Vincor International Inc.

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Vincor International Inc.

441 Courtneypark Drive East
Mississauga, Ontario L5T 2V3
Canada
Telephone: (905) 564-6181
Toll Free: (800) 265-9463
Fax: (905) 564-6909
Web site: http://www.vincorinternational.com

Public Company
Incorporated: 1993
Employees: 1,372 (1999 est.)
Sales: $187.0 million (2001)
Stock Exchanges: Toronto
Ticker Symbol: VN
NAIC: 312130 Wineries

Vincor International Inc. is the largest producer and marketer of wine in Canada, the fourth largest in North America, and ranks among the 15th largest in the world. While the company’s primary focus is the sale of premium wines (which account for about half of its sales), it also produces and markets wine coolers, hard lemonade and cider, and winemaking kits. Vincor’s wine brands include such well-known Canadian and U.S. producers as Inniskillin, Jackson-Triggs, Jordan, Okanagan Vineyards, and Hogue Cellars; its other brands include Canada Cooler, Vibe and Grower’s Cider, Vex hard lemonade, and R.J. Spagnol’s wine kits. Additionally, the company also owns Wine Rack, an independent wine retailer in Ontario that operates more than 250 stores. Besides earning Vincor financial success (sales reached a record C$111.3 million for the quarter ending December 31, 2001), the company’s products also garner critical acclaim: at the 2001 Canadian Wine Awards, Vincor wines earned Best White Wine of the Year, Best Cabernet Franc, and Best Cabernet/Merlot Meritage, and the company’s Inniskillin winery was named Best Canadian Winery at the London International Wine and Spirits Competition for the third year in a row.

Historical Roots: T.G. Bright & Co

Vincor International is the result of the consolidation of several Canadian wineries and wine companies with historical roots dating back to the nineteenth century. The oldest of these companies was founded in 1874 in Toronto as the Niagra Falls Wine Company by Thomas G. Bright and Francis A. Sherrif. In 1911, Bright bought out Sherrif’s interests in the winery and renamed it T.G. Bright & Co., and over the next 80 years the company grew to be the largest winemaking company in Canada, acquiring such wine interests as Jordan and Ste-Michelle Cellars. In 1992, T.G. Bright & Co. was acquired by Wine Acquisitions International. The new company assumed the name T.G. Bright & Co. and would later participate in the merger that created Vincor International.

Birth of a Company

In 1989, Donald Triggs and Alan Jackson purchased Ridout Wines (where Triggs had been president until 1982), the wine division of venerable Canadian brewing company John Labatt, Inc., which was getting out of the wine business due to the advent of new free trade laws that promised to make it difficult for Canadian wine producers to prosper. The trade laws would result in the importation of high-quality foreign wines at a relatively low price—and in the wake of the new laws, Canadian wineries lost 24 percent of their market share in just five years. “You had two choices as a Canadian wine producer,” Triggs recalled in 2001, “Go to higher price points if you wanted to stay small. Or get bigger fast if you were in the popular-priced segments.” Triggs and Jackson chose to pursue both segments of the market with their new company, Cartier Wines. First they attacked the higher-end market when they acquired the prestigious Inniskillin Wines.

Inniskillin was founded in 1975 by Donald J.P. Ziraldo and Karl J. Kaiser in Niagara-on-the-Lake, Ontario. The winery received the first winery license given in Ontario since 1929 and pioneered the estate winery movement in Canada. Inniskillin became particularly well know for its ice wine (derived from the German eiswine ), a highly concentrated dessert wine made from grapes that are naturally frozen on the vine, and thus can only be produced in cooler climates such as Ontario. Inniskillin produced its first icewine in 1984, and its 1989 vintage won the Citadelle d’Or Award (Grand Prix d’Honneur) at Vinexpo in Bordeaux, France. Inniskillin was also instrumental in forming the Vintners Quality Alliance (VQA), Canada’s organization for quality assurance in winemaking. After the acquisition, Inskillin continued to operate as an autonomous company under Ziraldo’s direction.

After acquiring Inniskillin, Triggs and Jackson’s once again renamed the company—Cartier Inniskillin Vintners, Inc.—and set about tackling the lower end of the market. They merged Cartier Inniskillin with the more popular-price-oriented T.G. Bright & Co. in November of 1993, forming Vincor International, Inc. The merger instantly created the largest wine merchant in Canada, and doubled the company’s annual sales to C$125 million.

