Fine wines and high finance

John Williams talks to Rachel Donald.

In May 2003 marketers and brand strategists were smiling. For years they’d been trying to convince clients that success was all about the brand – not the product, not the bricks and mortar, but ‘the story’ – and that it was worth something on the bottom line.

They were smiling because they’d just been proved right by an international wine company that was willing to pay $18 million for a New Zealand name.

While the Crawfords owned land in Marlborough and Blenheim, none of that was included in the sale. What was sold was Kim Crawford Wines (KCW) brand and Kim and Erica Crawford’s commitment to stay on for five years to realise the potential of the company that had so attracted North America’s fourth largest wine company, Vincor.

The sale rattled the wine glasses in the industry as well. While there had been recent sales of other New Zealand wine companies to overseas interests – Montana sold to Allied Domecq for $1 billion in 2001, Wither Hills Winery was bought by Lion Nathan for $52 million and Ponder Estate went to Foster’s Group for $11 million – they had all included land and physical assets in their deals.

For Massey graduate John Williams the 2003 deal was breaking new ground – not only for the wine industry but for him also. The accountancy graduate – “whatever you do don’t call me an accountant” – was the business manager of KCW at the time. He had joined the company in 2000 to provide the business and financial expertise that the entrepreneurial couple lacked. It was he who had to work out how to maximise the sale of the virtual winery to the Canadian company Vincor International.

“I’d never sold a business before. I’m reasonably proud of what we achieved. We had the business professionally valued – and threw the valuation away. It wasn’t enough. We knew what we wanted. We wrote up a heads of agreement and then started negotiating the sale and purchase. Vincor came all the way out here but in the negotiations we couldn’t agree on some things – so we said ‘no’ and sent them home.”

A month later they came back to sign the deal. “We were country boys from down under. I was a young, wet behind the ears accountant who didn’t know anything about business, bit I was fortunate to have good advisors and an experienced board and the Vincor head said it was one of the toughest negotiations he’d been through.”

The sale of the Kim Crawford Wines brand was a logical progression for the company that started out as a ‘virtual’ winery. Normally anyone getting into the wine industry sinks a lot of money into a vineyard, into the romanticism of growing grapes, but that path is very cash intense for little return. “To grow, you need a lot of cash. But if you sink all your capital into your vineyard you can’t develop your brand,” says John.

The Crawfords did exactly the opposite. Cash poor, they couldn’t afford a winery but Kim had the awards to prove he was a very good wine maker and Erica had the strategic vision to market it. So they formed strong partnerships with contract growers, rented space to actually make the wine – and grew from nothing to become the fifth biggest wine company in New Zealand in just nine years.

From the beginning the focus was on the export market. In 1998 the company sent its first cases to the United States, Canada and Australia and began its long-term relationship with a United States distributor that eventually become the owner of KCW. Hogue Cellars distributed Kim Crawford Wines in the United States via its marketing arm, Vintage New World. In 2001, Vincor bought out Hogue Cellars, which eventually led to the purchase of the brand and intellectual property of KCW by Vincor in 2003.

From the outset the export strategy was to position the brand at the top of the market. The Crawfords had identified a place on the United States wine shop shelf for a premium priced wine. “We owned the $15 price point while others were squabbling over $8 to $10.”

KCW launched their US invasion with a sauvignon blanc right when the world was recognising the quality of sauvs from down under. “You’ve got to have a good product but the branding, timing and positioning was also right,” says John.

In New Zealand, while the Kim Crawford brand was becoming established in restaurants and off-licenses, the Crawfords realised that to sell volume in New Zealand you have to be in supermarkets, where 65 percent of wine is sold. Not wanting to diminish the quality of their brand, they developed Kim Crawford diamond label to be sold only through supermarkets.

“From brand point of view (selling in supermarkets) drives the brand down but it adds to the bottom line.”

John joined Kim Crawford Wines in 2000 in a roundabout fashion that began as a favour to the fledgling company from some Hawke’s Bay investors with whom Kim and Erica had formed a joint venture. The board were providing the corporate governance the company needed to grow and John was offered to KCW on a part-time basis to help implement the directives.

