Penaflor S.A. History

Key Dates:

1883:

Tiborio Benegas purchases the Trapiche vineyard in Mendoza province.

1914:

Antonio Augusto Pulenta buys a vineyard in San Juan province.

1941:

The Pulenta enterprise takes the name of Penaflor.

1971:

Penaflor purchases the Trapiche properties.

1995:

Grupo Penaflor's eight firms are producing mineral water and soft drinks as well as wine.

1998:

Luis Alfredo Pulenta buys out all but one of his relatives.

2000:

Penaflor buys two more wineries: Lavaque and Santa Ana.

2002:

Pulenta sells his majority stake to DLJ Merchant Banking Partners L.P.

Company History:

Penaflor S.A., together with its sister company, Bodegas Trapiche S.A.I.C.A., is Latin America's largest wine producer and the world's fifth-largest producer of wine. Based in a high-yielding area of Argentina, the company serves one of the world's largest wine-drinking populations, and its products are increasingly found abroad as well. Penaflor is at the heart of a larger grouping of Argentine wineries that account for one-sixth of the nation's consumption. The company's wines are marketed abroad under the Trapiche label.

Bodegas Trapiche: 1883-1970

A Spaniard living in what is now Chile brought vines of the criolla, or mission, grape, to what is now Argentina in 1556. Soon after, Spanish monks planted the first vines in or about Mendoza, a city founded a few years later. The industry was very small-scale but gradually increased to supply Buenos Aires, which grew to be the principal area of consumption. Tiburcio Benegas, a native of Rosario, came to Mendoza in 1864 to oversee a family business. There he met and later married the daughter of Eusebio Blanco, who transmitted to Benegas his knowledge of and enthusiasm for winemaking. Benegas, considered one of the three founders of the wine industry in the Americas, bought a property with a small vineyard in Godoy Cruz--now located within or just south of the city limits of Mendoza--in 1883. The coming of the railroad in 1885 made possible a flourishing business worked by immigrant labor. Benegas's property, El Trapiche, grew to 6,653 hectares (16,433 acres).

Some 700 miles west of Buenos Aires, the province of Mendoza produces most of Argentina's wine. The sun shines an average of more than 300 days a year, the summer temperature rarely varies from year to year, and irrigation channels pure water from the melting snows of the nearby Andes Mountains to provide necessary moisture, enabling the area to produce more grapes per area than California's Napa Valley. These conditions enabled Argentina to become the third- or fourth-largest wine producer in the world.

When Tiburcio Benegas died in 1908, his business was incorporated as Benegas e Hijos S.A., with creditors converting their loans into company shares. Of his three sons, Pedro was the winemaker, having studied in Paris and become partial to the vintages of the Bordeaux region. He created wines such as Fond de Cave and Broquel in an effort to meet European standards of quality. Alberto ran the business end from Buenos Aires. Although Argentine wine was still mediocre at best in this period, vintners could count on a large clientele, since the population consisted largely of immigrants from Spain and Italy, both countries where wine was the alcoholic beverage of choice. As late as 1970, Argentines drank more wine per capita than any nationality except for Italians and French.

Trapiche introduced Monitor, a sparkling wine, in 1925, and Crillon, a white wine, in 1935. The former was a blend of chardonnay, chenin, and ugni blanc and the latter of chenin and chardonnay. Fond de Cave was a blend of cabernet sauvignon, merlot, and petit verdot, while Broquel blended cabernet sauvignon and cabernet franc. The company's other wines were Puento Viejo (syrah and ugni blanc), Feudo Viejo (sangiovese and malbec), Trapiche Viejo (malbec and merlot), and Vezely (chardonnay).

After Pedro Benegas died in 1943, his sons assumed the winemaking business. Alberto retired in 1949 and was succeeded in Buenos Aires by his brother Eduardo and later by his sons and those of Eduardo. After World War II, the company became Benegas Hermanos y Cia. S.A.I.C. and shifted toward marketing its better-quality wine, selling the ordinary vintages to third parties for resale in bulk wines. Direction of the company passed to Alberto's son, Federico Benegas Lynch, in 1957. In 1965, the company owned six vineyards yielding ten million liters annually and had deposit branches in seven cities. Like other Argentine vintners, it was subject to government-imposed quality safeguards: the use of all-fresh grapes and restrictions on the use of chemicals and alcoholic strength. Only after a protracted struggle with the bureaucracy were the big wineries allowed to import European and American presses and oak casks.

Quality grapes were harvested by hand and collected with great care in stone jugs weighing about 150 pounds each for use in the Fond de Cave, Broquel, and Puente Viejo labels. Trapiche also produced vinegar and had fruit orchards yielding cherries, plums, and bitter oranges. Surrounding the company's offices were 15 acres of lawn and English gardens planted with roses developed by Pedro Benegas, as well as a great variety of trees, including enormous lindens, chestnuts imported from India, gingkos, and so-called bald cypresses that turned red in fall before the needles fell.

