guigal and Chapoutier.
Wine Business: Were you interested in Jaboulet?
Frédéric Rouzaud: We looked at the file for five minutes, but had no interest.
Wine Business: What would you buy in France? Burgundy? Alsace? Loire?
Jean-Claude Rouzaud: Alsace is difficult. We looked at Bouchard before Joseph Henriot, but I’ve no love lost for Burgundy – and we’ve never looked at anything from the Loire.
Wine Business: What is the biggest problem facing France as a winegrowing country today?
Jean-Claude Rouzaud: It is the governing elite. They want to run everything, everywhere; but they’re impractical in their approach. France is the last bastion of communism and technocracy. The INAO is nearly in a coma. In fact, does it even still exist? And so many of the small growers are hopelessly lost, expecting the state to solve all of their problems, whether they’re producing a wine the market wants or not.
Wine Business: Most French wine investments outside the country have been in the New World. Can you imagine buying in Italy or Spain?
Jean-Claude Rouzaud: Yes, anywhere. If I found the right thing, I would love to invest in Italy or Spain.
Wine Business: And why not Eastern Europe?
Frédéric Rouzaud: You can make good wines most everywhere. The problem is that it costs about the same amount of money anywhere you go. Land and labour may be a bit less expensive in some markets, but the question is, at the end of the day, how can you convince the consumer that he is buying the right wine at the right price. America was easier, because of the enormous domestic market. You calculate that into any future investment. I’m less sure about Eastern Europe.
Wine Business: Tell us about Pichon-Lalande’s project in South Africa?
Frédéric Rouzaud: We have only 15% of the project there, but will be distributing the wine through our sales network.
Wine Business: One of the keys to your success has been controlling production and distribution. Will that not mean, long term, owning a winery in every region and an MMD in every sizable market?
Frédéric Rouzaud: Yes, it well may.
Wine Business: What is the biggest change that you have seen in the wine market in your career?
Jean-Claude Rouzaud: Size. We never thought in large numbers, but in an international market you need minimum volumes to make an impact.
Wine Business: What is the biggest regret that you have after forty years in the business? The thing you wish you had done?
Jean-Claude Rouzaud: I was too conservative and always played the game as a pessimist - and by the rules. We did well, but we might have done better had I been more the rough and tumble gambler type.
Wine Business: What is the biggest opportunity for the next generation?
Jean-Claude Rouzaud: I already spoke of size, which entails changes in scale of production. It is easy to start in New World; but where is the market going? You must have a vision of the future, a long term strategy and it is best not to be in a hurry.
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