Kim had the winemaking ability and Erica contributed hugely to the company through management of the KCW brand, says John, but they needed someone to focus on the financial management of the business. “Fortunately we got on. They were able to let go and for me, it was like running my own business. I had a lot of autonomy.”

“I’m an entrepreneurial person, so we got on well. None of us get bogged down in detail – one year I produced a one-page three-lined budget. And we learnt to focus on what was important. We were growing so quickly we didn’t have time to be bogged down in detail. We knew what was important – sourcing grapes, sourcing cash to pay for the grapes and keeping control of costs – that was our financial management.”

But the company was growing and it needed to be able to talk the language of business. It needed backing from banks and investors and to do that it needed to provide financial information in their language. With Kim’s proven wine making ability, Erica’s strategic marketing vision and some business management from John, the company flourished.

At the time of sale to Vincor, KCW was the tenth largest winery in terms of global sales and the sixth largest in New Zealand sales; in 2002 it sold 86,000 cases. In 2001, the company was exporting 15 containers a year to the United States. Soon after the sale it was sending 15 containers a month.

The decision to sell the brand was made to realise the potential of the business.

Says John: “Kim had a vision – to increase production from 80,000 cases to 300,000 in three years. To achieve that they needed a major investment.”

At the time, the Crawfords said the sale would provide the company with the advantages of scale, streamline the operations and enable Kim to concentrate more on making quality wine, while remaining “a proudly New Zealand label”.

The final price - $18 million - recognised the then value of the business and the growth and profit potential of the company over the next three years. But the Crawfords had to stay on and deliver on the vision of increasing exports to the US four-fold in three years, while maintaining the $15 price point.

“It was good for both sides,” says John. “They got growth, we got to achieve the vision.”

But there was a downside. “Suddenly we had to have monthly accounts, auditors, internal controls. It was a great learning curve but three years working for a public company – I never want to do it again.”

Since 2003, KCW has changed ownership again. In April last year, Constellation Brands, the world’s largest wine company, merged with Vincor International, buying the KCW owner for C$1.27 billion. The merged company, which already owned Nobilo, Selak and Drylands in New Zealand, now has over four percent of the global wine market.

John saw this as his opportunity to exit KCW. He’s still heavily involved with Kim and Erica, spending two days a week managing their trust. He’s also a part-time director, sitting on the boards of other wineries and wine industry companies. As a manager of the Kim and Erica Crawford Trust, he has the opportunity to identify business opportunities for the couple to invest in “We have a lot of intellectual property between us and there is a lot of opportunities out there.”

Kim Crawford

Kim Crawford, the man behind the $18 million brand, first arrived at Massey intending to become a vet. Thankfully, say those that swear by his unoaked chardonnay, a lecturer suggested that he instead consider the rapidly expanding wine industry. In 1983 Kim, having pursued majors in microbiology and botany, graduated with a BSc. He followed this with a postgraduate diploma in winemaking at Roseworthy College in South Australia and winemaking experience in Australia, California, and South Africa where he met Erica, the other half of Kim Crawford Wines.

Arriving back in New Zealand in 1988, Kim started at Coopers Creek as assistant winemaker. A year later he was the winemaker. During the decade he was with them, Cooper’s Creek claim to have won more medals and trophies than any other small-to-medium scale New Zealand winery.

He also developed a consultancy, working alongside smaller wineries in the increasingly important Marlborough region.

In 1996, while still working about a day at week at Coopers, he and Erica formed Kim Crawford Wines, a ‘virtual’ wine company run from a spare room in their Auckland home. Kim sourced grapes from contract growers, and made the wine in leased wineries; Erica managed sales and marketing from home. Although it owned neither vines, nor land, nor a winery, the winery produced 4000 cases of wine that year, half exported to London.

They have since focused on sauvignon blanc, merlot and chardonnay, producing natural, uncluttered, frequently medal-winning wines using the best grapes from every premium wine-growing region in New Zealand.

In 1999, in a joint venture with Te Awanga vineyards, the company opened a cellar door to public. Nonetheless, Kim Crawford Wines still remained a ‘landless’ winemaker.

In 2000 the Crawfords themselves, in a joint venture with other Marlborough wine companies, acquired a winery and land in Marlborough. This supplies quality grapes that can be harvested at their best.