German wine group Racke International has teamed up with Chilean winery Aresti to launch Espiritu de Chile, replicating its successful partnership with South Africa's KWV which spawned the Golden Kaan wine brand. Chris Brook-Carter discussed the joint ventures and the business model behind them with Racke's international manager and CEO of Golden Kaan Ltd Marian Kopp.

J-D: Why have you decided to replicate the business model you used with Golden Kaan?

Kopp: So far, we have sold just over 700,000 cases of Golden Kaan, in three years, and next year we are pitching about 400,000 in one year, so we are happy. Golden Kaan is in about 23 markets now and we are now being aggressive in the US. We are pitching for about 50,000 cases next year, the 2nd year in the US. This year, we have done almost 20,000 cases. For a launch within one year that's a fantastic start - in the US South Africa is not known. The whole business model is for family wine companies with brands that have more than just a nice label, but a background and heritage. This is what we do.

J-D: How have you tackled the US?

Kopp: We have our own office. We have set up a strategic alliance with distributors. It's a lot of groundwork. You need a clear message that's more than a nice label. Distributors liked it; we have a full marketing programme in operation and the homework has been done.

J-D: Was the approach the same with Aresti?

Kopp: With Espiritu we have worked on the same model. We made sure that it was tested so that whenever it was on the shelf it would sell. That was clear. The business model is the opposite of the normal consolidation - that Constellation buys everyone or Pernod Ricard. This is our model of consolidation - call it soft consolidation, which is the alignment of family-owned companies that have enthusiastic or aggressive targets and aim to be in more than two countries with a brand. And this is a model we followed because it was successful.

It is a model that involves investment; it's not something that makes money the first day. It's not like having something with a nice packaging and putting it into markets then collecting the money, especially when you target volume. You have to have full distribution and full distribution cost money, besides the marketing support and setup/launch costs.

So we are starting a campaign - EUR1.5m for each brand from the beginning. So Golden Kaan is way over EUR2m as a campaign just for Europe and we are only three years old.

J-D: How do you choose the partner?

Kopp: It's a long story. For KWV it was more like an incidental thing. We bumped into each other when they toured Europe for expansion opportunities years ago. With Aresti, that was our supplier for our distribution company Racke Polska and I was impressed by the professionalism of the MD. We looked at the overall company again and again and thought that could be the right partner. They are honest and consistent and my contact has a background - Ernesto Muller was involved with the launch of Caliterra (the former joint venture of Mondavi and Errazuriz), so he knew how to run a joint venture.

J-D: Is the business model something you are able to replicate elsewhere?

Kopp: Yes, but we should not have a conflict. We definitely have more countries where we can do such a business model.

J-D: How groundbreaking a decision was it to invest so heavily in joint ventures?

Kopp: There are other joint ventures. There is Opus One. There is Frescobaldi-Mondavi. But they always aimed at the high end. We are the "volume"/popular premium joint venture. There was a Hardy joint venture in South Africa, but it went nowhere because it only targeted the UK. It suffered because they had too many priorities. The family company sets up such a project and has full focus on it.

J-D: Why is there such a lack of volume-focused joint ventures in the wine industry?

Kopp: I think that is the arrogance. Everyone wants to be his own boss. It's not only the arrogance of the big corporations, it's also often the arrogance of families.

J-D: What is the advantage for Racke of pursuing a joint venture as opposed to launching its own Chilean wine brand?

Kopp: With this brand, it is essential it is launched in South America with a "grounded partner" because that is the heritage. Without the heritage in South America it is more of a "fake label" brand. Without success in Africa and "origin", Golden Kaan would be a "fake label". We want the heritage intrinsic in the brand. That brand has a supply partner that is also our shareholder. That is a "heritage foundation" from the beginning.

The other option is that a large company might just buy a Chilean winery. But then you get lost. You buy a Chilean winery, you buy a South African winery - in the end you buy "Mickey Mouse" operations because you don't have the money to buy the big guys. Racke could never buy Concha y Toro or even Cono Sur off Concha y Toro if it wanted to sell it. It would be too expensive. We would end up with small farms and have to build them up, which is way too much of an investment - plus all the additional risk. So we thought "soft consolidation" was the business model we should look at.