Mighty Tesco, weak pound, battles ahead

Tesco the champion

If you were a UK consumer you might view Tesco as a champion of the people after it won a scrap with Unilever over pricing. Media reports say Unilever wanted a 10 per cent price increase on brands that it manufactures and that Tesco stocks.

Tesco is big but Unilever is bigger. It owns more than 400 brands, but focuses on 14 with sales of over €1 billion ($1.44 billion). They are:

  • Axe/Lynx: Men’s fragrances and grooming products
  • Dove: Beauty products
  • Omo: Laundry detergents
  • Surf: Laundry detergents
  • Becel/Flora: Margarine
  • Heartbrand: Ice creams
  • Hellmann’s: Mayonnaise and other food products
  • Knorr: Dehydrated soup mixes and condiments
  • Lipton: Teas
  • Lux: Soaps, shower gels, bath additives, hair shampoos and conditioners
  • Magnum: Ice cream
  • Rama: Margarines, cheese spread and vegetable fat spreads
  • Rexona: Deodorant and antiperspirant
  • Sunsilk: Hair care

The Unilever argument for increased prices was said to be compensation for the drop in value of sterling following Britain’s vote to leave the European Union. Tesco dug in its heels and halted online sales of Unilever products. It’s said Unilever backed down, resulting in Tesco’s share price increasing.

Nothing to do with wine? Wait until a producer wants to increase prices for product it sells to Tesco. In many ways Tesco is regaining strength. That muscle will be flexed when it decides to take on Aldi and Lidl at full tilt. Be prepared.

Wobbling pound

The UK pound has got a wobble on and it could cost Australian wine dearly. Despite a brief respite when the Australian dollar weakened, the UK market is again becoming tougher because of the weakness of sterling, as this 90-day chart of the Australian dollar-UK pound shows:

It helps being below 70 cents but the fat is eroding. The dollar has lost 30 per cent against sterling in the past year.

1-uk-aus-ex-rate

Tesco is not the only retailer having difficulties with suppliers citing poor exchange rates. Naked Wines has announced price increases because of unfavourable rates.

Constellation realigns

Constellation Brands (CB), based in Victor, New York, continues to realign its portfolio. It’s been a busy time for the beer, wine and spirit conglomerate, which has announced (subject to regulatory approvals) the sale of its Canadian wine business for about C$1.03 billion ($1.03 billion; it’s on par), or C$750 million after debt and other closing adjustments, to the Ontario Teachers’ Pension Plan.

The sale includes the Jackson-Triggs and Inniskillin wine brands along with vineyards, offices, facilities, and 163 Wine Rack retail stores in Ontario.

CB has retained the Black Velvet Whisky brand and production facility in Lethbridge, Alberta, Canada.

Concentrating on the US market has proved a successful strategy for CB, as has focusing on beer with brands such as Corona Extra, Corona Light, Modelo Especial, Modelo Negra, Pacifico and the large craft brewer Ballast Point. Wine wise CB has “a strategy of focusing on premium, high-margin, and high-growth brands”.  These include Robert Mondavi, Clos du Bois, Meiomi, Mark West and Franciscan Estate from the US, Ruffino from Italy, and Kim Crawford from New Zealand.

To add to this list of wine brands CB has agreed to purchase five brands from Washington State producer Charles Smith Wines for about US$120 million ($157 million). The brands are:

  • Kung Fu Girl Riesling
  • Velvet Devil Merlot
  • Boom Boom! Syrah
  • Eve Chardonnay
  • Chateau Smith Cabernet Sauvignon

Having burnt its fingers and possibly toes in Australia, UK and South Africa, CB has now centred its operations in the US, Canada, Mexico, New Zealand and Italy.

The company is also shaping its spirits portfolio, which, apart from Black Velvet Whisky, includes SVEDKA Vodka and Casa Noble tequila. CB recently completed its acquisition of American whiskey producer High West Distillery. It has also acquired a minority stake in Bardstown Bourbon Company.

Bacchanal tame but rewarding

A definition of “bacchanal” often follows the line of a crazed party with drunken revelry, ecstatic sexual experimentation and wild music”.

It sounds grand, but we doubt the Pennsylvania Academy of the Fine Arts (PAFA) 18th Annual Bacchanal Wine Gala and Auction will be a fine example of the definition.

The event takes place next month and its focus is Australian wine. This year’s winner of the Thomas Jefferson Award is Barossa Valley winery Hentley Farm. The award was established in 2001. Other Australian winners have been:

  • 2002: Brian Croser, Petaluma
  • 2010: Bindi and Michael Dhillon

The wine gala and auction raises funds to support the next generation of artists through student scholarships and education programs.

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