When I asked a good friend of my mine the other day “how’s it going?”, his reply – “the worst I have ever seen it” – was no throw away line…

Things are really tough out there. Large distributors have given away all of their and their clients’ A & P as well as what is left of their margin. The supermarkets are demanding more but there simply isn’t anything left, in a lot of cases. I believe that for all types of wine businesses, there are forks in the road appearing.

fork-in-the-road
Having had the privilege of mentoring 16 NSW wine businesses over the winter provided some fairly good insight into what those decisions are. It seems that most small businesses owner are either going to have to get really serious about wine quality (and I mean “region leading” serious) or a whole lot better at providing a wine, food and tourism experience.

There are massive opportunities in this area, I believe. For medium sized producers, the critical thing to be doing now is to retain a “centre of gravity” well above $20. Those companies that have tried to grow their business quickly through volume in supermarket owned retail with products priced around $20 are now typically being forced below $15. Supermarkets know that that is where the big price / volume break is.

For medium sized companies, however, there is no profit there unless quality and ultimately the brand are compromised. The best medium sized companies have already developed channel specific offers. They have attacked cost across the business and have taken the WET rebate out of their profitability calculations.

For large companies, questions abound about future ownership and direction. Treasury Wine Estates is up for sale, Constellation Australia has been delisted and Pernod Ricard are denying that their wine business is for sale.

It looks like we are moving from the age of the PLC to the rise of private equity. Will they be better stewards of our biggest wine assets? We’ll have to wait and see.