Comment - Australian wine industry faces new Constellation

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Australia's wine industry is facing seismic changes in 2011 as two of its biggest names, Constellation Brands and Foster's Group, eye sales of their businesses.


Constellation has never given up on selling its Australian wine assets and now the Hardys winemaker appears to be close to a deal, just-drinks has reported today (20 December). At the same time, Foster's Group is gearing up to demerge its Australian wine and beer businesses within the next six months and has already rejected a takeover bid of up to AUD2.7bn (US$2.66bn) for its wine arm.

We may look back on this period as a defining moment for Australia's wine industry. Could this be the point at which the world's largest wine producer cut loose from a market that used to bottle visions of the future? Whether the changes come to be viewed as Australia's lowest ebb or a turning point for new ideas - or both - will draw many spectators next year.

For those who believe in silver linings, there is, at least, some buyer interest in Australia's flooded wine sector, finally. Two years ago, Foster's had to give up on hopes of a sale as international suitors steered warily clear of a nation that was annually producing between 20m and 40m cases of wine more than it could sell.

That said, if Constellation and Foster's move ahead with plans to scale back their operations, or perhaps quit the sector altogether, Australia faces the loss of two important flag bearers.

Much will depend on who comes in. If private equity picks up the pieces, then there will inevitably be fears in the wider industry about the level of investment expected, to help drive the wine sector's long-term success. On the other hand, some may welcome the rigorous cost cutting associated with private equity companies as a swift means of restoring a balance of supply.

The chronic oversupply, as most readers are aware, persists today. It is at once a symptom of and cause for the poor image of Australian wine abroad. This could well take a generation to change in the key UK export market, where Australia too often finds itself at the wrong end of the price spectrum and with the wrong style of wine. Further afield, companies must take care to heed what lessons can be learnt from the UK when entering emerging markets in Asia and elsewhere.

Whoever comes in for Constellation and Foster's wine assets will have an uphill challenge. The price tag on the two companies' assets may well reflect that.

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