WBI: The Denise Empire

I like the articles on Wine Business International. Very thought provoking and relevant. Dug up an older article they had on Denise The Wine Shop, a chain of retail wine stores in Singapore and Malaysia. They were the first store I visited when I came back to Singapore last year. I’ve bought quite a few bottles from them here and there, and for several DGS, but I found that they aren’t really suited for our DGS themed tastings – not enough variety. And my other grouse is that they have quite a paltry selection of US wines; not even a single Zinfandel for my Zin tasting. That said, their business model is to be admired – I was looking into the idea of setting up a Wine Styles sort of retail store in Singapore a few years ago when friends told me that Denise was already a big presence here.

The Denise empire
by Jenny Tan
May 10th 2008

The gap between high-end wine boutiques and supermarket wines in the Singapore wine retail scene was suddenly bridged when Malaysian wine retail chain Denise The Wine Shop, entered the market. Meininger’s finds out more.

Singaporeans are drinking more wine, there’s no doubt about it. According to Singapore customs, the import of wines has risen from 4.3m litres in 2003 to 6m litres in 2006, with more entry-level wines entering the market through casual outlets such as petrol kiosks and supermarkets. The Straits Times also recently reported that the well-known supermarket chain, Fairprice, has seen a 30% increase in wines between S$18-$25 ($13/€6-$18/€11).

The increase in demand is in part buoyed by a healthy economy, but another undeniable reason is the ready availability of wine retail stores for consumers on the island.

Leading the pack in the wine retail business is Denise Wine Shop, which has opened 17 shops since it started in 2006. In the past, choices of buying wines from retail stores were limited. There were a few familiar favourites, such as Vinum Fine Wine Merchants, Crystal Wines or Jason’s Supermarket, but the idea of a wine retail chain would have been ludicrous to many back then.

Denise Wine Shop is the brainchild of David Lim, who named the shop after his daughter and the Greek goddess of wine. It started in Malaysia in 2001, in the unlikely neighbourhood of SS2 – a predominantly Chinese area where the residents were better known for drinking brandy than wine. But despite raised eyebrows, this was precisely the crowd that Denise wanted to pursue. Wine shops then were perceived as snooty locations reserved only for the rich, so Lim consciously designed a wine shop that was just the antithesis. Glass doors were replaced with casual air-con curtains, and the shops were open 12 hours a day for the first six months.

To add to that, Denise launched an aggressive advertising campaign, emphasizing on the lifestyle aspect of wine. Cheeky taglines such as ‘Seductive Wines, Indecent Prices’, or ‘After all, wasn’t wine the culprit of your last indecent proposal’ were instant attention grabbers. After 9/11, the Denise tag line was quickly changed to ‘One Life, Live it’. Ads were regularly placed once every two weeks on Page 3 of the local newspapers.

Despite the successful concept, the cracks started showing. Doing wine business in Malaysia turned out to be a complicated affair, with illegal competition (such as parallel importers) ranking as the highest threat. This led to a price war in which it was impossible to compete. According to Lim, a bottle of Jacob’s Creek wine would retail at RM$19.90 ($6.20/€4), when the tax per bottle was RM$17. This phenomena, which he termed ‘wine tsunami’ – when the country was flooded with wine from third parties – led to complaints by his franchisees, who had already invested RM$130,000 in the business. Hypermarkets would also often slash prices in a bid to attract more consumers.

All these factors forced the company to look outwards. It turned out, in Lim’s word, to be a “blessing in disguise”.

The road south to Singapore
Ironically, Singapore wasn’t the first on Lim’s list – rather, he was looking at Thailand and China. “I was focusing on developing countries, which are similar to Malaysia,” he said. The up-side of doing wine business in such places is that the wine chain can muscle in and have a strong influence on the wine drinking culture, with the power to introduce small wineries and build brands.

Bringing the concept to Singapore turned out to be a matter of timing. While pitching for funds for his Thailand and China expansion, two brokers – one of whom is a major shareholder at Kaesler winery in Australia’s Barossa Valley – became investors.

The stipulated criteria was to start the Denise Wine Shop business in Singapore, grow it to three times the size of the business in Malaysia, and to be the most prominent wine retail specialty chain in the Asia Pacific Rim by 2010.

Distribution structure
The lesson learnt from Malaysia is that it’s important to import your own wines directly from the winery, and bypass the middleman. This also saves additional costs that the company invests in advertising.

