The sparkling way of Henkell Freixenet

The German sparkling wine company Henkell Freixenet dates back to 1832, when Adam Henkell opened a wine store in Mainz. A quarter of a century later, he began producing sparkling wine and the company went on to produce the world’s first branded sparkling wine, Henkell Trocken. Indeed, Henkell has a long tradition of innovation, including creating the Piccolo bottle in the 1930s. Over the years Henkell, owned by the Oetker Group since 1996, has amassed a comprehensive sparkling portfolio, which includes Alfred Gratien Champagne, Gratien & Meyer Crémant, Mionetto Prosecco and still and sparkling wines from Germany, Hungary, the Czech Republic and Slovakia. In 2018, Henkell bought a 50.67% stake in Freixenet S.A., one of Spain’s biggest cava producers. Meininger’s went to the company headquarters in Wiesbaden to speak with CEO Dr Andreas Brokemper.

MEININGER’S: Can you tell me your background?
BROKEMPER: I’m now 17 years with Henkell. After doing my PhD on strategic management, I joined the Oetker Group in Bielefeld. I was then controlling and advising the food part of the business, and then the beer part, but I never had contact with the sparkling wine market. Finally they said, “OK, you are experienced in food and beer, but what about wine? Would you be open to go to Wiesbaden and become the CFO of Henkell?” I didn’t think so long about it, because it’s a great company and a very nice category.
When I started, Henkell was 80% German market, 20% outside Germany. Today it’s exactly the opposite: it’s 20% German to 80% exports. Now with Freixenet, it turns into the direction of 25% to 75% because Freixenet’s biggest market was the German market. At the beginning we were four managers at board level. I was by far the youngest, 32 when I joined, then the 50- and 60-year-olds finally retired, so in 2013, I took the CEO position.

MEININGER’S: How does Henkell Freixenet fit within the Oetker Group?
BROKEMPER: The Oetker Group is very diversified, and it was always the strategy of the Oetker family not to put all the eggs into one basket. They said, we will form a group based on different branches, so the first one is the food business, the second one is the beer business, which includes Radeberger, and the third one they called Sekt, Wein und Spirituosen – sparkling wine, wine and spirits. That’s Henkell Freixenet and that’s us. There is a banking part of the business. Every part of the business of the Oetker Group is managed separately.

MEININGER’S: What prompted the Freixenet acquisition?
BROKEMPER: When you look at the former Henkell Group, we are a multi-branded company that internationalised by the acquisition of local heroes – brand and sparkling wineries that very often have more than 150 to 200 years of history. This was our internationalisation strategy, not following one brand.

A few years ago [2008] there was a big milestone in acquiring Mionetto, prior to the starting of the global success of Prosecco. So for sure, there was something attractive about having all three, Champagne, Prosecco and Cava. On the other side, we saw that Freixenet had a totally different internationalisation strategy to us. We were internationalising by acquiring and then developing the business and they followed the vision to bring Freixenet all over the world. They were very strong in strategic markets where we were weak. Both companies were absolutely complementary. The starting point was to develop a joint strategy with the Ferrer family, a vision of where we were going to go in the future.

There were also important changes that took place on the Ferrer family and shareholders side. When the two sisters of José Ferrer passed three years ago, they both gave their shares to their four children. When seven of these eight children wanted to sell, that was the moment when we sat together. We share the same idea and we share the same vision about how sparkling wines develop globally. Why not also share the companies? That was the moment when we said, OK, we buy the shares that were sold by the seven children, and we sign a cooperation and alliance between the Ferrer family and us.

MEININGER’S: As I understand it, you both have 50% and neither has a majority share. Everything has to be done by negotiation.
BROKEMPER: Everything is following a cooperation agreement. We define how we work globally in the main markets, with the main idea to bring two companies together. One plus one equals three. We always say with more power, we can deliver a better service to our partners and grow our portfolio.

MEININGER’S: Both Codorníu and Freixenet were sold at the same time with Codorníu going to the Carlyle Group. Does this point to a problem with cava?
BROKEMPER: One main reason that Freixenet and Codorníu were sold was the problems they had on the Spanish market. Up to 2000, both companies were very healthy. They developed internationally, then there was the crisis starting in 2008 and 2009. The Spanish market came under pressure and both companies always said the market would bounce back as soon as the crisis is over. And then there was a political situation that was not easy for either, the Catalan situation. Spanish consumers refused to drink cava because it was Catalonian.

