Vins et spiritueux La lettre n 4

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1 Vins et spiritueux La lettre n 4 May 2013 Summary Editor's message 2 Preliminary investigations in wine-making transactions: a key step in ensuring a successful transaction 3 Selling wine in China: an opportunity to be seized and precautions to be taken 7 The brand: a virtuous change driver to win over consumers 10 Overview of PwC's 2 nd Cognac Day 13

2 Editor's message by Arnaud Agostini, We are pleased to present the new edition of the Wines and Spirits newsletter which focuses not only on power and diversity but also on specialized topics and answers provided by PwC. This issue contains articles on: trademarks and brands, PwC's 2nd Cognac Day, wine sales in China, and due diligence to be performed for the sale of a wine-making property. A wide variety of topics are covered in this issue. Firstly, we will cover production and the sale of wine-making properties. This is more topical than ever, especially in wine-producing regions where the market is upbeat, such as in Bordeaux, Cognac or Burgundy, particularly with the arrival of Asian investors. It is therefore important to take stock of the precautions and provisions in force to properly carry out a purchase or sale. Brands are covered in detail in an article on their essential role in the development of the Wines and Spirits industry. They are now a requirement that cannot be avoided. The topic of "trademarks" is also related to the problems encountered in exporting wines to China. The marketing of wines highlights the importance of trade with Asia in the Wines and Spirits industry. The importance of trade is also illustrated in the minutes of the meeting of the 2nd Cognac Day organized by PwC. This event proved to be an extraordinary success with over 900 people in attendance. PwC reported on the state of the industry using its Cognac indicators and held discussions with the Chinese ambassador to France whose presentation was particularly appreciated and remarkable. As indicated above, these articles demonstrate the power and diversity of the Wines and Spirits industry and illustrate the added value offered by PwC's diverse expertise. We hope you will enjoy reading this fourth edition of the Wines and Spirits newsletters.

3 Preliminary investigations in winemaking transactions: a key step in ensuring a successful transaction Further to our article entitled Quick reference for purchasers and sellers of wine making property in the first edition of the Wines and Spirits newsletter, some readers suggested that we expand on this subject in future issues. Consequently, in this issue, we will review investigations to be carried out by a vendor or purchaser, prior to a wine-making transaction. These investigations, also known as "acquisition audit, reviews, due diligence or VDD (vendor due diligence)", are more frequently carried out by purchasers than vendors. It is generally difficult to get a vendor to see the point in reviewing their documentation which they often believe to be in perfect order. Vendors to have undertaken this step do not regret it and can see a positive effect on purchasers when presented with complete documentation or which immediately reveals any risks. A review of transaction documentation involves drawing up an assessment of the property for sale and identifying strengths more particularly weaknesses. A multidisciplinary team is required, comprising technical experts, auditors, lawyers, notaries among others. This team, specialized in the wine industry, must be able to work together closely. It is often the agent and/or the lawyer who coordinates the work of the various experts. The reviews are always specific and adapted to the type of transaction, the client's needs and the circumstances of the deal. The investigation objectives may be classified as follows: to gather sufficient information to provide the agent and purchaser on the property for sale, to precisely understand the situation of the property for sale and the potential risks concerning its organization, the state of business, the assets including the vineyard, buildings and its compliance with industryspecific regulations, to gather precise information on the legal environment, operational feasibility conditions (administrative authorizations, third party consent or preferential rights), to verify and provide information concerning the inventory of goods, realestate deeds, specific rights (appellation, classification, labels, etc.), to provide negotiation tools for financial and other clauses such as: price, payment terms and conditions, guarantees, financial guarantees on seller warranties, etc. Vins et spiritueux La lettre N 4 3

