Key Report news for 2016, the year of?

2016: the year of…?

How can 2016 be summed up? Was it a year of progress, decline or stagnation? Below is a month-by-month account of 2016, seen through the reports in TKR. The italics are comments written on 21 December.

JANUARY:

Woolworths did not have the best of years [2015] and enters 2016 with its share price down close to the 52-week low of $22.41 (the high being $34.71). It, along with Coles, faces challenges from Aldi this year, and perhaps Costco. Should Lidl gain a foothold it could be all-out war.

The Woolworths share price at close of play on 20 December was $23.65, with the year high being $26.05. Lidl has said it’s not interested in Australia, but Aldi has entered South Australia and Western Australia and is keeping up the pressure on Coles and Woolworths. Costco is expanding, but slowly.


Treasury Wine Estates (TWE) completes its US$600 million ($862 million) acquisition of Diageo wine assets and looks set for a busy 2016. Will it sell parts or keep all intact? TKR thinks the group will do the former, so there’s a newsworthy year ahead.

The TWE share price wavered between $7.83 and $8 over much of December 2015 but was trading at $7.95 at lunchtime on 12 January. Buying the Diageo brands pushed the share price skywards; it hit a high in January of $9.35.

So far TWE has kept the Diageo brands but did offload 12 other minor brands in the US. At close of play on 20 December the price was $10.29. Its year high was $11.57.


The total value of wine exports in 2015 passed the $2 billion mark. An increase in value of 14 per cent meant $2.1 billion in pockets. Volume was down to 744 million litres, meaning an average increase of 7 per cent to $2.78 a litre. Splitting this into bottle and bulk exports:

  • Bottled wine exports: average value $5.20 a litre
  • Bulk wine exports: $0.97 a litre

Andrew Weeks, executive director of Wine Grape Growers Australia, says growers are becoming frustrated that they can’t secure a share of margin in the supply chain. The average price per tonne for several regions:

 

($/tonne) 2008 2009 2010 2011 2012 2013 2014 2015
Riverland $610 $431 $308 $315 $388 $404 $336 $326
Barossa $1246 $1100 $1008 $933 $1158 $1353 $1687 $1827
Coonawarra $1460 $1301 $1039 $918 $1367 $1628 $1629 $1512
Langhorne $955 $820 $660 $599 $762 $1,066 $902 $831
Margaret River $1498 $1527 $1719 $1615 $1542 $1693 $1700 $1664
Wrattonbuly $1379 $1185 $935 $569 $1006 $1317 $1320 $1191
Yarra Valley $1457 $1830 $1497 $1199 $1373 $1064 $1583 $1373

The National Australia Bank’s January Business View has a focus on state economies and how the movement of economic activity towards the non-mining states is continuing, while conditions in mining states have become tougher as commodity prices have fallen further.

The report says though the dollar is acting as a stabiliser we should be aware that the disturbed global backdrop presents downside risk to all states and territories. There is mention of the dollar falling to 66 cents to the American dollar, which will “continue to improve the competitiveness of export-oriented and import-competing firms to varying degrees”.

The bank fell short on this prediction. The closest the Australian dollar came was 69.3 on 16 January, but most of the year it’s been above 70 cents.


FEBRUARY:

Mike Clarke, CEO of Treasury Wine Estates (TWE), tells The Age he is halfway to retiring up to 30 per cent of the company’s product lines. He says he’s not selling any brands, just packing them away for a time.

The recent TWE half-year report got a good reception from global media.

Clarke is strengthening his hold on TWE management. Just over a year ago he promoted Bob Spooner, his old mate from the UK, to replace chief supply officer Stuart McNab, who was shunted out after 20 years’ service. Spooner proved his loyalty to Clarke by carrying out the hatchet job at Great Western, and moved to the US, to replace Sandra LeDrew as America’s president. LeDrew is departing TWE at the end of the month. No doubt she was as surprised as McNab was.

It’s been a great year for TWE and Clarke is feted by shareholders.


The French often accuse Australia of making industrial wine. TKR does not believe the French are any different, the terroir argument being rubbish. Look how some of the great Bordeaux estates have grown since the 1855 classification and consider how the heavy use of pesticides in the region may have affected the style of wine. Add the Robert Parker effect and the standard winemaking style that is spreading across Bordeaux, and terroir seems to come some way down the list of importance.

It has taken about 5000 years for the planet to warm 5 degrees. The predicted rate of warming for the next century is estimated to be 20 times faster. Any discussion about terroir or selected site, aspect and soil comes to nothing when the world is in danger of cooking.

Place or terroir has some effect on the quality of wine but it is very small. It’s a marketing tool to get more money for the wine.


