The Village Farm Resort and Winery

Introduction

Wine drinking has never become engrained in the national cuisine and dining experience of Thailand, at least until recent years. Globalization has done the job that colonization once did in other countries of Southeast Asia. Rather, Thai people preferred beer and locally brewed spirits, traditionally using rice and other geographically specific inputs. Alcohol production and distribution was organized through national monopolies that were awarded by the crown to merchants without political ambitions. Those monopolies have been gradually replaced by large, diverse multinational enterprises that have been able to take advantage of economies of scale and scope and brand building on a significant basis.

Nevertheless, wine drinking has become much more prevalent in the country as the result of several changes in economy and society:

Rapid economic growth has produced a burgeoning urban middle-class population with greater exposure to international cultural practices and aspirations to a higher quality of living.

There is now scope for a domestic wine production industry which has potential for export industry growth in the medium to long term. However, the relative quality of wine available in different markets means that the export of Thai wines will be based almost entirely in Asia and, in particular, Southeast Asia.

Thai Agro-industry

One of the principal forces driving rapid economic development in Thailand has been the export of agricultural products. The combination of climate and fertile land, particularly in the central region, has provided the opportunity for exporters to achieve success in markets around the world. Rice, seafood, fruit and vegetables are all products that have become synonymous with Thailand, and successful promotion of Thai cuisine by both the public sector and enterprising entrepreneurs has further burnished the reputation of the country and its products. As the tourism industry has developed and national-level distribution has become more possible, local agro-industrial companies have been presented with new opportunities for growth. These have included supplying international hotels and restaurants by replacing more expensive imported goods, helping to develop local market tastes so as to enhance economy of scale in production and adding value to local products so as to enhance income opportunities for farmers and producers. In the first category, replacing gourmet ingredients via local innovation has proved to be a long-term project as the creation of wine and cheese in Thailand has demonstrated. In the second category, the enormous growth and success of the Dutch Mill Company, which specializes in dairy products, demonstrates how the various changes can be used together to bring about commercial success (Poupon, 2013). In the third category, new product development can be very much a hit or miss affair and, for every success story (for example, durian chips), there can be a failure (for example, the strawberry wine sold by the roadsides in Chiang Rai province).

A market for wine, in general, has been created and is currently being dominated by well-established brands from both Europe and the New World, notably Australia. However, the Thai government has long maintained a policy of high tariffs on imported goods which may be considered luxury items and which might be considered as threats to locally produced goods. In recent years, this policy has intensified as the government has categorized alcohol and cigarettes as sinful products which should be taxed further, with the proceeds used to promote social welfare. However, imported wine and beer is already taxed at the maximum level permitted under the law (Thailand hikes sin taxes, 2012) and new taxes are aimed at spirits, based on the volume of alcohol contained within. The most recently introduced tax structure changes the base of calculation from ex-factory prices to the last wholesale price excluding value-added tax, which was immediately unpopular in the industry, in part because it evens the playing field for imported goods (Chantanusornsiri, 2013). More generally, Thailand has become involved in a number of bilateral and multilateral free trade agreement negotiations aimed at reducing tariffs on a range of goods, including agricultural products. Making exceptions for undesirable and ‘sinful’ products is likely to become more difficult in the long run. Nevertheless, the Thai Ministry of Health has not helped the development of the wine industry through its insistence on treating any local production of alcohol as being potentially related to illegal moonshine liquor and, therefore, to be restricted if not eliminated.

Winemaking in Thailand

Attempts have been made to grow grapes and make wine in Thailand for several decades and, while early efforts were mostly disappointing in terms of quality and taste, more recent efforts have been more promising and local brands now appear in local supermarkets and restaurants. Owing to the taxation system, Thai wines may even suffer some price disadvantages because they are monitored by the excise department, which observes the price both ex-factory and at the wholesale level, while foreign wines may escape such scrutiny. When a significant price advantage over imported wines is enjoyed, such an advantage is popular with consumers whose experience and knowledge of international wines is limited.