A New Company

Vincor soon set about winning back market share from imported wines. Despite the dim view most investors took of the future of premium (wines that retail for over US$10 a bottle) Canadian wines, Vincor CEO Donald Triggs saw a brighter future. A C$100 million government program in Ontario was encouraging grape farmers to replace the traditional labrusca grapes with the higher-quality vinifera grapes. Vinifera grapes produce premium wine varietals such as Cabernet Sauvignon, Chardonnay, and Pinot Noir, and Triggs believed that a new abundance of these grapes would greatly raise the quality of domestic brands. He also predicted that the aging baby-boom generation would soon drive up the demand for quality wine—industry studies indicated that while beer consumption peaks at age 35, wine consumption does not peak until age 50. “We saw a growing market for premium wine, which was starting to show dramatic growth,” Triggs recalled in 1997.

In 1993, Vincor established Jackson-Triggs winery in Niagara-on-the-Lake, Ontario. The winery initially produced only two wines, a Chardonnay and a Cabernet Sauvignon. The wines were made partly with Ontario grapes, supplemented by grapes from Chile and California. The wines were an immediate hit, and over the next five years the brand became one of the top 10 best-selling in Canada. The company also began growing through a series of acquisitions that would continue through the decade. In 1996, Vincor acquired Dumont Vins et Spiritueux, Okanagan Vineyards, and London Winery. Also that year, Vincor’s shares were publicly traded for the first time. The shares opened at C$8, and by the autumn of 1997, they had climbed steadily to C$13. Besides its excellent products and prudent acquisitions, Vincor owed much of its success to its chain of Ontario retail stores called Wine Rack. The chain sold only wines from Ontario produced by Vincor wineries. The stores allowed the company to aggressively market its premium wines. “[The Wine Rack stores] are a very important tool in what I call the ‘missionary work’ of developing an awareness of Ontario wines,” said Trigg in 1997. The stores also gave Vincor substantial advantage over international wineries, which were not permitted to open stores in Canada.

Continued Growth

As the 1990s progressed, Vincor continued to grow through acquiring wineries and wine companies. In 1997, the company entered the home winemaking market with its purchase of R.J. Grape Company, a producer of wine kits. High tax jurisdictions in Canada resulted in a greater interest in home winemaking among Canadian consumers than those in other countries. By March of 2001, Vincor’s wine-kit sales were the equivalent of three million cases of wine a year. Vincor further grew in the winemaking market with its purchase of Spagnol’s Wine and Beer Making Supplies Ltd. in 1998. That year, Vincor also acquired Montreal wine distribution company Groupe Paul Masson. By 1999, just three years after going public, Vincor’s net sales had grown to C$253.2 million and the company’s sales represented 25 percent of Canada’s wine, wine kit, cooler, and cider sales. The company had wineries in British Columbia, Ontario, Quebec, and New Brunswick and was producing a variety of wines, from its premium brands such as Inniskillin and Jackson-Trigg to lower-priced wines such as L’Ambiance and Notre Vin Maison.

International Expansion

Vincor began the 21st century with its first international venture. The company signed a joint venture with Boisset, France’s largest Burgundy producer, to purchase a 77-acre tract of land on the Niagara Peninsula, where they would produce a high-end Pinot Noir. The new winery was called Le Clos Jordan. “We could have invested anywhere,” said Boisset vice-president Jean-Charles Boisset, “We searched the globe from Argentina to New Zealand and ultimately decided that this was the most perfect piece of land for soil analysis, exposure, and climactic similarity to Burgundy.” Le Clos Jordan was staffed with wine-makers and viticulturists from France and Canada and planted with eight clones of French Pinot grapes in the traditional Burgundian manner, using techniques such as high vine density, close canopy management, and green harvesting to reduce yield. The new winery’s first bottling—slated for sale in Canada and the United States—was expected in 2005.

Company Perspectives:

With an overall market share of 25 percent (more than twice that of its nearest competitor), Vincor has firmly established itself as Canada’s leading wine and related products company. Vincor’s international growth strategy involves replicating the proven success of its domestic consolidation strategy in key international wine markets. Vincor will continue to develop and launch new brands while simultaneously integrating the portfolios and operations of its acquired companies.

