Don’t trust the Californian’s or the weather

Californian push

Last week I proposed that the Californian push to get its wine exports to the UK up to US$400 million ($530 million) by 2020 would require it to tackle the sub-£10 ($16.50) market to succeed. I made this claim despite the Californian Wine Institute saying it was after the above-£10 sector.

If California is tackling the sub-£10 sector it’s my view that Australia will be firmly in the sights of the new team of Justin Knock MW and Damien Jackman. Wine Australia CEO Andreas Clark was of the view that the new team would focus on the above-£10 sector.

A story in Off Licence News this week included the following comments from Knock:

  • “No targets” other than “just grow the category”.
  • Knock said he expected to continue the previous team’s focus on premium wines but said the mainstream end of the market wouldn’t be ignored.
  • “Our most recent experience in retail helps us to understand the independent sector but I think one of the attractive things in our pitch was that we also have experience with mass market Californian brands. Whether you like that style of wine or not, brands like Blossom Hill have done well because they know what they are doing and the wines are perfectly pitched to their target market.”
  • “Having that knowledge of the pointy end of the trade will help us understand how we can grow California for everyone.”

To me that reads that California is after any SKUs in any price sector that can be got. That will mean taking share from Australia.

Wild weather

Wild weather – hailstorms along the Murray and an earthquake in New Zealand – has taken its toll on grapevines and winery infrastructure. We have some early reports in the Australian Wine News section. Wild weather across France has reduced the 2016 vintage. Perhaps there will be a global shortage of wine in 2017, as the International Organisation of Vine and Wine (OIV) is predicting. The weather’s effect on pricing, both for grapes and retail prices per bottle, will be fascinating to observe. Has the era of really cheap wine come to an end?

Accolade woe

Also fascinating will be the effect the bad weather has on the listing/sale of Accolade Wines early next year. Will shortages and possible higher grape prices affect the value of Accolade? Hard to say, but if Accolade is going to have less wine available until after the 2017 vintage it could suffer financially.

Accolade has agreed to buy Fine Wine Partners (FWP) from Lion Australia. The selling price is said to be about $100 million. It’s quite a drop from around the $400 million that Lion Nathan forked out for the Petaluma and Banksia groups at the turn of the century.

It’s a good deal for Accolade, which adds the Petaluma, Croser, St Hallett, Knappstein, Tatachilla and Stonier brands to its portfolio.

It already has Grant Burge and a host of other brands, though some, such as Leasingham, Reynella and Amberley, haven’t been looked after as well as they could have been. How well the team can cope with an extra half-dozen brands plus the distribution and agency side of FWP remains to be seen. I simply do not accept acting CEO Michael East’s statement to the media last week:

“The acquisition of the FWP business and brands will strategically enhance Accolade Wines product leadership, complementing our current brand portfolio, while integrating seamlessly into our business model.”

It’s reminiscent of statements that the directors of Lion Nathan were making when they first bought into wine, which went something like: beer consumption is going down and the world is demanding fine wine. 

The world wasn’t then and isn’t now. I think Accolade is hanging a lot of hope on a minuscule shift upwards in people drinking better wine.

That aside, the focus for Accolade owners CHAMP Private Equity (80 per cent) and Constellation Brands (20 per cent) is the massive drop in available Riverland fruit at knockdown prices in 2017, which remains the core of Accolade’s business.

It seems reasonable that if anyone is interested in investing in, or buying outright, Accolade Wines, it would make sense to wait until the end of 2017 to see how it copes and the returns it can offer.

All Change

It’s all change at the Winemakers Federation Sandy Clark, former Chairman of Brown Brothers Group and Mitchelton Wines takes the Chair of WFA. Tony D’Aloisio is required to step down as only two terms are allowed.

Not surprisingly Tony Battaglene has been appointed to full time CEO of the WFA after almost a year as acting CEO. Other appointments include

Large Winemaker Board Representatives:

  • Georgia Lennon, Accolade Wines
  • Helen Strachan, Pernod Ricard Winemakers Pty Ltd

Medium Winemaker Board Representatives:

  • Alistair Purbrick, Tahbilk Pty Ltd
  • Bill Moularadellis, Kingston Estate Wines Pty Ltd
  • Darren de Bortoli, de Bortoli Wines

Small Winemaker Board Representative:

  • James Marsh, Heathvale Wines Pty Ltd (Permanent Alternate)

Eat, drink, sleep, make love and be merry this coming week

Tony

1 thought on “Don’t trust the Californian’s or the weather”

  1. I know that winemakers would love to sell only plus $20 bottles of wine, but unfortunately that won’t happen in the short/medium term. Australia has a proverbial glut of all wines and the only way to clear the back log, is to shift it at a lower price, say sub $10 p/b into emerging wine markets and then after educating their palates to move into the more expensive lines.

    I also know that there are a large number of quality wines on the Australian market in the $5 range, that are more than just drinkable and every now and then you come across a real cracker. One that comes to mind is the De De Bortoli Sacred Hill range.

    Big sales often hasten slowly and patience is the key, I can attest to this theory, for when I became national marketing manager for a large Merino Sheep stud in Southern NSW, I had 5000 rams to market each year, facing a situation of only being able to place 1000 of them at $150 p/hd, I started a marketing strategy of selling rams at a price that would appeal to prospective clients. The meat price of the rams was only $10 p/d, so I offered them at $20 p/d into areas of Australia that required large drafts of rams each year and after some pretty aggressive marketing, in a short period of time had lifted my rams sales from 1000 pa to over 3000 pa. Although the profit margin was small, the results were there, for as the results in their new breeding improved and confidence in the blood line of the rams that they were purchasing, increased, then they were asking for higher grades of rams, all it took was patience.
    Cheers, David

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