Tag Archives: wine business

Treasury Wine Estate’s plan to avoid a hostile takeover

Treasury hostile takeoverThe Wine Curmudgeon mentions Treasury’s scheme for two reasons. First, and most importantly, it doesn’t seem very sustainable. The troubled Australian multi-national wine company, whose holdings include California’s Beringer, has been losing more millions than most of us have socks.

Yet, despite its problems, Treasury wants to boost business to fend off a hostile takeover from private equity firm Kohlberg Kravis Roberts, which tried to buy Treasury earlier this year and made another offer this week. The second offer was a little higher, but probably won’t scare anyone.

Treasury’s anti-takeover plan features selling heavily discounted wine refrigerators to customers in Australia. The Brisbane Times newspaper reports that the company’s new boss “labelled the wine cabinet promotion the biggest consumer-facing promotion ever undertaken by the company.” Which should tell us all we need to know about Treasury’s lack of marketing ability.

How does it work? Buy six bottles of a Penfolds Bin wine, which cost from AU$30 to AU$80 a bottle, and you can buy a AU$650 wine fridge for AU$200. In other words, buy six bottles of AU$30 Penfolds Bin 51 Eden Valley riesling and the refrigerator and pay AU$380 — just 58 percent of what the refrigerator would cost by itself. Given retail discounting, in fact, you could probably get the fridge for at least 50 percent off. Is it any wonder that Treasury wrote down AU$260 million earlier this year and fired its CEO?

The second reason I mention this? The Wine Curmudgeon, financial genius that he is, bought 100 shares of Treasury stock in hopes KKR (as we high-flying investment types call Kohlberg Kravis Roberts) would make another, much higher offer for Treasury. My retirement to Burgundy never seemed so close.

I paid about what KKR offered the first time, so news that Treasury seems to be throwing away money on the refrigerator promotion is not welcome. The company is reducing inventory and margins to increase cash flow, which will not boost its value or make me rich. KKR’s second, not much higher, offer confirmed this.

In the wine business, the old joke always seems to apply. Or, as one actual real-life financial type told me: “With a little luck, you might get a nice bottle of wine out of this.”

Why wineries change their label design

wine label designMostly, because they can. That’s one of the conclusions of an article I wrote for the Beverage Media trade magazine, trying to figure out why so many producers seem to be changing the look and design of their labels. Because, given the changes in the wine business, with more and bigger companies controlling more brands, it’s going to happen more often.

Or, as one retailer told me: “Sometimes I wonder why they need to fix something that isn ?t broken.”

And, though the article was written for retailers, it has lessons for consumers as well. Ever go into a store, look for your favorite wine in its regular place with its regular label, and not see it? Chances are it’s still there; it just has a different label. Don’t laugh. Retailers told me this happens all the time.

So what’s going on with all the re-labeling?

? It’s difficult to get a firm grasp on how often this happens. Brands that have changed labels over the past several years include Blackstone, Columbia Crest, La Vieille Ferme, Jacobs Creek, Columbia Winery, Cuvaison, Hahn, Parducci, and Langhe Twins.

? Producers, facing a need to make their product stand out among what may be 15,000 different wines in the U.S., are more willing to change the label than ever before. In addition, they know more about this kind of marketing, and will spend the money to do it where they may have been reluctant before.

? Consumers aren’t always the primary target for label changes. Producers sometimes do it to impress distributors and retailers, to reassure them that they care about the brand and will put marketing dollars behind it. This is completely different from every other consumer packaged good, and we have the three-tier system to thank for it.

? Most label changes aren’t complete makeovers, although that seems to be happening more often. Usually, the changes are tweaks to reinforce the brand’s image, and are only noticeable over time.

? Once-popular wines that aren’t anymore are the most likely to get a new label. Also, producers aren’t shy about changing labels on popular brands, if they see a chance to keep the current audience, which may be older, and attract a new, younger one.