The big industry news in February is the announcement that Paul Evans is to step down as CEO of the Winemakers’ Federation of Australia (WFA). According to the media release he is off to Melbourne to “take up a position with a corporate”.


MARCH:

Brad Banducci is appointed CEO and managing director of Woolworths. Banducci was previously MD of Woolworths Food Group, a role he will retain until the company finds a suitable candidate to fill the position. Prior to taking this role Banducci was head of Woolworths Liquor, a job in which he was very successful. Banducci knows Woolworths inside out, so will take on the new job with more understanding than an outside appointment would.

Banducci has worked hard at sorting out Woolworths. He has separated out the alcohol components and grouped them under the Endeavour Drinks Group, which includes Dan Murphy’s, BWS, The Wine Quarter, Pinnacle Drinks and Summergate, the Chinese distribution business. Some speculate this is to sell or float Endeavor as a separate company. Banducci has said it’s just to strengthen the name Woolworths as a supermarket brand.


TWE had a great first half and its share price continued to rise. Will it top $10 this year? Hard to predict, but the 12-month high had been been $9.73 so it’s getting close. At the time of writing it had slipped back to $9.55, which is still very good, as the year low was $4.78.


In an AFR article an agribusiness valuer says hobby vignerons are mostly city professionals, such as lawyers, doctors or dentists. Apparently these professionals are cashed up but have little business savvy.

Having plenty of cash comes about by being savvy. Doctors, dentists and lawyers are among some of the greediest people TKR has met; they charge like the proverbial bull.

It was mainly greed that led these professionals to dabble in wine, and greed deserves to be punished.


There is a heap of good quality sparkling wine in Australia, a good proportion of it a match or champagne. Sparkling wine exports are going down yet we continue to increase champagne imports. In 2015 imports went up by more than 24 per cent, amounting to 8,110,106 bottles. Australia is the sixth largest export market for champagne.

I note Dan Murphy’s has started importing English sparkling wine


Angela Slade decides to leave her role as regional director North America for Wine Australia.


Penfolds is voted the World’s Most Admired Wine Brand by Drinks International. It’s been in the running for several years and it’s good to see it reach the top spot.


French winemakers are up in arms over Chilean winery Cono Sur’s sponsorship of the Tour de France.

The New Zealanders are miffed that New Zealand brand Mud House, owned by Accolade Wines, is sponsoring the British and Irish Lions rugby team for the 2017 tour of New Zealand.


Lifting the image of Australian wine is in the hands of producers. But it was producers who lowered the bar and who are responsible for the image that Australian wine has. John Angove says: “Whether we like it or not, we are a commercial product at that end of the market and we need to find the innovation to meet the prices if we’re going to stay there; that will be a challenge.”

Collin Campbell wants more cohesion among various groups – i.e. the WFA and Wine Grape Growers Australia – when dealing with government.

Wolf Blass follows the line about excess grapes and discounting, which he says is “giving us a terrible bloody reputation and we don’t deserve it”.

TKR: Unfortunately, Mr Blass, we do deserve it. Australia led the way in the UK with three bottles for a tenner and discounting in supermarkets. Australian wine is reaping what it sowed. In the US Australia pushed over-sugared critter brands that were dull but appealed to a sector of the market, or overpriced high-alcohol offerings that were brutes but did well in Parker-point fairyland. Well-made quality wine showing character and elegance at reasonable prices lost out.


APRIL:

The Chinese billionaire club is buying Bordeaux properties. Jack Ma, founder and executive chairman of the Alibaba Group, is said to be the richest man in China. He recently paid more than $22 million for Château de Sours, in Entre-Deux-Mers.

He arrived in the region with several mates, with the reported intention of buying 20 châteaux this year, increasing to a total of 30 next year. It’s estimated that about 130 Bordeaux châteaux are owned by Chinese. These buyers normally have distribution in place back in China, or retail space. Ma plans to sell his and other wines online.


The current assumption is that a warmer England will be beneficial for grape growing. Between 2004 and 2013 UK vineyard area increased 148 per cent, with the number of vineyards rising to 448 by 2013, and the average vineyard size increasing in that period from 2.24 to 4 hectares.


Constellation Brands buys five brands from the Prisoner Wine Company at a reported price of US$285 million. The brands:

  • The Prisoner
  • Saldo
  • Cuttings
  • Blindfold
  • Thorn

The Prisoner retails at around US$45, Saldo and Blindfold US$30, Thorn US$40 and Cuttings US$50. The red blend sector above US$20 is up 30 per cent in the US.


According to a Vinexpo statement, wine consumption in India will rise by 73 per cent in 2017. If this comes about it could tie in neatly with Australia-India free trade agreement negotiations. Though Australia has agreed to reductions of duties on about 9000 items, India has not yet agreed to reduce duty on wine.


