4.3: Establish a Joint Venture

Question 1

What is a joint venture?

Answer 1

Establishment between companies at different stages in the supply chain

Question 2

Where is it common for companies to form a joint venture?

Answer 2

In price-sensitive markets such as the UK

Question 3

What are the 2 main benefits of a joint venture?

Answer 3

• greater control over those different stages

- greater profitability as costs are shared and intermediary costs avoided

Question 4

Give an example of a well established joint venture. Why does this work so well?

Answer 4

• Mentzendorff is a long-established UK wine distributor whose major shareholders are Champagne Bollinger and the Fladgate Partnership (Port)
• The two businesses are not direct competitors and other companies represented by Mentzendorff have been chosen carefully to ensure that they do not overlap

Question 5

Name another increasingly common type of joint venture.

Answer 5

Producers joining forces with distributors or large retailers to create new wine brands

Question 6

Give an example of producers joining forces with distributors or large retailers to create new wine brands.

Answer 6

• UK distributor Buckingham Schenk
• winemakers Hervé and Diane Joyaux Fabre
• Created the Argentinian wine brand Viñalba, which is now sold in multiple countries worldwide (2007)

Question 7

What is a merger?

Answer 7

Occurs when two businesses join together to create a business with greater resources and capabilities that should be more competitive than the individual businesses were on their own

Question 8

What is the main reason for an acquisition? What are other reasons?

Answer 8

• Main: to acquire capabilities (such as skills, resources, market share or prime vineyard locations) which the purchasing company believes it lacks, creating a more competitive business
  Other:
• Some failing companies are taken over in an effort to save them from going out of business
• Means to grow business to compete in more sectors of their chosen markets

Question 9

What are some attractions for a smaller producer who is approached by one of these big companies? Downside?

Answer 9

Attractions:

• increased investment in the business being bought
• can open up new routes to market

Downside:
- loss of control over their business

Question 10

Give an example of an acquisition that did not work out.

Answer 10

• Conviviality, which already owned a major national distribution company and several retail chains, acquired Bibendum PLB (itself a merged company with number of distribution and retail businesses), creating by far the UK’s largest wine distributor
• In early 2018, it was announced that the new company was in serious financial difficulty. Within days, the company had been put into administration and the various subsidiaries sold off to new owners C & C Group and Bestway to allow them to continue trading.

Question 11

Give an example of an acquisition that did not involve a company in the wine or alcoholic drinks trade.

Answer 11

In 2018, the US private equity firm Carlyle Group bought Accolade Wines.