Sun, WET, doom and hypocritical drivel

Sun, WET, doom and hypocritical drivel

The sun is shining on Sunday afternoon after a morning spent in the garden. I’m showered, relaxed and tempted to have a glass or two of wine with lunch, but must refrain for a few hours, as there are words to be written, then dinner with friends. Such a life. Wine is a pleasant business to be in.

However, it is unstable. Last week’s budget review of the wine equalisation tax (WET) did not garner full industry support, as this statement from Hunter Valley-based Andrew Margan, posted on The Key Report website, shows:

“What a load of bullshit this government spin is. Bottom line is they are pulling $300 million out of an already struggling industry. The $50 million is going to a failed body who helps sell the big guys’ wines. I can’t believe the weak response from our industry to this. Vote Labor.”

There is a great deal of work to do on WET, and I fear the outcome will leave a few bruised and battered wine folk in its wake. The response from the NSW regional association was bum-kissing weak:

“The President of the NSW Wine Industry Association, Mr Tom Ward, acknowledges some good intent with the recently announced changes to the rules relating to the wine equalisation tax (WET).

“However, he goes on to share strong concerns with certain aspects of the changes, especially in the reduction of the cap for WET rebate from the current $500k down to $290k over the next two years.

“Mr Ward was cautiously pleased with the decision by the Federal Government to provide $50m over four years to the industry via Wine Australia (AGWA).” 

The association says it supports the Winemakers’ Federation position on the removal of WET eligibility on bulk and unbranded wine: “Good intent… cautiously pleased… supports WFA.” All weasel words.

WET is in need of change, but the government announcement in the budget has cast confusion over a vast section of the industry. What part of the $50 million will be spent on tourism? Will it be enough to compensate for the collective millions that small regional wineries could lose?

Looking further afield than the closed world of wine, the increasing chance that Donald Trump could become the president of the United States of America is an uncomfortable thought. If you add in Russian President Vladimir Putin and North Korean President Kim Jong-un, and read the Global Catastrophic Risks 2016 report, wine and its issues amount to nothing.

According to the report, there were 9920 stockpiled nuclear warheads in the world in 2014. The good news is that was down from a peak of 65,000 in 1986. The US holds 4760, with capacity ranging from 5 to 455 kilotons, and Russia has 4300, with capacity ranging from 50 to 800 kilotons.

What nuclear stock North Korea is holding remains unclear. It’s not the bombs, it’s the willingness to unleash them that is the bigger concern. Nor should we ignore, closer to home, Rodrigo Duterte becoming the next president of the Philippines. This is our region and he could be dangerous.

Fortunately, compared to nuclear weapons, wine is harmless. But, like the nuclear stockpile, there is too much of it. It’s not the job of those in power such as Wine Australia to regulate the flow of wine, as that goes against the idea of free enterprise, so wine continues to swell around the world like the major ocean currents.

These jumbled thoughts on a Sunday afternoon come about after reading a mishmash of reports (as is my wont), including an article found in the Off Licence News (OLN) by Martin Green on May 4, which included this:

“Treasury Wine Estates is on a mission to evolve from a business led by agriculture to a brand-building FMCG heavyweight and Blossom Hill is a perfect fit, according to its managing director.”

Recently, the Australian wine industry has received headmaster-style advice from Michael Clarke, CEO of Treasury Wine Estates (TWE). Apparently, producers need to up their game, go after the premium market, enhance the global reputation of Australian wine around the world, follow the example of Penfolds so on.

Admittedly, I haven’t tasted Blossom Hill for a few years, but it remains in my mind among the foulest brands I have ever had the misfortune of tasting.

TWE picked up the brand reluctantly, according to several reports, with Diageo insisting TWE take it if it wanted the goodies in the deal that included prestige US brands Provenance, Sterling, Beaulieu, Hewitt and Acacia.

The difficulty being, while Mr Clarke is preaching that premium wine is the way forward for the Australian industry and TWE, his company is also firmly ensconced in the lower-priced, less exotic run-of-the-mill wine business.

The OLN article says:

TWE’s core brands Wolf Blass and Lindeman’s sell at a premium to the average bottle of wine, and it also boasts the likes of Beringer and Penfolds, which have a strong fine wine offering.”

The UK average price for a bottle of wine is £5.37 ($10.54), so it’s not hard to sell at a premium, making the above statement hot air. However, the fact is the majority of sales are in the £3 to £6 bottle sector, as the chart below shows.

Volume (000s Hectolitres) of wine sold at key retail price points, 2014 and 2015

Average UK price points

Source: Wine & Spirits Trade Association/Nielsen

The head of TWE in the UK is Dan Townsend. In the article he says the Blossom Hill brand complements the TWE portfolio perfectly. There is no way in the universe Blossom Hill is a premium brand, but Clarke has it and sells 4.5 million cases in the UK, with the table wine retailing between £4 and £7 a bottle.

It would be good to get Clarke’s direct response to this:

“Townsend winces whenever he hears the word ‘premiumisation’ because most shoppers are looking to spend less, rather than more. Instead he champions the benefits of a balanced range.”

The story then quotes Townsend:

“Some people are going to spend £5 and nothing is going to tempt them away from that, so we have to cater to them.

“‘We are not on a mission to premiumise wine. We are about offering a balanced range. [In an off-licence] I don’t want to be confronted with five pinot grigios and white zinfandels at the same price and nothing north of £8.

“Wine is an intimidating sector for a lot of consumers and for some convenience store owners and that’s where being able to offer simple advice based around a balanced range is really important…

“We are moving from an agriculturally led business to a brand-building FMCG business. Our mission is to make our brands as relevant as possible.”

TWE is planning to release Blossom Hill in Australia, made from Australian grapes. It will be interesting to taste it alongside Yellow Tail.

Who do we believe, Clarke or Townsend? Are we expected to accept this hypocritical drivel about following the premium wine track as Clarke advocates, or Townsend’s waffle about catering for people with more modest means?

No matter. Enough people are confident in Clarke’s ability: the shares topped the $10 point this week.

TKR readership is way up, but revenue is down, so thank you to those who continue to support.

Be true to yourself and others this coming week.

Tony

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