The thirsty dragon and stuck USA

2-dragonDragon thirsty

The appetite for Australian wine in China is not waning. In the year to the end of September the dragon nation absorbed 90.09 million litres worth $474.08 million.

In contrast, the UK is dwindling. Not fast, but it’s on the turn, down 4 per cent in volume and 3 per cent in value.

Ignoring shifts within markets, in simple terms, out of the top 20 export destinations 15 reported growth in value. Compare this to five years ago when 11 markets reported a drop in value.

In the 12 months ending September 2011, Australian wine exports totalled 720 million litres valued at $1.93 billion

In the 12 months to September 2016, the value of Australian wine exports grew by 10 per cent to $2.17 billion and volume increased by 0.2 per cent to 734 million litres.

It really looks as if the dark ages have passed for Australian wine, though there is still a great reliance on too few markets.

There are now 1275 producers exporting to China and more are considering how they can get a handful of the dragon’s gold.

The Wine Australia (WA) comment on the latest export figures is extensive and we congratulate the team at WA for the detail. The points we pick out below may be somewhat out of context but they caught our attention.

The white wine sales to the UK had some interesting twists:

Chardonnay declined by 5 per cent to $27 million, which is not surprising, and there was good news as there was growth in wines priced $5-$7.49 per litre FOB.

Sauvignon blanc fell by 21 per cent to $9 million. Again, not surprising, as New Zealand has such a strong grip. There was growth in wines priced $5-$7.49 and at $10 and above per litre FOB.

Australian sauvignon blanc in the UK is a lost cause in our opinion. But we were delighted to read that riesling increased by 79 per cent (though it only amounts to $4 million). Let’s hope this continues.

With straight chardonnay in decline it was disappointing to read that chardonnay-semillon blends increased by 31 per cent to $4 million, more so as the growth was at the lower end. Confidence in the UK is reflected in the number of exporters: in the last 12 months they increased from 319 to 342.

Despite all the positive news, it’s somewhat disconcerting that 16.95 million litres of bottled wine departed these shores at $2.50 a litre or below. On average the price was $2.16 a litre or $19.44 a case FOB. True, volume is way down on five years ago when almost 33 million litres were exported in this price sector.

There is good news in the under 50 cents a litre exports in bulk, which were down 73 per cent to 984,000 litres. The biggest sector was the 50 cents to $1 litre, which recorded a 4 per cent drop to 203.03 million litres. This translates to an average of 97 cents a litre. It would be good to see higher prices for bulk, but as the WA report says:

“In 2015-16, Spain exported 1.3 billion litres of bulk wine at $0.56 per litre; to put this in context, Australia’s total production in 2015 was 1.2 billion litres of wine.” 

The Rabobank Global Wine Quarterly report is also out, and carries this statement by senior analyst Marc Soccio:

“Life has returned to Australian wine grape prices, with China driving much of the recovery in market conditions.”

On the US market the WA report says:

“Total Australian wine exports are ranked second in the volume and third in the value of all wine exported to the United States. Italian wines are ranked first in volume and value and French wines are second in value.”

Looking at the various price sectors for bottled wine shows Australia firmly stuck in $2.50 to $4.99 a litre. Out of a total 99.26 million litres that Australia sent stateside (down 8 per cent), 86.95 million litres (down 11 per cent) were in the $2.50 to $4.99 a litre sector. But which end of the sector dominated? Was it $22.50 a case or $44.91 a case? It amounts to 9.66 million cases. It’s a fair bet the majority was brand Yellow Tail.

For the average American wine drinker, New Zealand may be regarded as sauvignon blanc, Italy pinot grigio and France bordeaux or burgundy. For Australia it’s Yellow Tail.

The good news is that the average value of bottled wine grew by 15 per cent to $3.96 per litre. WA does see light in the US market, pointing out that exports priced at $10 at above per litre FOB increased by 21 per cent to $39 million.

WA says: “This reflects the improved perceptions of Australian wine among the US trade, with a growing number of importers taking on more premium Australian brands.” It’s a thin straw to clutch but it is a positive. WA also says:

“There is still much work to do in increasing the awareness and availability of premium Australian wine in the US. To continue sustainable growth in the world’s biggest premium wine market requires a long-term approach and a focus on re-establishing relationships and confidence in the category supported by significant, consistent investment to drive the Australian fine wine message.”  

