Stephen Emerson from the Business Magazine UK reports: https://thebusinessmagazine.co.uk/corporate-finance/how-ferovinum-is-using-technology-to-solve-wine-industry-funding-bottleneck/
Wine is a thirsty business on the cash front with deep pockets required to plant a vineyard and even deeper pockets required to build the infrastructure that will not only make your new wine but also convince people to buy the vintage you have nurtured from seed to grape.
Founders of London-based Ferovinum, Mitchel Fowler and Daniel Gibney, spotted the problem that wine and also spirit producers were experiencing not only in the set up but also the growth stages of their businesses and set about building a funding platform that would provide much-needed capital. Mitchel's background is in the commodity markets, having held senior positions at multinational banks including Macquarie Bank and Barclays where he spent time building up technology that would use physical commodity trading to release capital rather than using traditional debt.
From Australia's Hunter Valley wine region, Mitchel was acutely tuned to the potential benefits that the commodities system he had helped develop could have for the wine sector. He set up Ferovinum, Fero meaning Latin for holding up, with his co-founder Daniel in 2018 and began working with wholesalers and wine producers to adapt the commodities product they had been working on. By 2020, they began working on the technology that would not only suit the needs of the wine industry but also those banking institutions who would be able to deploy capital onto it. It is the only platform of its kind in the UK lending to the wine industry with the team based in London, Perthshire, and Sydney. Mitchel said: "You plant the vineyard, build your winery, plant your vines, wait years for your vines to start producing and even once you have the wine made, in bottle, matured and ready for release, you can't grow without the business absorbing extreme amounts of capital. "We set up this product to solve what is becoming a real issue for the wine industry. We see ourselves not as a bank but more of a service provider and a business tool for wine industry clients. "Banks are also clients of ours and our tool allows banks and institutional investors to efficiently deploy capital into the industry."
So how does Ferovinum work for the 700 plus wine producers in the UK? Rather than taking out loans, the platform enables vineyards to place stock on the platform and turn it into a just-in-time asset which acts as a vehicle to fund and manage their stock for the period they are maturing or even during the marketing process. Mitchel said: "There are a lot of similarities between the large-scale commodity markets and the wine and spirits trade, however, unlike the commodity markets, there is a huge deficiency in capital in the wine business as there are a lot of smaller independent businesses. We saw the opportunity to take the concepts we had built up in investment banking and apply them to an industry that I love and combine that with technology to make the same sort of tools available in commodities markets accessible to the wine industry."
Helping wine producers to break into new markets overseas is also an opportunity that Ferovinum sees growth in. The company will soon add capability into their platform that will allow firms to hold stock in their target export markets in Europe and the United States. This means UK exporters will be able to fund, for example, wine stock held in the US until it is sold to a distributor with the same facility also available to American clients looking to export to Britain and Europe. "We saw the opportunity to take the concepts we had built up in investment banking and apply them to an industry that I love and combine that with technology to make the same sort of tools available in commodities markets accessible to the wine industry." Mitchel said: "Our goal is to take away the biggest points of friction for people in terms of getting their products into the most attractive markets. "We fund the stock while it is in the UK, fund it getting to the US, while it is held in a warehouse before being delivered to a distributor. We also fund and insure the credit risk on payment terms provided to distributors in those key markets for our clients."
When the Ferovinum team began developing the platform, they discovered that much of the wine ecosystem had basic technology stacks due to the fragmented nature of the industry and the number of small producers. This was a light bulb moment for the Ferovinum team, and they began adding on logistics and sales bolt-ons to the platform. Mitchel said: "The wine industry, because of its fragmentation, is massively underinvested when it comes to its software. "The finance was the core part of our product, but we discovered we could also add huge value for our clients through software integrations with different parts of the supply chain. "When they sell to an end customer, they can now manage sales, inventory, funding, credit risk, and insurance all in one place. "We have also built software integrations with third-party logistics and fulfillment providers, to help automate and reduce the operational cost of getting the product to the end customers."
Wine producers in the UK have long lamented the lack of banking options for the UK's growing wine industry, pointing to the custom financial facilities in the wine markets of France, Italy, and Spain. Charles Simpson of Simpsons Wine Estate said: "Countries in traditional wine markets have banks that are specifically set up to support the wine business and understand the process that goes into winemaking and understand the long-term process. "They have financial products that are very well suited to our industry; however, in the UK, it is such a young industry that some of the banks do not understand it yet and are opting for the square peg in a round hole approach to funding." Mitchel said there was a will from banks to invest in the sector but that they were drawing on lending models from other industries such as agriculture and manufacturing equipment when making decisions. He said: "Each wine client is unique in terms of its inventory and its products, and it is, therefore, quite a bespoke product for a bank to offer. "There is generally a desire from banks to deploy capital into the sector, but they will have to repurpose tools from other areas, and it can be inefficient. "We think our platform solves a core problem for banks in that it utilizes our data and technology to provide a more efficient and risk-managed way to lend into the industry."
By Stephen Emerson
Stephen Emerson is the Managing Editor of The Business Magazine and is responsible for the publication's print publications and online properties including the newly launched Biz News websites in Hampshire and Dorset.
Stephen has been a journalist for 20 years and has worked at local, regional and national publications and led a team which made The Scotsman website one of the fastest growing news sites in the UK with over eight million monthly users.
He has a keen interest in technology, property and corporate finance and telling the stories of the people behind the successful firms in these sectors.
