Review of the Year 2010 - Wine
In this, the final part of just-drinks' review of 2010, Olly Wehring takes a look at what made the wine headlines this year.
The last 12 months may, at first glance, have made up a quiet year for the global wine industry. While the sector garnered its fair share of headlines, the wine companies of the world appeared to spend 2010 getting their houses in order rather than sniffing around in an M&A style. That appeared to be the case, right up until the last two weeks of the year, however. A closer look at the industry in 2010, meanwhile, also throws up fraud, earthquakes, divestments, demergers and the small matter of the FIFA World Cup.
The year started with the Champagne sector having taken a beating over the festive period. Champagne houses had been hit particularly hard by the downturn, and Christmas 2009 saw retailers across the developed markets of Western Europe and the US use Champagne to drive footfall. As volumes soared, absorbing an oversupply from the region, sales values for producers told a slightly different story. In January, Remy Cointreau rang alarm bells when it saw its Champagne sales tumble by 32.5% year-on-year in the first nine months of 2009. The cyclical nature of Champagne may have hit the bottom of the cycle early this year, but has more recently regained some momentum. Figures in early 2011 will show if the sector has maintained this resurgence.
Staying in France, and E&J Gallo and Constellation Brands became embroiled in a fraud scandal early in the year. In February, a court in the south of the country handed down suspended prison sentences and fines to several wine merchants and a cooperative for passing off fake Pinot Noir at inflated prices. As Gallo moved to ensure that none of the offending wine was still on US shelves, and even earned the sympathy of our cold-blooded wine commentator, Chris Losh, Constellation confirmed that it too had bought Pinot Noir from one of the guilty wine merchants. Thankfully, Constellation found at the time that none of the wine it had bought remained in the US market.
Bringing such matters into perspective were events in Chile later the same month. On 27 February, an earthquake hit the South American country, killing around 500 and leaving many more homeless. Chile's largest wine producer, Concha y Toro reported in early March that heavy damage to its wineries and vineyards meant it had had to suspend production for a time. A week later, trade body Wines of Chile warned that around US$250m-worth of wine had been lost due to the quake. In April, the total damage in terms of lost stock and infrastructure was estimated at US$430m, which, for a country with total export income last year of $1.4bn, came as quite a blow. Thankfully, though, no winery employees died in the disaster.
Concha y Toro enjoyed a phoenix from the flames moment in May, however, when it launched a sponsorship deal with legendary English football club Manchester United. The tie-up formed part of the company's plans to break big in Asia, and Concha y Toro's aspirations were writ large when it officially unveiled the deal at Manchester United's Old Trafford stadium.
Over in Asia, meanwhile, 2010 proved tough for the local wine producers. In the emerging market of India, wine consumption figures suggested that the country was the land of plenty. Try telling that to domestic producer Indage Vintners, however. In March, the company found itself up to its neck in debt as it fought to keep itself from going under. An unsympathetic tax structure and an uneducated wine consumer base means that, while India's fledgling wine industry has a bright future ahead, that future is still quite some way off.
This year has been a pretty bleak one for the world's biggest wine company, Constellation Brands, particularly in Australia and the UK. The company started 2010 hoping that it had put in place a plan to reduce costs and inventory in Australia, as it continued its talks with Australian Vintage over a possible merger. But then, in April, the two sides announced that they were terminating the discussions, leaving Constellation in a bit of a hole. Indeed, throughout 2010, the company has been in quite an introverted mood. Gone are the acquisitive days of yore, when it was difficult to work out how well Constellation was performing as more purchases came through.
Constellation is poised to dominate the early headlines of next year, as just-drinks learnt earlier this week that the company is set to sell off its non-US operations, made up predominantly of the UK and Australia divisions, within the next month.
The other main Australian wine player spent its fair share of time in the spotlight this year as well. Foster's Group's announcement in May that it will demerge its wine and beer businesses had been widely expected for over a year. Having called round at as many multinational drinks companies who would let them through the door in late-2009 and early-2010, it was clear that a divestment of the wine unit was not an option. But, as the global economic landscape returns to a slightly more familiar hue, Foster's remains hopeful that it may find a buyer and, in July, went so far as to give its wine unit a lick of paint in the form of a new name – Treasury Wine Estates.