However, there are some practical and cultural features which make the marketing and consumption of wine a different proposition than it would be in Western countries. First, it might be pointed out that, apart from in entirely air-conditioned facilities, serving white wine chilled has become a must. Some red wines are also typically served chilled, since local temperatures are significantly higher than the room temperature considered normal in the home of European winemaking. It is also true that most red wine, in particular, does not automatically partner well with Thai food, which is full of bold and vivid tastes and very often suffused with the heat of chilli peppers, plus the coconut milk found in many common dishes. Some Australian producers have begun to address this issue with innovative recommendations for combinations of wines with the different types of Asian cuisine which have become so important a part of the culinary experience there. However, this lack of harmony has contributed to the quite commonly held idea that wine is a drink on its own rather than an accompaniment to food, perhaps to be enjoyed by a group of people together. Drinking as part of a group is a common feature of Thai culture, particularly in the countryside. Groups of men will enjoy their time with each other, making off-colour jokes and eating snacks called kapklaem (Sukphisit, 2013).

It is also the case that new generations of East Asian consumers have become familiarized with wine as an opportunity for investment and surplus capital absorption. Increasing numbers of Chinese customers, for example, have become involved with buying expensive wines as a means not just of saving for the future but also for demonstrating personal sophistication and taste. There is also some evidence that wine is, to some extent, replacing whisky as part of the exchange of gifts that remains so important in East Asian societies and as one of the tools for promoting personal relationships among people just getting to know each other.

Finally, the climatic conditions mean that harvesting of grapes generally begins in February.

The first effort at winemaking in Thailand was undertaken by the late Dr Chaiyut Kannasutr, the owner of the Oriental Hotel, who introduced Syrah and Chenin Blanc grapes from France to his plantation in Phu Rea district of Loei province in the early 1990s. This initial effort was followed by the three estates in the Khao Yai National Park area, with the first being PB Winery, owned by Bhirombhakdi, the famous Singha Beer family, which was started by a German expert whose place was taken by Mr Prayut, who had been sent to Europe to study winemaking. Village Farm was the second to be opened, with the support of a French wine-making team. GranMonte was the third and it was opened by a man who had previously been involved in the pest control business but whose passion was winemaking. He is assisted by his daughter, who received a degree on oenology from the University of Adelaide. Village Farm produces approximately 50,000 bottles a year—its full capacity would be some 200,000 bottles per year but the owner prefers to concentrate on quality rather than quantity. The largest player in the market is the Boonrawd Company of the Bhirombhakdi family, which may produce 200,000 bottles per year. Siam Winery is also large and uses a German oenologist, although it caters to the lower end of the market. Other players are smaller, for example, GranMonte and Chateau de Loei, at about the same size as Village Farm. The latter is moving more into organic farming, producing macadamia nuts, strawberries and raspberries and other products.

This is a sector which, in other words, is coming under increasingly professional management. Even so, penetration of the local market has been limited by the tied house system in operation in many parts of Thailand, according to which all alcoholic beverages must by contract be sourced from the same production and distribution company.

Development of Local Tourism in Thailand

One of the effects of rapid economic development and increased transportation infrastructure is that more Thai people have become able to enjoy domestic tourism as one of the fruits of a better standard of living. Thai domestic tourism tends to involve certain features that are different from the behaviour of international tourists, particularly those from outside the Mekong region. There is a desire, for example, to drive out of the hectic traffic jams of Bangkok to enjoy peace and tranquility in the countryside, to enjoy local specialities, to visit well-known Buddhist temples and so forth. This has meant the increasing popularity of country estates and ranches as domestic tourism locations, which also includes a destination for workshops and seminars from organizations in both the public and private sectors. Many such destinations are located within two to three hours’ drive from Bangkok, which is considered to be an acceptable length of journey for a weekend break. This leads to a range of territory which encompasses the area in and around the Khao Yai National Park, to the north-east of Bangkok, which combines the famous nature reserve with its solitude and wildlife and the heartland of Thailand’s wine-growing region, also being known for ranking number seven in the list of the world’s highest ozone regions. It is logical, therefore, to try to reduce the risk inherent in any new business venture by diversifying into related areas and, in this case, opening tourist resorts within active agricultural production areas. It is now possible, therefore, to visit within a short period of time, a number of different vineyards in the region, including many of the country’s best-known brands such as Village Farm and Winery, GranMonte Asoke Valley Winery and PB Valley Winery. All these can be visited in one-day loop trail. However, the country’s largest producer, Siam Winery, concentrates most of its viticulture south of Hua Hin, which is another popular destination for Bangkok weekend trippers (Runckel, n.d.).

