Life, future challenge and property market

Get on with life

The Grapegrower & Winemaker (GW) March issue carries an article headed, “The future of who makes my wine”.  Nothing wrong with the article, but TKR has doubts about the worth of the subject.

“Who Makes my Wine” was a website put up by Sarah Collingwood to expose supermarket own brands. Apparently, Collingwood and others think supermarkets should declare that they own the brand name, as this will give consumers greater choice when they make a purchase decision.

The GW article says: “Coles and Woolworths have been notoriously averse to publicly disclosing their ownership.”

Featured in the article are Winemakers’ Federation of Australia (WFA) CEO Paul Evans, Sydney Morning Herald wine correspondent Huon Hooke, who is taking over hosting the website http://www.therealreview.com/who-makes-my-wine/ and John Cameron (From the Producer), who has offered to set up a wiki page so consumers can add content and dob those wicked supermarkets in.

TKR asked Evans (Evans has departed so no response), Hooke and Cameron plus Woolworths and Aldi, for comment, but before we turn to the responses, here’s TKR’s view.

Simply, we think it’s a waste of time. The Australian wine industry has far greater problems than finding out if a supermarket owns a wine brand or who the producer is behind that brand. In our email to Hooke and Cameron, we put forward many reasons why we think exposing own-brand ownership could actually cause some damage to the winery that produces the wine, and some are listed below. The wine equalisation tax (WET) issue was also discussed, TKR is aware fiddling exists but it should be sorted within the year, so that is that. We also think consumers don’t really give a toss, but Cameron says:

“It’s pretty simple from my side. I am one consumer who does give a toss, and believe that I have a right to know. It is all about transparency. Maybe I am in a minority, maybe not. But that is not the point. What is your problem with a consumer knowing?”

Hooke says he agrees that it’s really a storm in a teacup and retailers of all shapes and sizes have always had their “own brand” wines, but:

“I think the consumer has a right to know who produces what, just in case they’re interested – and plenty of them are. It’s by no means only the insiders who are asking for this information. 

“I will continue to host the Who Makes My Wine? list on huonhooke.com, but the aim is to make it much more comprehensive. As you can see, we have already added the Aldi products and updated the Woolworths list. We intend to do this for all the major retail groups (and hopefully minor players too), and expand it to the wine-producing companies themselves. In other words, we’ll list the brands of Treasury, Accolade, etc.

“We do this not to suggest that the big retailers’ products are inferior (they’re certainly not), nor that there is something ethically wrong with having a ‘home brand’ and not disclosing its ownership on the back label – although many people disagree with me on this point. 

“It’s simply that people are interested in who owns what, just as they’re interested that BMW owns Rolls Royce and Volkswagen owns Bentley.”

None of the other points that TKR put forward were addressed, so it’s all about transparency for the consumer. That’s fine by us, but it’s a debate that has been going on for some time, and in our view kicking the big players while giving the impression that one is promoting the little guy is not solving any of the deeper industry issues. Consider these TKR views, which remain unanswered:

Picking a random point in time, say the 1960s, a time when there were fewer wineries and more independent wine retailers, many a deal was done between winery and retailer that shifted some winery stock for quick cash that the independent sold as a cleanskin.

What about the 44-gallon drums of wine sold to schools and clubs that were bottled at a working bee and went out under a school/club label?

Is it all the fault of the retailers? Perhaps it should be considered a two-way street. The producer might not wish it known they supply own brand. TKR knows a few producers that have supplied Aldi with own brands. We would wager that several of the First Families of Wine, who, let’s face it, like to convey “we protect the sanctity of wine”, are involved in own brand.

When a producer has a successful brand it costs money to maintain it: advertising, marketing and retail promotions are involved, adding costs. To stop a bottling line and change the label spools, plus the cartons, is not a long procedure so to continue the run with the same wine under an own brand makes sense. The wine can be sold cheaper and add some cash flow, which is always welcome.

Consider the issue of brands being sold in retail, say at $12, and a restaurant not stocking them because they need to charge closer to $40 and it upsets their diners to see such mark-ups. Wineries create special labels for them. Is it really different wine or just a different label?

Devil’s Lair, Coldstream Hills, Baileys and a host of other brands are in the Treasury Wine Estates (TWE) portfolio. Is there a need for that information to be on the label? Are consumers aware that Accolade Wines is majority owned by CHAMP private equity, or that Jacob’s Creek is owned by the French company Pernod Ricard?

Pinnacle Drinks http://www.pinnacledrinks.com.au/ is the company that supplies Woolworths with its own brand wine and spirits. Visit the website and see that it’s all clearly laid out. In an email exchange last month, Andrew Wilsmore from Woolworths explained to Lars Herold, CEO of Corkscore, the company set-up:

“Very happy to answer your question on why we don’t label them as Woolworths. It is because we are not Woolworths. Woolworths is the retail brand of our fellow supermarket retailer. While we are part of the wider Woolworths Limited group of companies, they all have distinct personalities and differences. 

“Woolworths Liquor Group itself is actually a group of businesses. Within our business is the well-known BWS and Dan’s brick-and-mortar stores. Of its ~1200 total store network, just 538 BWS stores are adjacent to a supermarket or located in close proximity within a shopping centre. The majority are standalone in high streets, drive-throughs, or attached to pubs. We actually undertook one of the largest rebranding exercises in corporate history in 2013 by changing all the attached stores from “Woolworths Liquor” to “BWS”. This reflects a strategy to create a distinct personality and culture for the BWS team.

