Management Briefing

Review of the Year 2013 - Part IV: Wine

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The final just-drinks management briefing of the year takes a look back at the last 12 months in the global drinks industry. The penultimate chapter in this five-part briefing reviews 2013 for wine.

One company dominated the wine industry headlines in 2013, and not for the reasons it would have hoped.

Treasury Wine Estates will be pleased to see the back of this year: In early-July, the Australia-headquartered firm announced plans to destroy its old and out-of-date stock in the US, which resulted in a AUD160m (US$145.7m) hit to the bottom line. The news was greeted by widespread derision(although I had a go at defending the move), but TWE maintained that the US still had a vital part to play in its future.

However, a month after the company posted a poor set of numbers for its fiscal full-year, CEO David Dearie fell on Treasury's sword, leaving the company with immediate effect in September. Although Dearie hit out in October at the way he'd been treated, Treasury kept its eyes firmly on the future: A packaging tie-up in the US with Accolade Wines last month served as a sign of the firm's ongoing intent in the country.

Of the other larger wine producers, only Constellation Brands registered more than a handful of headlines (Gallo stayed true to its silent type in 2013; indeed, the US wine giant made more noise about its spirits stable this year than its wine offerings). While Constellation's year was dominated by its moves to integrate its US Grupo Modelo beer purchase, the drinks company saw the beer acquisition offering a profile boost with the country's retailers – something that it expects to benefit its wine portfolio. The closing of the transaction in June was followed by the announcement of a US$20m investment by Constellation in its Californian wineries.

The US was also home to most of this year's M&A activity, with Jackson Family Wines proving a lively player. The privately-owned company started 2013 with the purchase of 877 acres in the American Viticultural Area of Pine Mountain-Cloverdale Peak in northern California, before turning its attention to the winelands of Oregon. In March, JFW began its spree in the state, buying around 400 acres of vineyards. Two months later, it bought neighbouring Zena West as well as Gran Moraine, both in Oregon's Willamette Valley. Finally, local reports claimed in August that the company bought its first Oregon winery, Soléna Estate, to go with its land-grabs.

Elsewhere in the US, Francis Ford Coppola Winery bought some of Accolade Wine's facilities and vineyards at California's Geyser Peak Winery in March, while Vintage Wine Estates acquired Clos Pegase Winery and Vineyards in August and Viansa winery in Sonoma in October. Finally, the Pinault family, from France, entered California in August through the purchase of Araujo Estates Wines in Napa.

The other notable transactions this year saw Magnotta Winery Corp buy Kittling Ridge in Canadain February, and Accolade snap up a handful of New Zealand wine brands from the Mud House Wine Group last month.

The wine industry is not know for swimming in profits, and the willingness of companies and trade organisations to pool their resources this year suggests that a paddle won't be pending any time soon. In January, 23 co-operatives in the Gironde départment of Bordeaux teamed up to create an umbrella group, Terre de Vignerons. Then, in July, we revealed that the trade bodies representing Argentina, Chile and South Africa intend to work together closely to up their profiles in China and the US. The three trade bodies already bunk up in the UK: In September, The Beautiful South tasting event, featuring producers from the three southern hemisphere countries, took place in London. The event, which was not without its teething troubles, was broadly deemed a success and will return in 2014.

Speaking of London, and speaking of trade fairs, 2013 saw the wine industry bid farewell to the London International Wine Fair. Ahead of the event's last hurrah at ExCeL in May, organiser Brintex announced its intention to rebrand the exhibition as the London Wine Fair next year, and move it to the Olympia exhibition halls, nearer the centre of the capital. The LIWF has long been due a revamp, as the UK has become less attractive to wine companies over the last six years. The spotlight – as well as future growth potential - has shifted east, thereby upping the interest in ProWein, held each year in Dusseldorf. The squeeze on margins, and subsequently on profits, means wine producers can no longer attend every event going. Thus, as our deputy editor James Wilmore discovered, it's to Germany we all go.

This year saw Vinexpo return to Bordeaux. The biennial trade show has its critics, but there can be no questioning the power of the Vinexpo brand. Further east, however, Vinexpo has had a challenging year. In June, organisers announced plans to host shows in Beijing and Tokyo in 2014. Four months later, the Beijing show was called off and the Tokyo event hung in the balance. While the Tokyo exhibition finally got the go-ahead earlier this month, this year has given Vinexpo's new CEO, Guillaume Deglise, plenty to think about.

Looking further afield, and Australia seemed to have more than its fair share of trouble this year. It was as early as the third week of 2013 that the country's 'annus horribilis' began: For the first time in 20 years, Casella Wines, the owner of the all-conquering Yellow Tail brand, posted fiscal-year losses. A week later, Barossa Valley Estate called in the receivers (before being bought by Delegat Group in April). Much as the strong Australian dollar hit the likes of Casella hard, the head of Australian Vintage told us in January that there were other reasons for the general malaise. Then, in May, the chief executive of the Wine Australia trade organisation stepped down after four years in the role. Fast forward to June, and the results of the 2013 vintage provided yet another headache. But, the country's wine industry finished the year with an exhibition of the pluck that Australia is notorious for, with the Winemakers' Federation of Australia publishing a 43-point strategy document entitled 'Actions for Industry Profitability, 2014 – 2016'.