Penaflor and Penaflor/Trapiche: 1902-98

This idyllic state of affairs came to an end in 1971, when Benegas Hermanos was sold to the Pulenta family, except for its brands of sparkling wine, which were sold to Seagram Argentina. Angelo Antonio Pulenta, a penniless Italian immigrant, arrived in Argentina in 1902 and in 1914 purchased a property with vineyards in San Juan province, where warmer temperatures resulted in heavier wines than in Mendoza, including sweet white wines, fortified wines, vermouth, and brandy. Pulenta's eldest son Quinto took over leadership of the enterprise in 1924. Incorporated as Bodegas y Vinedos Pulenta Hnos. S.A. in 1941, it was later renamed Bodegas y Vinedos Penaflor S.A. and then simply Penaflor S.A.

Penaflor, originally devoted to ordinary table wine, opened its first Mendoza vineyard, for better-quality wines, in 1951. Quinto Pulenta and his three brothers decided in 1968 to diversify and, in the following year, began producing a line of fruit juices labelled Cepita. The company began bottling its own brand of mineral water, Villa del Sur, in 1972 in association with the French group Danone. Exports of Penaflor wines began in 1970, and the company was the national leader from the first. During the early 1980s, the Argentina wine most widely sold in the United States was Andean, made by Penaflor in a joint venture with Byron Tosi, a New Yorker. Within Argentina, Penaflor created the Perle, Bordolino, and Termidor table-wine brands. The company became the largest user of Swedish-made Tetrabrik laminated cardboard-and-foil cartons to package Termidor, a cheap bulk wine.

The Pulentas thought big and built big. A Frenchman who visited their main property about this time marveled at their underground storage tank of wine, with a diameter of over 100 meters and a holding capacity of more than five million liters. Penaflor continued the Trapiche wines, although modifying their characteristics to market requirements, and it renovated the vines and modernized the installations, adding, for example, casks of French oak to age the wines and experiment with fermentation.

By the early 1980s, Trapiche, with an eye to export sales, was concentrating on developing its white wines, with new fermentation processes based on lower temperature levels to maintain the aroma and fruitiness present in the grape. Fresh, light, and transparent, these new white wines contrasted with the heavier, yellow-tinted white wines typical of local Argentine production. Trapiche's red wines were also being modified to meet the international trend toward softer flavor and coloring lighter than the traditional Argentine ruby. Broquel's cabernet sauvignon, for example, was now being blended with merlot and malbec grapes, and Puente Viejo and Trapiche were being made now with chenin and malbec. The less-regarded Vieja Abadia was now available in cardboard cartons as well as bottles. Export markets, for bulk wine and grape-juice concentrate, included Japan, the leading client, as well as 18 U.S. states. The company also had installed an operation, jointly with a Spanish company, in Puerto Rico to produce wine from imported grape concentrate, principally under the Castillo Real name. It also bottled and distributed a line of imported fruit juices under the name Richy.

To celebrate its centennial, Trapiche, in 1983, introduced a Medalla wine in red and white. These wines changed in composition each year. The company also introduced a pinot noir and a rose composed of cabernet sauvignon. In 1995, it introduced Trapiche Milenium, a blend of cabernet sauvignon and malbec.

The need to improve Argentine wine quality and raise exports became critical by 1990. Argentine wine consumption had fallen precipitously, partly because of competition from beer and soft drinks and partly because even cheap wine had become a luxury in a time of economic crisis. As Carlos Pulenta, president of Bodegas Trapiche told New York Times wine columnist Frank Prial, "We must export or we will die." Prial reported that Pulenta had opened an importing company in New York and had invested heavily in improving the quality of Trapiche's wines, converting thousands of acres of criolla and Pedro Ximenes grapes to cabernet sauvignon, chardonnay, and malbec, which Prial called "as good as and often better than cabernet sauvignon." Penaflor was selling large quantities of bulk wine to government monopolies in the Nordic countries and even in France and Spain. Japan was importing grape-juice concentrate for conversion into wine. However, to hedge its bets, Grupo Penaflor--the family holding company that included Penaflor and Trapiche--diversified further by securing, in 1992, the Cadbury Schweppes PLC license to produce the Canada Dry, Schweppes, Crush, and Gini soft drinks in Argentina, and by purchasing a brewery, Bieckert, in 1994. In 1995, Grupo Penaflor consisted of eight firms with sales of $340.3 million, and table wine was accounting for only half of this revenue.