4 PRELIMINARY INVESTIGATIONS IN WINE-MAKING TRANSACTIONS: A KEY STEP IN ENSURING A SUCCESSFUL TRANSACTION Overview of investigations Technical due diligence Audit and valuation of the wine property: inspection of the quality of the property and the compliance with specific rules The property expert gives: a description of each plot and groups these plots into several categories according to their location, their condition (size, density of planting, grape varieties, etc.), the quality of the terroirs, comparison with the "Casier viticole", a description of each building, their conformity with environmental rules (wine effluent waste), their organization, a description of facilities and their state. According to these investigations, the expert values the wine property. The empirical method based on a direct comparison approach is the most relevant method for this type of asset. The valuation is carried out using comparisons with recent transactions in the same location. The expert carries out a market study in order to list the most significant transactions in the same location and the same appellation, referred to as elements of comparison. The study is based on research and analysis of sales of similar and comparable vineyards. Information about vineyard prices is given by notaries and SAFER (Sociétés d'aménagement foncier et d'établissement rural), and classified by appellations. Wine inventory, tasting and determination of the quality of the wine Usually, in Bordeaux, this assignment is given to an official wine broker. In other locations, it is performed by an oenologist. If the purchaser and vendor are industry professionals, they will generally assess the quality of the wine themselves. The wine broker, or the oenologist, goes to the wine property to choose the samples of each vintage. The expert then tastes the different samples of wine often at a laboratory in optimal conditions. The expert's assignment consists of: advising on the quality of the wine and testifying that the wine is "droit de goût, loyal et marchand" which signifies that it complies with the quality required for this category of wine, advising on the positioning of the wine in the market, giving a valuation of the wine. Analyses on the wine may also be required. Environmental inspection of the cellars: PCP TCA Wood treatment can generate pollution that gives the wine a bad taste (PCP- TCA above a certain rate). This pollution can be located in particular in wooden frames, wooden pallets and other wooden equipment. If the wooden material sold is polluted, it would be possible to engage the liability of the vendor. The verifications concerning this pollution are carried out by specialists. If the pollution is noticed, measures, requiring varying levels of costs, must be taken. Building inspection Asbestos, lead, termites, etc. French legislation requires vendors of buildings to carry out certain inspections to detect the presence of asbestos, lead and termites and to communicate the reports on these inspections to the purchaser. In the event of the sale of shares in the company which owns the buildings, it is strongly advised to have these inspections performed and all the more so when that the buildings comprise a major assets in a wine-making transaction. Effluents The evacuation and treatment of effluents must meet certain obligations, in particular for a vathouse which exceeds a fixed capacity. Classified facilities When production capacity is greater than 500 hl/year and less than 20,000 hl/year, the winegrower must file a declaration with the relevant authorities. 4 Vins et spiritueux La lettre N 4

5 PRELIMINARY INVESTIGATIONS IN WINE-MAKING TRANSACTIONS: A KEY STEP IN ENSURING A SUCCESSFUL TRANSACTION Financial and accounting due diligence The financial and accounting due diligence consists of checking: the valuation of the wine inventory (production costs), profit and loss accounts to ensure the consistency of the figures and forecasts provided by the vendor, the business plan prepared by the vendor, the provisions in relation to the results of the legal and technical due diligence. Legal, tax and labor due diligence The legal, tax and labor due diligence consist primarily of checking the legal organization of the property for sale, the shares of the owner of the buildings and the charges and servitudes relating thereto, major contacts binding the sale structure, tax systems, and in identifying any risks relating to taxes, employment contracts, etc. Specific points of vigilance in a wine property transaction Real estate (vineyards) The legal due diligence on wine real estate consists of checking the deeds of the wine property to ensure the identity of the owner, and the consistency between the notary deeds, the land register, the real estate register and the Casier viticole. It is not rare to find inconsistencies between these documents and it is essential to understand the underlying reasons More often than not the vendor is unaware of this situation. In France, the vendor of a building must produce a title to the property covering a thirty-year scope, through which the owners of the property can be identified for the last 30 years. In the event of a sale of shares of a company owing a wine-making property, there is no obligation to produce this deed but it must be requested, as the buildings and undeveloped real estate owned by the company comprise the actual object of the sale of in the wine-making transaction. The legal due diligence of the vineyard consists of providing information on the encumbrances (mortgage) and easements, providing information on the right to a vineyard appellation. The right to produce and to sell wine under an appellation is subject to different conditions fixed by decrees and the new Cahiers des charges (list of specific rules of each appellation): geographical localization of the vineyard in the AOC area, authorized grape varieties, vinegrowing (vine cutting ), density of planting, yield per hectare, conditions of pressing, conditions of ageing, wine labeling, etc. In wine-making transactions it is now systematic to request that the French national institute of origin and quality (Institut national de l origine et de la qualité INOQ) issue a certificate confirming that the plots for sale are located within the applicable appellation. The various investigations to verify a vineyard's compliance should be carried out in conjunction with agricultural experts. Wine brand The audit on wine trademarks consists of: taking an inventory of trademarks used and/or registered by the entity operating the vineyard, checking the compatibility of regulations pertaining to wine trademarks. The rules applicable to wine trademarks consist of a complex mix of French and European regulations and numerous case-law precedents in various areas (trademark law, regulations on AOC, health regulations and labeling matters, etc.). There are restrictions placed on the use of names of "château" ("clos", "domaine", etc.) within the same domain. The wine trademark is often toponymic and inseparable from the name of the property. Leases and other occupancy agreements Leases concerning agricultural matters are subject to a particular public policy status. Current leases should be checked for compliance with the rules of rural leases in the French Rural Code (Code rural). Other occupancy contracts also exist such as an agreement making land available for use, ready for use or free loan for use, SAFER lease, small plot lease, etc. Vins et spiritueux La lettre N 4 5