Vincor followed the venture with Boisset with a second French alliance, this time with Groupe Taillan, France’s largest producer of Appelation Controlleé wines. The two wine giants created Osoyoos Larose in British Columbia’s Okanagan Valley. The vineyard’s 50 acres were planted with classic Bordeaux varietals, and its first bottling—Merlot, Cabernet Sauvignon, Cabernet Franc, and Malbec, produced by renowned French winemaker Michel Rolland—was expected in 2005. “Osoyoos Larose is a formidable demonstration of our absolute belief in the world class quality and future of Okanagan wine, coupled with our respect for the wines of Bordeaux,” said Donald Triggs at the time of the venture.

The year 2000 saw more growth for Vincor. In May of that year, the company acquired Sumac Estate Winery, one of British Columbia’s first wineries, for approximately C$7 million. In June, Vincor bought Hawthorne Mountain Vineyards, and in August, the company acquired Canuck Brewing, Ltd. In October, Vincor made its first U.S. venture with its purchase of premium winery R.H. Phillips, located in the Dunnigan Hills region northeast of California’s Napa Valley. The acquisition gave the company a network of 90 distributors and 30 salespeople to market Vincor products in the United States, made the company the fourth largest wine producer in North America, and added three labels—R.H. Phillips, Toasted Head, and EXP—to Vincor’s growing portfolio of premium brands. “With this closing, Vincor International has become truly international,” said Donald Triggs, “We look forward to demonstrating the tremendous benefits to our company of this acquisition over the months and years to come.” Those benefits were quick in coming: by May 2001, premium wines represented 59 percent of the company’s sales, compared with 17 percent only five years before.

In August 2001, Vincor continued its U.S. growth with the purchase of Hogue Cellars winery in Prosser, Washington, for US$36.4 million. Hogue, which produced 400,000 cases a year, brought the company’s yearly U.S. production to one million cases and its yearly U.S. revenues up to US$60 million. The acquisition also doubled Vincor’s dedicated sales force in the United States to 50. At the time of the acquisition, Vincor planned to integrate Hogue with R.H. Phillips to create a single company. Industry experts praised Vincor’s move into the U.S. markets. “Phillips in particular was a very smart move,” said Toronto wine writer Tony Aspler, “By undertaking the expansion in production, Vincor won’t be able to sell it all in Canada.

They’ll need another market.” Aslper anticipated that the company would develop a niche market for its ice wine, which retailed in Canada for between C$35 and C$85 for a half bottle.

Vincor’s near uninterrupted success since its 1992 founding gave the company cause for optimism for the early years of the 21st century. In September 2001, CEO Donald Triggs hoped to increase the company’s production of higher-priced wines from 50 percent to 60 percent and increase annual Canadian sales to C$400 million by the year 2006. He also anticipated U.S. sales to rise to US$300 million by that year—through an expanded profile for ice and table wines and through boosting the output of R.H. Phillips and Houge. R.H. Phillips alone had the capacity to produce 750 million cases a year. And, Triggs had his eye on further international expansion for Vincor. “Basically, what we are doing is charting a course to develop an international portfolio of products,” he said in 2001, “Our long-term goal is to vertically integrate into vineyards of California, Canada, Australia, and perhaps Chile and Argentina and to market those wines to consumers around the world in Canada, the United States, Europe, and Asia.”

Principal Subsidiaries

Vincor (Quebec) Inc.; Inniskillin Okanagan Vineyards Inc; Inniskillin Wines Inc; Sumac Ridge Estate Winery (2000) Ltd.; Hawthorne Mountain Vineyards (2000) Ltd.; Spagnol’s Wine & Beer Making Supplies Ltd.; R.H. Phillips, Inc.; The Hogue Cellars, Ltd.

Principal Competitors

Constellation Brands; Gallo; Robert Mondavi.

Key Dates:

1874:: Niagara Falls Wine Company formed.
1890:: Chateau Gai formed.
1911:: Niagara Falls Wine Company renamed T.G. Bright & Co.
1975:: Inniskillin Wines incorporated.
1990:: Chateau Gai renamed Cartier Wines and Beverages.
1992:: Inniskillin and Cartier Wines merge to form Cartier Inniskillin Vintners, Inc. (CIV).
1993:: Wine Acqusition, Inc. acquires T.G. Bright & Co., merges with CIV to form Vincor International, Inc.
1996:: Company goes public and acquires Okanagan Vinyards and London Winery, Ltd.
1997:: Company acquires R.J. Grape Products.
1998:: Company acquires Groupe Paul Masson, Inc.
2000:: Company acquires Sumac Ridge Estate Winery, Hawthorne Mountain Vineyards, Canuck Brewing, and R.H. Phillips.
2001:: Company acquires Hogue Cellars.