SB keeps delivering but what next?
The New Zealand Delegat Group (Oyster Bay Wines) has issued a 2016 full-year guidance update that states the group sold 2.41 million nine-litre cases in the year ending June 30, an increase of 9 per cent. This has resulted in the group revising the forecast operating profit after-tax guidance from NZ$36 million ($34.6 million) to NZ$37 million for the year.
The group forecasts positive International Financial Reporting Standards (IFRS) fair value adjustments for the year to be NZ$17 million, which are expected to result in an IFRS reported profit after tax of $54 million. The forecast IFRS fair value adjustments are in relation to fair value movements on biological assets (vines), biological produce (grapes) and derivative instruments.
The group will announce the audited full-year results in late August 2016.
The market accepted the news positively, moving the share price from NZ$6 to NZ$6.15. It settled down to NZ$6.10 on July 13 but that was still some way up on the NZ$4.85 it was trading at a year ago.
The US is proving a good market for Delegat’s wines sales. Growth was up 16 per cent in 2015 with net profit up 10 per cent. After good growth in the UK the group turned to the US when pressure on pricing in the UK became too much. The US now accounts for about 40 per cent of the group’s exports, and this is expected to exceed 70 per cent by 2020.
Shanken News Daily on July 7 carried an interesting article on New Zealand wine in the US market. There appears a need to expand beyond sauvignon blanc, but with what? There is a call for pinot noir from NZ but it’s small in comparison. The article quotes Erica Crawford (Loveblock Wines):
“Ten years ago I was thinking, ‘we’ve got to find something else,’ because the sauvignon blanc bubble is going to burst, but it hasn’t.”
Loveblock produces about 25,000 cases a year, of which 80 per cent go to the US, most being sauvignon blanc. Pinot gris could be the next contender but its path is not yet clear. Cloudy Bay is in the same situation, with most of its 40,000 cases sold in the US being sauvignon blanc, with a little pinot noir, but what next? What variety will Americans go for if they turn against sauvignon blanc? Cloudy Bay thinks NZ chardonnay has a chance.
Like Crawford, TKR has been expecting New Zealand sauvignon blanc to fall from favour. The fact it hasn’t is remarkable. It may confound all and continue its popularity.
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 largest growth is in sparkling wine (6 per cent). Unfortunately for Australia it’s mainly prosecco, both domestic and imported from Italy. Sparkling wine is estimated to account for 18.8 million cases this year. Australian exports of sparkling wine in the year to the end of June were valued at $4.27 million, down 4 per cent. Total volume was 730,000 litres, down 31 per cent.
If there’s little opportunity for increased Australian sparkling wine sales, perhaps still table wine offers greater opportunity. The report says varietally labelled wines are expected to outperform non-varietal brands this year.
Chardonnay retains top spot as the US’s largest-selling varietal, followed by cabernet sauvignon. According to a report commissioned by Wine Australia from Information Resources Incorporated (IRI), in the 52 weeks to March 2, 2016, Australian chardonnay sales in the US off-trade (covered by IRI channels) were worth US$112.3 million ($148.74 million), down 8 per cent. In the same IRI report Australian cabernet sauvignon sales were worth US$77.8 million.
Impact Databank predict the US wine market will continue to expand, exceeding 344 million cases by 2020, at a five-year growth rate of 1.3 per cent a year. Wine, spirits, RTDs and cider will continue to gain share of the total US alcoholic beverage market, at the expense of beer.
An interesting article appeared in The Drinks Report on 11 July. Eugene Theodore is the consumer insights leader for Pernod Ricard Travel Retail Euro.
His job is to spot the trends that will have an effect on Pernod Ricard brands in travel retail. He says:
“In a nutshell, I am the team’s in-house consumer knowledge and market dynamics specialist – a mouthful to be sure! In practice, this means being the expert on everything including passenger traffic movements, geo-political dynamics which affect travellers (and their shopping), local market and global trends which affect the full range of consumer demographics (Millennials vs Women for example), and profiling the consumer and shopper habits of our top 30 nationalities that travel through Europe from all over the world.
“I also need to have a clear understanding of what is happening across our various brands and categories in both domestic and duty free channels; after all, we ‘borrow’ our travellers from their domestic environments where brand messages and category influences affect their opinions and decisions before they enter the travel retail channel.”
He says a lot more, which is worth reading here
Alcohol Concern Cymru (Wales) is pushing for a 50 pence (86.3 cents) minimum unit price for alcohol.
According to research carried out by Cardiff University on adults who had visited 100 A&E departments across Wales and England between 2005 and 2012, a duty of 1 per cent above inflation would be the better way to go.
It is the researchers’ conclusion that increasing tax would reduce the number of A&E visits caused by violent injury by more than 6000 a year. The research showed that between the two dates about 300,000 visits were made to the A&E for injuries caused by violence. Three-quarters of those treated were men aged 18 to 30.
They say lower alcohol prices in shops, bars and restaurants were linked to more attendances at A&E.
TKR is not convinced about this. It seems a tenuous connection, yet we agree alcohol is often involved in violence.
There is more truth (our opinion) in the report when it covers the connection between poverty, differences in household income, spending power and time of year. There are more incidences during the warmer months.
The latest UK grocery share figures from Kantar Worldpanel, for the 12 weeks ending June 19, 2016, show the market slipping into decline for the first time since January, with supermarket sales falling by 0.2 per cent as like-for-like grocery prices declined by 1.4 per cent on last year.
The retailer price war – in which the main combatants are the German discounters Aldi and Lidl versus the big UK superpowers, Tesco, Sainsbury’s, Asda, Morrisons and the Co-op – is cited as the reason for slow growth.
About 40 per cent of food is imported into the UK, and exchange rates play a large part in keeping UK prices low for goods including wine.
The combined share of discount retailers Lidl and Aldi hit a record high of 10.5 per cent, with Lidl holding 4.4 per cent and Aldi 6.1 per cent of the market. Almost three-fifths of Britons – 58 per cent – visited one of the two retailers in the 12 weeks, with Lidl increasing sales by 13.8 per cent and Aldi by 11.5 per cent on the previous year.
The above period was before the Brexit vote on June 23, when by a slender majority the UK voted to leave the European Union. This could result in Aldi and Lidl slowing their increase in the UK, as since the vote the pound has fallen.
The German discounters source more of their products from mainland Europe then their UK/American (Asda) competitors, so the Brexit could cost them more. Of course, the rivals also source from Europe but not to the same extent. For example, almost 50 per cent of the butter and cheese that Tesco sells in the UK comes from milk sourced from EU markets.
But for the Germans nearly all the weekly specials – such as 50 screwdrivers for a tenner or a build-it-yourself bucking bronco for 50 quid – are imported, and both discounters have huge special grocery offerings from European countries.
An article in the Financial Times by Paul McClean on July 11 said: “Walmart-owned Asda has signalled it would be prepared to sacrifice profit margin for share in an effort regain its reputation for low prices.”
Not that the Germans are standing still. They are looking at increasing their UK sourcing. As all supermarkets hedge, currency changes will not be immediate. There are interesting times ahead in UK retail and Australian wine will be affected