Staying in the southern hemisphere, South Africa also had a lively year. In early-January, the country's umbrella trade organisation, Wines of South Africa, was moved to calm reports linking civil unrest in the Western Cape with the wine industry. The coverage spread to the UK, where reports cited a union leader calling for a boycott of South Africa's wines in the country. Wines of South Africa CEO, Su Birch, was prompted to argue against the call, and then, in April, Birch announced that she was calling time on her tenure with WoSA. Birch, who had led the trade body since 2000, stepped down in September, to be replaced two months later by Distell's head of global marketing for liqueurs, Siobhan Thompson.

Meanwhile, up north, Europe's wine makers continued to lose global market share to their southern counterparts, according to figures released in March. Even domestically, the Old World suffered this year: In April, figures out of Italy showed that the country drank less wine than ever in 2012. Italy can be grateful, at least, that its wine exports hit a new high last year. The other big news in Europe this year was the agreement, finally, of a reform of the Common Agricultural Policy. The deal, announced in June, offers scope for vineyard expansion for the likes of France, Germany and Italy in the years to come. Are the European Union's wine producers at the right stage for such changes to be introduced? Our wine columnist, Chris Losh, was not convinced.

In Eastern Europe, Georgia and Moldova swapped the Russia baton this year. In August, Georgia's wine producers noted the lifting of the Russian ban on their products, seven years after it was imposed for supposed quality issues. Of course, the wine landscape has changed since 2006, so the news was not welcomed as warmly as one might have expected. The ban switched to Moldova's wine and spirits in September, again with quality concerns being cited by Russia's authorities; never mind that Moldova has been increasing its commercial ties with the European Union of late. Indeed, the EU was happy to be the knight in shining armour for Moldova's wine makers: Earlier this month, the European Parliament voted in favour of a proposal to allow all of Moldova's imported wine to enter the EU duty free from 1 January. “The immediate liberalisation of imports of Moldovan wines to the EU shows our political will to respond to unjustified and arbitrary pressures exerted by Russia on its Eastern partners,” said a spokesperson for the EU.

For at least the last five years, China has been heralded as the next big thing for the wine world, not only in terms of consumption but also in production. According to figures released this year, the country is set to leap up the table of wine-producing countries in the short- to medium term. One set of data, issued last month, forecast that China will top the table by 2018. For producers looking for export potential in the country, however, the road is beset with obstacles, as wine commentator Chris Losh warned back in March. One such hurdle became real in 2013, when China's authorities warned to introduce a trade barrier to wines from the European Union. Has the Old World used China as a dumping ground for wine that is unwanted elsewhere?

Treasury highlighted another Chinese worry in October: The introduction of anti-extravagance measures in 2012 has hit international spirits companies like Pernod Ricard and Remy Cointreau particularly badly, but Treasury admitted that it too was starting to suffer from the crackdown.

And, what of sparkling wine in 2013? The year started with the suggestion that, as value continues to grow as a purchasing consideration for consumers, Champagne has been suffering of late, to the benefit of Prosecco and Cava. Despite this, figures announced in February showed that Champagne sales in 2012 came in flat in value terms, while volumes fell slightly. Are Champagne drinkers choosing to drink less, but drink better? If they are, then it is the consumers beyond Europe that are making that choice, if Laurent-Perrier's full-year figures – issued in June – are an indication. A concern for the Champagne segment, going forward, is the large harvest this year. The challenge for Champagne next year, then, will be to persuade consumers to drink both more and better.

One of the hotter issues in the wine industry got even hotter in 2013 – literally (sorry). The risk – perceived or not – of global warming is both a real and growing concern for wine grape growers, who are starting to look north our south of their existing holdings, depending on the hemisphere. Treasury warned early in the year that it was looking to acquire vineyards in cooler areas as climate change takes hold. The company came good on its promise in July, when it lined up a purchase on Tasmania. As Chris Losh observed in May, when temperatures get twitchy, so do wine producers.

And so, as we line up the lid on 2013, what have the last 12 months taught us for 2014, and beyond? There are certainly growth opportunities ahead: The New World should consider highlighting its regionality as a means of differentiation, rather than just play on its national roots, Mike Paul suggested back in January. Research in April shone the spotlight on the growing potential for online wine sales around the world, while low-calorie offerings remain an opportunity-in-waiting, said Mintel in May. The winemakers of Brazil will be crossing the days off on their calendars until next year's FIFA World Cup, a month-long event next Summer that could be considered a dress rehearsal for the Rio Olympics in 2016: Talk about a profile life! Indeed, these two global events won't only benefit domestic producers: Champagne Taittinger for one will expect great things from its tie-up with the soccer tournament.

In the US, the rise of the Hispanic population provides possibilities not only for domestic wine brands but also for the likes of Argentina. New Zealand, meanwhile, should look to emphasising its premium wines abroad, a move that, according to the chair of New Zealand Winegrowers, offers the “only viable future” for the the country's wine industry.

It would appear, then, that the wine category still has plenty to go on, in the years ahead. And, if more companies with the clout of Stolichnaya vodka owner SPI Group voice their interest in entering the category, then that can only bode well for wine's longer-term health.


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