The International Organisation of Vine and Wine (OIV) releases information on “the potential wine production, assessment of the harvest, and state of the market and international trade in 2015” at its Paris HQ on 18 April.

World wine production increased by 2.2 per cent in 2015 to reach 274.4mhl (millions of hectolitres). This was an increase on 2014 but still below 2013 and way below the 2004 high of 296mhl.

The average for this century is 272.12 mhl, which in our opinion is too high. Not that TKR’s opinion will change the world’s grape growing or wine production trends. It’s amazing how a few make really good money and others lose or barely break even in both aspects of the grape.

How good would it be if each of the countries listed below reduced their crops 10 per cent?

  • Italy is the biggest producer in the world: 49.5mhl
  • France: 47.5mhl
  • Spain: 37.2mhl
  • US: 22.1mhl
  • Argentina: 13.4mhl
  • Chile: 12.9mhl
  • Australia: 11.9mhl
  • South Africa: 11.2mhl
  • China: 11mhl

If Yellow Tail is selling 8 million cases (72 million litres) it accounts for about 45 per cent of total shipments to the US. As Yellow Tail ships in bottle it’s not unreasonable to assume it accounts for about 72 million litres of the 92 million litres in the bottled $2.50 to $4.99 a litre sector.

In the year to the end of March, 33.93 million litres of wine was exported in bottle at the case (12 bottles) price of $22.41 or below. China, the US, UK and Malaysia accounted for just under 29 million litres of the total.

The total is 3.77 million cases. Taking the uppermost case price of $22.41 and deducting $15 for bottle, cap, label, carton and transport to dockside, the wine is $7.41, or 82 cents a litre. If we are to believe the rule of thumb that the break-even point is $1 a litre, these cases could be losing money. If not losing money, they are not making a great deal. The profit could be in WET rebates, but if so, it’s a grey area and not a place Australian wine needs to be. Also, what is the quality of these wines? Are they doing any damage to the overall reputation of Australian wine in the global market?

The next price bracket up is $2.50 to $4.99 a litre and this is the largest bottled export sector, accounting for 740.3 million litres (out of a total 1.66 billion litres exported). Most bottled Australian wine that is exported goes out at an FOB price of $22.50 to $44.91 a case.


MAY:

In this year’s Australian budget, the alcohol focus is on wine. There is to be a reduction in the wine equalisation tax (WET) rebate cap from $500,000 to $350,000. This will be implemented on July 1, 2017, and reduced further to $290,000 on July 1, 2018, with tighter eligibility criteria from July 1, 2019.


Woolworths’ third-quarter results are 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.

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.


On Monday 9 May the share price of Treasury Wine Estates (TWE) moves into the $10-plus range.


JUNE:

While the Winemakers’ Federation of Australia (WFA) battles wine equalisation tax (WET) issues, the health lobby heats up the alcohol tax debate.

Catholic health provider St Vincent’s Health Australia fires a broadside, arguing for increased taxation by calling for the Coalition, Labor and Greens to commit to reducing alcohol-related harm by 20 per cent by 2025.

St Vincent’s is asking for:

  • An end to all alcohol advertising on free-to-air TV sporting broadcasts.
  • The phasing out of alcohol sponsorship of music events.
  • Removal of all alcohol sponsorship from sporting merchandise (particularly topical given the alcohol advertising and promotion associated with the State of Origin and its first match Wednesday night).

None of the above would affect wine to any large degree, but this would:

An increase in the price of alcohol to reduce consumption and related harms – including alcohol products to be taxed on the basis of alcohol content/greatest level of harm (volumetric tax).


Wine Australia (WA) releases a positive media release on Australia’s wine performance at Vinexpo Hong Kong. “Highly chuffed” covers the general feeling. No need for TKR to go overboard by repeating the hearty backslapping that WA gave itself. But worth noting are the quotes that WA got from various sources:

Hiro Tejima, Wine Australia’s head of market Asia Pacific: “The Wine Australia stand was arguably the busiest throughout the entire show. Our exhibitors were constantly surrounded by a crowd of keen wine buyers and media from not only Hong Kong and mainland China but also Singapore, South Korea, Japan, Taiwan, Malaysia, Thailand and India among many others. There was a very special vibe about our stand that no other stand had, which is indicative of the strength of the Australian wine category in this region. Many of our 27 exhibitors commented that the visitors were remarkably more serious about exploring new business opportunities and partnerships, than they had been in previous years.”