6 PRELIMINARY INVESTIGATIONS IN WINE-MAKING TRANSACTIONS: A KEY STEP IN ENSURING A SUCCESSFUL TRANSACTION Special attention should be paid to these agreements to verify that they cannot be reclassified as a rural lease and that the company being sold benefits from the right to continual use (e.g., in the event a lease is made available). Summary and investigations The vendor must be informed of the due diligence being carried out by the purchaser in order to ensure that its documentation is ready and in order. Well-prepared documentation can avoid negotiations to lower the price or to increase the vendor warranty granted to the purchaser in the event of the sale of shares in a company. This preparation can therefore ensure that: the agent is provided with reliable information to be included in the presentation documentation, all information is gathered by the vendor in order to be provided to the purchaser, irregular situations are resolved before the documentation is presented to the purchaser. If any issues cannot be resolved, they must be declared to the purchaser. A vendor who does not declare an irregular situation, such as non-compliance with the specifications of the AOC management body, puts themselves in an extremely bad position that often results in failed negotiations or a large price reduction. The vendor must remember that a successful transaction depends on a trust-based relationship between the parties. The purchaser's discovery of any irregular situations will put an end to this trust and will result in negative consequences for the vendor. The purchaser must take the time to properly carry out the required audits before giving a firm offer to the vendor. Based on the information provided by the vendor, the purchaser will perform its own verifications in order to be familiar with the property for sale. The results of the various audits will allow: the vendor to decide on whether or not to make a firm offer, price to be negotiated based on audit results (especially but not only technical due diligence), the interest of purchasing a real estate property or property shares to be assessed, the purchase cost to be calculated, the purchase conditions to be negotiated, the seller warranty to be negotiated. In the next issue of the Wines and Spirits newsletter, we will explain the different deeds required for wine-making transactions. Paule Cathala Director Pocket Guide Sale and purchase of vineyards A pocket guide called Sale and purchase of vineyards (available in English and French) presents all PwC and Landwell & Associés'* expertise in this field, available under the Wines and Spirits section * Landwell & Associés (the French law firm member of the PwC international network) 6 Vins et spiritueux La lettre N 4

7 SELLING WINE IN CHINA: AN OPPORTUNITY TO BE SEIZED AND PRECAUTIONS TO BE TAKEN Selling wine in China: an opportunity to be seized and precautions to be taken With the population growing wealthier and a burgeoning middle class, the demand for wine in China is witnessing spectacular growth. Although wine is not a traditional drink, in recent years Chinese consumers have been increasingly drawn to new tastes and foreign experiences. Accordingly wine consumption in China is growing at a steady pace. As the world market becomes increasingly competitive, the Chinese wine market offers countless opportunities. For these reasons, since the opening of the Chinese market in 2005 following China's accession to the World Trade Organization, French producers and traders have significantly developed their sales in China. In order to transform this opportunity into a major success for winemakers, preparations are needed to develop business in this new market and a few precautions should be taken, especially as regards legal matters. We will also cover measures to be taken prior to any commitment in terms of distribution. For example, trademarks to be used to sell the wine in China should be protected before entering into a contractual relationship with a future distributor in terms of a distribution agreement. Clearly this is not a comprehensive report on all legal issues pertaining to such an agreement but rather highlights some issues which require particular attention from a legal standpoint. Trademark protection Prior to distributing a wine in China, the trademark to be used to sell the wine must be adequately protected throughout the country. This is a prerequisite regardless of the country to which the wine is to be exported, and it becomes all the more important when the project pertains to wine sales in China, a country which unfortunately has witnessed numerous cases of counterfeit. First, as a reminder, even if the trademark used to sell wines in China is registered in France it will need to be registered with the Chinese trademark office. In accordance with the principle of territoriality, the registration of a French trademark with the French national intellectual property office (INPI) is only valid in French territory. Accordingly, the registration, even longstanding, of a French trademark does not protect the trademark in another country. The protection of a trademark in China ensures that two pitfalls are avoided: Firstly, the registration will ensure that its holder has the absolute right to the terms filed on Chinese territory. The holder can also oppose the use of any counterfeit trademark filed subsequently or used by a third party. Registration can also prevent third parties opposing distribution of the wine in the event a third party had previously Vins et spiritueux La lettre N 4 7