Winebits 333: Prosecco and cava, buying a winery, and family wineries

Winebits 333: Prosecco and cava, buying a winery, and family wineries ? The Spanish understand these things: Imagine a California wine producer, facing intense competition for a foreign rival, and their reaction: “We must crush them!” But the Spanish, faced with the phenomenal growth of Prosecco over the past several years, have figured out that’s a good thing. “The Prosecco boom is helping to open minds and show that you don ?t need to wait for a special occasion to open a bottle of sparkling wine ? Prosecco and cava can be Monday night wines,” says Gloria Collell, the winemaker at Spanish cava giants Freixenet and Segura Viudas (and, in the interest of full disclosure, someone I know a little and like). Which, of course, is the Wine Curmudgeon’s approach to wine — drink it on Monday night (as well as Tuesday night, and so on and so forth). The interview, in the drinks business trade magazine, is worth reading for its sensible look at the sparkling business.

? The best due diligence: I’ve met a lot of new winery owners over the years, and too many of them admit they really didn’t understand what they were getting into. Now they have this to read, from Jonathan Yates at The Street: “There are always good buys in established wineries on the market as many of the sellers purchased without focusing on how the business model operates.” His three points — understand wine is made everywhere, understand the importance of the tasting room, and understand wineries as destinations — are as good as anything I have seen.

? Everyone owns a family business: The idea of local and the backlash against big and multi-national that started during the recession has even moved into wine. Casella Wines, the Australian producer that makes YellowTail, and has always been owned by the Casella family, has a new name — Casella Family Brands. Because, of course, nothing will better burnish the image of a brand that makes tens of millions of cases than the idea of family. It’s something E&J Gallo, still owned by the Gallo family, has always played up, and it’s even something that publicly-owned behemoth Constellation Brands, started by the Sands family and still run by it, tries to take advantage of. In wine, family and big are not mutually exclusive the way they are in so many other businesses.

Big Wine tightened its grip on the U.S. market in 2013

Big Wine tightened its grip on the U.S. market
So how many smaller wine companies should we buy this year?

Big Wine tightened its grip on the U.S market in 2013, with new figures showing that three companies accounted for more than half of all the wine produced during those 12 months. E&J Gallo, The Wine Group, and Constellation Wines totalled some 187.5 million cases of the 370 million produced.

Throw in the next three biggest companies — Bronco, home of Two-buck Chuck; Trinchero Family Estates; and Treasury — and that total rises to 241.4 million cases — about two-thirds of the wine made in the U.S. The top 30 by themselves account for some 90 percent; in other words, all the wine that those of us who write about wine love to write about? Hardly anyone drinks it. No wonder availability is such an issue.

The report, Wine Business Monthly’s annual ranking of the 30 biggest U.S. wine companies (requires free subscription), follows up on last year’s Michigan State study that found that Big Wine controlled about 60 percent of the U.S market. The two studies didn’t use the same methodology (Wine Business Monthly doesn’t include imports like Yellow Tail, but apparently does include foreign brands owned by U.S companies), but the trend is obvious. The big are getting bigger.

A few thoughts about the results:

? There is big, and then there is really big. No. 1 Gallo, with 80 million cases, sold more wine than the bottom 26 companies combined. That’s a staggering statistic, and speaks to Gallo’s understanding of the post-modern wine business — marketing, certainly, but also how to leverage the three-tier system and how to develop products, like sweet red wine, that elude other wine companies.

? Adding brands. “One of the things that surprised me was the number of big wineries that are not introducing new brands,” said Wine Business News editor Cyril Penn. “It’s mostly just the Gallo’s and Constellations of the world are doing a lot of that this year.” These so-called line extensions are another sign that the biggest companies see wine the same way Proctor & Gamble sees cleaning supplies and Campbell’s sees soup.

? Consolidation is all. Wine Business Monthly included its 2003 top 30 list, and 12 companies on that list are gone, sold or merged into bigger companies. In addition, five companies are on the 2014 list because they bought other companies to get big enough to make the list.

