Vina Concha Y Toro (VCO)

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Diego Hernandez Diaz

Company Overview

VCO found in 1883, its wine is distributed in a 131 countries. ^[2]

The company focuses on sustaining attractive growth rates while increasing brand penetration. It has specialized in the penetration of the premium brands wine – an attractive market segment due to prices and growth potential.

The company exports mainly to the U.S., Central America, Mexico, the Caribbean, South America, Canada and Asia.^[3]

Business and Financial Metrics

• The first 9 months of 2009 showed an increase in sales of 14.8%, due in large part to increased export sales (14.3%) and shipments (7% to 12,965,000 cases). Domestic sales also increased 5.8% by value further contributing to the overall increase in sales. Growth in the company has been a result in a shift to lower priced products to reflect new market conditions. ^[4]
• COGS were affected by a higher cost of grapes which affected average cost of sales. 2009 was expected to have lower cost of grapes due to an increase in the grape supply.
• 81% of sales revenues were denominated in foreign currency. The depreciation of the U.S. dollar against the Chilean peso had an adverse effect in revenue.
• 2008 sales were 166MM – an increase of 3.5%- due to an increase in export volume offset by the Chilean Peso appreciating 7.7%.
• Net income was Ch$35,152MM – a decrease of 5.2%- due to the Chilean Peso appreciating, higher average wine costs, higher interest expense and currency hedge loses.
• Domestic revenues increased 0.6% in 2008 to Ch$322,166MM due larger sales of liquors and other products.
• Export revenues increased 3.5% in 2008 to Ch$235,056MM due to the Chilean peso appreciating. This negative effect was offset by U.S. revenue growth of 12.6%.

^[5]

Product Offerings

The wines are broken up into the following product categories: premium reds, premium whites, Red varietals and bi-varietals, White varietals and bi-varietals, sparkling wine, popular wine and bulk wine. These are also representative of the company’s business segments separated by domestic and export sales. Domestic sales represent about a third of the company’s sales while export sales represent two thirds of the company’s sales.

Wine Brands

Don Melchor, Carmín de Peumo, Amelia, Terrunyo, Marqués de Casa Concha, Trio, Casillero del Diablo, Sunrise and Frontera. The Company sells wines through the subsidiaries Viña Cono Sur, Viña Maipo, Viña Palo Alto, Viña Maycas del Limarí, and Bodega Trivento in Argentina.^[6]

Grapes grown

Syrah, Pinot Noir, Malbec, Viognier, Pinot Blanc, Pinot Gris, Chenin Blanc, Riesling, Gewurtztraminer, and Sangiovese grapes.

Subsidiary Companies

• Inversiones Concha y Toro S.A.
• VCT Internacional S.A.
• Comercial Peumo Ltda.
• Viña Cono Sur S.A.
• Sociedad Exportadora y Comercial Viña Maipo Ltda.
• Sociedad Exportadora y Comercial Viña Canepa S.A.
• Viña Maycas del Limarí Ltda.
• Transportes Viconto Ltda.
• Viña Palo Alto Ltda.
• Concha y Toro UK Limited
• Cono Sur Europe Limited
• Trivento Bodegas y Viñedos S.A.
• Finca Lunlunta S.A.
• Finca Austral S.A.
• VCT Brasil Importación y Exportación Limitada
• Concha y Toro Sweden AB
• Concha y Toro Finland OY
• Concha y Toro Norway AS
• Viña Almaviva S.A.
• Industria Corchera S.A.

^[7]

Key Trends and Forces

Agricultural Risks

Because wine-making is inherently dependent on growing grapes its production is susceptible to a variety of factors like disease, pest, droughts, frosts and other weather conditions. These can all affect the quantity, quality and price of grapes thereby affecting a company’s profitability. In the 2007-2008, Chile was plagued with drought.

Government Regulation

Wine is subject to a great deal of regulation both within and without Chile. Regulation includes licensing requirements, trade and pricing controls, labeling requirements, advertising regulations and a control of relationships with wholesalers and retailers. The U.S. bureau of Alcohol, Tobaco, Firearms, and Explosives] requires wine products that tout the benefits of their product to have balancing statements stating potential health hazard. Company expansion is also subject to zoning ordinances as well as water limitations.^[8]

Competitors

The wine industry is extremely competitive. In Chile and the countries to which Concha y Toro exports to, the wine products compete with local and international wines. Chilean wines compete with wines from the US, Europe, Australia, South Africa, South America, and New Zealand. The company’s wine also competes with soft drinks, liquors, beers and in Chile with pisco (a local grape spirit). Competitors abroad have significantly larger financial resources.

Competition comes from middle and large wineries in the domestic level:

• Santa Rita, Viña San Pedro Tarapacá S.A. (“San Pedro”)
• Bodegas y Viñedos Santa Carolina S.A.
• Viña Undurraga S.A.
• Viña Errázuriz S.A.
• Cousiño Macul S.A.

^[9]

References

1. ↑ http://www.nyse.com/about/listed/vco.html
2. ↑ Company 6k, October 30,2009
3. ↑ Form 20-F, June 30,2009
4. ↑ Company 6k, October 30,2009
5. ↑ Form 20-F, June 30,2009
6. ↑ Company 6k, October 30,2009
7. ↑ Form 20-F, June 30,2009
8. ↑ Form 20-F, June 30,2009
9. ↑ Form 20-F, June 30,2009