8 SELLING WINE IN CHINA: AN OPPORTUNITY TO BE SEIZED AND PRECAUTIONS TO BE TAKEN registered the trademark for the territory. It is therefore essential to register the trademark prior to sending the wine to the Chinese territory. Operators frequently wait to register their trademark in China and incur the related expenses until they have ensured that their relationship with the Chinese distributor is profitable and sustainable. However this is nevertheless risky since circulating wines under an unregistered trademark can lead to risks that this trademark will be registered by a third party. Some winemakers have been unpleasantly surprised to find that they are forbidden to sell their wine on Chinese territory under the trademark they have used for many years because a third party had already registered this trademark in China. On a practical level, trademark protection in China can either be carried out by registering a Chinese national trademark that exclusively covers this territory or by registering an international trademark which applies in China. It is important to consider whether the trademark should be protected in Latin characters or whether the Chinese translation should be registered. Ideally both should be registered. To ensure the protection of the trademark on the Chinese territory, a mandatory preliminary agreement is often required by wine distributors in China. Distributors who invest in the wine trademarks that they sell want to ensure that they have the right to these trademarks which cannot be disputed by third parties. If the trademark is not filed by the producer or the merchant-exporter, there is an all-too-frequent risk that the distributor will register the trademark for himself and for his own benefit on Chinese territory. This situation is highly unsatisfactory even if some winegrowers see the benefit in saving the registration fees. If the winegrower or the trader wishes to change distributors, they will have to negotiate in order to purchase their own trademark back from the former distributor. Needless to say that when commercial relations end between the two parties, negotiations will generally result in preferential financial conditions for the former distributor. Furthermore, the trademarks will need to be purchased from the distributor in order to continue to sell the wine on Chinese territory. Similarly, if the distributor goes out of business or undergoes courtordered liquidation, it can be extremely complicated and costly to "recover" these trademarks. It should be noted that when the registration only cover the Latin characters, many distributors file one or several translations of these trademarks into Chinese characters on their own behalf. We will now provide a few precautions to be taken in terms of the drafting of agreements in order to avoid these difficulties. Accordingly, once a trademark is registered on Chinese territory, we recommend formalizing the relationship by entering into a distribution agreement with the distributor. Formalizing the contractual relationship through a distribution agreement We have included the subjects which must be covered in the drafting of the distribution agreement. However, it should be noted that each agreement must take the specific nature of each contractual relationship into consideration. Some matters will have to be determined such as the nature of the commitment (exclusive rights or not), the duration, conditions of trademarks used, the payment for wine delivered and the conditions for termination and dispute management. Exclusive rights and duration of the commitment One of the first matters to determine concerns whether or not to give the distributor exclusive rights. The distributor often demands exclusive rights and this is a difficult issue to negotiate. We believe that exclusive rights can be a better guarantee in building a long-lasting and trust-based relationship. However, as we will explain hereafter, if the exporter is planning to sell its property or company, it is not always recommended to grant exclusive rights. Naturally, exclusive rights can only be granted in exchange for a minimum purchase commitment by the distributor. The next matter concerns whether to limit the territory to which the exclusive rights are granted. Numerous Chinese distributors only operate in part of the country. Very few distributors operate throughout the entire Chinese territory and it is possible to divide the territory between several distributors. The duration of exclusive rights will then have to be determined. We recommend stipulating a termination date for the agreement which also includes the vintage years concerned by the agreement. Some agreements only cover the vintage years concerned, which can result in an agreement with a relatively long term linked to the holding of inventories of 8 Vins et spiritueux La lettre N 4