This comment is good to hear as it was the openness and unfussy approach of Australian winemakers and export managers in the 1980s and ’90s that got the UK and other European countries excited. A personal opinion is that it was the appearance of an army of Australians waving their wine marketing diplomas that heralded the decline of interesting Australian wines in the UK, and the rise of bland brand.


The latest International Visitor Survey, to the end of March, shows positive results in the tourism sector. That translates to good news for the Australian wine industry, both domestically and hopefully when overseas visitors return to their home countries.

Total spend from visitors amounted to $37.9 billion in the year to end of March, an increase of 17 per cent ($5.4 billion) on the previous year.

Visitors aged 15 or over increased 9 per cent to 7.1 million. China is not only important as a market for Australian wine; Chinese visitors were up 23 per cent, with their spending up 38 per cent to $8.9 billion.

Australia still attracts UK and US visitors, who, between them, spent $7.5 billion. The UK and US visitor numbers increased 5 per cent and 12 per cent respectively. The main point of difference being 54 per cent of UK and 42 per cent of US visitors dispersed to regional areas, compared to 23 per cent of those from Asia.

China, the UK and US accounted for 54 per cent of total tourist spend, and coincidentally are the top three wine export destinations for Australia.

Visits to wineries were up 28 per cent. Apparently, 52 per cent of visitors rated Australia as having a high quality food and wine culture. More information with greater detail is needed, such as how many went to which regions. We know the Hunter and Barossa valleys do well, but how do others fare? We asked Geoff Turner, manager research, Tourism Australia:

“Unfortunately, the question around specific wine regions was removed early last year from the International Visitor Survey, so we can only track whether they have visited a winery in general (that is the 28 per cent figure).”


A report in The West Australian on June 15 starts:

“The lower price for Aldi’s alcohol products was one of several reasons given by the Director of Liquor Licensing to reject the German supermarket giant’s application to sell liquor at its Harrisdale store.”

The Aldi application faced opposition from the McCusker Centre for Action on Alcohol and Youth, the Executive Director of Public Health and the Commissioner of Police.

According to the article, by Tayissa Sweetlove, Woolworths-owned BWS obtained a licence in the same shopping precinct two months ago. Sweetlove’s article quotes the Director of Liquor Licensing, who said BWS offered:

“Greater benefits to consumers in the locality” because of its bigger size, products at various price points and “purposively separated and delineated” store layout.

It’s a win for the health lobby and sets a precedent for future alcohol licences across the county.


Accolade Wines releases four upmarket, highly priced and superbly packaged fortified wines for on-premise and cellar door. The really clever part is that Accolade has also released them in the travel retail market. This means they will be seen, if not bought, by thousands of travellers as they browse the duty free when travelling. The wines are in 500ml bottles:

  • Hardy’s Rare Show Sweet White (150 bottles produced), $250
  • Hardy’s Rare Liqueur Sauvignon Blanc (346 bottles), $99
  • Hardy’s Rare Tawny (864 bottles), $99
  • Hardy’s Rare Muscat (784 bottles), $99

JULY:

Marlborough Wine Estates (MWE) lists on the New Zealand Stock Exchange on June 30. The listing document makes interesting reading.

China may be noted as a strong red wine drinking nation, and MWE as a white wine producer, but about 76 per cent of MWE’s exports are to China. The company makes the observation that this red dominance means there is plenty of room to grow white wine consumption. It also plans to enter Japan, South Korea and the US.

It helps that the company is owned by Chinese nationals, headed by James Jia, and in essence will continue to be so, as only a percentage of shares will be available for New Zealanders.


Argentinean Alejandro Pedro Bulgheroni has invested in the Barossa Valley. Bulgheroni bought the 40-hectare (12 hectares planted) Greenock Farm last October for a reported $1.95 million. He has teamed with Italian wine consultant Alberto Antonini. One report said the pair spent three years exploring Australian wine regions before settling on the Barossa.

Bulgheroni and his brother Carlos rank 324th on the Forbes global billionaires list, and number one in Argentina.

Alejandro Bulgheroni’s wine holdings are impressive:

The plan for the Barossa is to plant a further 18 hectares: a mix of shiraz, grenache, mataro and semillon. A winery will be added, as will cellar door and accommodation.


The Enhanced Media Metrics Australia (Emma) Alcoholic Beverages Trends and Insights Report is released. Conducted March 2015 to February 2016, it sampled 66,456 people aged 18-plus.

The report has four consumer segments representing the 35 per cent of Australia’s adult population who are most likely to drink any alcohol more than once a week. The four segments are defined as:

Educated Ambition: 7.8 per cent of the population 18-plus are 44 per cent more likely than the population average to drink more than once a week. They are the highest earners and most educated of all segments. Success and career achievement are these consumers’ top priorities. Mostly urban and without children living at home, this segment skews strongly towards go-getting mid-life women. Frequently socialising outside the home, they are very likely to go to the theatre or an art exhibition and to dine at licensed restaurants. They also go to the cinema and eat out at cafes more often than the population average. They are relatively big drinkers of white wine and sparkling wine and significantly more likely to drink gin than other people.

