Vive la difference

Marc Smith is a business journalist. Marcsmith@campden.com

Having taken the reins of one of France's finest wine-producing families at an extremely challenging time, Frédéric Drouhin of Maison Joseph Drouhin tells Marc Smith why he's confident French plonk will fight off the threat of the New World. For good, he hopes

Frédéric Drouhin is facing a challenging period at the head of Maison Joseph Drouhin, one of Burgundy's oldest and most prestigious winemakers. In France, supply is outstripping demand, exports are declining and the rise of 'New World' wines are all testing the management skills of the fourth generation of the owning Drouhin family. However, like a glass of their finest burgundy, the company is proving that age is no barrier to quality as they face these challenges head on.

Maison Joseph Drouhin was founded over 125 years ago and today is a medium-sized wine-producing business headquartered in Beaune. Seventy-three staff help to produce 90 different wines sold in 75 countries, bringing in an annual turnover of €25 million. The company also owns a Stateside winery in Oregon employing six staff and producing four wines.
 
To aid him in his quest to produce the best wines, chief executive Frédéric (pictured) relies on his siblings to fulfil the key functions of the business. His sister, Véronique, is winemaker at the Oregon vineyard; his brother, Philippe, manages the vineyards across both France and the States, while his second brother Laurent is sales director for the US markets.

If the man at the head of the business is currently feeling the downward pressure from his industry, he can take solace from the history books. His great-grandfather, Joseph, founded the company amid one of the most difficult periods in the history of French wine, caused by the phylloxera epidemic – a pest which, within 20 years, killed virtually every vine in the country. Undeterred, Joseph settled in Beaune, now the capital of the Burgundy wine trade, and launched his business on the back of the industrial revolution, whose benefits, in the form of improved distribution networks provided by the newly built railways, afforded the company access to the growing markets in Paris.

Joseph's son, Maurice, took the reigns following the first world war and proceeded to grow the business by acquiring several vineyards, including the famous Clos des Mouches. In addition to increasing the value of the business in France, Maurice travelled around the world to develop international distribution of his wines. In 1957, Robert Drouhin took over from his uncle and purchased some of the most respected vineyards in the region including Grands Echézeaux and Griotte-Chambertin. He also realised the future potential of Chablis, the now world famous white wine, which cemented the Drouhin family's reputation for high quality and innovation. To show these skills were not just reserved for wine, Robert nurtured Maison Drouhin's innovative streak by hiring Burgundy's first female oenologist (expert winemaker) and was one of the pioneers of organic viticulture.

Today, the company's main export market is the States, shaped by Robert Drouhin's acquisition of the Oregon vineyard and distributor.

Frédéric, Robert's son, believes controlling distribution is one of the most important challenges facing the wine industry. "When you are own your importer you control your distribution – if your importer is bought by a multi-national spirits company, the philosophy will change." As it is, the family were able to set up a portfolio of family-owned brands with the same values and long-term planning.

The vineyard in Oregon was purchased a couple of years after the acquisition of the distributor and in hindsight, was somewhat of a visionary move, as the US market grew to become Drouhin's most important business. However, at the time it was more a question of finance – the philosophy of Francois Mitterand's socialist French government was to split land between smaller wine-growers, pushing up the price of plots and making a large dent into profitability. Maison Drouhin looked abroad and rather than investing in California, which was de rigueur at the time, purchased 60 hectares in the north-west. At this time, France was still leading the world in terms of production, exports and critical acclaim.

Frédéric's succession to the chief executive's role in 2003, while securing control of the business in Drouhin hands, could not have come at a more challenging time. That same year, New World producers – from Australia, the US, Chile and South Africa – overtook France in the export market for the first time. This remains a challenge to France and to Drouhin today. In 2005 production outstripped demand for the country's wines by 30% and the French government has been forced to double its financial support to the troubled industry.

Perhaps it is Frédéric's education, both in his trade as the son of a seasoned wine making family and with an MBA from Connecticut's University of Hartford behind him, that explains why he is relishing the challenges ahead of him. His candour about the attitudes of old from the French wine industry now that it has fallen on harder times ("past generations took too long to understand their customers, and had the arrogance to believe that people could not live without French products") marks him out as one of a new breed of French wine producer, one that must simply compete on more than the brand of its home country. To ram home the point, the chief executive spent the second half of his MBA studies conducting an in-depth marketing study of American wine-making families, to understand their way of life and what they expected from French wines.
 
Despite this fascination with the capitalist markets of the US, Frédéric remains as patriotic and committed to the Burgundy wine industry as any self-respecting Frenchman, albeit with a real sense of commercial savoir faire, adding that "it is important to me that you can tell a wine is from France!"
 
A burgundy's unique selling point is terroir, the relationship between the soil, slope, exposure, grape and producer, which gives wines grown just a few yards apart of each other such diversity. Frédéric likens the wine-growers at Maison Drouhin to conductors, bringing out the many different styles of terroir. In stark contrast, their business model is surprisingly simple: at the mass-market end of the scale, where standard burgundies are competing against the might of New World wines, the aim is to produce "a wine that is clearly from Burgundy, but one that is sexy, fruity and appealing." The villages wines occupy the mid-market, while at the top end of the scale, where customers will pay €75 and upwards for a bottle of grand or premier cru, there are "no concessions to fashion... the customer expects to taste the difference".

