China’s leading wine company ASC Fine Wines has reported a booming year in 2021 after the wine juggernaut withstood economic downturn last year caused by China’s Covid-induced disruptions, the company’s Chief Operating Officer has revealed.
Speaking to Vino Joy News in Hong Kong, Mario Aron who joined ASC last April as COO, says the company beat the market expectations and exceeded its projected profitability following a series of internal reforms and strategies that reinvigorated the 26-year-old wine company.
“We had a very good 2021 and achieved 22% year-on-year growth in gross profit. Moreover, the company is operating with much more agility. ASC once had 1,100 staff. Now we have just a bit over 300 staff but with substantial increase in headcount efficiency, ” Aron exclaims elatedly.
‘EVERYTHING CHANGED WITH SHANGHAI LOCKDOWN’
Owned by Japanese drinks giant Suntory, the Shanghai-based wine company was among a few companies that appeared to have maintained its momentum despite overwhelmingly negative macro environment. China’s wine imports last year dropped by 7.4%, underscoring the impacts of prolonged Covid restrictions, border closures and supply chain bottleneck that have snarled the wine market.
The first set of 2022 Q1 import data released earlier this year also raised alarms on continued challenges, but Aron cautionsQ2 data which covers a period when China’s financial hub Shanghai was placed under nearly two months of lockdown, “will dramatically go down.”
“Everything was good before mid-March, great sales, good profitability.” he paused briefly, “Then came Shanghai, and everything changed.”
“It had a huge impact on warehouses because many wine companies are based in Shanghai, and vessels can’t be loaded and can’t be sent outside,” says Aron. Since late March, Shanghai, the wine capital and economic center of the country, was placed under strict lockdown, where malls, restaurants, bars were ordered to close while all means of public transportation were halted.
The impacts on local market are immediate, but what worries the executive is post-lockdown confidence in the wine market.
“I am seriously concerned about the whole landscape. The wine and spirit sectors are heavily impacted and only a handful of people will survive. It’s not just losing money, it’s a lot of confidence put in the China market that is being eroded and this confidence is not just from inside China but outside China,” he stressed. “So it’s something that will have a ripple effect in longer term.”
But Aron, a self-proclaimed natural born optimist, was not throwing his hands in the air just yet, “I can choose to sit back and drink wine till I pass out or I can ask, ‘how can we make this into an opportunity’.”
His early strategy to divest stocks and improve logistics has proven to be effective amid Shanghai’s deadlocks.
“Right before the outbreak we sent a large amount of stocks to different warehouses, Guangzhou, Chengdu and Beijing in order to supply market from those locations,” he explains. When ASC’s two warehouses in Shanghai were closed, the company adopted a closed-loop system, a virus-free bubble for workers to ensure supplies and deliveries within Shanghai, which managed to buffer some lockdown impacts.
Additionally, as he attests to the new change in logistics management, he is also confident that ASC will not encounter risks of running out of stocks. Last year after his joining, the company optimized its logistics management to ensure its key SKUs will always be well stocked.
“We have identified key SKUs for B2B and B2C, which represent 80-85% of our total revenue so to ensure they will not run out of stock. We have buffer stocks created in Hong Kong as well as on the mainland in order to handle any fluctuations in the market,” explains Aron, who has a background in shipping and logistics industry.
Aside from logistics reforms, Aron, a fluent Mandarin and Japanese speaker, initiated four other major changes to reenergize the company, which played no small role in lifting the company’s overall performance last year.
“We are refocusing on on-trade,” he declares, the holy grail of China’s wine sales. Instead of leaning heavily on traditional large-chain hotels and restaurants, the company is allocating more attention and resources to cater to smaller and boutique restaurants. The latter, though smaller in scale, is more agile and adaptable in uncertain times.
The company also revamped and expanded its portfolio. One of the first things Aron faced in his new role last year was the exit of Chile’s top-selling wine brand Los Vasocs, owned by DBR Lafite. Calling it a decision that he had to make, the company reacted promptly and brought in three other Chilean brands to fill in the void.
“We believe it was taking such a dominant position in our sales, which is dangerous in our company. Too much reliance on one brand. You become vulnerable, and we separated on good terms, and we started to get new Chilean brands, three to take for one part of sales,” he expands.
And the expansion did not just stop with Chile. The strategy as he explains is to bring in two to three new brands every quarter to diversify ASC’s profile and invigorate its offerings to on-trade channel, which demands diversity.
Meanwhile, the company also beefed up its education services. The company’s educators grew from just three to nine this year, and the content of education also extends to educating clients on the commercial aspects of ASC’s brands in addition to technicalities. This would give clients the know-hows and knowledge to differentiate ASC’s wine offerings to competitors, according to the seasoned wine merchant.
Lastly, he turned to an area that is “underestimated but very important”, which is revising internal management style to boost efficiency and accountability. Citing sample approval as an example which used to require top management approval, he believes it disengaged responsibility and accountability from local offices.
The company has since given local offices more executive powers and stipulated a rule that requires prompt action within five days for any tasks. “This is more of an internal issue but now everything is faster and more efficient,” he says.
Mindful of the uncertainties ahead with the Chinese market, ASC is still sanguine on its prospects, especially with strong backing from Suntory. “The wine market is not a weak market when we had a decrease in imports number. It is not because the market is shrinking but a realignment of the market, or a reset,” he explains, “and companies like ASC will be here to stay.”