The Value of a Brand
A piece written for, Meininger’s World of Brands that was originally published in German
Do you own a phone, a watch, a pair of trainers, a car? Do you wash your hair, travel by air, insure your home or health, start your day with a breakfast cereal?
In which of these does the brand fail to play an important part of your decision process. If you have an Audi, you chose it in preference to a Volkswagen, Skoda, Seat or Cupra – all of which are part of the same Volkswagen group. Automobile buffs will tell you that, depending on the model, the Audi often compares poorly in value terms with the group’s technically quite similar alternatives. But that doesn’t deter Audi fans.
Viewed globally, despite the wide range of smartphones now on the market, the statistics suggest there’s a better than one-in-two likelihood that your smartphone is either a Samsung (20%), Apple (17%) or Xiaomi (14%).
But how about drink? Again, the chances are that while most people can name their favourite brands of beer, whisky, Cognac, gin and vodka - and Champagne and most probably sherry and port. It is only when we come to wine that, for some reason, serious professionals and consumers balk at the concept of brands.
What is the logic behind this anomaly, and is it hard-wired into the industry psyche or will it change?
Before going any further, we need to agree on what we mean by ‘brand’. Historically, the term stems from a farmer burning a permanent mark onto his cattle using a branding iron. Initially, this prevented thieves from stealing his cows and pretending they were from their own herd, but inevitably it extended to become a mark – marque – of quality. People would buy an animal from XYZ Ranch, just as today they might purchase a horse from a particular stud.
Today, a brief internet search will yield a number of modern definitions for brand, but all ultimately come down to a ‘reason to buy one product or service rather than another.’ It is the opposite of a commodity bought on the basis of convenience or price – the difference between shopping for the cheapest apples, coffee or detergent – or Pink Lady apples, Lavazza coffee or Ariel washing powder. And even if, quite reasonably, you have decided to save money by regularly buying retailer private label soap powder or coffee, you are still buying a brand: it’s just a brand that belongs to a particular shop or chain.
When European wine people talk of brands, they often seem to associate the term with widely-available, usually inexpensive, wines like Black Tower or Yellow Tail. They don’t imagine that Château Lafite, Pingus or Domaine Leroy are brands too. Indeed, Lafite famously competes with Penfolds to be the number one wine brand in China. These are both brands that have resonance with millions who will never taste the liquid associated with them. Leroy and Pingus are names that will ring few bells beyond the realms of premium Spanish wine and top Burgundy drinkers but, like the watchmaker Roger Dubuis and perfumier Frédéric Malle, they are brands known by the people who are most likely to buy what they produce. And that’s what matters.
Unlike a commodity, a brand is looking for a long-term relationship with the customer. This requires skill, effort and money and, with wine, it is an ambition that is harder to achieve than with most other categories.
Packaging is the first hurdle. Perfumiers and spirits producers, for example, create proprietary eye-catching bottle shapes; few wine producers outside Champagne have done this. Making your wine stand out on a shelf among other almost identical bottles isn’t easy – which may help to explain the historic success of Mateus Rosé and Black Tower and the more recent one of rosé brands like Whispering Angel and Gérard Bertrand’s Côtes des Roses.
The next problem is one of categorisation. Consumers have been taught to look for a regional appellation or grape variety and, given human brain capacity, generally choose from a very limited portfolio of these. This, coupled with the structure of a European industry that is largely driven by cooperatives, coupled with the distribution dominance of big supermarket chains, has facilitated the growth of retailer own- and ‘private-labels’. In recent years, this trend has been increasingly driven by discounters like Lidl and Aldi which have created packaging for good-quality wines that rivals that of the biggest brands.
Competing with low-cost private labels forces real wine brands to use price promotions which, in turn, reduces their ability to fund the kind of marketing that would help to justify their premium pricing. At its worst, this becomes a vicious circle in which brand-owners are, in return for shelf-space in their stores, asked by retailers to also produce private labels for them. In effect, they end up competing with themselves.
But, especially in the US, owners of strong brands have proven that it is possible to buck this system. Most famously, perhaps, Dave Phinney created a Californian red wine brand called the Prisoner in 2000 that was sold to the Huneeus family for $40m ten years later, and then for an astonishing $285m to Constellation in 2016. None of these transactions involved any land or winemaking facilities; all that was being bought was the brand. The same was true when Constellation acquired another – eight-year-old - Californian brand called Meiomi for $335m.
Most recently, the multi-national, Australia-based giant Treasury has just agreed to buy Daou Vineyards for $900m (and, if profit targets are achieved, $1bn).
These deals, and others, such as LVMH’s purchase of 50% of Whispering Angel, illustrate the potential value of a wine brand. But so, too does the continuing commercial success of European brands such as Niepoort, Loosen’s Doctor L, Sogrape’s recently repackaged Mateus, Gonzalez Byass’s Tio Pepe and Pernod Ricard’s Campo Viejo, sales of all of which easily outpace their specific category.
The key to all of these brands, as with the cars, phones, watches and perfumes – and the limited-production, super-premium bottles - lies in achieving an emotional resonance among target buyers that transcends any rational consideration of objective quality or value for money.
Creating and maintaining this resonance is far from easy, as can be seen in the regular failure of start-up brands, and the demise of ones that were once highly successful. Big companies in any sector employ experienced brand managers – something that is available to few smaller producers. But, if there is no fool-proof recipe for brand building, there are a few useful instructions.
1) Love your brand as much as you love your product.
2) Package it in a way that is instantly recogniseable
3) Love the people you want to buy it
4) Listen to them more than you listen to clamour of critics.
5) Treat your brand as a living plant. Feed it. Ensure it gets the sun and water it needs. Protect it from parasites and pests. Prune it when necessary.
Do all of this, and maybe, just maybe, you’ll see your wine being more and more regularly sought out and purchased in preference to the competitors’.