Innovation is as deeply entwined in the Drouhin family philosophy as the vines themselves, travelling right to the roots of their organisation. Maison Drouhin was one of the first large estates to go organic in 1998, and today continues experimenting with cultivation practices in the race to produce the finest tasting grape. Frédéric sees its full organic certification, currently being formalised, as proof of a personal conviction that began with his ancestors over a century ago and is founded in the respect of the soil itself: "We see that there is a difference in the taste of the wine and the way in which the vineyard behaves," he says.
 
Over at the estate in Oregon, Frédéric's sister has been instrumental in growing the American side of the business. One of her major challenges has been to rejuvenate the customer base there, currently in the 50-plus age range. Taking their lead from shifts in a market that is increasingly attracting a female following, Maison Drouhin has created a wine specifically tailored to this demographic. "We produced a chardonnay and a pinot noir from a blend of several terroir," reveals Frédéric, "with a name that is easy to pronounce, but is still classically French." The resulting Véro range – named of course after the lady in charge of the new venture – was launched in 2004 to critical acclaim, and is starting to introduce a new breed of customer to the world of Burgundy wines.
 
The emergence of New World wines is to French wine, and Drouhin, what shifting production of goods to China is to the West; a massive shake up in the order of things. Frédéric is again uncompromising in his assessment of how the French wine industry was caught off guard by this. "The quality [of the wine] was not always great," he admits, somewhat bravely, and this, coupled with a new market created by winegrowers from the New World, is an image French players are still struggling to come to terms with in 2006. At the heart of the matter is how wine is marketed. Whereas the French traditionally rely on selling and marketing wine according to a complex system of appellation (certification), terroir, négociant (merchants) and geographical origin, New World wines stated simply a brand and a grape variety: chardonnay, sauvignon blanc, cabernet sauvignon and pinot noir to name but a few. Younger buyers used to ordering simply beer, wine or spirits have been put off by the intricacies of the French system and seduced by marketing campaigns that promoted an exciting brand, and one that is easier to penetrate. "The market dictates, and people who do not understand that will not survive," says Frédéric. Indeed, the situation is somewhat critical, as this deep malaise within France's wine industry has in recent times been highlighted by riots in the southern region of Languedoc, where wine prices fell dramatically, leaving many often historic and family-owned wineries facing bankruptcy. It has laid bare the schism between France's long-held dominance, now withering on the vine having been relied upon too heavily, and the rest of the world's wine-producing countries, who have quite simply trumped their glorious progenitor with 21st century business smarts.

Still, Frédéric believes that the New World's greatest strength is also its weakness – simplifying how wines are marketed is echoed by a standardisation of production, and, he thinks, market homogenisation. "Consumers will become fed up with a chardonnay that tastes the same whether it comes from Chile or Australia. They will want something different and France is well placed to provide that". This is precisely the long-term strategy that Maison Drouhin is undertaking – Frédéric sees a consumer's interest in wine as a journey. They will be seduced by a well-made but comparatively simple burgundy and want to explore further, moving up to the villages crus then up onto the grand and premier crus.
 
This could be viewed as a commercial gamble, given that Maison Drouhin's range is heavily focused on the mid- and high end of the market, whereas 60% of production in the market is at the bottom end in, say, standard burgundies. Can this family business bank on sufficient numbers of consumers continuing this journey? "I predict French wines will make a comeback," states Frédéric, "because quality is improving, there is more marketing and more money." In any event, he is clear what should be done to help French producers: "The bottom end of the market needs to be liberalised so the market can play a greater role." This will undoubtedly help in their battle to regain the number one export spot.

Liberal is an important word at Maison Drouhin – the CEO describes his management style as just that and believes that the customer is king: "You have to get to know him and respect him. He has so many choices; why should he choose your wine?"
 
In tandem with the changing face of the average wine customer, the manner in which wine is being sold is also in transition. The battle for lower-end wines will be fought out in non-trade, commercial sales as the rise of supermarkets in particular continues. Here, brands will fight on the toughest of soils and value for money will be a key determinant. In premium wines, trade buying will dominate with sales from private retailers and particularly those direct from the winery benefiting. In addition, Frédéric sees wine tourism developing to aid profit margins. It is already taking off in the US where families plan weekend breaks, such as Thanksgiving, around a visit to the winery where they incorporate vineyard tours with picnics and the purchase of a few cases of wine to take home. Naturally, this involves the wine-maker adding revenue streams from entrance fees, guided tours and food in addition to the wine itself.

So as the market evolves, where does Frédéric see the future? There are no formal succession plans in place for the family's fifth generation, although he does hope that the many younger Drouhins will take over the business. "We are very lucky to be sitting on a goldmine in the form of our vineyards," he says, "but having the Drouhin name does not guarantee you a place on our board – the next generation has to really add value." Complicating matters further is the fact that return on the business is low, which precludes foreign investment on a scale with that of other regions, such as Bordeaux. It is a tall order for anyone wanting to lead the business in the future. More pressing, however is the thorny issue of inheritance tax: "Our goal is to make it easier for our children to become shareholders and manage the company, but if we don't plan in advance then it will be too costly for them to pay the taxes," he says. And that scenario, given the history associated with this prestigious brand, is not one he wishes to dwell on.