Advertisement

From investment banking to wine

Font Size

By The Glass
By Sherwin A. Lao

I MET with one of the most fascinating wine owners last week — Luis Felipe Edwards, Jr., of the eponymous Vina Luis Felipe Edwards or LFE. Luis Felipe Edwards, Jr. was a highly paid investment banker with a bright career in the banking industry having worked for Citicorp (of Citigroup, Inc.) in Santiago, Chile. But after some prodding from his father, the original Luis Felipe Edwards, Sr., to join their family business, Luis Felipe, Jr. finally caved in 2000.

LUIS FELIPE Edwards, Jr.
LUIS FELIPE Edwards, Jr., managing director of Vina Luis Felipe Edwards

Having climbed the corporate ladder to be in an executive post in Citicorp after 11 years, Luis Felipe, Jr. knew he would be offered a lower salary by his dad, but being a family member he agreed to be involved with the family winery — but he demanded one condition. Luis Felipe, Jr. revealed to me during a casual chat at the Peninsula Manila last week that he told his dad: “You will be the boss, but I will be the pilot.”

So with Luis Felipe, Sr. acquiescing to his junior’s demand, the reins of Vina Luis Felipe Edwards successfully passed from first generation to second generation management. With the entry of Luis Felipe, Jr. to the winery, LFE was never the same again.

FROM HUMBLE BEGINNING TO MAJOR PLAYER

Advertisement

LFE started in 1975 when Luis Felipe, Sr. purchased 61 hectares of land at the Colchagua Valley, a prime viticultural region in Chile. Luis Felipe, Sr. produced only bulk wines, until in 1994 when he decided to sell his wines in commercial bottles and for export.

When Luis Felipe, Jr. became the Managing Director in 2000, the goal was to intensify the export business. Fast forward 17 years and export numbers of LFE grew from 60,000 cases (of nine liters) to a projected humongous 3,000,000 cases in 2017. This is an incredible 5,000% increase. No Chilean winery has grown faster than LFE, and now the company is a top four Chilean wine exporter, from a previous cellar-dwelling position of number 250 or so.

THE CHILEAN WINE SHORTAGE
The present situation of the Chilean wine industry was one topic in which the banker, finance person, and economist in Luis Felipe, Jr. came out naturally. Chilean wines have been among the fastest growing wines in the world. The country is the 8th largest global wine producer, but is the 5th largest wine exporter. Chile exports around 70% of its production, making it extremely vital to the country’s overall economy.

But it is not all that rosy as I learned from Luis Felipe, Jr. “The issue is supply and demand.” He continued, “While demand has been growing, especially in the export front, our supply has not improved over the last 15 years. Chile has roughly the same 130,000 hectares of vineyards the past decade and a half, composed of old vineyards that are actually producing less yields. Then there is also the effect of climactic changes like global warming.”

Basically, right now Chile produces 1.1 billion liters. Of the 1.1 billion liters, 200 million goes to domestic consumption while the rest goes to export. But of the 900 million liters for export, 350 million are sold cheap as bulk wines (in flexi-tanks and containers for rebottling elsewhere). Due to demand, most of the bulk wines will be sold back to the huge wineries at higher prices for commercial bottling, therefore prices are bound to increase unless there is a solution to the supply dilemma.

A SOLUTION
Luis Felipe, Jr. believes that Chile has a massive 200 million liters wine shortage. But unlike almost every exporting winery in Chile which rely on buying juices outside, including those meant for bulk wine export, Luis Felipe, Jr. took the other route and decided long ago to invest in vineyards.

“At present, most wineries produce only around 1/3 from their own vineyards, and they buy the rest from independent growers. And this number will only get higher if the wineries continue to grow but yet not increase their vineyard holdings. My estimate is that every year commercial bottling export is taking 30 million liters away from bulk wines and affecting price upwards. That is why I am determined to invest in vineyards. We are the only winery in the top 10 that is trying to lessen the gap between supply and demand. No other big winery is doing this, whether family or corporate.”

The investment banker in Luis Felipe, Jr. was definitely at his best. The investments in vineyards seemingly constitute a separate business from the wine business. “I practically keep two balance sheets. One is for the wine business and the other is for real estate. Perhaps I do not profit from real estate, but certainly my kids and their next generation will, given the scarcity of land.”

At the moment, LFE buys only 15% of its juices from outside sources, everything else comes from its vineyards, and because of this Luis Felipe, Jr. has much better leverage on prices than his competitors. “Certainly if you only need 15% of your requirements from outside source as against another winery that needs over 60%, the negotiation power is very different and we hold the balance of power on the prices.” This is the reason why LFE has kept prices unchanged while the rest of the Chilean wineries are raising their prices.

LFE should become self-sufficient by around 2020 with its new vineyards yielding juices, but if its export continue to grow — and it is growing much faster than the Chilean export rate — then LFE still needs to buy from outside sources. Luis Felipe, Jr. is therefore not yet done buying land, and has set a goal of acquiring 10,000 hectares while he is at the company’s helm.

QUALITY AS A FACTOR OF VALUE
Luis Felipe, Jr. was the very first wine person I met that compared Chile’s wines to Korea’s cars. As the analogy goes, Chile has great quality wines at good value, which is the same as perceived with the Kias and the Hyundais of Korea. He added, “Value is combination of two factors: real quality and cost. And the only way to get this done in our situation is to invest in viticulture. But investing in viticulture is most expensive. We are investing heavily in viticulture, research and technology.”

While Wines of Chile and other Chilean wine organizations are heavily promoting higher priced quality wines, like the single vineyard and limited release wines, Luis Felipe, Jr. believes that the entry level wines are still the most important and it remains the most overwhelming popular segment too for Chilean wine exports.

“You do not buy a Mercedes Benz if you simply want a practical, everyday, reliable car. A Kia would do the same function at a fraction of the price. To me, the entry level wines are very critical, and once we have this solid base, then we can always move up.”

This doesn’t mean LFE is only into entry level wines. The truth is LFE has done extremely well with its more premium range as well. LFE has been awarded the highest accolades from some of the most prestigious competitions around the world, including being named New World Producer of the Year by the Sommelier Wine Awards in 2016, and Chilean Producer of the Year by International Wine and Spirits Competition (IWSC) in 2012.

LFE is already the largest, 100% family-owned wine company in Chile. And Luis Felipe, Jr. worked not only with his dad, Luis Felipe, Sr., but also with his siblings and two of his brothers-in-law. Luis Felipe, Jr. wanted LFE wines to be known as the best value wines ever made, and his case will be proven soon here in Manila when LFE wines will be back on the shelves by late third quarter this year.

And yes, expect to get a very lovely Cabernet Sauvignon, and a juicy Chardonnay at less than P250 a bottle — now that is bargain!

The author has been a member of the Federation Internationale des Journalists et Ecrivains du Vin et des Spiritueux or FIJEV since 2010. For comments, inquiries, wine event coverage, and other wine-related concerns, e-mail the author at protegeinc@yahoo.com. He is also on Twitter at twitter.com/sherwinlao.

Advertisement