Royal show-offs

The Royal Melbourne Wine Show 2016 trophies:

  • The Jimmy Watson Memorial Trophy for Best Young Red Wine: Deep Woods Estate 2014 Reserve Cabernet Sauvignon, WA
  • Best Cabernet Sauvignon, Merlot or blend of Bordeaux Varieties: Deep Woods Estate 2014 Reserve Cabernet Sauvignon
  • Trophy for Red Wines of Provenance: Castagna Genesis Syrah 2012, 2005, 2002
  • Single Vineyard Trophy: Punt Road Napoleone Vineyard 2015 Shiraz
  • Best Shiraz: Punt Road Napoleone Vineyard 2015 Shiraz
  • Trophy for Viticultural Excellence: Punt Road Wines, Tim Shand
  • Best Pinot Noir: Eddystone Point 2015 Pinot Noir, Tasmania
  • Best Young White Wine: Seville Estate 2015 Chardonnay
  • Best Fortified Wine: Morris Old Premium Rare Liqueur Topaque NV Muscadelle
  • Best Vermouth: Maidenii Sweet Vermouth NV
  • Best Sparkling: Swift Cuvée NV Chardonnay/Pinot Noir, Printhie Wines
  • Best Riesling: Pooley 2016 Riesling
  • Best Chardonnay: Corduroy 2014 Chardonnay, Snake and Herring
  • Best Semillon: Tyrrell’s VAT 1 2005 Semillon
  • Best Mature Wine: Tyrrell’s VAT 1 2005 Semillon
  • Best Sauvignon Blanc or Blend of Semillon & Sauvignon: Stella Bella 2016 Sauvignon Blanc
  • Best Single Varietal White Wine: Dalfarras 2016 Pinot Grigio
  • Best Sweet White Wine: McWilliam’s Morning Light 2010 Botrytis Semillon
  • Best Rosé: Flametree 2016 Pinot Rosé
  • Best Single Varietal Red: Brown Brothers 2015 Cellar Door Release Nero d’Avola
  • Best Grenache, Red Rhone Varietal or Blend of Red Rhone Varieties: Bleasdale 2015 Grenache / Shiraz / Mataro
  • Best Shiraz/Cabernet Sauvignon Blend: Young Brute 2015 Shiraz / Cabernet Sauvignon, Casella Family Brands
  • Best Red Blend: SC Pannell 2015 Touriga Cabernet Mataro
  • Best Organic or Biodynamic Wine: Yalumba Organic 2015 Shiraz

Burge surge

It wouldn’t have been easy for Grant and Helen Burge to sell the family firm to Accolade Wines at the end of 2014. The reported price that Burge received was around the $50 million mark. The brand and Krondorf winery had to be sold as Burge was losing money and building debt. It’s said the banks were getting nervous.

How Accolade is going with the brand is unclear, but the company should be doing well and making a profit from it.

Good to hear Mr and Mrs Burge are getting back into full swing, having recently bought the Adelaide Hills Lorndan Vineyard.

The Lorndan property is 25 hectares, with 20 planted, and a contract with Penfolds that has another three years to run. Depending on what date the contract ceases in 2019, this could mean two or three vintages going to Penfolds.

The vineyard produces top end grapes that are said to go into Penfolds Yattarna, Bin A and Cellar Reserve wines.

Is this a first step for the second Burge empire?

Woolworths’ loss

The latest figures from Roy Morgan research show Woolworths is $825 million down in sales over the past year, which has gone to Coles and Aldi.

The total grocery spend in supermarkets was put at $89.8 billion during the 12 months to September 2016.

Roy Morgan divides the $89.8 million into:

3-woolies-spend

Vintage tales

Australian Vintage (AV) has released its annual report. It starts in the usual manner, with a letter from the chairman (Richard Davis), who in true chairman fashion pushes positivity and good points to the limit.

The company continues to increase its bottled brands and cut back on cask and bulk supplies for supermarket brands. AV is still deeply involved in the UK, therefore the dollar-sterling balance is critical to profitability. As Davis says:

“A 1 pence movement in the GBP impacts the company’s net profit after tax by approximately $0.3 million.”

CEO Neil McGuigan then has his say, again dominated by positive jargon. He says McGuigan is the 20th largest alcohol brand in the UK. Overall, brand sales are going well:

  • McGuigan up 21 per cent
  • Nepenthe up 18 per cent
  • Tempus Two up 5 per cent

Great emphisis is put on show results, and the company has done well. But how relevant they are is debatable.

Performance over the past five years has been:

Total revenue in millions Net profit in millions
2012: $228 2012: $7.1
2013: $208.5 2013: $7.1
2014: $214.8 2014: $10.5
2015: $230.9 2015: $9.4
2016: $242.7 2016: ($2) loss

Debt is still high at $107.39 million, up from $105.9 million in 2015. But the banks appear to be satisfied as they have extended facilities by two years to September 2019.

The above figures show AV on the turn, but darker days can be seen in the accumulated losses of $153.55 million.

Two customers accounted for $66.9 million of total sales in the 2015-16 financial year.

Interesting to see the Moularadellis family, via its private company Sunrise Vineyards, is among the 20 largest shareholders in AV.

AV is a company that publishes the gender of its staff:

4-mac-gender

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