Social Creatives: 5.4 per cent of the population 18-plus are 11 per cent more likely than the population average to drink more than once a week. Australia’s young, highly educated and affluent urbanites comprise this category, which is heavily skewed towards young males who place upmost importance on success and lifestyle. These achievers are hyper-engaged with technology and social media. Socialising outside the home and engaging in arts/culture are priorities for this group, who are much more likely than the population average to eat out at licensed restaurants, cafes and pubs. Social Creatives are more likely to consume tequila than any other social segment.

Serene Seclusion: 10.6 per cent of the population 18-plus are 9 per cent more likely than the population average to drink more than once a week. This group typically includes people at or near retirement living “away from it all” in regional and rural Australia. They most probably own their home outright and have lower engagement with new technology than the population average. Health and wellbeing – both for themselves personally and in general – are priorities. Introverted and conservative, they are generally content with life. Brandy and cognac index highly for this segment.

Conscientious Consumption: 11.4 per cent of the population 18-plus are 9 per cent more likely than the population average to drink more than once a week. These middle/upper middle class families are parented by highly educated, big earners who are strongly engaged with technology (particularly smartphones and tablets) and social media. They do not, however, place great importance on social status and consumption and are fiscally conservative. They are also very home and health-focused and above average readers of food and entertaining magazines. Cider ranks higher with this segment than any other group, reflecting a ‘craft’ orientation in their food and beverage choices.

Not surprisingly the report shows alcohol is a fundamental part of Australian life, with 71 per cent of adult women and 82 per cent of adult men saying they’ve consumed an alcoholic beverage in the previous four weeks before the survey.


The Wine Society has been losing money for years. The selling of valuable property on a lease-back basis was never going to provide a long-term answer.

The society makes a great deal of its tasting panel selecting the very best wines and so on, but that era ended with the arrival of the 21st century. Buying wine is not difficult. Selling wine is difficult. The society lost touch with its members, failing to provide the service needed to retain and entertain today’s consumer.

It is looking for its members to ratify a restructure in which outside investors would provide a $3 million banking facility. The question members should be asking is: why would outside investors back a $3 million facility? What is in it for them?

The Wine Society is to part with 75 per cent of the issued shares in its wholesale company for $75,000 to Australian Wine Finance. The new set-up is to be renamed TWS. The Wine Society will only buy wine from TWS and only once it has been ordered by customers.

What the society doesn’t talk about are the full logistics. If a panel picks a wine will the wholesale company buy that wine and tie up money in stock? It would then sell that stock as and when needed from orders received by TWS? If this works it would be good for the society, but what would be in it for Australian Wine Finance, which is controlled by Fogarty Wine Group in a partnership with McWilliam’s Wines.

Suppliers are owed $4.2 million, members have dropped from 35,798 in 2013 to 25,337.

The latest Impact Databank review and forecast predicts modest wine growth in the US this year. The projected increase is 1.1 per cent (about 3.5 million cases) to reach 327 million nine-litre cases.


The Wine Australia export report to end of June 2016 is bursting with good news.

There is, or should be, some concern about bottled exports at $2.50 a litre or below increasing 11 per cent overall to 15.59 million litres. There is good news in that going back five years to 2011 the figure was 34.46 million litres, so it has halved since then. But if you factor in inflation, $22.50 for a nine-litre case would be at least $24.40 a case now.


The Conte family sells its vineyards in McLaren Vale. Planted in 1965, the holding is 53 hectares and was put on the market last year for a reported $2.5 million, supposedly as the result of a divorce settlement.

The press article on the sale says the buyer was not disclosed, but TKR believes it’s Dowie Doole, and the final figure was less than the asking price. Word is the new owner plans to rejuvenate the vineyards, which have become run down.


According to Nielsen, in measured US food stores, the most popular table wine types by volume in 2015 were:

  • Chardonnay: 21 per cent share
  • Cabernet sauvignon: 14 per cent
  • Red blends/sweet reds: 10 per cent
  • Pinot grigio/gris: 9 per cent
  • Merlot: 8 per cent
  • Pinot noir: 5.5 per cent
  • Moscato: 5 per cent
  • Sauvignon blanc: 5 per cent
  • White zinfandel: 4 per cent

AUGUST:

Own labels have been around for centuries. Sainsbury’s stores (UK) in the late 19th to early 20th century were selling non-branded produce out of chests, barrels and jars. They also had own label produce. Clever producers learn how to work with supermarkets, those that can’t get a foot in the door cry unfair.

