LVMH share buyback, China Chile FTA, Dan’s & China

LVMH buying back

Moët Hennessy Louis Vuitton (LVMH) has announced a share buyback program of €300 million ($427 million).

LVMH is doing well in the luxury goods sector but its success lies in being flexible. For instance, its Ningxia-based Chinese sparkling wine venture produces a different style of wine to its Australian winery in the Yarra Valley. From an article by Bruce Einhorn in Bloomberg Businessweek on November 22:

Davide Marcovitch, global president of LVMH subsidiary Chandon: “We are innovating for consumers who don’t like the traditional taste of Chandon.”

Claudia Masueger, founder and chief executive officer of Cheers, a chain of wine stores throughout China: “Sparkling wine typically isn’t sweet enough for local tastes. Now younger, affluent consumers willing to try different varieties of wine are buying it.”

Early in 2017 the company will introduce Chandon Me, a sweeter bubbly made specifically for the Chinese market. (The name is a play on the Mandarin word for honey.) “We’re trying to balance the taste,” says David Tung, managing director of Chandon China.

Blanc and rosé versions of Chandon Me will be added later.

LVMH is in early, as sparkling wine consumption is very low in China. According to Einhorn’s article sparkling is less than 1 per cent of wine consumption, compared to 5 per cent in the US and 10 per cent in France, Japan and the UK.

China, Chile FTA upgrade

Australia is chuffed with its China Free Trade Agreement (FTA), I.E. wine exports to China are on the increase.

President Xi Jinping’s state visit to Australia was two years ago, after which exports across most sectors went up.

Last month President Xi Jinping was in Chile, and agreed to start negotiations on upgrading the Chile-China FTA.

The original FTA was signed in 2005. Since it came into effect in 2006, bilateral trade has quadrupled. China is Chile’s largest trading partner and largest export destination. It is also its biggest buyer of copper products.

According to a report in Xinuuanet:

“Currently, Chile is China’s second largest source of wine imports, with bottled wine exports to China up by 46 per cent in 2015.”

According to an article on Decanter.com Chile was fourth in wine imports to China in 2015, with 48.75 million litres at an average price of US$3.49 a litre. But that was bottled wine. How much bulk wine went into the dragon’s belly is not stated.  What was reported was that the average price for bulk dropped 21 per cent.

Tourist attraction

Tourism is an export and countries work hard around the world to attract visitors. Australia is no exception and has a lot to offer. The Tourism Australia team, working on attracting Indians, is pushing the world’s biggest beach dinner party, on Bondi Beach, an eight-course menu designed by Luke Mangan, taking place on March 11.

On wine, Tourism Australia says:

“Australian wine offers something to suit all tastes. Discover some of the world’s oldest shiraz vineyards in South Australia’s Barossa Valley and McLaren Vale, or award-winning chardonnay in Western Australia’s Margaret River.

“Visit the Hunter Valley, Australia’s oldest wine growing region with more than 150 wineries producing world class wines.”

Dan’s delving into China?

An interesting article by Natalie Wang appeared in Drinks Business on November 24:

“Australia’s drinks retail giant Dan Murphy’s is reported to be planning its expansion into mainland China, according to a report by Chinese language media Wine Business Observation.”

Dan’s is keeping quiet about it but it could be true. Dan’s owner Woolworths has already acquired large Chinese distributor Summergate and introduced Langton’s online sales so maybe a physical presence of bricks and mortar stores could be on the next move.

TWE does its duty

Treasury Wine Estates (TWE) has released an outline of a survey it commissioned on wine in the travel retail sector. Wine has always been the poor relation in duty free. It’s not worth duty free shops stocking cheap wine as there is so much available at good prices in local stores. Spirits have always been the big draw, offering bigger margins.

But the market for fine wines at top prices is on the up.  According to TWE the survey involved more than 6000 travellers across 15 key international airports. The result: since 2014 the number purchasing wine and champagne has risen from 2 to 3 per cent. TWE puts forward the following stats:

  • Increase in footfall: number of visitors has increased from 8 per cent to 11 per cent
  • Increase in conversion: the number of visitors now buying after visiting the wine and champagne sector increased from 21 per cent to 26 per cent
  • Increase of average category spend from $56 to $68

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