Viña Concha y Toro S.A.

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Viña Concha y Toro S.A.

Nueva Tajamar 481, Torre Norte
Piso 15, Las Condes, Santiago
Chile
Telephone: (562) 821-7300
Fax: (562) 203-6740
Web site: http://www.conchaytoro.com

Public Company
Incorporated: 1923
Employees: 1,391
Sales: 100.44 billion pesos ($175.08 million) (2000)
Stock Exchanges: Santiago New York
Ticker Symbols: CONCHATORO; VCO (ADRs)
NAIC: 11132 Citrus Groves; 111339 Other Noncitrus Fruit Farming; 312112 Bottled Water Manufacturing; 31213 Wineries

Viña Concha y Toro S.A. is the largest Chilean producer and exporter of wines. It owns and leases vineyards in five of Chile’s six principal wine-growing valleys and also owns a vineyard in Argentina. A vertically integrated producer, Concha y Toro also operates plants that make and bottle wine from its own cultivated grapes. Premium wines comprise a third of the company’s revenues, and exports, more than half. The company also produces and sells fruits and mineral water.

The First Century: From 1883

The company was founded in 1883 by Don Melchor Concha y Toro and his father-in-law, Don Ramón Subercaseaux Mercado. Don Melchor had inherited the title Marqués de Casa Concha, awarded to a Chilean ancestor by King Philip V of Spain in 1718. The blue-blooded Concha y Toro family was very rich as the proprietor of a company that held silver mines in Bolivia. Don Ramón also was immensely rich from silver mines in northern Chile. The marriage of Don Melchor to Doña Emiliana Subercaseaux linked the Concha y Toro family to her father, who owned farmland in the Pirque region, located on the border of the Maipo River, 20 miles south of Santiago, the capital. Don Ramón had planted grapevines there in 1860 after building an irrigation canal to provide the necessary river water in an area of sparse rainfall. After his death, Don Melchor and his wife hired a French oenologist to plant new vines yielding the traditional varieties of the Bordeaux region—cabernet sauvignon, merlot, sauvignon blanc, and semillon—brought to Chile before the plant louse phylloxera devastated French vineyards in the 1860s. They also employed a French architect and landscaper to design their manor and its gardens and subsequently purchased an estate near Rancagua, where they established a second vineyard.

After Don Melchor’s death in 1892, his widow and their son Juan Enrique Concha Subercaseaux ran the firm. Concha y Toro was incorporated in 1923, with all shares issued to family members and Doña Emiliana holding 75 percent. She gave most of these shares to her five daughters in 1929. After Juan Enrique’s death in 1931, direction of the firm passed mainly to her sons-in-law. Concha y Toro began to be traded on Santiago’s stock exchange in 1933, but at the end of the decade eight family members, all female, still held about 60 percent of the shares. Doña Emiliana’s daughters still owned nearly one-third of the stock in 1947, but Chilean banks now held over 20 percent. During the 1940s Concha y Toro distributed Coca-Cola in Chile but gave up the franchise after some years as not sufficiently profitable.

Beginning in 1957 Concha y Toro invested heavily in new vineyards and restructured its management to handle the demands of changing markets. Land in production or planted increased from 330 hectares (815 acres) in 1947 to 765 hectares (1,890 acres) in 1969. Annual wine production rose from 3.6 million liters to 18.5 million liters over this period, and Concha y Toro now led all Chilean producers. Almost all of this was for the domestic market; Concha y Toro accounted for one-third of all exports of Chilean wine in 1968, but Chile’s wine exports constituted only about 2 percent of production. In spite of increasing the amount of land planted in vineyards, Concha y Toro’s rising output was requiring it to buy an increasing proportion—about 70 percent—of its grapes from other growers and hence to create a potential quality problem. Nevertheless, in 1965 Concha y Toro introduced its first wine of greater complexity, under the name Casillero del Diablo. It was made from selected grapes and aged two years longer than the standard Chilean cabernet sauvignon.

Eduardo Giulisasti Tagle, now the largest shareholder, became general manager of Concha y Toro in 1971. By this time only three principal stockholders and three of the six company directors were related in some manner to the Conchas and Subercaseauxs. Giulisasti faced an immediate challenge from the Marxist government of President Salvador Allende, which proposed, under threat of expropriation, to assume majority control of all the nation’s wineries. One day in 1972 Concha y Toro’s managers found their offices occupied and their telephones disconnected by workers (unionized since 1966) who said the action was intended to pressure them into accepting the government offer. A government-appointed mediator subsequently protected the enterprise from radicals—who included Guilisasti’s son Rafael—until the overthrow of Allende in 1973. Some other vintners did not emerge so fortunately from the disruption of this period and were forced to sell or close down.