9 SELLING WINE IN CHINA: AN OPPORTUNITY TO BE SEIZED AND PRECAUTIONS TO BE TAKEN the vintage years concerned. We also recommend, such as for a distribution agreement with a three-year duration covering the vintage years 2011, 2012 and 2013, to plan for the fact that at the end of the three-year agreement the winegrower recovers the right to sell the remainder of the 2011, 2012 and 2013 vintage year inventory to any other distributor. Trademark conditions As we mentioned above, it is very important to stipulate trademark conditions in the terms of the agreement. The agreement must completely forbid the distributor to register any trademark reproducing or imitating the trademark under which the wine is distributed, on Chinese territory or any other territory. Moreover, the distributor should also commit to not registering any translation into Chinese characters of the trademark concerned nor any logo not any figurative element appearing in particular on the label of the wine being distributed. Payment We strongly recommend that wine only be delivered after the full payment of the order. This will help avoid any disputes relating to the payment of wine. This also helps to avoid the risk of non-payment and especially the risks and costs related to legal proceedings and the implementation of such proceedings in foreign countries. Please note that COFACE offers insurance which mitigates the financial risks related to non-payment. Early termination conditions of the agreement Evidently the non-compliance of commitments by the distributor in terms of the quantity of wine to be purchased annually should provide grounds for the early termination of the distribution agreement. It seems essential to stipulate that the sale of the property or any change in control of the company exporting the wine concerned in the agreement will allow the party concerned to terminate the agreement. In the event of the sale of a wine-making property, distribution agreements binding the owner to certain distributors can be a constraint or a difficulty in negotiating with a purchaser. This is all the more true for wine distribution in China, where wine transaction markets are largely held by Chinese investors. The latter do not want to be bound by a distribution agreement with a designated operator in this market where they may already have their own distribution network. Finally, distribution agreements must not be transferable by the distributor and any change in control of the distributor's structure can result in the termination of the agreement by winegrower or broker. Dispute management This is a sensitive matter as in the event of disputes, the producer or broker will be confronted by the difficulty in both obtaining a legal decision and in having such a decision implemented. Clearly the major challenge will be to assess the cost of proceedings and of having the decision implemented in terms of their effects on business. We recommend including a forum selection clause stipulating French courts, which will ensure that a lesscostly decision can be obtained in the event of non-implementation of the agreement. International arbitration proceedings are possible but the high costs presuppose a contractual relationship relating to considerable volumes of wine. In order to be protected against such difficulties which often fail to achieve a satisfactory answer we can only recommend limiting sources of disputes as much as possible by registering trademarks beforehand and drafting a comprehensive distribution agreement. Stéphanie Verschave Manager February 2011 PwC fr Contact us print Version française Editor s message PwC publishes numerous newsletters which highlight our firm s interest in different business sectors and industries, in particular those areas in which we can best offer and expand on our expertise. it is therefore surprising that such an important sector as wines and spirits had not yet been given our special attention. It goes without saying that thmayis sector is of significant economic importance both in France and abroad. moreover, wines and spirits is a sector which is by its very nature international thus making PwC particularly well placed to play an active role. Purpose of the Vins et Spiritueux newsletter our newsletter aims to present a variety of industry-focused topics inspired by current affairs and projects undertaken by the firm. Menu Editor s message Current legal, tax and labor issues - Wine trademarks... trademarks with a difference - Valuing wine trademarks: bombshell at the Bordeaux administrative Court of appeal - gfas no easy way out! - Quick reference for purchasers and sellers of wine-making property FinanCial and economic update - don t forget the price increase provision! See the first edition of the Wines and Spirits newsletter for more information on PwC and Landwell & Associés'* expertise in this field Wine trademarks trademarks with a difference. the newsletter involves PwC s entire range of expertise since it concerns all areas of law, taxation, the economy and accountancy. to help us enrich and develop the contents of this Vins et Spiritueux newsletter, we welcome all ideas from those willing to share noteworthy experiences and relevant topics. Clearly, with this newsletter we hope to demonstrate that we are well positioned to address all general and specific issues faced by players in this industry, both locally and worldwide, and thereby confirm and reinforce our presence and leadership in this sector. I now invite you to savor the first Vins et Spiritueux newsletter. arnaud agostini ContaCts landwell & associés bordeaux arnaud agostini associé tél. : Paule Cathala directeur tél. : pwc bordeaux François miane associé tél. : pwc Cognac Vincent Nobileau associé tél. : * Landwell & Associés (the French law firm member of the PwC international network) Vins et spiritueux La lettre N 4 9