Could the Australian firm be set to fulfil its dreams in 2011? In September, it announced that it had rejected a AUD2.7bn (US$2.5bn) takeover bid for Treasury Wine Estates from an unnamed private equity group, widely thought to be US-based Cerberus Capital Management (who has also been linked to Constellation's forthcoming sale). That there has been one bid will allow Foster's to take heart. Will there be another?
These two stories serve to highlight just how tough Australia's wine producers found 2010. In April, investment bank Rabobank warned that the country was approaching a “watershed” moment, with the over-supply situation resulting in the country dominating the lower-priced wine segments on supermarket shelves. Redressing the balance became that much tougher in September, though, when the UK, Ireland and European Union director for trade body Wine Australia, Lisa McGovern stepped down. McGovern's resignation was followed by the departure of Paul Henry, the long-standing general manager for market development at the Australian Wine & Brandy Corporation. Yet more evidence, then, that there is trouble in the land down under.
Across the Tasman Sea, New Zealand's wine producers were battling with a similar – albeit less drastic – situation. The country had worked hard in the early years of this century to build a premium positioning for its wines. Yet, a 20% leap in volumes from the 2008 harvest threatened to derail this standing. Figures released in April showed that, in 2009, New Zealand's wine exports grew by 34% in volume and by just 13% in value, reflecting a surplus of cheaper bulk wine. But, with a 7% dip in volumes recorded from this year's harvest, the nation's winegrowers will hope they have managed to put the brakes on before the cart careered down the hill.
Still in New Zealand, and Pernod Ricard raised eyebrows in June. The decision to change the name of its Montana wine brand to Brancott Estate was, Pernod said at the time, driven by research which showed that provenance and authenticity were key to consumer wine purchasing choices. That Montana was already known in the US as Brancott Estate, however, suggested that the company may have been as keen to make savings on advertising campaigns and labels. How successful Pernod will be in getting the name-change across to Montana fans should be helped by the brand's sponsorship of the rugby world cup – to be held in New Zealand – next year. But, it's still going to be a challenge.
Pernod was also busy with a spate of wine sales this year. The company continued its divestment programme in 2010, as it looked to recoup on the funds needed to buy Sweden's Vin & Sprit in 2008. First up this year was its Spanish wines and liqueurs business Ambrosio Velasco, which went to Diego Zamora in July for EUR33.1m ($40.5m). Next up, also in July, was Bodegas Marques de Arienzo winery, also in Spain, bought by a consortium made up of Vinos de los Herederos del Marqués de Riscal and Gangutia SL (Bodegas Muriel) for EUR28m (US$35.7m). Finally, in October, New Zealand's Lindauer and several other unnamed wine brands went to a consortium including Lion Nathan for NZD88m (US$66m).
And, while we're in a selling kind of mood...
Last month, Rémy Cointreau confirmed that it hopes to sell its Champagne arm. While the move was seen by many as an indication of just how tough a time the Champagne sector is having, one ought also to bear in mind that, with Remy Martin, the French company is riding the Cognac wave in Asia, particularly in China. Seeing as the firm is in a position to make a choice, it has done just that.
Another potential transaction, which has never been far from the headlines, is the widely-expected offloading of Moet Hennessy by LVMH to Diageo. As the French luxury goods group upped its stake in fashion label Hermes to 17% in October, the feeling grew that it was only a matter of time before Diageo, which already holds 34% of Moet Hennessy, was offered the rest of the Champagne and spirits division. Despite all the talk on this one, the situation remains exactly the same today as it did well over a year ago.
When Brown-Forman confirmed this week that it is reviewing the future of its wine business, the wine industry's M&A chapter for 2010 was complete. The scene is set, then, for a potentially lively start to 2011, with the hope that the bulk of these delicately-poised transactions go through, prompting a new era for the category.
Amidst the doom, the gloom and the business talk, however, perhaps 2010 will be best-remembered in the wine trade – and, indeed, in the wider drinks industry - for the FIFA World Cup in South Africa. As ever, when a global event like this approaches, the naysayers suggested a missed opportunity, questioned whether the country could pull it off and voiced concerns about logistics, safety and the weather. But, whilst it is always quite hard to quantify success of such events, the country's wine industry appeared happy with its lot, particularly with sales upturns where they least expected them.
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