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BEING BEST Tuesday 20 July 2004 Jim Delegat talks about family and wine quality
Jim Delegat knows the fluctuating fortunes of the wine business as well as anyone, having spent all his working life in the family business. Established on a base of fortified wines, as were so many Croatian immigrant wine enterprises, Delegats was a high flier in the early years of the New Zealand wine renaissance, noted for their high class Chardonnays in particular. In Delegats’ West Auckland cellars some of the most talented winemakers in New Zealand history made their contributions, but this was not enough to avoid disaster. When oversupply of cheap grapes led to the crash on the mid 1980s, Delegats was sold to liquor retailer, Wilson Neil to save it, and bought back by the family later.
Surviving that disaster, Delegats, led by Jim and his sister, Rosemari, steadily and cleverly rebuilt the company, focussing on export and a future based on self-determination and high quality. Gradually Delegats has consolidated and grown, to the stage where it now boasts a 2,000-hectare vineyard estate and production that ranks it as the 4th largest wine producer in New Zealand.
Sales in 2003 were 300,000 cases, 72% exported, for a turnover of NZ$31 million, and it remains 100% family owned. The company’s success was clearly illustrated by a NZ$35 million capital note issue last month to help fund winery developments in Marlborough and Hawkes Bay. The offer never went public, after it was fully subscribed by institutions within hours of being available.
sommnet Looking at your strategy, you have focussed on the need to be quality driven. Why is it so important that quality is the basis for your production and for your marketing?
Jim DelegatNew Zealand is always going to be a small wine producing country – we can’t go out there and plant millions of hectares of grapes, so there is no reason why we should look for that part of the market that needs millions of cases. This is also a cool, maritime influenced climate in which grape growing is a high risk business, and consequently the cost of producing wine is high, so nor can we afford to get into a market situation where cost of production is a major issue. We can’t do deals with multiple grocers the way the Australians can.
The Super Premium sector is the only part of the market predicted to have sustained, long term growth. Luckily, we do have the ability to grow top quality wine, which is another consequence of our climate, so all the factors are in place for us to successfully service the quality wine market from New Zealand. In fact, we don’t have any options, our quality must always be world class.
sommnetYou spent a lot of money and effort on establishing vineyards over recent years. Is this part of your quality focus, or is there another reason?
Jim DelegatThere are 3 reasons. To build brands you need to control your supply so you can manage distribution. 64% of our grape supply is from our own estates. Second, to maintain quality you need to control supply, or at least have a strong relationship with your suppliers, and we have our own estates, interests in others and good long-term relationships with our growers. Third, you need to be able to manage the risk, and in New Zealand the greatest risk is the climate and its influence on the vineyards.
sommnetYou have concentrated on certain varieties in your vineyard strategy, with little allowance for development of new, untried varieties. Why is this?
Jim DelegatWe know what performance we can expect from certain varieties in New Zealand. With a risky climate it is better to improve our quality with varieties we already understand, than to start from the beginning with new ones. In Marlborough and Hawkes Bay, we know what we can achieve with chardonnay, as we do with pinot noir and sauvignon blanc in Marlborough, and with merlot in Hawkes Bay. We are not closing our future options on other varieties, but need a proven performance to make a long-term commitment by planting them in our vineyards.
sommnetYou have a small portfolio, compared with many of your contemporaries. Why is that?
Jim DelegatThere are only a few “Super-premium” brands from any country, and our aim is to make Oyster Bay one of the few. To do that we must have market sales staff dedicated to New Zealand brands. When we talk about New Zealand wine it is not just the quality that is important, it is that New Zealand wine is unique. Unique is our point of difference, our biggest asset, we can’t afford to be sucked into meeting all the market points of other wine producing countries, or the retail chains. There is no point in matching everything the French or the Australians have, we must simply be the best New Zealand can be.
sommnetAs with all other wineries of any size in New Zealand, there have been rumours about overseas takeovers of Delegats, and these continue. What is your attitude.
Jim DelegatI would be lying if I said people have not sat in this office and made some big offers for Delegats. But this is a family company, and we, Rose and I, want to keep it like that. As George (Fistonich of Villa Maria) has said, it is not about the money, and I can’t see a future where I won’t be doing this. So, why would I sell?
Some people say that international partners bring with them the route to market that is essential for the success of New Zealand companies, but I don’t believe that. We have developed excellent distribution businesses in our major markets, and formed successful, long-term relationships with the trade. Whether you own the route to market or not, to build a successful brand you still have to be there, on the ground doing the work. Ultimately you look after your brand because you are the one who must, and foreign ownership does not change that. New Zealanders are also the only people who have a vested interest in the uniqueness of New Zealand wine.
I would also say that it is a good feeling to have others involved, though. I am proud that this is a New Zealand company, and I like the sense of sharing it with other New Zealanders. As I have got older I have discovered that I don’t know the answer to everything, and that the best way to lead a company like this is to take on board people who are smarter than you, and give them a chance to extend themselves. You can never do this alone.
sommnetThat is unequivocal – Delegats is not for sale?
Jim DelegatNo.
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BEING BEST