The effects of September 11th and the economic slowdown on the beverage world are as wide ranging as the drinks industry itself. David Robertson interviews Doug Lehmann of Peter Lehmann Wines to discover the consequences for the smaller players.

The effects of terrorism and a slow down in the world economy are becoming well documented with many large companies issuing profit warnings and laying off staff but for smaller operations the fallout is less clear.

The giants of the drinks industry will treat the current world environment in the same way they do any downturn; they will cut costs to the bone and hold on for better times.

Barossa Valley in South Australia

Small producers like, for example Peter Lehmann Wines of the Barossa Valley in South Australia, potentially face a much bleaker future. The big difference between the big companies and the small companies is that nobody notices if small companies are struggling.

In the wine and beer market most small operators remain family-owned and therefore the problems are kept hidden - often until it is too late to salvage the company. The few small listed-companies are usually only given cursory examination by analysts.

Peter Lehmann is a useful example in how smaller producers are performing in the current global environment as it is both listed and also relatively high profile, having been the subject of bid speculation for many months.

Last week Lehmann Wines told the Australian stockmarket that its sales in September had been terrible, off 20%. The slowdown has been attributed to both domestic and international problems including shrinking US and European sales caused by economic uncertainty and fewer restaurant sales as people stayed indoors following the September 11th attack on the US. The same factors contributed to a drop in sales in Australia with the added negative of the collapse of Ansett Airlines and the terrorism threat combining to create a tourism downturn that hit sales.

"We only have a 6 or 7% exposure to the US which is not huge but sales are a little behind after the 11th"
Doug Lehmann

The share price of the company slipped about 30c to about A$2.90 (US$1.45) in the two weeks after September 11th but has since rallied to A$3.40 on the back of confidence in its 24% rise in 2000-2001 profits to A$6.2m and persistent takeover rumours.

"We don't want to read too much into one month," managing director Doug Lehmann told just-drinks. "We do our budgeting in April and quite often we don't get it right and September was one of those months where we just got a belting. The only reason we told the market was that we were putting a share placement in place and it was important to tell the market what was going on. Otherwise we would not have told anyone a word and seen if we could pull it back."

The Lehmann placing was for 1.7m shares worth A$5.27m and the money will be used to buy two parcels of land, totalling 27 hectares, in the Barossa Valley.

"We only have a 6 or 7% exposure to the US which is not huge but sales are a little behind after the 11th. In London there has been a slowdown in the restaurant trade and in Australia the economic problems are compounded by the decision to call a general election. For some reason retail sales always soften for us when an election is called; I have no idea why."

Lehmann plays down the difficulties of the current environment and is confident that his company will battle through the downturn. He predicts that sales will be clawed back over the next three months and Lehmanns is engaging in a wide range of sales promotions - mainly price cutting in the larger liquor store outlets - to keep sales up.

Peter Lehmann wine range

"In our view it is better to try to keep the flow up, to keep the wine moving," he said.

But most analysts remain sceptical. While the company continues to command significant respect, analysts just-drinks spoke to seem convinced that the current problems would hasten the need for Peter Lehmann Wines to find a major partner or parent.

Lehmann Wines was approached in February by Lion Nathan, which is on a buying spree in Australia, and hints at having spoken to Allied Domecq much more recently but Doug Lehmann insists the company wants to remain independent.

"They may say they want to stay independent but if they have another month like September that might not be an option," said an analyst.

Peter Lehmann Wines might consider itself unlucky to be having its problems aired so publicly but with many high quality wines and an established and respected brand it is in the fortunate position of being likely to survive the current difficulties. The question for other small producers who are not under so much scrutiny is will they be able to weather this global storm.

To view related research reports, please follow the links below:-

Wines & Spirits in USA
Wines & Spirits in Australia

The World Market for Wine 2001