Provins Valais: A Cooperative No More

Provins Valais, the largest winery in Switzerland and producer of nearly ten percent of all Swiss wine, is a cooperative no more. After years of financial turmoil — culminating in a messy crop payment fiasco — the ninety-year-old enterprise was recast as a société anonyme (“S.A.”) by an overwhelming vote of its members.

The suitor, Fenaco, a highly profitable agricultural cooperative, will assume a majority stake in the new business, Provins S.A., and bring with it a pile of cash and much-needed distribution muscle. To start, Fenaco will pump CHF 50 million into the struggling business with CHF 25 million of it to pay for its new 70% stake. CHF 13.3 million will go to jilted grower-members for the 2019 crop and several million more will be used to pay down pre-existing trade and bank debt. The balance will be used to sustain the business while the new owners work to repair frayed banking relationships.

In addition to piles of cash, Fenaco’s impressive network of retail outlets, including Landi and Volg, will significantly expand the presence of Provins in the German-speaking market where the cooperative has consistently underperformed. Fenaco even has a legacy wine division, led by DiVino S.A. — a successful online retailer of wines from around the world — bolstered by the wine procurement businesses of Caves Garnier and Volg Weinkellereien.

The obvious synergies of the deal are enough to make an accountant drool.

The Unknown

But not everyone is happy.

While most observers agree the restructuring of Provins is long overdue, there are some in Valais who resent “outside” control over one of the canton’s most visible businesses. Even members who supported the deal are wary of the new structure and some of its key provisions.

Under the old agreement, Provins was obligated to purchase 100% of its member’s output. Things are not so clear-cut under the new model. It’s not even certain the newly constituted Provins will continue to be a volume producer.

There are reasons to worry.

Seven million liters of wine are currently languishing in tanks in Sion and millions more are bottled and unsold. This surplus and the current Covid-19 crisis does not bode well for prices and may even test Provins’ commitment to shareholders to purchase as much of its future output as market conditions allow.

Make no mistake: the new owner will do whatever is necessary to make the business profitable.

The new structure does leave members with a few options: they can sign a new contract with Provins S.A. under different terms; they can sell their diluted shares to the new entity or to other members for a pre-determined price (CHF 300 per share with 12,489 shares outstanding); they can sell or lease their land to Provins or to an outside entity, or they can retain the land and sell the output on an ad hoc basis.

For me, it’s the potential turnover of long-held parcels by hobby farmers directly into the hands of small, eager-to-expand wineries that is most exciting. And it’s a scenario that could play-out through much of Switzerland.

The Push to High Value

Swiss land is precious and opportunities for growth and consolidation in the grape-growing business are rare. Small family wineries with the desire to expand are hamstrung by the lack of real estate (much of it is tied up in cooperatives). To complicate matters, Swiss law makes new plantings on undeveloped land impossible without a documented history of previous use. To satisfy the growing trend to export, many wineries are forced to poach from more profitable direct sales. An additional two or three hectares would make everyone happy.

It’s never cheap to make wine in Switzerland. Mechanization is difficult, which means much of the work must be done by hand at a very high cost. For this reason, it is critical that wine from Swiss vineyards achieve maximum value. There is simply too much mediocre wine and too little land to justify anything less. The push to high quality and the renaissance of high-value native varieties is recognition of this fact and reason to encourage an evolution from the cooperative model.

We are at an inflection point where the best Swiss wine may finally be within reach of curious international consumers. A re-distribution of land will help us get there.