Before this upheaval, the products of Chilean wineries were, with rare exceptions, characterized by a heavy oxidized flavor but suitable enough for the domestic market, which was protected by government policies from foreign competition. With the economy in recession following Allende’s fall, many of these enterprises failed, and the survivors began seeking income from exports for the first time. Guilisasti cast an eye on the U.S. market in the late 1970s but realized that Concha y Toro’s output would have to be altered to sell abroad. He began replacing the old cement vats used to ferment wines with automatically cooled stainless steel tanks. For better aging of its premium wines, Concha y Toro began importing French oak casks in 1985 and California oak barrels in 1987. In the latter year the company introduced Don Melchor, its most ambitious product to that date: a world-class wine intended to compete in the premium category and convince consumers abroad that Chile was capable of such production. This top-of-the-line cabernet sauvignon (selling for $40 a bottle 10 years later) came from Concha y Toro’s flagship Puente Alto estate, purchased about 1970.

Concentrating on Exports in the 1990s

But it was the firm’s midprice varietal (table) wines that made an impact in the U.S. market after Banfi Products Corp. purchased Excelsior (later Excelsior Wines & Spirits), a small importing company. Banfi, a large importer, was looking for a new product to supplement Riunite, a sweet, fizzy Italian lambrusco that was the top-selling imported wine in the United States but had experienced a sharp drop in business. Banfi introduced print advertisements for Concha y Toro in New York, Washington, and Miami in 1989. By 1990, Chilean varietals, at $4 to $5 a bottle, had moved the nation into third place, behind only France and Italy, among wine importers to the United States, and Concha y Toro held more than half this market. Exports to Europe began in 1989. Between 1989 and 1992, the company’s net income more than doubled, largely because of its exports. Within Chile, Concha y Toro still remained popular, holding 22 percent of the market.

During the years 1991-93 Concha y Toro tripled the size of its vineyards to reduce dependence on outside grape growers. “Having vineyards in all the major growing areas . . . gives us a lot of options,” a company oenologist told Thomas Matthews of Wine Spectator in 1995. “In Maipo we get wines of elegance; farther south . . . the wines are fuller-bodied. In the end, controlling the grape supply is crucial to fine wine.” Concha y Toro replaced hand pickers with machines for 80 percent of the harvest. It bought computer-controlled pneumatic presses and introduced a more precise system of irrigating its vineyards. French and California oenologists were hired. The original Concha y Toro white-columned mansion and 50 rolling acres of landscaped gardens were restored to receive guests and tourists and to serve as the headquarters of the firm’s export operations.

Concha y Toro ranked fifth among wines imported to the United States in 1993, but its profits fell as grape prices and labor costs grew and the company’s exports faced stiffer competition from the wines of other countries. Concha y Toro now began to look to more upscale, $7-to-$10-a-bottle exports for revenue. To finance its efforts, the company turned to Wall Street, raising $53 million by selling American Depositary Receipts (ADRs) on the New York Stock Exchange. In 1996 Concha y Toro purchased a vineyard in Argentina’s well-regarded Mendoza region and stocked the enterprise with wine-making equipment and a cellar with a capacity to hold 4.5 million liters of wine.

The following year the company announced a joint venture with the French firm Baron Philippe de Rothschild S.A., with the aim of producing a wine that would meet the standards of the grand cru class of wines from the Bordeaux region. In 1998 this partnership introduced Vina Almaviva, an ultra-premium cabernet sauvignon from the same Puente Alto vineyard as Don Melchor, but longer in the oak and hence with a woodier flavor. Concha y Toro, in 2000, launched three limited-edition premium wines under the Terrunyo label. Its cabernet sauvignon came from the upper Andean foothills of the Maipo Valley, carmenere—a Bordeaux grape not unlike merlot—from the flatter Peumo Valley, and sauvignon blanc from the maritime-influenced vineyards of the Casablanca Valley, north of Santiago. These wines were priced at $29 in the United States. Later in 2000, the company introduced another premium wine, Xplorador, for the U.S. market only.

Company Perspectives:

Its ongoing investment in the latest technology and production techniques enhancing premium and super premium wines, its increased own grape production, innovation particularly in the introduction of new lines of premium wines, the strength of its distribution network and the diversification of its markets and its ability to penetrate new sales destinations have all contributed to Viña Concha y Toro’s strength both locally and abroad.

