Only Wine Australia could release figures showing exports are down and then issue statements on how well the industry is doing (full story below). Meanwhile, most parts of the planet are facing difficult times:
• Economic growth in China was down to 7.6 per cent in the second quarter (from 8.1 per cent in the first quarter). But the good news is that China is to allow the Australian dollar to directly convert to the Chinese yuan.
• Though Australian wine exports to Singapore increased, the economy contracted 1.1 per cent in the second quarter.
• Brazil slowed in May. MAT growth was just 0.4 per cent.
The International Monetary Fund is less gung-ho then Wine Australia. From a recent media release:
“There may not be enough policy action for financial conditions in the so-called euro area periphery, which includes Greece and Spain, to ease gradually through 2013; US fiscal policy might tighten sharply in 2013; and steps by some major emerging markets to stimulate growth might not gain traction.”
North America and Europe continue to struggle, so although the US has increased its wine volume from Australia its value has declined due to greater bulk shipments. Only bottled shipments at $2.50 a litre and less increased and the bulk was worth an average of 99 cents a litre. These few lines from a US Census Bureau press release give a much clearer picture of the up and down sales figures:
“Advance estimates of US retail and food services sales for June, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were US$401.5 billion, a decrease of 0.5 per cent from the previous month, but 3.8 per cent above June 2011. Total sales for the April through June 2012 period were up 4.7 per cent from the same period a year ago. The April to May 2012 per cent change was unrevised from -0.2 per cent.”
Green shoots but thin crop
Following the release of the Australian wine export figures, representatives of Wine Australia hit the media trail with positive statements. The following was on ABC Rural:
“Marketing director Aaron Brasher says it will be helped by smaller wine grape harvests overseas. ‘The US harvest is down this year. The New Zealand harvest is down 30 per cent, by some reports,’ he said. ‘I sense some equilibrium starting to happen, but it’s still a long way from fruition there and we just need to ride out the next couple of years and we're seeing some green shoots of hope.’”
Helped by smaller wine grape harvests overseas. From where did Mr Brasher drag that up? It’s optimism based on the thinnest of facts. It may satisfy those that are not really interested but it’s misleading for those that are involved in the wine industry.
Wine Australia pushes the positives of the UK market, such as the average retail price increasing to £5 ($7.63) a bottle and the fact that the strongest rate of growth was for wines retailing above £7 (up 26 per cent). Gloss aside, the total bottle and bulk market declined 1 per cent to 251 million litres. Will this be the floor or will the market shrink further?
The same question can be applied to total exports. Will they bottom out at 700 million litres?
TKR believes the volume slide will continue as Australian wine exports are too concentrated in too few markets. The UK and US account for about 62 per cent of export volume. Each quarter for the past year the UK has shown a decline. However in the latest report the US recorded a 6 per cent increase generated mainly by an increase in white wine shipped in bulk.
Rabobank’s latest report says: “Imports (all countries wine) into the US showed sharp increases in the first four months of 2012 as wineries utilised alternative supply sources in light of the tight bulk wine market. Bulk wine imports more than doubled, with increases coming from a wide range of suppliers, but the greatest growth coming from Chile, Argentina and Australia.”
Below the big two are Canada, China and Germany. Each takes exports of 40 to 50 million litres. All reported volume down. True, China is better value per litre, but sticking to volume Australia still has to shift what it makes and not all it makes is high-value wine.
New Zealand is next in the rankings, remaining static at just under 22 million litres. Denmark and the Netherlands are about 15.5 million litres, both showing decline.
It the 7 to 10 million litres market sector are Japan, Sweden, Belgium and Hong Kong. This is the good news sector. Sweden and Belgium showed a decline; the other two were on the up. As cheery as this news is, these ups are not replacing the many downs at the top of the ladder.
Ireland, Singapore, France and Norway occupy the 3 to 7 million litre bracket, all down.
In the 2 to 3 million litre sector sit Thailand, Malaysia, the United Arab Emirates and Finland. Thailand and Malaysia are showing growth but the others are in decline. As for the rest of the world, that has increased 2 per cent to 20.5 million litres.
To us it looks as if Brasher is basing his green shoots statements on an increase in volume to the US, Japan, Hong Kong, Malaysia and Thailand. It is good news but not, in our opinion, good enough. It amounts to a total increase of 13,580 litres. The total decrease from the UK, Canada, China and Germany is 19,230 litres. We still predict that this time next year exports will be hovering very close to 700 million litres. We also hope we are wrong.