Extending the olive branch, supermarkets are revealing more about their own label offerings.


John Casella is securing his supply of grapes. Maybe he sees the previous undersupply returning in the future. Maybe TKR is wrong and Australia does need a crop of 1.8 to 2 million tonnes.

It could be Casella doesn’t want grape growers dictating prices, and prefers to control his own destiny.

The latest news is that Casella has handed over about $12 million for the 903-hectare (608ha planted) Dunvar vineyard in the Riverina. The seller was Belvino Investments, majority owned by Hong Kong-listed CK Life Sciences. Financial services group Challenger holds a minority stake.

Belvino has also sold its Del Rios 1048-hectare (896ha planted) vineyard at Swan Hill in northern Victoria, to GoFarm Australia for a reported $22-$25 million. These sales reduce Belvino’s holdings from 7124 to 5173 hectares.

Also reported as sold, to Kingston Estate Wines this past week, was the New Residence Vineyard, a 252-hectare holding with 233 hectares planted, 36.4 per cent red and 63.6 per cent white varietals.

It appears the fashion for sale and leaseback of vineyards has passed. With family companies buying large tracts of vineyards it’s also looking as if the reliance on buying grapes on contract or the spot market may also be waning.


Treasury Wine Estates Ltd (TWE) announces its 2016 financial results, and very respectable they are. Net profit after tax (NPAT) was $179.4 million (last year $77.6 million). Shareholders will be pleased, as the year-end dividend of 12 cents, added to the half-year, brought the total dividend to 20 cents, up from 14 cents in 2015 (an increase of 43 per cent).

The accounts are slightly more complex this year, as TWE acquired Diageo’s wine assets on 1 January  (at a cost of $803.8 million) and they have contributed. The Diageo figures:

  • Volume: 3.4 million nine-litre cases
  • Revenue: $200.7 million
  • Average case price: $59.26
  • EBITS: $33.2 million

The Diageo contribution is added to the regular TWE business, which was:

  • Volume: 30.2 million nine-litre cases
  • Revenue: $2031.9 million
  • Average case price: $67.31
  • EBITS: $308.8 million

After adding other income, revenue came to $2343.3 million, an increase of 18.9 per cent on 2015.


SEPTEMBER:

Australian Vintage (AV) declares its year-end results to 30 June 2016. Revenue was up, as was net profit after tax, but before one-off items. Unfortunately, the one-off item resulted in a $2 million loss. Debt has been a burden for years and still floats over $100 million, but it has been reduced by a couple of million. The basic figures:

  • Revenue increased $11.8 million to $242.7 million
  • Net profit after tax and pre-one-off items totalled $7.2 million ($7.1 million in 2015)
  • Net loss of $2.0 million after vineyard lease termination payment
  • Net debt $101.4 million, down from $103.6 million as at 30 June 2015
  • The existing banking facility has been extended to September 2019 (from September 2017)
  • Accumulated losses end of 2015 financial year: $151.58 million
  • Accumulated losses end of 2016 financial year: $153.55 million

Woolworths announces its year-end results. Group CEO Brad Banducci is endeavouring to turn the business round and the Endeavour Drinks group is playing its part. Figures rounded:

  • Total group sales and other revenue: $58.28 billion
  • Net profit after tax but before significant Items: $2.56 billion
  • Loss from discontinued operations, after tax: $3.19 billion
  • Loss for the year: $2.35 billion

For the first time the group has separated out the Endeavour Drinks Group figures. The group consists of Dan Murphy’s, BWS, Langton’s, Cellarmasters and Summergate (China):

  • Total sales: $7.59 billion
  • Earnings before interest and tax (EBIT) $483.8 million, up 4.7 per cent on last year’s $469.49 million

New Zealand wines are starring in the US market. This was reinforced in the July-August issue of Shanken Market Watch, which focuses on New Zealand wines.

The report, written by Angel Antin, is an eye-opener, saying 90 per cent of imports are sauvignon blanc. The top 10 brands account for 84 per cent of US sales.

The average shelf price is US$11.50 ($15.22), which is high. The majority of Australian wine in the US retails for less than US$8. New Zealand sauvignon blanc is now established in the US. The question being: will US consumers take on NZ pinot noir?

The bigger question: can Australian wine win back American consumers? We believe it can but there is a lot of work involved.


Pernod Ricard releases its 2015-16 sales and results. “Solid” and “encouraging” are the words the company uses to describe them. This translates to sales passing the post just a nose in front, with one star aspect being a free cash flow increase of 31 per cent to €1.06 billion ($1.56 billion).

