Ho Chi Minh (Vietnam), October 13th 2022 – I had the chance to get in touch with Mr Nicolas of 𝗩𝗮𝗻𝗴 𝗢𝗻𝗹𝗶𝗻𝗲 a few months ago when he introduced his project on how to assist an Italian winery to enter the Vietnamese wine market. At that time the proposal didn’t go through, but the curiosity to learn more remained and finally I had the chance to see with my eyes this project from a closer distance.
𝗕𝘂𝘆𝟮𝗦𝗲𝗹𝗹 is a large corporation, with some strong financial investment and some government endorsement that started in 2015 to ride the online business waves. Vang online is a company specifically dedicated to wines and spirits. Needless to say, the pandemic has helped to make this segment from interesting to booming.
There are a few background factors to take into consideration. It is a well-known fact that the economies in South-East Asia are growing faster. Among these economies, we could also notice that countries like Thailand and Vietnam enjoy a consistent growth of a new middle class. In the last 10 years many real estate projects, even catered to foreigners, condos everywhere. And the middle class is the sweet segment for us in the wine.
Culture and lifestyle have changed tremendously in just decades, now everyone drinks coffee and sips wine. But the system is not very mature and there are barriers to entering the market, for instance, getting a wine license is not so easy, there are plenty of distributors and so there is the challenge to make sure the source is legit.
Vang Online and its 170 sales team cover several aspects of the wine supply chain:
- Some wineries which they think could perform well in the Vietnamese market, they offer to import and distribute into Vietnam.
- Some Vietnamese wish to import a specific wine or whiskey, but don’t have the resources to set up a fully licensed import company, they offer to logistic and admin platform.
- Some wines are promoted and sold only online
- Some other wines are sold offline thanks to the agreement with NovaLand (the second largest Vietnamese real estate developer) which will open retails in all the new-coming properties and will handle with Buy2Sell) an investment inked at 28 million $).
So far so good! Or maybe too good to be true!
This huge engine needs oil to keep functioning well. And here are a couple of words to which most Italian business owners are allergic: “marketing contribution”, “sponsorship”, and “A&P” (advertise and promotion).
We are in a part of the world where formalities and “face” are still relevant. A local company asks why should take all the risk to import a new label into the market if the maker is not willing to help in the beginning to make it known. Need to invite friends and professionals to a classy hotel and have a nice wine dinner, it costs lots of money but somewhere needs to start to promote the new brand, isn’t it? Some Australian companies – which are not slow in marketing – offer a 10+1 bottle agreement where the free bottles is a sort of contribution for sampling and events, etc. so the local buyers are always expecting some contribution and assistance. in the other part of the world, the winemaker would prefer to make a point of making the best possible wine at the best possible price, will promise to offer the best price but don’t ask him to support with glasses and openers, etc, because this would be out of his comfort zone.
Anyway, this is like the chicken and egg dilemma. It is reasonable that a new importer would need assistance to enter a new product in the market. It is nice to receive free accessories or free bottles and sometimes (I have witnessed directly in my 20+ years experience large rebates and marketing cash). It is also understandable that support doesn’t fall from the sky, the wine bottle price most probably will be altered by a couple of euros higher.
If sponsorship is a needed tool or a fair practice could be a long debate and it is not my objective today. Back to Vang Online.
They screen the market and approach wineries that could be potentially interesting. Vang Online asses the wine itself, takes a few weeks to communicate with the large 170 sales team in different cities and market channels, and after they make a forecast of yearly sales for such labels [assessing how good fit a wine could be is another tricky part: local team will consider taste (fruity, juicy, full body, no high acidity no high tanning, but high alcohol) and the packaging which is supposed to be attractive labels and heavy bottles; contrary to what I was thought wine region and wine appellations are meaningless to them]. Contracts are slightly different, but let’s try to summarise, for instance, they estimate that wine X will sell 50.000 bottles in 1 year, they also estimate a marketing campaign of 30.000$ of wish they invest 20.000$ and the winery should contribute 10.000$. They sign a contract, they commit to 50.000 bottles within 1 year, they will place the first order cash in advance for 10.000 bottles and ask the winery to pay in advance the marketing contribution.
Is it fair for a winery to be asked to invest 10.000$ to enter a new market?
Is the contract a scam? This I can reply, the company is too large to be a scammer, I saw their buildings and wine shops, foreign employees in the offices, they have large shoulders and I suppose a government eye on them. I saw a contract draft, in case of legal disputes they choose the Singapore Court to rule.
Would the resulting price be artificially inflated? And so the wine will not sell as opposed to the competitors? (if the winery can’t afford the investment, it could easily add 2$ into the unit selling price to cover it up)
Too many boring theories, but actually these are part of our daily challenges, isn’t it? What would you suggest, take the risk, make the investment, or instead take a more traditional and safer way? Don’t forget: this is Asia, and it moves fast, GDP still grows over 6% here, and if keep waiting could reach too late.