“We also have interest in the ALH pub group, a collection of digital businesses at The Wine Quarter (Langton’s, Cellarmasters, Winemarket.com.au, a packaging plant in the Barossa called Vinpac, a winery in the Barossa and Marlborough, and even a distribution company in China called Summergate.

“Nearly all of these range some wine, beer and spirit SKUs from Pinnacle. 

“If Australian licensing laws allowed wine to be sold easily within the supermarket aisle (like many other countries) and our supermarket business strategy wanted to take advantage of it, then we might consider a ‘Proudly made for Woolworths’ wine. We know from experience among UK retailers and the likes of ALDI that these wines are seen by customers as carrying a ‘trust mark’ if the well-recognised retailer places their name and reputation on them. We are already doing similar with a few SKUs in both Dan’s and BWS, eg the ‘Gentleman’s Agreement’ in Dan’s and ‘The Gavel” in BWS.”

Aldi provided the following statement:

“We partner with a number of high calibre international and Australian wine suppliers, who each share our passion for high quality. We have built strong relationships with these suppliers who are committed to ensuring that our wine products offer high value at their respective price points. 

“Based on confidentiality agreements that we have in place, we do not disclose information on our suppliers unless agreed with them individually.”

As said earlier, it could be the producers want to remain in the background to protect their own brands.

Enough, already. Let’s get on with life and the real issues that challenge the Australian wine industry.

This is a challenge 

Health and alcohol are real issues that have greater potential to harm the wine industry than own brands. The latest Roy Morgan research shows in any four-week period adult Australians collectively drink 426 million glasses of alcohol. This works out at 5.75 glasses per person per week. In the world of statistics, that can be considered good news, which no doubt will upset the health authorities, which constantly berate the population on their drinking habits.

It’s a glass a day, with one alcohol-free day. OK, it’s not the two alcohol-free days recommended, but it is less than the Australian Department of Health recommended intake of two standard drinks on any day.

The Roy Morgan report sorts out what form of alcohol is consumed:

“For every 100 glasses of liquor consumed by Aussies in an average four weeks, 48 glasses are beer, 25 are still wine, 11 are spirits, six are Ready-To-Drink, four are sparkling wine/champagne, three are cider, two are liqueur and one is fortified wine.”

Drinking habbits

Source: Roy Morgan Single Source (Australia), January–December 2015 (n=15,676). Base: Australians 18+

There are further divisions:

  • The beer component comprises 50 glasses out of each 100 consumed by the 18-24-year-old-age bracket, but only 42 among drinkers aged 65 and over.
  • Wine accounts for 48 of every 100 glasses drunk by the 65 plus demographic: 42 being still wine, four being sparkling/champagne, and two being fortified. This is substantially more than any other age group: in fact, the number of glasses of wine consumed per 100 increases in proportion with age.
  • Drinkers aged 18-24 years consume more spirits (16 glasses), RTD (also 16 glasses) and cider (three glasses) per average 100 glasses than any other age group.

Compare the above with last week’s TKR article based on the Royal Australasian College of Physicians report on the damage that alcohol inflicts on the Australian population. Its recommendations include:

  • Blood-alcohol limit for drivers to decrease from .05 to .02 and then to zero
  • The legal drinking age to rise
  • Trading hours for licensed premises and bottle shops to be shortened
  • Sports sponsorship by alcohol companies to be banned
  • A total ban on advertising alcohol to young people
  • Packaging to carry warning labels

The Foundation for Alcohol Research and Education says about 20 per cent of the population consumes about 75 per cent of all alcohol.

The hardest part of understanding the for/anti-alcohol argument is the statistics produced. If we could have the truth and work out where wine fits, the appropriate action could be implemented.

Going, going………

There’s been plenty of actively in the property market for vineyards. Or, put another way, there are plenty of vineyards on the market. How well they sell is another matter. It’s ironic that some people get upset if a vineyard goes to overseas ownership, but better that than seeing sellers and possibly communities die.

Treasury Wine Estates (TWE) is selling off what it considers to be non-core assets: eight properties comprising two vineyards, three homes and three rural lots:

  • Bordertown: 104.9ha (259ac) and an 85.8ha (212ac) (offered as a whole or as two contingent allotments)
  • Clare Valley: Polish Hill River Vineyard, 16.3ha (40ac) approx. 13.1ha planted to riesling
  • Eden Valley: 1.18 hectares with substantial, modern 4-5 bedroom home and a 6029sqm, attractive 3-bedroom home separate lot
  • Lyndoch: Vineyard 42ha with 27ha planted to chardonnay, semillon and shiraz plus stone homestead and associated shedding
  • Drumborg: 30.1ha (74ac) approx. grazing/cropping land and a timber-clad cottage on 2ha situated on the Princess Hwy

A report in the Australian Financial Review on April 3 said the Shaw family, having failed to find an equity partner for its Ballast Stone Estate Wines, has put the property on the market.

Why it’s featured in the AFR now is a mystery, as the vineyards were put up for sale last September/October. Also a mystery is why the Shaws couldn’t find a suitable partner.

Perhaps it’s too large a total land area: 926 hectares with 432 hectares planted. No price is mentioned but estimates based on vineyard land has put the price at about $10 million. Production is about 52,000 nine-litre cases of bottled wines and 1.25 million litres of bulk wine in a 7500-tonne winery.

The sale includes several brands retailing between $12 and $25. The company was reported to be returning $6.7 million in sales, but not processing all the grapes grown.

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