Village Farm Resort and Winery

Located on 80 acres of ground between Khao Yai and Wang Nam Kaeo National Parks and founded just more than a decade ago, Village Farm Resort and Winery has a variety of climatic and geographic conditions. Tropical fruits such as lychees and mangosteens are wild-grown in naturally forested areas, while, in the cooler conditions further up the slopes, excellent wine-growing conditions are available. The venture is chaired by the noted Thai accountant-cum-engineer Viravat Cholvanich, with his daughter, Nu. The result is a new venture for Mr Cholvanich, whose previous career involved telecommunications and building power plants across Thailand and beyond. However, he has approached the new venture with characteristic energy and passion (Pattaya Today, 2012).

The resort includes a number of different buildings and is designed to blend into the countryside and not to be disruptive or provoke any sense of dislocation. Facilities include the wine tasting area (Village Old Barn) and cellars (Village Cellar), the restaurant and the spa, which also houses guest rooms (Cliff Cottage). Red and rosé wines are strongly featured, with the principal brand being Chateau des Brumes. A combination of grapes is grown, including Syrah (or Shiraz), which is the principal variety. These grapes are suitable for the climate of Thailand found in the region. To add smoothness to the wine and thereby make it more appealing to the Thai palate, Cabernet Sauvignon grapes are also grown. In order to ensure that a sufficient supply of Syrah grapes is available, Mr Viravat has organized a cooperative venture with neighbouring farmers in the sub-district or tambon of Yub Ie Poon, in the district or amphur of Wang Nam Kaeo. Approximately 200 rai of land are used to grow Syrah now and Cabernet Sauvignon, which is equivalent to 32 hectares or, as mentioned earlier, 80 acres.

The assistance of noted French winemaker, Jacques Bacou, has been called upon to help develop all aspects of the production of wine and the elevation of existing wines into award-winning products (Pearce, 2010). More than that, the wine was regarded as surprising in its high quality and deemed the best Thai wine. The connection with France goes back to 1997, when a group of visitors came to the Village Farm with advice for immediately developing the existing facilities along French lines (Village Farm, 2013a). Mr Viravat had previously been involved with businesses in France, including Bordeaux, and came to know the visitors as a result. The architecture of the estate, the cave used in the winery and the use of oak barriques is just as French in character as the wines produced. European influences are also evident in the food provided and the music that accompanies dining and festive events. The Village Farm Country Society, which holds events both at the Farm and in Bangkok, is a congregation of convivial people who meet to enjoy the full country experience of good food and wine, music and celebration (Village Farm, 2013b). There is a need for the facilities to be fully diversified so as to minimize risk and maximize income streams.

The Village Farm Resort acts as a showcase for both the premium Chateau des Brumes brand and the less expensive range of Village Farm red, rosé and white. Quality is ensured and enhanced by the use of natural cave formations for fermenting and the fact that all bottling is done on the premises. Many high-profile celebrities and politicians are known to have stayed there and this adds to the allure for future potential visitors. The resort has been the venue for so many local television series. The annual master of wine and sommeliers competitions also help build up knowledge of and interest in wine production and consumption within the country.

The resort promotes the sense of fun and bonhomie attached to a group holiday as being a central part of the attraction of a visit, although of course couples and families are equally welcomed. International tourists have also been initiated into the resort’s charms and its reputation is beginning to spread beyond Thailand’s borders. Nevertheless, fashions change and Thai people are as faddish as anyone else, so there is likely to be a challenge in future as to how and to what extent the resort finds it necessary to reinvent itself so as to remain fresh and exciting. There is some scope for improving the usage of the facilities during the week and for workshops, seminars and retreats from the private sector or the upper levels of the public sector. The resort’s website (www.villagefarm.co.th) has been developed but there is certainly scope for a stronger presence with respect to social media and networking. Many individuals working in the accommodation and entertainment sector in Thailand foster personal relationships with media representatives and personal relations (PR) companies to burnish their reputation and there is also scope to improve this.