10 The brand: a virtuous change driver to win over consumers The role of the brand has surpassed its original marketing purpose. The brand helps the company to rally around the "customer experience" challenge. The brand also gives momentum to the business model and proves to be a precious asset in driving forward change. Brands help create a strong customer bond which results in higher economic performance. For this to happen, a customer experience must be created that is both highly distinctive and incorporates the brand's communication. This requires the trademark to be managed from the very heart of the company and to focus its strengths on achieving a branded customer experience. Creating or recreating a strong brand to win over consumers Currently brands such as Nespresso, Lorina, Redbull, Absolut and Michel & Augustin are ahead of the game. What do these brands have in common? They all offer the consumer a unique brand experience, which goes beyond the product and uses new communication channels to further development. Nearly three out of four executives do not consider brand creation a priority however and prefer to strengthen current brands. However, brand creation seems to be a necessity given that nearly three out of four French consumers consider private-label products to be at least as good as national brands. A brand is now valued according to the quality of the experience; its image therefore must be perfectly in line with what is actually being proposed. When the brand has real meaning, the consumer is willing to pay the price he considers to be fair, regardless of the cost required to manufacture the product. The brand then becomes a stand-alone asset which can be used in other areas such as: "responsible business" or sustainable development for major consumer brands that manage supplies of raw materials: dairy, grains, plants, etc, highlighting the health benefits of products that they propose as Danone and Yves Rocher do so well. Structuring the business model and brand strategy A brand often needs to re-challenge itself as regards consumer expectations in order to truly create a customer experience that is strategically aligned with the brand and evolve the elements of marketing mix in terms of the selected positioning: communication strategy, product offering and related services, sales and distribution policy, price/promotional policy, customer relations, etc. 10 Vins et spiritueux La lettre N 4

11 THE BRAND: A VIRTUOUS CHANGE DRIVER TO WIN OVER CONSUMERS How to drive forward brand transformation? Identity Communication Visible customers Distribution Business strategy Market vision Business model Brand strategy mission ambition values positioning attributes experience Offering Pricing Sourcing Supply chain Key skills Innovation Internal challenges Ressources needed in order to fully activate brand strategy and to ensure that applicable company components are guided by the brand Ensure the integration of the company strategic vision in the brand strategy We must therefore think in terms of transformation when the impacts can affect elements of the business model and are applicable both in "Business to Consumer" and in "Business to Business": customer target whether broad or narrow, scope of activity to be refocused or expanded in line with the identified brand territory, profit model to ensure that value is created following the change of the brand's franchise, strategic control to build entry barriers whether technological- or distribution-based, or simply competitive, organization to ensure that the "customer experience" is placed at the heart of the company's transformation. Using new communication channels Brands cannot be strong without a strong customer base built around a core of "aficionados" who help share, enrich and contribute to the brand's history via their networks both physical and virtual. Social networks such as Facebook, Twitter and consumer blogs are clearly at the heart of this customer sharing experience. However, instead of addressing consumers by promoting the product or other advantages of the brand, it is more effective to build and address a community of passionate brand enthusiasts. In the beverage industry, Redbull and Absolut have achieved tremendous success in meeting this challenge: Redbull rallied around extreme sport and adventure enthusiasts, Absolut has managed to successfully create a brand image, despite the severe restrictions on communication for these products, of a selective brand giving an image of a rather exclusive "Hedonist Club" where connoisseurs of the finer things can meet. This enabled the vodka brand to position itself in the high-end range. This approach is potentially even more accessible for lovers of fine wines, Cognac and Champagne as the history, know-how and moments spent enjoying these products are even greater for wines and spirits. The objective is to create a "distinctive" brand image, which goes beyond simply differentiating the offering, to ensure that consumers live the brand experience by projecting a type of entry into a club or a world of aficionados. Over the past few years why have French consumers ranked Yves Rocher, not only among the top brands they prefer, but as the most preferred company? It is because it has succeeded in creating among its eight million customers in France a coherent environment on what the brand proposes in terms of: its positioning in natural cosmetics, attractive offerings, product advantages, communication using various distribution channels. This coherence can be found in the commitments and actions that Yves Rocher has taken for many years on a daily basis with its "Plant for the Planet" and "Women of the Earth" programs. Brands or terroir-based appellations as is often the case with wines and spirits are logical candidates for promotion of this nature. Work on the brand promise must be all the more specific as it is legally defined with regard to "drinking in moderation". However, there remains a diverse range of possibilities. Vins et spiritueux La lettre N 4 11

