Chinese say yes to a slice of the pie
The Chinese have taken a slice of the Australian wine pie. Online retailer YesMyWine – via the newly established Vintage China Fund (VCF) – has acquired 46 million shares in Australian Vintage (AV) for a reported $16.5 million. This puts about 15 per cent of AV in the hands of the VCF.
AV CEO Neil McGuigan burst forth with all the positive bluster that the industry and media have come to expect from the McGuigan brothers over the years. One would think that after 30 years (the length of my experience) the boys would have learnt to sift the shit from the reality. McGuigan bluff and bluster aside, this will probably turn out a good move for the company, which has been struggling for years.
What is past is past, and while the older brother, Brian McGuigan, sits on the millions he made out of his stewardship, younger brother Neil has, bullshit aside, done well in holding the firm together.
Neil came out with this statement:
“Chinese people want to drink Australian wine, they understand that wine is great to pair with food and also that there are health benefits. But you have to take them on a journey, starting soft and transitioning into wines that have a bit more spine.”
It’s worth remembering that the collective Australian wine industry entered the UK market with all the confidence that McGuigan exhibits above. It’s proved to be dangerous ground for Australian winemakers to assume they know what is best for consumers to drink.
Should Chinese consumers conclude they want to drink wine with food, they will do so. The lesson that should have been learnt from the UK is to be there when the consumer arrives, not try to force consumer direction.
Though TKR believes in defending wine in the health battles, we do so by challenging the anti-alcohol brigade’s claims about the level of harm that wine causes. For McGuigan to say there are health benefits is completely naive. In fact, it’s about the dumbest comment made this year.
The amount of wine that YesMyWine can potentially shift is huge, and hopefully for AV it will be at a price that makes a better return then flogging own-label brands to Tesco and other UK supermarket groups.
In the past AV has been slow to acknowledge the Chinese market, and the feeble attempts it has made to gain a slice have not boded well for it.
With luck, the extra profit generated will go some way to reduce AV’s debt, as profits over the past five years have been skinny:
In five years the company has taken $1.12 billion, with net profits of just $32 million. It’s not enough to significantly pay down the net debt of $101.4 million (June 2016).
It’s also worth noting that the VCF has been established to invest in Australian wine. This may not be its only investment. It’s possible that, depending of the success of AV wines in China, VCF could go after the rest of the company. But profits would have to be larger to take on that debt. If the debt were reduced via dramatically increased profits, the share price, indeed the value of AV, would increase. It will be fascinating to see how the game plays out. Will VCF see the potential and make a move before the value of AV increases? Or will it seek other investments?
The market moved the AV share price from about 43 to 48 on the news, but it started to slip towards the end of last week.
Battaglene joins the battle
At last, Winemakers’ Federation of Australia (WFA) CEO Tony Battaglene has made a statement about the attack on wine by the Foundation for Alcohol Research and Education (FARE).
It’s on the weak side, starting with the WFA being, “deeply disappointed”. Deeply disappointed? This is not tea with your great Aunt Gladys, who is “deeply disappointed” you have trailed dog poo into the parlour. This is FARE we’re dealing with, and, boy, does it know how to twist the public perception of alcohol.
Battaglene goes through a litany of positives about the Australian wine industry:
• The Australian wine industry contributes $40.2 billion in gross output to the Australian economy. This includes $19.7 billion in value (value-added).
• It contributes $10.4 billion in wages and salaries from full-time and part-time employment.
• It supports 172,736 full-time and part-time jobs, most of which are in regional Australia.
Battaglene steps up the pace with:
“These allegations are outrageous and insulting to the 170,000 workers who rely on the wine sector for a living. The wine industry takes corporate governance seriously, and plays a significant role in Australia’s regional economies. It is disappointing that an anti-alcohol lobby group once again slurs the whole industry and regional Australia.”
The release then says: “The rather superficial analysis…”
There is no “rather”, Mr Battaglene. You are scrapping on behalf of that $40 billion industry. Fight, man, don’t pansy around with sissy, weasel words.
It’s good, very good, to see a response. But where is the follow-up? I’ll leave it there. Battaglene also made comment on the budget: he’s happy with the result.
The worth of Woolies
Woolworths released its third-quarter report at the beginning of this month. The main figures:
• Total sales from continuing operations: $13.81 billion, up 3.7 per cent
• Australian food: $9.28 billion, up 5.1 per cent
• Endeavour Drinks Group: $1.88 billion, up 2.3 per cent
Dragging the chain for Woolworths was the Big W operation, with sales down 8.6 per cent. TKR has an idea: if Woolworths clears out about 10,000 food store SKUs, and, Aldi-like, dumps a revolving range of Big W lines in the centre of the stores, it could do well.
