Aus/US dollar Woolworths Wine Australia & theory

Dollar dreams

After the Reserve Bank of Australia (RBA) cut the cash rate to 1.75 per cent last week, the Australian dollar fell just over 3 per cent against the US dollar. This will please wine exporters.

News on Monday, May 9, was of a possible future cut, which could bring the Aus-US rate to about 66 cents. The 52-week high has been 81.68, with the low at 68.24. On the morning of May 11 the dollar was trading at 73.69.

Steady as she goes

Woolworths’ third-quarter results were somewhat flat, the total sales from continuing operations amounting to $14.4 billion, down from $14.5 billion in the corresponding period last year (a fall of 0.7 per cent). Interestingly, the discontinued Masters and Home Timber and Hardware came to the rescue, tipping $507 million into the pot, 11.4 per cent up on the $455 million last year. The final sales results were $14.9 billion, 0.3 per cent down on last year.

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The market didn’t greet the result with cheer. The share price dropped from $22.27 to $20.71, though it started a recovery, reaching $22.80 at close of play on Wednesday, May 11.

What might steady nerves is the outline that recently installed CEO Brad Banducci has put forward for the company, including the grouping of the liquor side of the business under Endeavour Drinks Group, which includes Dan Murphy’s, BWS, The Wine Quarter, Pinnacle Drinks and Summergate, the Chinese distribution business.

There has been speculation in the media that this sector could be floated separately. Should this happen it would be a shift not only in retailing but the Australian wine industry.

Banducci has said it will take three to five years to get the company back on track. He needs this time to rejig the systems that one newspaper reported as having hindered sales.

Despite the wine industry’s dislike of Woolworths as a retailer of wine, it needs the company to be healthy for many producers to survive.

More theory

Wine Australia (WA) has announced it is to invest $8.5 million over the next four years in 12 new research and development (R&D) projects.

This sounds like good news, but will the research do as WA says: “Help increase demand and the premium paid for Australian wine and increase the grape and wine sector’s competitiveness.”

Leading horses to water and them not drinking is what comes to mind. The Australian wine industry believes that if it keeps telling consumers how good its wines are they will be convinced and flock to retailers to obtain cases of the blessed nectar at ever increasing prices.

Despite the numbers of marketing folk that have passed through Roseworthy and Adelaide University, their collective genius has resulted in not a lot.

Consumers will have to come to Australian wine in their own good time, and pay the prices they believe the wine is worth. Despite the small increases in higher priced wines in the UK and US markets there is much work to do. TKR is not sure a report is required.

Nor are we sure of this statement:

“We will provide tangible evidence to support our fine wine claims through R&D into Australia’s unique terroirs and how these terroirs influence wine style and quality. These projects will focus on better understanding how and why fine Australian wines reflect their provenance and terroir and what changes in management practices can be adopted to more optimally express Australian terroirs. They will also contribute to the development of objective measures of wine quality.”

Interesting maybe, but TKR would be surprised if it upped the price of Yellow Tail or Lindeman’s Bin range. How will it affect Penfolds Grange, which prefers to remain multi-regional?

Sparkling wine: “This project will develop and test objective measures of quality for sparkling wine, including understanding how the aged character develops in sparkling and how to achieve this more efficiently. It will be led by the Tasmanian Institute of Agriculture (TIA) with the University of Adelaide and the Australian Wine Research Institute (AWRI) as collaborators.”

Go ask Ed Carr, House of Arras and Accolade Wines chief sparkling winemaker. He can answer this in half a day. Look more to falling sparkling wine exports and also consider why champagne imports are increasing.

There are another 10 projects, and all are worthy, or not, depending on from which position they are viewed. Australia is among the global leaders, if not the leader, in wine-related R&D. There is nothing wrong with our theory, just our practical ability to manage brands and enchant consumers.

 

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