12 THE BRAND: A VIRTUOUS CHANGE DRIVER TO WIN OVER CONSUMERS Taking the offensive for products and services to industries Brand transformation is more naturally accessible in the "Business to Consumer" sector regardless of whether it relates to the distribution of services or consumer goods, as the transformation via the customer experience is closer to the experience of the company's employees. It is also an incredible driver and offers a useful strategy to lead the offensive in the Business to Business market. The brand, which is most cases related to the company itself, plays a "reassuring" role as a symbol of trust and quality. In this case, the brand spearheads the growth-oriented transformation initiative to enable real progress on: the offering and the promotion of innovation, the flexibility of the organization and the related service quality, the conquest of new territories by internationalizing the brand through subsidiaries or franchises, or quite simply as a corporate project with a discussion on the related vision and values. In conclusion The following groundwork must be laid in order to build a brand in today's environment: Tell a real story about the brand with an emotional impact in order to create genuine positioning and to become a symbol of trust in a burgeoning media environment, Promote the customer experience, i.e., express the brand story consistently across all areas of the marketing mix: image/reputation, product benefits and scope of the offering, price policy, service quality and distribution, Measure the brand's value as an asset: several ways are possible to obtain a financial assessment but this always results in a strategic analysis of the brand's key value drivers: market appeal, competitive positioning, entry barriers and harmonization of marketing mix elements. For the company, this could open new doors pertaining to commitments towards customers and all stakeholders, largely exceeding a sole marketing function and offering exciting possibilities. Pascal Ansart November 2012 Vins et spiritueux La lettre n 3 See the third edition of the Wines and Spirits newsletter for more information on PwC and Landwell & Associés'* expertise in this field Valuing wine trademarks. Summary Editor's message 2 Valuing wine trademarks and vineyards: the final episode of the Clarence Dillon saga? 3 Alternative ways to pass on a winemaking business: investment GFA or a new investor 5 Exemptions from tenant farming: do your homework! 10 Grapevine flavescence dorée: the issues 14 What is excise? 16 * Landwell & Associés (the French law firm member of the PwC international network) 12 Vins et spiritueux La lettre N 4

13 OVERVIEW OF PWC'S 2ND COGNAC DAY Overview of PwC's 2 nd Cognac Day On January 22, 2013, PwC organized its 2nd Cognac Day in association with Crédit Agricole, bringing together players from the Cognac industry. Following the first Cognac Day on January 17, 2012, this event has become an industry benchmark. The 2nd Cognac Day welcomed more than 900 participants and provided an opportunity to share and discuss ideas concerning the key issues facing the Cognac industry as well as its future prospects. Three key topics were covered during the round table discussions. PwC's Cognac study Jean-Marc Olivier presented the "Cognac Study", followed by a round table with the following participants: Patrick Pinet, Chairman of Courvoisier; Christophe Forget, Chairman of UGVC; Antoine Mornaud, Specialized Clientele Director of Crédit Agricole Charente-Périgord; and Bruno Richardaud, at PwC. Worldwide, Cognac has recorded average annual growth in volume of 2.4% which has remained steady over the past ten years. Asia is the leading market for internationallybranded spirits and offers further growth potential for Cognac. The brand benefits from strong momentum since Chinese consumers regard it as a luxury product. Cognac was the first product to have a recognized geographic indication in China. There has also been a marked rise in the price of land, increasing consolidation of wine-growing holdings and a decrease in inventories. The goal is to rebuild inventories in order to meet growing demand, as well as to establish weather provisions and set yields. Does investing in land present an opportunity or a problem? The second round table discussion focused on "Does investing in land present an opportunity or a problem". This subject is of particular interest given rising land prices, changing business models and evolving taxation and attitudes. As for land, the current price per hectare amounts to between 40,000 and 50,000. In these conditions, it is difficult for young winegrowers to get started in the business. Furthermore, whereas the price per hectare has doubled, the cost price most certainly has not. This round table was led by Vincent Nobileau, at PwC, with Jérôme Royer, Purchasing Director of Louis Royer; Christophe Véral, BNIC Winegrower; Philippe Boujut, Chairman of Crédit Agricole Charente-Périgord; and Arnaud Agostini, at Landwell & Associés. Vins et spiritueux La lettre N 4 13