Club blacked balled
The selection of new board appointees at Treasury Wine Estates looks a good move. It’s a watering down of the Melbourne club combined with the introduction of the kind of international reach that benefits an international company. Current non-executive director Paul Rayner will take over the chair from Max Ould. New to the board is Ed Chan, based in Hong Kong but vice-chairman of the Thailand-based Charoen Pokphand Group. He also has Chinese retail experience: from 2006 to 2011 he was president and CEO of Wal-Mart China.
Also holding promise is the appointment of Michael Cheek, an American with vast experience in the alcohol drinks sector as former chairman of Finlandia Vodka and a non-executive director for Glenmorangie, along with other senior roles. This (one hopes) will strengthen the American arm of TWE. One also wonders if this appointment had anything to do with Stephen Brauer recently leaving the company to “pursue other opportunities”.
The Australian new to the team is Garry Hounsell, another who has wide experience, as chairman of PanAust and holding directorships with Qantas Airways, Orica, Dulux Group, Ingeus and Nufarm.
What will come is yet to be seen. The first hurdle will be the market reception to the 2012 annual report due on August 17.
It’s not that simple
Sam Statham grows grapes and makes wine under the Rosnay label in Canowindra, NSW. He recently won the inaugural 2012 NSW Organic Pioneers Award. For that he deserves congratulations and TKR duly delivers them.
Statham also scored a guest spot on the Alan Jones radio program on July 23 on which he expounded his views on the dominance of supermarkets. He bemoans the loss of independent wine shops, which is fair enough, but doesn’t appear to consider that the whole retail landscape is changing.
He cites a sales trip to the Northern Rivers, NSW, where he met retailers who were complaining about the grip of supermarkets. What he doesn’t consider is that those retailers are looking out for their own security. The big beef in Byron Bay at the moment is the granting of more liquor licences, the argument being it will be the cause of increased violence on the streets. It’s not a valid argument. Byron Bay can only cope with a certain amount of tourist visitors. Having one or six more off-licences in the town won’t increase consumption but it will take away business from those already established.
It’s true small producers have fewer retail outlets through which to sell their wine, but Statham has a website and sells directly to consumers. It’s this side he needs to develop. Also, with his strong commitment to organics, he has a niche. What he can’t do is change the direction of retailing. The village high street with butcher, backer, cobbler and candlestick maker has long gone.
As well as gaining a better understanding of retailing, Statham also needs to think more of the needs, likes and wishes of his fellow Australians. Food, organic or otherwise, is not a high priority in most people’s life, as long as it’s cheap. The point being, Statham needs to work with what is there and be realistic. Going into dreamland, wishing the world were all he would like it to be, is a waste of intellect.
Prince or pauper
If one were looking for a litany of what went wrong with the Australian wine industry, Prince Hill Wines (PHW) could provide a starting point. It has gone through name changes and shown that the super-executives from Southcorp who were at one time involved only knew how to spend money raised but not how to run a wine business. It has expanded and contracted, established its own distribution company and disbanded it, tried to flog the winery at an unrealistic price then settled for less than half; the should-not-have-done list is endless. As fascinating and sad the history is, moving on to today PHW is still listed on the Australian Stock Exchange. Trading in its shares is suspended and has been since March.
Currently it is in the hands of administrator McGrath Nicol, which morphed into McGrathNicol, and is now very trendy, with the moniker McN+. The winery is based in Mudgee but was sold in 2010 to CN Wine Australia Pty and operations moved to Coonawarra, where it is tied up with Rex Watson’s Coonawarra Property Trust.
The money raised from the sale of the winery cleared debt at the time but the whole enterprise was on the wane as the Coonawarra Property Trust was one of the less successful managed investment schemes (MIS) and several investors stopped paying their yearly management fees.
The latest twist of this sad story is that the administrator has accepted Perth-based Blueknight Corporation as the preferred bidder for the recapitalisation of PHW through a deed of company arrangement.
Information on Blueknight is scarce. One of the main men appears to be Roger Steinepreis, managing partner of law firm Steinepreis Paganin. At this stage it’s difficult to understand what Blueknight sees in PHW. However, Blueknight has been involved in several similar operations, therefore must see a profitable angle. As well as Prince Hill Wines Ltd there are various subsidiaries:
• Prince Hill Wine Services Pty Ltd (owns 43ha vineyard in Coonawarra)
• Coonawarra Premium Vineyards Limited: the Responsible Entity of the Coonawarra Premium Vineyards Project and the Responsible Entity and Trustee of the Coonawarra Australia Property Trust. The Coonawarra Premium Vineyards Project via the Coonawarra Australia Property Trust owns a 245ha vineyard in the Coonawarra Contractor & manager is Prince Hill Wine Services
• CPV Wines Limited: Owns 87ha of vineyard in Coonawarra
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