TFF: taking casks to task

Many people enjoy fine wine but most wouldn't give a second thought to the storage process. Bertrand Gobin talks to the family who have made a living providing the best casks for the best wine

What do you need to produce good wines? Grapes from the best vines, soil in a highly regarded wine-producing region and some sunshine. These are all essential, but you also need some wood to make the casks in which the wines slowly mature before being bottled. These casks help wine producers create the distinctive bouquets that delight the palates of wine lovers in the best possible conditions.

Experts consider that throughout the world about 3% of the wine produced is matured in oak casks, making it a high quality market. Oak casks are one of the main products manufactured by Tonnellerie François Frères (TFF), a fourth-generation family business that was founded almost 100 years ago in Burgundy, France.

TFF is the leading barrel and cask maker in the world with a turnover of €103.4 million. It is active throughout the main wine producing regions of the world and some 83% of its sales are made abroad, including nearly 40% in the US.

This is causing its own problems, however, as the consolidation in the group accounts of cash collected from sales in the US is affected by the current weak state of the dollar. Over the past four years the equivalent of an accumulative €10–12 million has vanished from the American subsidiary, despite it having the best profit margins.

Overall its casks are sold in some 40 countries. With a production capacity that can fluctuate from year to year between 180,000 and 190,000 units, TFF has a world market share in so-called "quality" casks of 20%.

To underline the importance of wood, TFF owns staving mills with enough stock of mature stavewood for three years of production. On the group's balance sheet this stock represents €100 million of assets.

But business is not just restricted to casks, as the family has diversified into peripheral production areas such as wooden vats (tuns) or wood products which are designed to give the wine its flavour and these are real catalysts of growth.

The François family
The whole enterprise started in 1910 in Saint Romain, right in the heart of the Côtes de Beaune, with the setting up of the first cooperage by Joseph François. In 1917 Joseph was joined by his eldest son, Robert, then by his second son, Henri. In 1942 the two brothers went into partnership and the company took on the name of François Frères.

At the beginning of the 1960s, the third-generation of the family took over the business. Jean François and his wife Noëlle started in 1962 and began to increase overseas sales. In particular, they focused on the wine markets of Italy (via Angelo Gaja) and the US (Mondavi). In 1982 the first exports to the New World's wine producing countries of Australia and Argentina began.

The appearance on scene in 1989 of Jérôme François, the current chairman, was the occasion for the takeover of Tonnellerie Demptos, a well-known Bordeaux cooperage (barrel-making) firm founded in 1825. With this acquisition the François' not only gained a foothold in a strategic part of the country but also extended its portfolio of clients from the famous "chateaux".

The most prestigious of the "grands crus classés" of the Bordeaux area in fact relied very much on Demptos, including Yquem, Ausone, Cheval Blanc, Pape Clément, Margaux, and Mouton Rotschild. Some 20 years after being taken over by TFF, Demptos has still managed to keep its identity and a firm foothold in the Bordeaux area intact.

But Jérôme is also very determined to diversify the family business and is particularly keen to gain more control over the purchasing and initial stages involved in transforming the wood. In 1995 he took over control of the Tronçais merranderie (a stave wood processing mill). Again with the aim of safeguarding supplies, he embarked on a further venture in 1999 by taking over another stavewood mill SoGiBois – the leading player in France in this sector.

It is now clear that this shift in strategy is bearing fruit. "We sell more than 85% of our products, which will allow us to include the margins that were previously made by our dealers in our profits," says Jérôme. But diversification doesn't stop at vertical integration.

A few months ago the François family made news in Scotland when it bought the Speyside Cooperage for €10 million. With two plants, and a turnover of €16 million TFF has found a new niche in the market – whisky casks. This is a specialist market but with whisky sales booming and customers that include Diageo and Pernod Ricard, TFF has chosen an opportune time to get in on the act.

Floating the company
In 1999 some 29% of the company's capital was floated on the stock market. Thinking about the reasons for this 10 years on, Jérôme recalls taking his time before making a decision. "We had two financial partners who wished to back out of their commitments and, at the same time, we could see our competitors being listed on the stock market. We said to ourselves that an IPO was a way to remain competitive. Having said that, up to now we have not had to turn to the public to help finance our acquisitions – these have been made by means of leveraged buy-outs wherever the rates were attractive," he explains.

As far as Jérôme is concerned, the stock market listing has not completely influenced his strategy. But it is forcing him to produce transparent results. "On one hand, it is reassuring for our customers. On the other hand, it forces you to have a strategy that can be seen by everyone, including your staff and associates. In this respect it is even a real source of motivation to our managers," he said.

Since it was floated on the stock market, TFF has had a succession of good results with a net profitability that continues to increase, from 12.5% 10 years ago to 16.9% in the last financial year, a record.

At it approaches its 100th anniversary, TFF appears to be well prepared for the future. Even on a large-scale, cask production appears to be more related to the working processes of craftsmen than industrial reasoning. To know the relationship between the cask and what is in it is still a discerning art.

In the case of the "grands crus" the cooper has to be able to incorporate in the character of each wine the mechanical and physical-chemical characteristics of its casks. You can be the leading player in your sector and still have kept the best of the traditional processes and know-how.