Review of the Year 2009 - Wine
From the vineyards of Australia to the boardrooms of the multi-nationals; from job losses and bankruptcies in the UK to the consolidation of the fragmented French sector - few aspects of the world's wine industry were unaffected by the continued economic downturn in 2009. Richard Woodard looks at the tumultuous 12 months endured by the wine industry.
The year has offered more of the same when compared to 2008, with the fallout from the dramatic events of that year's closing months continuing well beyond the New Year festivities.
A statistical selection box makes for unappetising reading: in January, we heard that Australian wine exports had fallen in value terms during 2008 for the first time in 15 years; a couple of months later, the news emerged that US domestic wine sales had slipped back to US$30bn - also the first annual fall since the last major recession in 1993.
Arguably no segment of the industry is more sensitive to economic factors than Champagne, and figures from generic body the CIVC did little to dispel that impression, with a 4.8% fall in sales during 2008 to 322.5m bottles. Worse was to follow - exports slumped by 45% in value terms, and 41% by volume, in the first six months of 2009.
South and west of Champagne's heartland, the rarefied world of the Bordeaux en primeur campaign was also feeling the heat early in the year. Many questioned the need for the annual 'futures' bunfight at all, questioning whether the world was really racing to get their hands on the decent 2008 vintage, when so much of the 2007 harvest remained unsold.
But, despite calls for a delay from such luminaries as Jean-Guillaume Prats of Château Cos d'Estournel, en primeur went ahead as normal and pricing held remarkably firm despite the crisis.
Not everyone in France was as happy as the Bordelais Cru Classé owners. The biennial Vinexpo trade fair was missing a number of high-profile exhibitors, including Constellation, Gallo, Boisset and Torres, and visitor numbers dipped 7.5% as companies trimmed back their expenses budgets.
At the fair, Jeanjean president Antoine Leccia told just-drinks what the world has been saying for years - that the French wine industry needed to consolidate or die, especially with wine exports down 10.5% in volume terms during 2008.
Leccia's words proved prophetic: three months later, Jeanjean announced a merger with rival Michel Laroche, a modernising company which nonetheless over-reached itself and became crippled by debt problems. The agreement valued Laroche at EUR24.7m.
And that wasn't the only notable deal. Recessions always afford good acquisition opportunities for smart operators, and they don't come much smarter than Boisset, the Burgundy-based producer which snapped up fellow négociant Antonin Rodet in September, following its acquisition of the Rhône's Société Gabriel Meffre in March. For good measure, the company also made its first Napa Valley acquisition, Raymond Vineyard and Cellar, from Japan's Kirin in August.
Meanwhile, on the other side of the world, the beleaguered Australian wine industry was contemplating a very different type of deal. Recognising the need to cut costs and improve their respective balance sheets, Constellation and Foster's announced the disposal of a raft of vineyards and wineries. The only problem? In an industry afflicted by a 100m-case surplus and a global economic downturn, it's not exactly a seller's market.
In the end, Foster's disposed of 13 of its less desirable wine brands in a joint venture with Vok Beverages in October. But, by this point, it was some surprise that the company still had its wine business at all, with many commentators expecting the announcement of a sale or spin-off at the conclusion of Foster's wine review in February.
Instead, Foster's said it was separating its wine and beer divisions in Australia, ditching 30-plus vineyards, 37 brands and three wineries, and looking to generate savings of A$100m a year by 2011. But many still predict a sale of the company's wine division once the financial markets have become more buoyant.
Constellation, meanwhile, was continuing its corporate reinvention with the sale of its value spirits brands and a switch to an exclusive distribution network in the US. Next on the radar of the Sands family was its under-performing UK and Australia wine businesses - and by November, the company was in talks with rival Australian Vintage over selling or merging part of those businesses. Watch this space for developments on that story early in the New Year, if not before.
The travails of Foster's and Constellation, however, are in part merely symptoms of Australian wine's greater malaise. Over-ambitious growth plans and subsequent under-achievement have left the industry in a woeful slump, with estimates that it is producing 20-40m cases more wine a year than the market requires.
This dismal plight prompted a call to arms from the industry, with the publication in November of the Wine Restructuring Action Agenda - a kind of mirror image of the original Vision 2025 growth strategy. The brutal truth contained in this document is that swathes of the country's vineyards will have to be ripped out, with estimates suggesting that current demand could be met with 17% fewer vines.
Clearly this pain is not confined to the wine producers, but importers, distributors and retailers have also had to face the depressing music during 2009. As the world's biggest consumer of imported wine, the UK was affected more than most, with agents Paragon Vintners, Hayman Barwell & Jones and HwCg all entering administration - although the assets of the latter two were snapped up by Coe Vintners and PLB respectively.
The decline of bricks-and-mortar wine retailing continued apace with the demise of Wine Cellar, owner of Booze Buster, but the most high-profile casualty of them all was First Quench, owner of retailers including Thresher, Wine Rack, Bottoms Up and Victoria Wine.
As the administrators sought buyers for the retail empire, a series of store closures ensued. By the time of writing, more than 1,100 shops were being shuttered, with the loss of nearly 6,000 jobs. The one glimmer of positive news was the rescue of the Wine Rack brand and 14 stores by Venus Wine & Spirits Merchants.
There's no hiding the fact that 2009 has been a grim year for the wine industry, with good news elusive. As for 2010, all those involved in the distribution chain will be searching the horizon for signs of recovery in the key markets of the US and the European Union.
Separate studies from Mintel and Vinexpo/IWSR during 2009 suggested that the long-term potential of the US wine market remains strong, despite the short-term macroeconomic uncertainty.
And, further afield, wine consumption in emerging Asian markets, and particularly China, should be another bright spot. Auction house Sotheby's is now holding regular wine sales in the region, while Japan's Suntory has recently signalled its optimism about China with the acquisition of ASC Fine Wines, the country's leading premium wine importer. Reasons to be cheerful, even amid the current gloom…
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From the vineyards of Australia to the boardrooms of the multi-nationals; from job losses and bankruptcies in the UK to the consolidation of the fragmented French sector – few aspects of the world’s w...
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