At Freixenet, the bubbles of success have never gone to people’s heads. Although the company is the largest producer of sparkling wines in the world, and one of the most recognized Spanish brands around the globe, Freixenet knows that it can never let down its guard. This family- owned business, which was exporting wines to Spain’s colonies as early as 1830, has become a multinational company, thanks to its successful marketing strategy, the intensity of its sales efforts, and its success in combining family ties with professional management. Although it is active in some 150 countries, Freixenet is not satisfied, and it wants to increase its international presence. Universia-Knowledge at Wharton interviewed Freixenet’s president, Josep Lluís Bonet Ferrer, to discover the keys to its transformation, and learn about the challenges that are approaching.
Freixenet and the Ferrer-Sala family are one and the same thing. Josep Lluís Bonet Ferrer, current president and grandson of the founders, puts it this way: “Freixenet is the lifelong process of an entrepreneurial family.” His grandparents, Pedro Ferrer Bosch and Dolores Sala Vivé, established the company headquarters back in 1889 in Sant Sadurni d´Anoia (Barcelona, Spain). The family traces its activity in the wine industry back to the ancient Casa Sala. It was already exporting wines to Spain’s colonies in the nineteenth century, although the business failed because of the grave phylloxera blight that destroyed European wines during that period.
In 1914, the Ferrer-Sala family launched production of ‘cava,’ the Spanish equivalent of Champagne, bottling its first sparkling wines in that year. “My grandfather had already planted the foundations of an urgent need to become internationalized,” notes Bonet. In 1935, Freixenet established a company for producing sparkling wines in New Jersey. However, bad luck continued to shake Freixenet. Pedro Ferrer and his eldest son’s death coincided with the outbreak of the Spanish Civil War in 1936. Freixenet was deprived of leadership, cutting short its venture in America.
The family reclaimed control in 1939, when the civil war ended, thanks to the drive of Dolores Sala, Ferrer’s widow, and their daughter, mother of Josep Lluís Bonet. Over the course of decades, they managed to get the company back on the right track. However, they had to wait until the 1960s for Freixenet to enjoy its great era of expansion. “José Ferrer took control at the end of the 1950s and a plan was created for modernizing the firm in every respect – production as well as sales and advertising.” That’s when Freixenet began to advertise on Spanish television, which had just been born. Fifty years later, Freixenet’s advertisements during the Christmas season are as eagerly awaited in Spain as the results of the national lottery or the arrival of Santa Claus and the Three Wise Men.
Marketing is its Distinguishing Characteristic
Josep Lluís Bonet joined the family business in 1965. A year later, he began his upward progress as director of sales. Until then, Bonet had dedicated himself to a career as a university teacher, but he temporarily abandoned that path because of confrontations with the dean of the University of Barcelona. In 1969, he resumed his university career, combining it with his job running Freixenet. He is now a professor of political economics and public finance at the University of Barcelona, and is considered the ‘alma mater’ of Freixenet’s globalization efforts.
To globalize Freixenet, Bonet undertook two fundamental changes. First, he decided “to base the growth of Freixenet on a brand that had already existed within the company but only on its margins—Carta Nevada,” Bonet recalls. He decided to make that brand the company’s star product “because it was very spectacular and unique. When we did that, the response was total disbelief,” he adds. To that, he added the development of the company’s sales network and the application of a new sales concept: selling shop by shop while also maintaining a network of distributors. That way, Freixenet’s own salesmen were supporting its distributors. The experience was a success.
The icing on the cake was Freixenet’s approach to advertising and communications, especially when it came to establishing Carta Nevada as a star product. According to Bonet, the turning point came in 1972 when Freixenet chose the bubble as symbol and true star of the company’s advertising campaign. The company differentiated itself from the competition by running ads that lasted longer and achieved esthetic success. Moreover, the company signed up Hollywood stars to play a leading role.
The idea for these ads came to Bonet while he was recuperating from an illness. Bonet focused on creating a new type of company ad that would last three minutes and involve mentioning the brand up to five times. When he went back to work, Bonet proposed adapting this format to the history of champagne, presenting its value and qualities from consumers’ point of view. Bonet thought of the boy who had been the symbol of Freixenet; his grandfather had come up with the idea in the 1920s and used it in company ads. Bonet now decided to modernize the concept, and he created a team to work toward that goal.
During an after-dinner discussion, one manager said, “I am a bubble.” From that moment on, the commercials were based on a bubble that had an art deco look that transformed the little Freixenet boy. Barely five years later, in 1977, the bubble began dancing to a tune by Liza Minelli. These steps were followed by ads involving other celebrities such as Sharon Stone, Andy McDowell, Kim Basinger, Antonio Banderas and Penélope Cruz. Each time another star was chosen, there was a flurry of press reports that boosted the popularity of the advertisements. “We always followed up on people’s expectations,” Bonet explains. It has been recently announced that actor Pierce Brosnan and Nieves Álvarez, a Spanish top model, will be the stars of the commercial for Christmas 2004.
From Family Business to Multinational Company
The bubbles of Freixenet did not merely feed the company’s image. The company became one of the first Spanish companies to throw itself completely into international markets. Its international adventure began even before Spain became a member of the European Union, and long before the peak of Spanish expansion during the 1990s. Bonet emphasizes that his company’s globalization efforts responded to “a sense of opportunity. When we saw an opportunity, we went after it with a great deal of tenacity.”
Bonet is considered persistent and loyal to his own ideas. To illustrate his spirit, Bonet points to his experience in the United Kingdom, where the company’s subsidiary was in the red for some 20 years before finally earning a profit. “He who wins the battle of England wins the global battle,” Bonet says in the imperialist tone that he maintained throughout the interview. Time proved him right. Nowadays Freixenet is the largest producer of sparkling wine in the world and the main exporter of ‘cava’, with an 80% share of that market.
