It’s a Friday morning in Blanquefort and massive trucks full of gently clinking bottles roll in and out of the Castel Group headquarters, in what passes for an industrial sector of Bordeaux. The trees are turning yellow, the sky is grey and the weather warm.
Modest as the architecture is, this scattered group of low-rise, cream-coloured buildings, and the trucks weaving in and out of them, lie at the heart of a wine empire that spans the continents of Europe, Africa and Asia. Last year the company turned over €1.1bn ($1.36bn) and produced 607m bottles. About half that was bottled wine, a quarter was wines sold via Castel’s chain of Nicolas shops, and the final quarter was bag-in-box. Castel’s ranked by Impact Databank as the number one French producer and number four globally, and they own any number of bestselling brands including Sautejeau-Bauquin, the biggest French Muscadet producer, and the leading bag-in-box producer, Friedrich.
In short, no description of Castel comes without at least one, and sometimes all, the words: number one, top, largest, leader, first. Other words that inevitably crop up are ‘private’ and ‘powerful’.
Booming business
By contrast, the slim, genial form of general manager Alain Castel is startlingly unassuming. Wearing a soft brown suit, it wouldn’t be immediately obvious that he’s considering the purchase of a top Champagne brand. Or a Brazilian sparkling producer. Or both. Nor would it be particularly evident that Castel’s company cash reserves amount to many hundreds of millions (the actual figure is confidential) of euro.
The potential purchases would fit with what analysts believe is Castel’s aim of becoming a global leader in the effervescent sector, building as it does on their 2012 purchase of one of France’s best known fizzy brands, Kriter, owned by Patriarche. The only slight drawback so far is that Castel has laid out the possibilities in a such a low-key tone, the reporter in the room wonders if she heard right. A top Champagne brand? Yes. And a Brazilian sparkling wine producer? Yes. Or both? Castel shrugs, inscrutable. Maybe.
When his face finally does light up with a gleeful grin, it’s to break an embargo and announce details of a new product, much to the discomfit of his press attaché. “There, you have a scoop,” he says happily. It’s a rosé called Isk, with a temperature control badge on the bottle. The aim is to offer consumers a new twist in the rapidly growing rosé sector and it will launch in March or April next year at a retail cost of about €3.00. Sales are expected to reach one or two million bottles (Castel-speak for a market trial) in the first year.
One of the particularly interesting things about rosé, says Castel, diving happily into the details, is that it’s both an aperitif and a food wine. “You see people might have a rosé to start with, but then they might also continue drinking it with food.” That’s an advantage in France where wine consumption has dropped from well over 100 L per head in the heydays of the 1950s and 60s, to about 48 L per head today.
Another booming sector for the company is aromatised wines. In 2011, Castel launched a flavoured range called VeRy. Now in five flavours, VeRy sales hit 8.3m bottles in 2013, an increase of 49% on 2012, making Castel the number two aromatised wine producer in France. The number one is Moncigale, owned by the Belvédère Group.
Other Castel initiatives include small-format plastic bottles of cooking wine with spice packets hidden in their measuring cup/chef’s hat-style lids. As Castel opens one, and carefully fishes out the spice packet, he explains the format will not only ride the general popularity of adding wine to food in France, but also take advantage of the wider global cooking trend. The 25-centilitre bottles, red and white, come in packs of three, cost just under €3.00, and have been in shops for the last few months on a trail basis. Sales now stand at 5m bottles and have helped Castel win back a supermarket client which it lost when the food chain began selling its own wine brand.
The plans and initiatives outlined by Castel in the effervescent, rosé, aromatised and cooking wine sectors demonstrate one of the main axes of the company’s deep-pockets growth strategy: if customers want it, then buy it or make it.
Distribution is king
Combined with Castel’s demand-driven thinking is an unwavering commitment to distribution that developed alongside France’s impressive super/hyper market sector. “They have understood the critical role of having the right distribution network in order to deliver their products to consumers,” said Hervé Remaud, Kedge Business School’s Wine and Spirits MBA academic director and senior professor of marketing. “It is impressive, when you look at the figures, how much wine they sell at the very bottom end of the market. With the brand La Villageoise, which costs about €2.00 per bottle, they sold 15.5m bottles in 2013. Having access to big retailers is the key for Castel to succeed.”
Castel himself says the company has always believed successful distribution lies in ensuring that everyone in the chain makes enough profit, and gets enough satisfaction, to come back for more. To do that, distributors need a roughly 20% profit margin, otherwise the wines can end up on the bottom shelf. It’s also vital to ensure prices are kept at reasonable levels – and whether €2.00 a litre is a reasonable price or not is another debate – despite the supermarket sector’s tendency to use brands like his as loss leaders. To that end Castel offers retailers various promotions, such as getting the fourth bottle free, or customers getting money back, paid for by Castel, at the till.
Another key to Castel’s success, Remaud believes, is its ability to be present at all levels. “It’s really remarkable that they can have an industrial-level output of hundreds of millions of bottles and still succeed in the mid-market with the Castel Family brand, which speaks of authenticity, terroir and family values. And then go beyond that into the next level with premium châteaux brands like Château Beychevelle, Château Ferrande and a few other top-end wines in other French regions,” he says.
There’s a similar theme in retail outlets. Castel slips easily between the supermarket shelf and the more rarefied atmosphere of the Nicolas wine shop. There are 500 of these: 471 in France, and 29 scattered around Réunion, Belgium, Monaco, Lebanon and French Guiana. The aim over the next five years, says Castel, is to add another hundred, mainly in Asia and Africa.