Today, Denise and its sister company, The Straits Wine Company (which distributes wines to the trade, run by a six-man team), are the official distributors for 55 agencies and the list looks set to be growing. Interestingly, three quarters of the agencies had been distributed in Singapore before, which, as Lim jokingly said, has made him the “most popular guy in town”. Agencies include Australians Kaesler, Rolf Binder, Bird in Hand, Glaetzer and Mitolo from Australia, Mischief and Mayhem from Burgundy, and Chateau Maris from the Languedoc.

Although there is a selection of First Growths included in the portfolio, the bulk of the company’s representation is still New World. At last count, Australia still dominates, with 47%, followed by France (15%), then New Zealand (9%).But for the adventurous drinkers, there are also wines from Mexico, Switzerland and UK. The majority are in the S$20-$80 per bottle range.

All wines imported by Denise are shipped in reefer containers, even though it costs four times more than the usual containers. When the wines arrive, they are stored at a constant temperature of 20°C.

It is no secret that there is a serious lack of good service staff in Singapore. Finding those who have a decent knowledge of wine in next to impossible, which is why Denise Wine Shop started with a different approach to hiring. Staff are hired based on passion and attitude, rather than their credentials. All the staff in Malaysia and Singapore are sent for WSET courses, and those at the management level would have passed the Stage 3 of the programme. ‘District Managers’ are also required to taste the wines when they arrive. As Lim pointed out, “We want to invest in people as it is only through them that we can sell an experience. If not, I’d rather invest in vending machines if I was just interesting in selling bottles of wines.” In Malaysia alone, the training takes up to 3% of the annual budget, which is around RM$400,000. Staff are also given incentive trips to regions such as Burgundy once a year. The philosophy is a morale booster – more than half of the team of 70 staff in Malaysia has stayed on board for more than five years.

After two years, Denise is sparing no cost in bringing the specialists to catapult the company to another level. “We want to be the Chelsea and Real Madrid of the wine business,” declared Lim. Which explains why they recently appointed Grayson Durham, ex-winemaker at Vasse Felix, as general manager. The company is also working with the University of Adelaide on an internship programme.

The franchise model
Currently, there are 17 Singapore Denise Wine shops, easily recognised by the signature stacks of wine crates and teak storage cellars. Despite this similarity, each shop has a different design concept – the store at UE Square is reminiscent of a private library, whereas the latest one at Serangoon Gardens is modeled after a winery cellar. At the OUB Centre, which is located in the business district, the wine company has also joined forces with Leo’s Espresso, which runs a little café serving simple café fare and good old Italian coffee inside the wine shop. This is a response to customers who may want to have a shot of coffee at the end of the wine tasting session, or to accommodate groups that may have non-wine drinkers in the midst. At selected shops, there is a ‘member’s area’, where members of Denise Wine Shop can buy wines and drink there at no extra charge. Eligibility is just a one-time purchase of S$300 or RM$500.

Malaysia currently has 17 stores, including eight franchises. Each franchise has to pay a franchise fee for three years, which covers the store design, marketing and staff training. The size of the shops can range from 2,000 square feet to the ‘Little Denise’ – stores which are the ‘conveniences stores’ of the wine business.

However, the franchise model has yet to kick-start in Singapore, as Denise will only start selling the franchise after it has set up 20 stores. The sky-rocketing rental prices have put a dampener on the company’s expansion plan, even though tenders have been submitted. “Only when we reach 20 shops can we have critical mass and hit the economies of scale,” shared Lim.

Despite the slowed rate of expansion, the business has grown. In January 2008, the company broke the seven digit turnover figure for the first time, and estimated sales for 2008 are S$12m (€5.5m/$8.7m). In 2007, there was a 20% compounded growth.

The Future
The biggest question that the wine industry is asking is: How does Denise Wine Shop make a profit? Lim explained, “Not all stores are ‘A’ stores, and we do expect that 20% of our stores will close. Hopefully, 70% will survive. We are going for a long-term goal, and not about making a quick profit in the first few years. There may be blood, but from now on, we should be hitting the break-even line.”

The experience in setting up the stores in Malaysia and Singapore has now given Lim the experience in setting up a wine chain in both developing and developed countries. It’s experience that comes in handy, especially when Vietnam looks most likely to be the next stop. And Denise Wine Shop may also be going beyond Asia, with ongoing negotiations about one or two stores in Jamaica.

However, there’s one place where one can expect to see Denise Wine Stores in time. “It’s always been my dream to go to China,” says Lim.

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