On a serious side, the company is holding steady. The year-end will make interesting reading. At the moment, liquor wise, there are 216 Dan Murphy’s stores, 1295 BWS stores and 329 hotels.
Perth-based BWS employee Alex Ch’ng believes the increasing popularity of craft beer is a positive step for Australia’s drinking culture, but is concerned about the future of wine. He says:
“A growing numbers of drinkers are eschewing bland, tasteless, commercial products in favour of beers with real character and flavour, drinking for enjoyment rather than to get drunk. Craft beer has successfully tapped (pun not intended) a huge market. All this is good for the craft beer industry, but is wine missing out?
“When exploring the beer section of a liquor store, it’s comparatively easy to tell the difference between mainstream and craft beer. Head over to the wines, and the difference between wines made by a high quality small producer (craft wine), and wines made in bulk is not easy to differentiate by label alone.
“This is, of course, going to become an issue for craft beer too. In the US, Walmart is being sued for labelling its mass-produced beer as being brewed by Trouble Brewing, a fictitious company. Misleading labels are common in wine, and it can be difficult to tell what you are buying.
“Another big issue for wine is the veil of obscurity surrounding it. There are so many varietals, regions, and styles out there, and many newcomers feel that it is necessary to know them all, which is a Herculean task.
“Exploring wine is like visiting an art gallery. You can go to simply enjoy the experience, but some feel pressured to analyse and understand everything for fear of looking foolish. To me, this is the biggest factor preventing people from really getting into wine.
“There are other factors that make wine a harder sell than craft beer: convenience and price. Convenience can be a barrier for wine. In the store, we frequently have customers wanting half bottles. Unfortunately, wine basically comes in a format unsuited for most single drinkers. When I am looking to try a new wine, I find myself having to account for the preferences of two or more other people, since I’ll be sharing it with them. A bottle of beer, however, is designed for one person to drink. The size is ideal for experimenting with different beers, as even the most expensive beers tend to run under $10 a bottle (there are exceptions).
“The craft beer boom is well underway. How will the wine industry create its own boom?”
Will organic, biodynamic, or the so called natural wines provide the next wine industry boom? Probably not, but Matthew Sievier, BWS store manager at Bondi Junction, is a strong advocate for organic wines.
Matthew has been working for Woolworths/BWS since 2012. He says: “When I first moved to Bondi Junction I was challenged to use my product knowledge and my adaptive leadership style to ‘do something different’ with the store. After understanding what our customers were asking for, I came up with an organic wine section. After much effort, headbutting, and negotiation with the wine buying and business teams, it was finally approved. It has been a huge success and BWS has embraced it to the point where at least 50 stores have an organic wine section, and more are planning to put one in place.”
Matthew’s view on where Australia should go with its organic wines:
“Australia has a strong domestic and international reputation for bio security and quality of farmed products in all industries: livestock, grain, aquaculture, fruit, vegetables and grapes and wine. One way to strengthen the quality and support a higher price point compared to cheap imports of alternative New World wines, such as South American options, is to develop some sort of increased and certified extra quality.
“Australia does not have systems in place like the appellation controls in Europe, but we are still very well known for our wine. Organic, no preservative added, vegan, biodynamic and carbon-neutral are all certifications that are starting to appear on labels, with many brands exclusively producing these products. Currently McLaren Vale is going through one of the largest pushes of organic and biodynamic certification in Australia to solidify a point of difference in quality and sustainability.
“There is a stigma behind organic and preservative-free wine: it is believed to have a flavour profile that could be described as dirt and watered-down vinegar. Some consumers may have had negative experiences with early iterations of organic wine. Times have changed significantly. Access to information, technology, and winemaking techniques have all improved in leaps and bounds. Once a customer has tried and tasted some of the great options now available, they really become hooked.
“I think there is definitely something primal that makes us want to try wine with no chemical interference. It’s simple and natural.
“I believe the organic option is driven significantly by two primary factors. Firstly, the growing number of allergies and sensitivities, and an increased understanding in the past decade or two about reactions to preservatives (sulphites) and contact with chemicals and pesticides.
“Secondly, with a strong economy and larger disposable incomes, people in general are wanting to take better care of themselves. You only need to walk into any local major supermarket to see the number of organic options available compared with 15 to 20 years ago.
“Each individual customer has needs. A bottle of wine is not just a bottle of wine. It can be many things: a gift, a discussion starting point, a celebratory spoil, just to name a few. With an organic wine there may be a health or social conscience factor in the decision to buy.
“Organic wine is not just the latest fad. It is here to stay and will continue to grow. When a customer can get an organic bottle of wine at a comparable price and quality to conventional wine, potentially superior in both, the product may very well sell itself.”