One of the family mottoes is ‘walk or die’, and Castel’s commitment to growth becomes clearer as he describes the company’s plan to increase their premium estates holdings from the 23 they currently own outright and the three they co-own. We are always looking at dossiers, he says mildly. Currently, by surface area, their French properties cover more football fields than one can imagine: 1,400 ha which are spread over the main winegrowing regions including Bordeaux, Burgundy, Beaujolais, Loire, Provence and the Languedoc.
International presence
Castel, however, has no plans for South or North America. “We would not be king in our domain,” he says simply.
“In the US and in Latin America there is a bit of a missed opportunity,” says José Luis Hermoso, head of research for International Wine and Spirits Research (IWSR). “The US is a huge market and they are not well known there.
They might have done well to get into Argentinian production for the US market, but it is a bit late for that now.” Hermoso also questions their growth strategy in the longer term. “At the moment they are growing mainly via M&A, where they have been very active over the previous ten or so years, although less in the last two [years], and not so much by organic growth.” But how much further can they go, he asks? “The French wine market is in long term decline. Likely they will look to acquire French wine companies that already have a big overseas presence.”
Castel echoes Hermoso’s sentiments about organic growth. “External growth, we can do. This has been fairly successful up to now and we will continue, but at our own pace. The current priority is to grow our existing achievements, because the growth potential is there,” he says, measured as ever.
Supporting that growth are 26 sales subsidiaries around the globe, while each of their five market zones has its own export director as well as dedicated sales and distribution plans.
Europe is zone one and Castel’s principal markets here by volume are the Netherlands, the UK, Germany and Belgium. Zone two is emerging markets, firstly China, then Russia and Africa. Zone three is the rest of Europe plus the French territories such as New Caledonia, and the Middle East. Zone four is Asia, other than China, and zone five is the US, Canada and Latin America.
Marketing, packaging and wine style are also a key part of global sales efforts. “People want easier-to-drink wines with more fruit and we look at the bottles, the labels, the presentation and the latest type of closures. All of that,” Castel says.
Much of Castel’s growth, organic and otherwise, will inevitably focus on China and Africa. In China, there have been bumps along the way. “They have spent quite a lot of money on the dispute with a local company, Chinese wine distributor Panati Wine (Shanghai) Company Ltd., over the use of the name Kasite [a translation of ‘Castel’],” says Hermoso. Castel lost the first round case, but, given recent changes in Chinese IP laws, the company expects to see a more positive result from their appeal.
At the same time, sales, which were hit by the double whammy of global financial uncertainty and the Chinese austerity campaign, are ticking back up. This year volumes are expected to reach 15m bottles, well off the 2011 high of 32m bottles, but better than last year’s 13m. The increase in sales, says Castel, is however being driven principally by branded wines. There is less optimism about China’s fine wine demand. “There is a huge stock, and those wines were bought at very high prices,” Castel says. As a result the wines are “almost not selling.”
Meanwhile in Africa, both production and consumption continue to grow. In Ethiopia, for example, where this year Castel bottled its first commercial Ethiopian Rift Valley harvest of 1.2m bottles, GDP growth looks set at about 8% for the next two years, according to the International Monetary Fund. Although wine sales don’t exactly track GDP, growth of that sort is a good backdrop. Surprisingly, although Castel had planned to sell half its Ethiopian production domestically, and the rest to Ethiopian diaspora countries, about 24,000 bottles have already been bought by a Chinese buyer.
Castel admits to some concern around the more general African issues of Ebola and the spread of Islamic fundamentalism. He won’t confirm it, but there has been talk of a North African supermarket recently having to pull all alcohol from its shelves. Instead he points out, with just the ghost of a smile, that Muslim markets have never been strong ones for Castel, and suddenly there is a general feeling in the air that it might be time for lunch.
Accompanied perhaps by a glass of rosé and a small sandwich at his desk? It’s not out of the question. Maybe though, because it’s Friday, a glass of Beychevelle or its ilk is a more likely bet, with perhaps some steak frites and a green salad with his brothers – Philippe Castel, CEO of the wine branch and responsible for vineyards and wine buying, and Jean-Bernard, director of headquarters technical production – in the boardroom canteen. Or maybe he will meet clients in town at some rather smarter place.
Nothing should be ruled out, because Castel, for all his brown-suited modesty, seems to be, just like his company, comfortable at all levels.
Castel History
Started in 1949 by nine brothers and sisters as a Bordeaux wine wholesale business, Castel has burgeoned into a much larger structure that’s split into four divisions: branded wines, châteaux and estate wines, beer and soft drinks, plus the Nicolas chain of wine shops. Supporting those divisions are a range of other businesses including branded-wine supplier Barton & Guestier, fine wine wholesaler Barrière Frères and African beer and soft drinks producer Brasseries et Glacières Internationales (BGI). Although it can have its opaque moments, the gist of Castel’s business is pretty simple: drinks, with wine playing a starring role.
Shortly after setting up the wholesale business, the story goes that Castel’s best known family member and founder, Pierre (now ranked just after Silvio Berlusconi at 186th on the Forbes billionaire list, with a net worth of $6.8bn) got restless and wandered down to the Bordeaux port. There he saw wine-laden boats heading for North and Western Africa, or ‘Françafrique’ as the French have been known to call it.
After a hastily organised tour of the mainly French-speaking capitals, including Dakar (Senegal), Libreville (Gabon) and Conakry (Guinea), Pierre Castel had filled his address book and returned home to begin exports. Since then, the Castels have been developing both demand and supply in Africa, buying up vineyards in Morocco, Tunisia and, most recently, Ethiopia. Today the company has 1,600 ha of African vineyards and the wines from these are exported all over the world. In France their Moroccan wine, Boulaouane, is the number one imported brand. Its Tunisian equivalent, Sidi Brahim, is the number two.