MEININGER’S: So the companies had an urgent need to export.
BROKEMPER: Yes, Freixenet was earlier and much faster than Codorníu. This forced them to internationalise faster or sell the majority of the shares to an international company like Carlyle.

MEININGER’S: What can be done to premiumise cava? Is there a way it could premiumise?
BROKEMPER: The price positioning that cava has in many markets is quite premium. When you look to the US you have a price point of about $15, in the UK about £10. Freixenet is sold at a super-premium price point in Japan and some other markets as well. The segment that is growing is the premium cava. One of the fastest growing markets last year was Sweden.

MEININGER’S: There has been extraordinary growth with Prosecco. Is this sustainable?
BROKEMPER: I don’t see the Prosecco market now just flattening or decreasing. Last year the overall shipments went up 5%. This is despite the fact that the 2017 harvest was a very, very short one. The UK is stable, Germany is stable, but other markets are still growing double-digit and more. More markets are jumping on the Prosecco trend, especially Eastern European markets, Australia, Canada and North America. Not yet Asia, but it’s only a question of time.

What are the reasons that Prosecco is so successful? First of all the name is genius. ‘Pro’ is positive, ‘secco’ is positive, the combination is genius. The second thing is Italian lifestyle; it’s something that always counts. I don’t know how many Italian restaurants exist globally but I’m sure more than a million. Finally, I would say the last reason is really from the taste profile. It’s easy to drink and the fresh flavours that you have with the Prosecco make it easier for consumers to get into the market.

Sparkling wine is very celebrational, so you always need a very important reason to drink a glass of sparkling wine. Prosecco is non-occasional. It’s more an aperitif drink. Champagne, for example, is absolutely celebrational; then you go over to a wine which is just more an everyday consumption, and Prosecco is much nearer to a wine than Champagne.

MEININGER’S: What do you see ahead for the sparkling category?
BROKEMPER: We believe very much in the further growth of the sparkling wine market. Even today you see many markets, like Canada, in which sparkling wine to still wine is one to 15. We have other markets like Germany, in which one in five glasses is sparkling wine. We believe that the trend towards sparkling wine will show a good growth potential, for sure in the North American markets of Canada and the US, but also in the Asian markets where for the moment the sparkling wine market is just a drop on a hot stone.

MEININGER’S: Have you done research on the Chinese market to find out how they can be converted to sparkling?
BROKEMPER: I think we did some research. Just from their history, while the Chinese have a bit of a problem with beverages with CO2, the beer market has exploded over the last 20-30 years, so they are more familiar with it. Urban life is becoming more global, so trends that start in Europe, especially in the wines and spirits business, jump over to America and then they go with the sun around the world to Asia as well. The second thing is, there is the trend towards female employees. There is a projection that, up to the year 2030, more than a billion employees in the world will be female. And they love social drinking and going out after work with their friends. They like low alcohol and low carbs, and all of these trends are going in favour of sparkling wine as a category.

MEININGER’S: The big question is how to move consumers from one category to another. How do you get people to spend more money?
BROKEMPER: It’s very much about affordability. If everybody could afford a Champagne, they would drink a Champagne. Younger consumers have less income so they look for more value-for-money products. The second thing is sweetness and fruitiness, what you might call the Coca-Cola curve. You start as a young consumer used to drinking sweet [beverages], then you enter the market and maybe start with an Asti, then go step-by-step to Prosecco and then land on Champagne when the income is right. This is a trend that is relevant in all the different markets. There is also a big group of consumers who have a one-time consumption. They are part of the big volume market, but have an annual one-off consumption of Champagne, at New Year’s or Christmas. The rest is very much branded, so consumers of Henkell and Fürst von Metternich are in age and attitude different to Freixenet or Mionetto which are younger brands.