14 China and Cognac The Chinese Ambassador to France was present for the closing subject of Cognac Day: "The China-Cognac relationship and its prospects". The Ambassador won over the Cognac industry by describing Cognac as an extraordinary product of great quality. The Ambassador believes that Cognac is adapted to Chinese consumption and customs. He reaffirmed the Chinese authorities' ongoing commitment to eradicate counterfeit products. He also advised the industry to draw inspiration from Chinese culture, notably by using poetry as a means to promote the brand and attract the widest audience. From a growth perspective, China wants to grow its middle class by 700 million people, increasing potential Cognac consumers. Jean-Marc Morel, Deputy Managing Director of Martell, Bernard Peillon, Chairman and CEO of Hennessy and Patrick Piana, Managing Director of Remy Martin exchanged views with the Ambassador. Paule Cathala Director 2 nd Cognac Day 2013 For more information on Cognac Day visit our website or see the additional document attached to this letter. 14 Vins et spiritueux La lettre N 4

15 2013 PwC. All rights reserved. Not for further distribution without the permission of PwC. PwC refers to the network of member firms of PwC International Limited (PwCIL), or, as the context requires, individual member firms of the PwC network. Each member firm is a separate legal entity and does not act as agent of PwCIL or any other member firm. PwCIL does not provide any services to clients. PwCIL is not responsible or liable for the acts or omissions of any of its member firms nor can it control the exercise of their professional judgment or bind them in any way. No member firm is responsible or liable for the acts or omissions of any other member firm nor can it control the exercise of another member firm s professional judgment or bind another member firm or PwCIL in any way. Landwell & Associés is a member of the PwC international network, of which each member is a separate legal entity. is the brand under which these members conduct their activities. Vins et spiritueux La lettre N 4 15

16 Contacts Landwell & Associés Bordeaux Arnaud Agostini +33 (0) Paule Cathala Director +33 (0) Stéphanie Verschave Manager +33 (0) fr.landwellglobal.com PwC Bordeaux Laurent Gravier +33 (0) François Miane +33 (0) Guillaume Franc Director +33 (0) PwC Cognac Vincent Nobileau vincent.nobileau@fr.pwc.com Michel Pasquet michel.pasquet@fr.pwc.com PwC Dijon Thierry Vassault +33 (0) thierry.vassault@fr.pwc.com Thomas Paulin Senior Manager +33 (0) thomas.paulin@fr.pwc.com Guillaume Tillier Manager +33 (0) guillaume.tillier@fr.pwc.com Landwell & Associés Montpellier Nathalie Lefeuvre Director +33 (0) nathalie.lefeuvre@ fr.landwellglobal.com PwC Montpellier Luc Deschamps +33 (0) luc.deschamps@fr.pwc.com Landwell & Associés Neuilly Stéphanie Thomas +33 (0) stephanie.thomas@ fr.landwellglobal.com PwC Neuilly Pascal Ansart +33 (0) pascal.ansart@fr.pwc.com Françoise Gintrac +33 (0) francoise.gintrac@fr.pwc.com Thierry Charpentier Senior Manager +33 (0) thierry.charpentier@fr.pwc.com Landwell & Associés Nantes Guillaume Morineaux +33 (0) guillaume.morineaux@ fr.landwellglobal.com PwC Nice Guy Usseglio-Viretta +33 (0) guy.usseglio@fr.pwc.com PwC Saint Quentin Didier Brun +33 (0) didier.brun@fr.pwc.com