Oyster Bay Growth and Californian Wine Exports

Kiwi flying high

New Zealand wine producer Delegat (Oyster Bay brand) continues to grow. Established in 1947 and now headed by brother and sister team of Jakov (Jim) and Rosemari Delegat, the company is doing very well. In the six months to end of December 2015:

  • Revenue: NZ$140,275 million, up 23 per cent
  • Operating profit from ordinary activities after tax: NZ$21,484 million

In the six months the group sold 1,267,000 nine-litre cases of wine, an increase of 12 per cent on the corresponding period in 2014.

  • US and Canada: 476,000, up 12 per cent
  • Australia, NZ and Asia Pacific: 407,000, up 8 per cent
  • UK, Ireland and Europe: 384,000, up 17 per cent

All this mainly out of the Oyster Bay and Barossa Valley Estate brands.

Net debt increased 25 per cent to $251.5 million, but that’s well within bounds and it funded winery and vineyard improvements. In the chairman’s statement Jim Delegat said:

“The Group is on target to achieve global case sales for the full year of 2,379,000, up 8 per cent on last year, and achieve full year Operating Net Profit After Tax in line with market consensus of $36.0 million, up 5 per cent on last year.”

Who is Mr Greedy?

Wine Spectator has run an article on the great wine counterfeiter Rudy Kurniawan, or to be more accurate, the US Government selling his stake in a Burgundy vineyard. Full story: http://www.winespectator.com/webfeature/show/id/52802

What he did was very naughty, but in many ways mixing this with a bit of that, giving it a shake then flogging the resulting liquid to gullible wine snobs, was no more criminal than what some established winemakers do legally.

The part of the article that caught TKR’s attention was this:

Kurniawan forfeited his shares to the US government in July 2014, seven months after he was convicted of fraud. Wine Spectator has learned that the shares were quietly sold back to the de Montille family two months ago after extended negotiations with the Justice Department. As Etienne explained, the family paid about [US] $726,000—about 1.5 per cent more than Kurniawan paid and, ‘a little more than I wanted to pay.’ The proceeds will go toward restitution for his victims.”

A little more than Etienne wanted to pay? What a deal he got. Without taking into account any increase in land value or increased wine prices, and the fact that Burgundy prices have skyrocketed since 2006, going on euro inflation alone Etienne should have paid US$756,410.

America wants its share of the pie

In the early 1970s I scouted all London to find Californian wines to taste. It was hard work (pre-internet), requiring many telephone calls. It wasn’t a great success. I abandoned the task, went to the Australian Wine Centre and acquired a range of Australian wines, mostly fortified.

All changed in the ’80s. First, Australian wine arrived in greater quantity and vastly improved quality for table wines. It didn’t take too many years before California and New Zealand saw what Australia had, and wanted the same.

Nowadays, both, along with nearly every wine producing country on the planet, look to gain market share, large or small, from the top five exporters. The OIV figures for 2014, released in May 2015, show:

 

Country Volume 000, hectolitres Value, millions of euros
Spain 22,560 €2468
Italy 20,540 €5078
France 14,387 €7730 ($11,752)
Chile 7999 €1388
Australia 7301 €1262

In the OIV table the US comes seventh in volume, with 4,045,000 hectolitres at a value of €1103 million. Although the figures are for all US wine exports, 90 per cent come from California.

The latest figures from the Wine Institute  (released Feb 25, 2016) show total Californian wine exports for 2015 had a value of US$1.61 billion ($2.25 billion), up 7.6 per cent on 2014, with volume up 4.1 per cent to 461 million litres (51.2 million nine-litre cases)

The top 10 export markets for Californian wines are:

  • European Union’s 28-member countries: US$622 million
  • Canada: US$461 million
  • Hong Kong: US$97 million
  • Japan: US$96 million
  • China: US$56 million
  • Nigeria: US$29 million
  • Mexico: US$26 million
  • South Korea: US$23 million
  • Switzerland: US$21 million
  • Singapore: US$15 million

The EU figure includes the UK, which accounts for a TKR estimate of US$400 million. Some comments from the report:

“Removing obstacles to trade and ensuring that California wines have fair and equal access to international sales channels remain our top focus. Unfortunately, more and more countries and provinces are ‘modernising’ their laws to benefit only local wine producers. Wine Institute works closely with the US government to continue to lead initiatives against discriminatory trade barriers which violate international agreements.

“Once the Trans-Pacific Partnership free trade agreement goes into force, the import duty on US wines will be completely abolished in eight years which will help the entire California category grow in Japan. This is critical for the California wine industry, since our competitors, Chile and Australia, already have free trade agreements with Japan, and benefit from a duty advantage over California wines.”

There is a global trend in wine production to become standardised at the economical end of the retail price spectrum. It means either brand or price rules.

An article titled “Pitfalls to avoid for California wine exports to UK” has been written by Charles Day, the senior vice president and area manager of the North Coast [California] Food & Agriculture group, Rabobank.

Day points out the US dollar may have appreciated against most currencies but its value against the British pound has increased 15 per cent in the past two years, compared to 20 per cent for the euro.

Day says there is a perception that the UK market is dominated by large European brands, and that historically this is true. It’s a strange statement to make, as for the past decade, maybe longer, the top 10 selling brands have comprised mostly Australian and American brands. Where the perception comes from TKR is unsure. He also points out the truism that the luxury market is dominated by the French.

As Wine Australia is fond of saying, there is a greater acceptance of wines over £20 (retail). Day says the same for Californian wines.

Something Tasmania and the Yarra Valley have already worked out is that too many regions can be confusing for consumers. Day says:

“The number of very specific American viticultural areas, or AVAs, in California is confusing British consumers. While the wine industry has worked successfully to educate domestic consumers on the difference between a Russian River Valley and Sonoma Coast pinot noir, for consumers in the UK the 16 AVAs in Sonoma County is too granular to discern differences.”

Other issues or perceptions that Day identifies as working against California (many also apply to Australia) include:

  • The perception that most of our offerings are high-alcohol ‘fruit bombs’
  • The relatively high-tax levy on wine in the UK adds a burden to imports
  • A California exporter might be burdened with shelving fees, standard at the supermarket level
  • Some wine merchants might also charge these fees

Day does say that the high tax affects the lower priced wines more than the top end, as “consumers are understanding that they effectively get more wine for the money as they trade up”.

Market visits by producers are also high on Day’s to-do list.

Day: “The larger accounts in the UK expect to personally meet with producers periodically. According to one representative from a well-established wine merchant in the UK, producers would be wise to plan on going to the UK and visiting key accounts two times per year to support the marketing effort.”

It’s a sound statement in one aspect, but in return the retailer, or collection of retailers, needs to sell wine that is earning (not sales) in excess of $20,000 to fund two visits a year.

3 thoughts on “Oyster Bay Growth and Californian Wine Exports”

  1. Deserving of Tony’s critical analysis. Why has Australia so many, so small GI’s, at what cost and for whose benefit. Not the consumers. Just another Wine Australia cock up!

    1. It’s a subject that deserves more input, please all feel free. I’m not so sure it was the fault of Wine Australia. Winemakers wanted regional identification and providing they met the requirements and costs of a GI they got one. After all it is a democracy but true several regions do not make sense, New England is one. That is too big, I remember James Halliday saying the Yarra is really six or seven regions but it’s better to stay as one which could be an argument for saying New England is not too big. In time sub regions will emerge on their own merit.

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