Future Challenges

Although there is likely to be enhanced competition in the future, the nature and extent of this is constrained by the fact that much of the land in the Wang Nam Kaeo area that is not part of a national park is held by people who have received Sor Por Kor title deeds issued by the Ministry of Agriculture and Cooperatives—that means the land can only be used for agricultural purposes (Jariyasombat, 2013). This means that potential competitors in the area will have to comply with regulations that are something of an entry barrier. Capital investment in the early stages of such a venture is also likely to be quite high and no significant returns could be expected for a number of years. Since the winemaking part of the operation actually offers only comparatively small margins, most owners will operate a second company to handle the distribution and marketing of the product.

In the long term, of course, global climate change will have large-scale and unpredictable impacts on not just agricultural production but on all forms of land use, unless the unlikely occurs and there is sustained and coordinated action to mitigate its effects. Even if that does happen, there will almost certainly be significant changes in the ecosystems. This kind of large-scale change can only be affected to a limited extent by the actions of one or a small number of individuals. However, small-scale changes are certainly likely to have an impact on the ability of the farm to grow particular varieties of grapes and the many other kinds of crops that are grown. Knowledge of wine growing in Thailand’s conditions still remains comparatively shallow, although intensive research is being conducted in various areas.

The Village Farm Resort was founded, in common with other ventures in Thailand, out of a sense of passion and desire to bring into reality a particular vision. Like most Thai firms, this venture remains primarily a family-owned venture and this inevitably raises the questions of succession planning and options for raising further capital under such a governance structure. Is it possible for a family-owned firm to continue to innovate and develop in a rapidly changing market without diluting ownership and, if so, would that necessarily be a good thing?

Questions for Discussion

Some suggested questions for discussion are:

What are the competitive advantages that the Village Farm Resort has? Are they sustainable? What new forms of competitive advantage could be created in future?

Teaching Notes

This is a case study dealing with the emergence of marketing opportunities in a changing environment. The kinds of changes and their importance to the marketing environment suggest that an emerging market is involved but there are implications for international marketers from more developed countries—the changes in connectivity occurring around the world make that particular issue relevant to every country.

Facilitators may invite the students to read the case study (or they may have prepared it in advance) and then, depending on language ability, go through it briefly in class to check for any problems with vocabulary or word use. Most business education takes place in classrooms where some or all the students do not have English as a first language and so, it is important for case studies addressing this situation to be shorter and slightly simpler in language. Students may then be divided into small groups and asked to consider the questions for discussion and then invited to make a short presentation of their ideas.

For the first question, competitive advantage revolves around the place and the product—the combination of good and luxurious living in a location that is not too remote from Bangkok and which lends cachet to those who visit. Since capacity is limited and there is no current shortage of customers, there is no need to think about reducing prices and promotion is adequate to the current situation. However, there is always a threat of changing tastes and the emergence of rivals in other attractive locations. Students will be able to come up with all kinds of new ideas and ventures that might be undertaken—try to point out which ones are suitable for the level of resources available and which would be complementary to the existing venture.

In terms of the second question, this might be localized by facilitators if students are unfamiliar with the kinds of conditions found in Thailand and the home economy might be used instead. For students from more developed countries, the perspective is likely to be that of the international marketer or investor. Students might talk about the creation of experiences surrounding food and beverages and their consumption which previously did not exist. Thailand now has a fast food and coffee shop culture, as well as the country ranch or resort culture. However, these restaurants have yet to approach Michelin star status. Homestay opportunities already exist but these are usually aimed at low budget sectors.

For the third question, the case study indicates that this is often a long-term undertaking with significant capital investment at the outset that will quickly become a sunk cost if success cannot be achieved. Not only will it be necessary to convince representatives of the supply chain organizers of the quality of products but official sanctions will also be required and proper guarantees given with respect to the supply of goods in the quantity and quality expected.

Overall, the case study asks students to think about integrating different activities and resources into an apparently seamless whole that, nevertheless, represents a diversified approach to lower risks and to enhance the likelihood of different streams of income.