  • Sales totalled €8.68 billion, up 2 per cent.
  • The split between established and emerging markets:
  • Mature markets: €5.41 billion, up 1 per cent
  • Emerging markets: €3.27 billion, up 3 per cent
  • Group share of net profit from recurring operations: €1.38 billion, up 4 per cent

Geographical regions:

  • Americas: 29 per cent, up 4 per cent
  • Asia and rest of world: 40 per cent, up 1 per cent
  • Europe: 31 per cent

Wine Australia congratulates itself on wine tastings held in Seoul and Tokyo. It says almost 900 guests in total attended the two events.

Japan was 10th on the export table for the year ending June 30, with a value of $44.71 million (up 3.5 per cent) and 9th in volume with 11.63 million litres (down 3.4 per cent).

Bottled wine exports accounted for $37.06 million of the total.


An article by Cameron England, business editor of the Adelaide Advertiser, on September 12, is, in TKR’s opinion, populist whingeing.

How can Australian wine advance and become adult if petty whingeing continues to hold it back? England starts his article with a list of wine brand names owned by Coles or Woolworths. He also mentions, “70 per cent of what they call ‘off premise’ wine sales but what you and I know as buying from a bottle shop”.

He goes on:

“Most of these wines you’ll find at a pretty attractive price point, coming in at between 10 and 15 bucks. Many of them aren’t too bad, some are pretty good.”

The issue, according to England, is:

“They’re squeezing out the numerous small winemakers who’d love to have access to the millions of people who stroll the aisles of the big liquor stores each week browsing for a new bottle to try.”

Take out the own brands and give the space to small winemakers? England needs to grow up. As the business editor he must know the economics of fast-moving goods versus the movement of twice or three times the price artisan wines is an equation that simply doesn’t work.

He continues with tired old rhetoric about feathering the nests of the big two supermarket chains. He also bemoans the dominance of the large producers.

The situation is what it is: Coles and Woolworths are the largest retailers and between them stock a huge range of smaller producers. Has he not considered there simply isn’t that much room in a store? Has he considered modern sales patterns, such as selling direct to consumers and small wineries taking on the responsibility of selling their wines, not just making them?

There is also the export market. The domestic market is chock-a-block with wine. Small wineries have to find their niche, and it may not be Sydney or Melbourne. The last time I was in Adelaide, the capital of Australian wine, I noted numerous New Zealand sauvignon blancs on wine lists. If the people of Adelaide fail to support their local wines, what justification has England for getting stuck into retailers?

England concedes that large wine companies and retailers employ thousands of South Australians, but then returns to the plight of the small producer. TKR does generally support the small in their battles against the large, but we know the answer is in the small guys helping themselves.


TKR is sure there will be some whining about Wei Long Grape Wine Company buying Australian vineyards in the Murray Valley. Reports say they have spent $13.4 million on 484 hectares of vineyards plus 605 hectares of land that could be planted, and plan to build a winery, bringing the total investment to $120 million.

The whine will be about the Chinese buying Australian vineyards and profits going overseas. TKR suggests it’s more of a concern them buying essential infrastructure such as the Port of Melbourne


OCTOBER:

Should the American public use their democratic right and vote for Mr Trump to become the 45th President of the United States, Australia’s relationship should survive. In 2015 Australia flogged $14.226 billion worth of goods to the US but bought $33.027 billion worth.


Marvin Sands established the company now known as Constellation Brands in 1945. His sons, Rob and Richard, are still major shareholders. They hold senior positions: Rob is CEO, and Richard the chairman. There is a full management team but the Sands still hold sway.

It was the brothers who led the growth spurt when they bought at overinflated prices BRL Hardy for $1.9 billion in 2003, and Canadian producer Vincor for US$1.3 billion in 2006.

Both businesses did not do as well as the brothers expected; 80 per cent of BRL Hardy was sold to CHAMP Private Equity in 2011 for the knockdown price of $290 million and renamed Accolade Wines.

Now Constellation Brands, probably under the direction of the brothers, is about to offload its Canadian assets for a reported price in excess of US$1 billion ($1.3 billion). This is being tied in with CHAMP floating Accolade Wines, possibly early in 2017, according to media reports. Constellation will also offload its 20 per cent holding.

This is an opportunity to exit all Australian involvement, but if CHAMP, as is being reported, is expecting Accolade to perform along the same line as Treasury Wine Estates, Constellation would be better off holding on to its 20 per cent stake for a couple of years.


Pernod Ricard continues to carry out its promise to slim the company down by offloading minor brands and giving greater focus to its core business.