The opening of the Argentine economy to liberalized trade and commerce in the early 1990s brought in foreign investors who spent more than $250 million over five years to open new wineries, modernize old ones, and form joint ventures with operators short of capital. They brought in new grapevines, computerized irrigation equipment, and introduced French and American oak barrels and stainless-steel (in place of concrete) vats. The growing emphasis on developing fine wines (defined in 1996 as a modest $7 or more per bottle) was aimed not only at foreign markets but to the growing number of Argentines no longer satisfied with ordinary table wine. The Pulentas hired two leading oenologists, an Australian and a Frenchman, to ensure that the right grape varieties were planted in the right areas of the company's vineyards. Even so, foreign gastronomists maintained that Argentine wines were overly oxidized and allowed to remain in oak barrels for too long.

Under New Management: 1998-2004

The Pulentas were presiding over an empire of 1,800 hectares (nearly 4,500 acres) of vineyards by 1997 when Luis Alfredo Pulenta, a United States resident with Wall Street contacts, returned to Argentina. Armed with $40 million from the investment firm of Donaldson Lufkin & Jenrette Inc. (DLJ), which took a 20 percent share of the enterprise (later raised to 33 percent by converting notes issued), he bought out all his relatives--more than 20 brothers and sisters, uncles and aunts, and cousins--for about $80 million. The only holdout was Lilia Pulenta de Munoz, who retained 7.5 percent of the shares.

Under Luis Pulenta, Penaflor invested $25 million to found a new vineyard, Finca Las Moras, on 750 hectares (about 1,750 acres) in San Juan province. In 2000, he purchased Bodegas Lavaque S.A., a smaller Mendoza-based winery that also, in 1993, had acquired Michel Torino, a winery with high-altitude vineyards farther north, in Catamarca and Salta provinces. Bodegas Lavaque was renamed Bodegas y Vinedos Andinos (BVA), and, still later, Vinas de Altura S.A. Penaflor also purchased Bodegas y Vinedos Santa Ana S.A., a winery with four production facilities in Mendoza and San Juan provinces and a significant presence abroad under its own label. This winery was added to BVA. During the 1990s, Santa Ana introduced Rincon del Sol, a "soft wine" with reduced alcoholic content by means of a process called "reverse osmosis."

DLJ was acquired by Credit Suisse Group in 2000 and became Credit Suisse First Boston, Inc. Its DLJ Merchant Banking Partners L.P. fund acquired Luis Pulenta's 60 percent stake of Penaflor and Trapiche, plus all of BVA, in 2002, shortly after the devaluation of the Argentine peso had in effect virtually tripled Grupo Penaflor's debt of $150 million to various enterprises, including a group of banks, that financed the operation. The group's 2002 revenues of 399 million pesos came to only about $135 million as devaluation ended the Argentine peso's parity with the dollar, and 2003's total of 208 million pesos for Penaflor and 83 million pesos for BVA constituted a further reduction. Nevertheless, the group produced nearly 87 million liters of wine under 33 labels in 2003, and Trapiche was exporting to 40 countries.

Penaflor was reported, in 2003, to have recently acquired, in part or whole, the labels Crespi, Facundo, Algarves, and Casa de Troya. In the field of nonalcoholic beverages, it shared with Danone ownership of the Villa del Sur, San Francisco, and Waikiki brands of mineral water and the license from Cadbury-Schweppes to produce, bottle, and distribute the Crush, Gini, and Schweppes soft-drink lines in Argentina. Penaflor was reported to be on the verge of selling the Carioca, Cepita, Cipolletti, and Montefiore brands of fruit juices to Coca-Cola de Argentina.

Principal Competitors: Bodegas Chandon S.A.; Bodega y Vinedos Edmundo J.P. Norton S.A.; Bodegas y Vinedos Lopez S.A.I.C; Grupo Catena.

Further Reading:

• "Bodegas Trapiche cumple 120 anos," Nacion, August 10, 2003.
• Moyano, Julio, ed., The Argentine Economy, Buenos Aires: Julio Moyano Comunicaciones, pp. 493, 496, 504.
• Penning-Rowsell, Edmund, "Argentina: Where Wine Flows Like Beer," Financial Times, April 6, 1971, p. 12.
• Prial, Frank J., "Uphill Struggle to Adapt Wine to the World's Taste," New York Times, June 6, 1990, pp. C1, C6.
• "Productividad de sector de vinos finos es de 59.722 litros por empleado en 2003," Nacion, May 2, 2004.
• Ruiz-Velasco, Laura M., "Salud, che!," America economia, June 1996, p. 30.
• Sanguinetti, Andres, "DLJ Merchant Banking se queda con 93% del capital de Penaflor y Trapiche." Available from www.lavaque.com.
• Schumacher, Edward, "Wine Industry Flourishes in Argentina," New York Times, February 15, 1984, p. C8.
• Villa Buzzi, Fernando, Mendoza: Los terranos del sol, Mendoza: Editorial Foix Freres, 1994, pp. 196-201.
• ------, Vino y pasion: La familia Benegas y el vino argentino, Buenos Aires: Editorial El Ateneo, 2002.

Source: International Directory of Company Histories, Vol. 66. St. James Press, 2004.

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