By this time Concha y Toro also was marketing abroad three new, popularly priced wines at $8 to $10 a bottle. Launched in 1996 under the Trio label, these wines—a chardonnay, merlot, and cabernet sauvignon—were initially available in Chile, the United Kingdom, and the United States.

Other table-wine labels introduced or reintroduced in this period were Sunrise (1997) and Frontera (1999). By 1998 Concha y Toro had risen to second place among table wines imported to the United States. Its export sales rose 30 percent that year, including a tripling of its sales in Japan. Total production increased by 17 percent; in Chile, sales of the company’s red wines soared 50 percent as Concha y Toro and other winemakers touted the alleged health benefits of drinking red wine.

Concha y Toro in 2000

Concha y Toro owned 15 Chilean vineyards and leased three in 2000. These properties were located in five of Chile’s six principal wine-growing valleys. The company also owned 417 hectares (1,030 acres) near Mendoza, Argentina. In all, the company held about 10,224 acres of vineyards at the end of 2000, compared to 2,981 acres a decade earlier. Total output was 102 million liters of wine. Concha y Toro also had about 129 hectares (319 acres) in fruit trees first planted in the 1980s. The yield in 2000 consisted of about 2.2 million kilos (2,245 tons) of peaches, nectarines, avocados, lemons, oranges, kiwis, and other fruits. Concha y Toro also owned or leased five vinification plants (which converted grapes into wine) and two bottling plants and operated the most extensive wine-distribution network in Chile, through Comercial Peumo, its wholly owned distributor. In November 2000 Concha y Toro acquired 49.6 percent of Industria Corchera, a cork-producing firm.

Concha y Toro held 24 percent of the domestic Chilean market in 2000. Popular wines, marketed primarily in one-liter rectangular cardboard packages, represented (by value) 73 percent of this output. The firm’s output of bulk wine for this purpose was substantially supplemented by purchases from other wine producers. Of Concha y Toro’s 2000 sales, wines for export accounted for 55.3 percent and domestic wines for 32.5 percent. Of the export total, almost all were table and premium wines, with the United States accounting for 34.6 percent and Europe for 29.5 percent. According to one survey, Concha y Toro moved into first place among wine exporters to the United States in 2000.

Among Concha y Toro’s premium lables, Casillero del Diablo was the most extensive as well as the largest seller, turning out cabernet sauvignon, chardonnay, malbec, merlot, pinot noir, sauvignon blanc, and syrah. Marques de Casa Concha produced cabernet sauvignon, chardonnay, and merlot. Don Melchor made only cabernet sauvignon and Amelia only chardonnay. The company’s table-wine labels were Frontera (cabernet sauvignon, chardonnay, merlot, and sauvignon blanc blends) and Sunrise (cabernet sauvignon, chardonnay, merlot, pinot noir, rosé, sauvignon blanc) as well as Concha y Toro. It was also bottling and selling under license Santa Emiliana table wines, for a company that it spun off in 1986.

Eduardo Giulisasti Tagle remained chairman of Viña Concha y Toro but had, by 1997, yielded day-to-day administration of the enterprise to his elder son, Eduardo Giulisasti Gana, who now held the post of general manager. Rafael Giulisasti Gana, his younger son, was export manager. They and other company executives owned nearly 50 percent of the common stock in 2001. Concha y Toro’s long-term debt was 21.12 billion pesos ($36.81 million) at the end of 2000.

Principal Subsidiaries

Comercial Pneumo Ltda.; Comercial Pneumo S.A.; Concha y Toro UK Limited (U.K.); Distribuidora Pneumo Argentina S.A.; Industria Corchera S.A. (49.6%); Maipo Ltd.; Sociedad Exportadora y Comercial Vina Maipo Ltda.; Transportes Viconto Ltda.; Villa Alegre S.A. (75%); Vina Almaviva S.A. (50%); Vina Cono Sur S.A.; Vina Patagonia S.A. (Argentina).

Principal Competitors

Allied Domecq plc; Bodega y Vinedos Santa Carolina S.A.; Consino Macul S.A.; E. & J. Gallo Winery; Robert Mondavi Corporation; Vina Errazania, S.A.; Vina San Pedro S.A.; Vina Tarapuca S.A.; Vina Undurraga, S.A.

Key Dates:

1883:: Concha y Toro establishes its first vineyard and winery.
1965:: Company introduces its first premium wine, Casillero del Diablo.
1987:: Concha y Toro introduces Don Melchor, its most ambitious wine yet.
1994:: Concha y Toro makes its initial public offering on the New York Stock Exchange.
1998:: Company ranks second among wine exporters to the United States.