Another pillar of Freixenet’s success is the quality of its product. “If you don’t have quality, you cannot go out in the world,” says Bonet. The quality “doubled with Cardón Negro [Black Cord], a product that the company introduced in 1974 with tremendous success in the United States.” Bonet is especially proud of this achievement. He explains that, beginning with Cardón Negro, a variety of champagne, Freixenet has conquered a large part of the American market. This success was accompanied by a sales organization that was arranged p the 1960s into 60 ‘prime importers,’ divided into different states. This involved “an important network managed from the New Jersey office, which Pedro Ferrer first established. These details show the spirit behind the epic tale” of the company.
The next step came just before Spain entered the European Economic Community. Freixenet acquired 380 hectares of land in California’s Sonoma valley, as well as cellars in Mexico and Champagne cellars in Reims, France. More recently, Freixenet has been investing in the wines of emerging countries. It has gone into Chile under the control of a local cooperative and into Argentina, where it has purchased vineyards. In India, which has a population of more than one billion, Freixenet is negotiating with local partners to establish a sales network. This is an entirely different sort of competition for Freixenet because India is a difficult market where alcoholic beverages are heavily taxed. With this initiative, the company is trying to strengthen its presence in Asia, where it has sales networks only in China and Japan.
Freixenet’s strategy differs from country to country. “In the case of China or India, we are much more cautious. We risk less, either doing acquisitions or sales. More than anything, the difference is that we are much more careful. In each location, you find the right rhythm. Whether you move ahead quickly or not, you establish criteria for identifying opportunity. You slow down in those markets where you cannot see clearly.” The approach that stands out in Freixenet is pragmatism. According to Bonet, that means “adapting yourself to each market but with an overall vision.” Generally speaking, the company has established its own subsidiary in each country. However, depending on the complexity of the market, it may decide on another approach, including an occasional joint venture.
“The strategy of Freixenet has been based exclusively on local alliances, but they did not need to speed up the international expansion process because that process began long ago [at Freixenet],” notes Esteban García Canal, professor of business management at the University of Oviedo (Spain), and co-author of a research report on Freixenet. This approach, notes García Canal, has worked very well at Freixenet but it may not be the best one for other companies. That’s because “it involves a gradual process of internationalization, at a slow pace. This approach imposes lots of limits on companies that delayed their expansion process,” he adds.
This strategy, however, has given excellent results to Freixenet. From 1976 until 1985, the company went from exporting 300.000 bottles, that at that time represented 12% of the total exports for the sector, to 20 million bottles, which is 72% of the total, says Manuel Durán Samaranch, Director of Freixenet (DWS) Ltd. of Great Britain and during that period responsible for the Department of Foreign Trade.
A Future Full of Celebrations?
Last April, Freixenet finished its fiscal year with net profits of €21.8 billion ($26.3 billion), a decline of 14.8% from 2003. Bonet says this decline is not important, attributing it to the current strength of the euro. This is not the first time Freixenet has faced these conditions. “We have already been through this sort of thing several times. It’s bad whenever the exchange rate presents a macroeconomic risk, because there is a potential loss when you fight to retain global markets. It can turn out that you are selling the same volume of products, but your revenues decline considerably – and that affects your earnings. A lot of people can drop out of the game,” Bonet notes. “Those who endure are the winners. Clearly, you have to endure.”
Freixenet faces an important challenge when it comes to feeding its growth. It must “convey to consumers the notion that ‘cava’ or champagne is more than just a drink for very special celebrations,” says Bonet. Freixenet should not go it alone in conveying this idea, he adds. “It is very important that the ‘cava’ sector be unified.” However, achieving that sort of brotherhood will not be easy. Freixenet has experienced this problem in full force during the ‘Cava War,’ a legal battle that has pitted Freixenet against Cordoníu over the issue of product classification, known as DO. (‘Designation of Origin.’) Bonet notes, “I believe that this episode should not have taken place, and we lost ten entire years as a result. This war has been bad for the sector, and for those of us who became involved in the war despite our will.”
The Cava War began in 1996 when Cordoníu filed a lawsuit against Freixenet with Spain’s Service for Defense of Competition, [the branch of the country’s economics ministry that enforces anti-trust legislation.] Cordoníu wanted to sell its sparkling wine as ‘cava.’ It didn’t take long, however, for Freixenet to respond by denouncing Cordoníu for using the pinot noir grape, which was not authorized for the production of white ‘cava.’ In 1997, when the case went to court, Spain’s Ministry of Agriculture fined Freixenet two million euros. But the fine was suspended by the Supreme Court in 2000. Meanwhile, the high court has yet to rule on the resolution of another legal front that has opened up in the dispute.
Like other family-owned businesses, Freixenet must confront questions about its future. For the moment, Bonet makes no secret of the fact that his vocation involves taking advantage of family ties. “But this does not mean that in the future we will not consider other possibilities.” Currently, the company’s top management is composed of six family members who work side by side with members of the so-called ‘Almost Family’ – descendants, in some cases, of people who were already working with the original founders of Freixenet.
It would be a mistake for Bonet to renounce his family’s DNA, says García Canal, because that spirit is Freixenet’s main competitive advantage. “They have transmitted the entrepreneurial spirit from one generation to the next. This has allowed them to be more cohesive than other family-owned enterprises.” For Bonet, the secret of success is “a combination of talent and lots of tradition. You cannot put a price on the knowledge that has been derived from earlier generations, from before even my grandparents. This knowledge has been adapted through innovation to meet the needs of changing times. There is also a tenacity that is rooted in a will to be — and to win. That tenacity exists, and we hope that it will continue to exist,” Bonet concludes.