MEININGER’S: When it comes to export markets, where are things growing, declining or maturing?
BROKEMPER: When we look to the IWSR figures, there are not many markets that are declining. Champagne has been more or less stable for 15 years, but how to grow when the vineyards are limited? They are increasing in value. On the other side, the Prosecco markets are nearly all in growth, especially Sweden, the US and, very much, France. This wasn’t something we believed, but the fastest-growing brand over the last ten years in the French market is Freixenet. Prosecco is picking up as well, so even the French market is getting more international. The eastern European markets were dominated by traditional brands for a long time, but now they are picking up Prosecco. It’s the same with Australia. Australia is amazing, because you have the double Prosecco situation [where Australia also produces a Prosecco wine]. The category that is growing is the imported Prosecco, also double-digit. Russia is now coming back. All in all volume is good, value is increasing and Champagne is stable. Prosecco is growing and Cava is also slightly growing.

MEININGER’S: Everybody is rushing to produce a crémant or other type of traditional method sparkling wine. What do you see ahead for those products?
BROKEMPER: I believe that crémant has a good potential. You see it now with the UK figures. We see it from the US and it’s not so much about traditional fermentation, because only a small proportion of consumers really understand that. There is a similarity between Prosecco and crémant, and that’s the name. Crémant is creamy, it’s an alliteration of positive elements. Crémant is a nice name. You see it on the restaurant cards and the people who used to say let’s have a Prosecco now say let’s have a crémant.

MEININGER’S: You have multiple products in the fastest-growing segment in all wine categories, a dream situation. Does anything keep you up at night?
BROKEMPER: There are many challenges. I would say that overall, in the big markets like Italy, France and Spain and Germany, the overall consumption of sparkling wine is not growing. That’s a challenge that we need to face. Another situation that’s very challenging is Argentina, with the whole currency crisis, which is very difficult when you import products in a foreign currency. The market more or less collapsed. All in all the picture is really good, but as always, there are things you worry about.

MEININGER’S: Tell me about Hungary and Czech Republic.
BROKEMPER: Our first big internationalisation step was the 1992 acquisition of the former cooperative from the state [in Hungary], which owned premium brands like François and the main sparkling wine brand called Törley and another premium sparkling wine called Hungaria. This we needed to move to from a socialistic cooperative, where there was no marketing, no nothing but 1,000ha of vineyards, into a market-oriented company. We really like challenges, so only a few years later, we bought number two, BB Winery, and combined them to become the number one sparkling wine and still producer in Hungary. Then we moved to do the same in Czech Republic and Slovakia, buying Bohemia and Hubert. Hubert is the oldest winery in the whole group. If you go to Slovakia and you order a sparkling wine you say, “Please give me a Hubert.” If you go to Hungary and ask for one of the most traditional Hungarian brands, they all mention Unicum, Törley, Pick. They are like cultural brands for the country. Finally, Bohemia is always top of the rankings of food and beverage companies in the Czech Republic. We have very nice companies right now.

MEININGER’S: Are the wines exported?
BROKEMPER: Hungary always had, even in former socialistic times, some export markets to Canada and the UK, so there are some markets where Hungary gains some market share. The production of Slovakian still wines was 0.3m hl, compared to the 40m hl in Italy, Spain and France. These are niche markets. We sell the product in 20 or 30 markets globally, but it can be a coincidence, where you had someone who left the Czech Republic 50 years ago and he’s trading wines in Chicago and he’s driving it. You need these people to bring the wines into the international markets.

MEININGER’S: There has been an explosion of interest in low- and non-alcoholic products, but the wine industry has struggled to keep up because the technology strips the flavour from the wine.
BROKEMPER: I totally agree. I have drunk several really good non-alcoholic or low-alcoholic sparkling wines, but never a good still wine. You can do it with sparkling wine. We are doing it. This is absolutely a growing market. Germany is by far the number one in low- and no-alcohol sparkling wines, but there are other markets picking up now. We say our main vision is to celebrate life, with or without alcohol. We are growing in this segment. We have an offer linked to our brand, Freixenet 0,0, which is successful. We believe that with new technology, the quality of non-alcoholic sparkling wines will increase. The fact that there are bubbles helps compared to still wines.

MEININGER’S: If you could think of one business decision that had the biggest impact, what was it?
BROKEMPER: The acquisition of Mionetto. I think there was a strong belief that Prosecco as a category will grow in the future. It took six years from the first discussion to signing, so it was a quite long process. We were very happy and did the acquisition in 2008 and 2009, when there was not yet the idea to create a protected region of Prosecco. Thanks to Luca Zaia, minister of agriculture in Italy in 2009, Prosecco became a protected region, now being by far the biggest category in sparkling wine globally.