Profile: Sabate merger start of latest trend in global wine consolidation
The domino effect is picking up pace. Consolidation among the world's large retailers and its influence on the spate of mergers and acquisitions in the drinks trade has been well documented. But news last week that Sabate, the world's second largest cork producer and Diosos the world's leading oak wine-barrel maker are to merge has taken the consolidation fever of the drinks trade to a new level.
As retailers get bigger and producers merge to keep up, it was only a matter of time before the industry's tertiary level of support companies from suppliers of raw materials to packaging jumped on the wagon.
The rationale behind the Sabate and Diosis move makes for familiar reading. Just as producers saw the potential for a wine company that could offer a global retailer a multi-national wine list from a single source, producers in turn will be keen to source more of their supplies from a single company.
As Marc Sabate, president of Sabate and joint president of the newly merged company, explains: "Winemakers want to control the process of winemaking from grape to bottle. Our association (Sabate and Diosos) is to put together the two main parts of this process. This will give the industry a global service to make the best wines and at the same time allow producers to deal with fewer people."
"We are assuming the wine industry will become more global through mergers and acquisitions," he told just-drinks.com. "This strategy is part of the strategy of consolidation. If we have bigger clients then we have to be bigger and follow the moves of the sector. Producers of this size want to have consistency of product quality throughout all their brands around the world. This association allows us to be present in every winemaking country."
He adds: "Producers want supply reliability, they want a supplier with critical mass, they want a supplier with financial capacity and the technological capacity to each year buy the raw materials, ensure the quality and manage the process to make the same branded product."
Indeed the surprise should not be in the merger itself but in the fact that something like this has not occurred before. As well as now having a presence in every winemaking country in the world, the new company will represent 1.6 billion corks a year and 200,000 barrels with a turnover of Euro225m.
Sabate is keen to stress the extra money available to research and development (R&D) with the combined budget. He says: "We are not saying the issues are the same in barrels and cork but there is a close link, so in this association we have more power to understand the problems and give the answers."
Cynics might suggest that growing competition in the closure industry, in particular from the synthetic side, has forced the company to diversify. But Sabate is quick to dismiss any such idea. "We are not frightened by synthetic closures. There will be a need for 24 billion corks in 2010, there is a place for each type of closure."
Although Marc Sabate says there are no plans for further acquisitions at the moment he concedes there could be other purchases in the future. And, if Sabate is to realise its goal of being the first truly global oenological service it may have to consider either producing or buying its own synthetic closure."This could be the future of the industry," he says. "We are on the way to controlling the process from start to finish and we are the first ones to start this way. The technological service to the winemaker is too important to avoid it."
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