The latest move is selling the Danish vodka brand FRÏS to Sazerac Co, which appears to be the go-to company for Pernod Ricard’s unloved brands. Earlier this year PR sold the Paddy Irish whiskey brand to Sazerac, which is based in New Orleans.

Paddy was sold so Pernod Ricard could fully focus on Jameson Whiskey, and FRÏS so it could focus on Absolut Vodka.

TKR expects more offloading of brands, including wine. Staff numbers are also being slimmed down.


Not having been that successful with the First Choice brand of retail stores, Coles launches a new (or new to Coles) concept: Liquor Market.

Liquor Market (catchy name; 3 out of 10 for originality) will join the long-established Liquorland, Vintage Cellars and that other originally named chain, First Choice, in the Coles arsenal as it attempts to battle the successful Dan’s.

Being very clever, Coles is not only taking on Dan’s but Aldi as well (in TKR’s opinion). It is reported that the format has been developed after extensive consumer research on what consumers want from a retailer.

The Aldi angle comes from Coles saying it has kept the range simple and is using shelf-ready packaging. Add shelf talkers and product range displays and this amounts to fewer staff, lower costs and reduced prices. Very Aldi, we think.


Scottish courts clear the way for minimum alcohol pricing. The proposed price is to be 50p (80 cents) per unit, which for wine means a minimum price of £4.50 and for a bottle of spirits £14.

The Scottish Parliament wanted to introduce minimum price in 2012 but the powerful Scotch whisky industry challenged the Government by arguing the plans breached European law.

The Government south of the border will be keeping a sharp lookout on how this works. If it does reduce alcohol consumption, England and Wales will be sure to follow.

Australia is no longer tied to the mother country as it was 30 years ago, but there is still an influence and if minimum alcohol pricing is introduced and seen to work in the UK there is a high probability it will make its way here.


The International Organisation of Vine and Wine (OIV) says global wine production is entering a 20-year low. According to the OIV:

  • Argentina is to report about a 30-35 per cent reduction
  • Chile is said to be down about 20 per cent
  • Brazil has a possible 50 per cent reduction
  • South Africa is down about 20 per cent
  • France is 10-15 per cent down

NOVEMBER:

Is it round 2 or 22? Will there ever be an end to grape grower/wine producer bickering? Ask a grape grower and they will say they need to be paid a fair price for grapes. Ask a producer and they will say that to compete in a global market they need wine to meet certain price points, and grapes must be at the right price for them to meet the requirements.

There is the argument that we need to go upmarket, only selling premium wines at premium prices. Nice thought, but the industry would be reduced by 70 per cent, both producers and growers.

The bickering continues. In the latest attempt at settlement, the Australian Competition and Consumer Commission (ACCC), releases a report, Perspectives in Horticulture and Viticulture, that says further examination of contracting practices is required.


India has a population of 1.25 billion (2013) and, like China, a growing middle class. According to the National Council of Applied Economic Research (NCAER) the middle class is estimated at 267 million this year, and expected to grow to about 550 million in the coming decade.

Australian exports to India to the end of September 2016 were 1.3 million litres (144,500 nine-litre cases), which is a big chunk of the 400,000-case total for imported wine. Total value was $4.4 million and FOB price per litre was $3.47, above the average of all exports at $2.95 per litre, but below the bottle average of $5.47, and 90 per cent of exports to India were bottled wines.

Exports to India have risen steadily since 2013 but the big year was 2012, when more than 1.4 million litres went there.

The red-white split is 72-28, with shiraz and shiraz blends accounting for 61 per cent of exports. Chardonnay and chardonnay blends have a 25 per cent share.


The California Wine Institute is upping its challenge for market share in the UK. It hasn’t been said, but it doesn’t take a great leap of mind to think a prime target would be taking market share from Australia.

In the newly named Golden State Wines UK the institute has announced what it gushingly calls a dream team of Justin Knock MW (a former winemaker who has experience in Australia, California, France and Spain) and Damien Jackman (a lawyer who worked for Treasury Wine Estates in the UK and Europe).

Their brief is to increase UK sales to US$400 million ($521 million) by 2020.


There’s good news and bad news for UK-listed retailer Majestic Wine in its half-year results. The company is divided into four trading sections. The good news:

  • Retail sales: up 7 per cent (like for like) to £117.9 million ($199.2 million)
  • Naked Wines: up 26.7 per cent to £59 million
  • Majestic Commercial: up 1.2 per cent to £45.6 million
  • Lay & Wheeler: up 27.8 per cent to £10 million

The bad news is reported profit before tax: a loss of £4.4 million after recognising £4.5 million of adjusted items, largely relating to the Naked Wines acquisition.


That’s the end for 2016. As much as is in, there is a lot left out. Metaphorically, I will see you all next year. 

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