Tesco bouncing back Jackson advancing

Big Brit bouncing back

It’s been a rough four years for UK supermarket giant Tesco. After two decades of good times, good profits and global expansion, Tesco found its loyal Brit consumer base less impressed with the giant out-of-town superstores that Tesco was forcing on them.

They also found Waitrose had more to offer at the posh end, and Aldi and Lidl were challenging with everyday good price offerings.

Though these were all legit everyday competition issues that could possibly have been dealt with (easy to say with hindsight), the fact remains that they weren’t dealt with, possibly due to the arrogance of Tesco management at the time.

Global expansion was the mantra of the era. Paying for it were UK consumers, and, more so, suppliers. The US chain Fresh & Easy was losing truckloads of cash and other parts of the company were being squeezed to finance it. Tesco’s arrogance was supreme and it backfired. In January 2012 Tesco issued its first profit warning in two decades. In 2014 there were four profit warnings, forcing the share price sharply south.

tesco-5yr-share-price

As the chart shows, the share price is half of what it was the first half of 2012, but is starting to rise. This was prompted by the 2016 first-half result, which showed an operating profit increase of 38.4 per cent to £515 million ($844 million).

Reports also indicate Tesco is seeking better relationships with its suppliers. Let’s hope this extends to its Australian wine producers.

Being big doesn’t always equate to greedy, but Tesco’s global expansion plans and Woolworths’ ill-fated attempt to establish its Masters home improvement centres as a rival to Bunnings, were greedy grabs that cost them both dearly.

Aussie wine may see Jackson action

Jess Jackson and his wife Barbara Banke left law careers to establish Jackson Family Wines in 1982. Jess died in 2011 and Ms Banke took control of the family firm, in which she holds the role of chairman.

The company has expanded out of California and now has wineries in Oregon, Italy, Chile, France, South Africa and Australia. The Australian holdings consist of Hickinbotham Clarendon Vineyard (situated in McLaren Vale but on the border of the Adelaide Hills region) and Yangarra Estate Vineyard (also in McLaren Vale). Both vineyards produce outstanding wines.

In a recent interview with Decanter magazine, Ms Banke spoke about their Oregon holding now comprising four wineries and a potential of 900 acres of vineyard. What excited TKR about the interview was Ms Banke’s comment on Australia:

“Right now, I am particularly but not exclusively excited by Australia, where we already have some top class wines from Rhone varietals at Yangarra and mostly Bordeaux grapes at Hickinbotham in the Clarendon Hills.

“She revealed that she currently has her sights trained on the Barossa Valley and pinot noir vineyards in the Mornington Peninsula and Tasmania.

“‘I would like to do more in Australia,’ said Banke, who feels Aussie wine can come good again in Jackson Family’s core US market.

“Brand Australia has been through its ups and downs and high end Australian wine is a difficult sell in the US. But I think that will change in time as the quality coming out Australia’s fine wine sector is very strong.”

This is fantastic news, as Jackson Family Wines, like Casella, has solid distribution arrangements across the US. Should it become really serious about promoting its Australian brands, this would in turn be of advantage to all Australian wines.

The Wine Australia Export Report to the end of September is due out this month. The most recent information is for the year to the end of June 2016. Overall exports to the US were worth $449 million in value and 157 million litres in volume. The point worth focusing on is exports priced above $10 a litre:

  • $10-$19.99 increased by 28 per cent to $22 million
  • $20-$49.99 declined by 13 per cent to $10 million
  • $50 and over increased by 77 per cent to $3.5 million

The figures above are not huge but they are encouraging. Unfortunately, the biggest five exporters dominate exports, accounting for 84 per cent share of the total value. That 84 per cent is mainly downmarket brands. Varietal breakdown for the top five reds:

  • Shiraz: 26 per cent, value $70 million
  • Cabernet sauvignon: 21 per cent, $56 million
  • Merlot: 15 per cent, $41 million
  • Shiraz/cabernet sauvignon blends: 7 per cent, $20 million
  • Pinot noir: 5 per cent, $14 million

The leading five white wines:

  • Chardonnay: 37 per cent, $65 million
  • Pinot grigio: 12 per cent, $21 million
  • Sauvignon blanc: 4 per cent, $7.8 million
  • Riesling: 4 per cent, $7.5 million
  • Pinot gris: 4 per cent, $6.2 million

Golden cognac

Moët Hennessy Louis Vuitton (LVMH) has posted its third-quarter results. For the first nine months of 2016 income amounted to €26.3 billion ($38.7 billion), an increase of 4 per cent.

According to a media release, Asia, excluding Japan, showed a significant improvement during the third quarter. On the US and Europe the company was cautious, saying it was “well positioned”.

The wine and spirits sector did well, with sales of €3.28 billion, up 5 per cent. The growth was in champagne, up 3 per cent, with the prestige cuvées doing exceptionally well. But the star of the portfolio was Hennessy cognac, which had a volume increase of 9 per cent.

LVMH says Hennessy had strong growth in the US. It’s not alone. The latest report from Impact Databank show several cognac brands are sharing Hennessy’s success.

Shipments of cognac to the US have passed 5 million nine-litre cases, with an overall growth of 13.5 per cent last year.

Hennessy, Rémy Martin and Martell all recorded double-digit growth. According to Databank, Hennessy dominates the category, accounting for 44 per cent of worldwide volume and 66 per cent of the US cognac market. Hennessy global volume has grown by 55 per cent since 2005, to 6 million cases. It’s now the third most valuable spirits brand by retail sales, at US$3.5 billion ($5.7 billion).

Impact Databank U.S. – Top Seven Cognac Brands (thousands of nine-litre cases)
Rank Brand Importer 2012 2013 2014 2015 % change1
2014-15
1 Hennessy Moet Hennessy USA (LVMH) 2230 2330 2610 3080 18.0%
2 Remy Martin Remy Cointreau USA 670 620 654 765 17.0
3 Courvoisier Beam Suntory 415 410 446 448 0.6
4 Martell Pernod Ricard USA 67 64 74 99 33.4
5 Salignac Beam Suntory 90 104 98 90 -8.0
6 d’Usse Bacardi USA 3 18 55 58 6.0
7 Ansac Heaven Hill Brands 37 36 36 35 -3.5
Total top seven 3512 3582 3973 4576 15.2
Other brands 117 100 88 81 -7.4
Total cognac2 3629 3682 4061 4657 14.7%
1 based on unrounded data
2 addition of columns may not agree due to rounding

 

Leave a Reply

Your email address will not be published. Required fields are marked *