? Big isn’t as big as it used to be. One million cases used to be the hallmark of a big wine company. These days, it will only get you 18th on the list.

Is all this bigness good? For prices, almost certainly. The biggest companies can afford to sell wine for less and make up the difference on volume (to say nothing of their lower costs of production, thanks to economies of scale). Wine quality, at least technically, should also benefit, so now flawed or unripe wine. What’s less clear is what bigness means for value. Big Wine focuses on price and technical quality, and whether the wine is interesting is an afterthought. Hence all those $10 California merlots that taste the same.

The fear for those of us who love cheap wine is that, as the big get bigger, it will be more difficult to find interesting cheap wine. I’m seeing some of that this year, with producers sacrificing interest in favor of cheaper grapes to keep prices down. The last thing any of us want is for wine to turn into beer, where cheap means Budweiser and Miller Lite, and where it’s almost impossible to find the $10 values that exist in wine.

Winebits 310: Restaurant wine, wineries for sale, top grape growers

? Wine by the glass: Restaurant wine is one of the most frustrating of all the frustrating things in wine, what with high prices, poor selection, and indifferent service. And restaurant wine by the glass programs are even more frustrating. My pal Tim McNally offers an in-depth look at what’s wrong with wine by the glass and how it can be fixed: “Lack of product knowledge, lack of good business sense, lack of staff training and lack of desire to serve the customer ?s needs all play a role in failed [wine by the glass] programs. … This is not rocket science. This is common sense with a profit reward at the end of the transaction.”

? Want to buy a winery? Talk during the recession was that any number of California wineries were ready to go under, victims of what the economic slump did to sales. But none ever seemed to fold, and no one was sure if that was because their lenders didn’t want to forclose (what’s a bank going to do with a winery?), an influx of private cash, or very quiet purchases. Now, Shanken News Daily hints at what might have happened and is still going on: “But it ?s an under-the-radar market. Plenty of wineries, faced with tough finances or generational change, are looking for buyers. But they ?re not advertising the fact.” My guess is that this part of the structural change in the wine business that started during the recession and is continuing — more consolidation, the biggest multi-nationals getting bigger, and the appearance of mid-sized big companies (for lack of a better term) like Foley Family Wines, which have been formed by combining a variety of producers who needed or wanted to sell.

? The biggest grape growers: One of wine’s enduring myths is the artisanal harvest, where the grapes are picked with loving care by the people who own the winery. The truth, of course, is much different; grape harvests for most of the world are as mechanized as corn and soybeans. This was reinforced by a report in a farming trade magazine that detailed the biggest grape growers in the country; five of the top 10 wine grape farmers are cheap wine companies, led by Bronco (which makes Two-buck Chuck) at No. 1 and E&J Gallo at No. 3. That they control their grape supply, and don’t have to buy it elsehwere, is one reason why they can sell their wine for so little.

Robert Parker, Parkerization, and the judgment of history

Dear Mr. Parker:

I smiled when I read details of your recent interview with the French wine magazine Terre des Vins, where you said you didn ?t think Parkerization ? the idea that wines should be richer, riper, and more alcoholic, a practice that has become de rigueur for many high-end producers in France and California ? existed. It reminded me what Joan Baez once said: That she never wanted to be famous, just well known.

Yes, Parkerizaton exists (as even your wife has apparently noted). Why else would I get a sample of $50, 15.2 percent California pinot noir, other than to impress you? It ?s not like anyone else would want to drink it.

Frankly, denying Parkerization is too Shakespeare ? you are protesting too much. Instead, you should acknowledge the influence you had on the wine business over the past 20 years, when even the greatest French producers would accept your verdict as gospel. That ?s pretty damned impressive.

Before Ernest Hemingway, everyone wrote like Henry James. After Hemingway, everyone wrote like Hemingway. Papa reveled in that, and never tired of reminding the world that he was behind it. See the scenes with F. Scott Fitzgerald in ?A Moveable Feast ? for evidence.

My guess, and it ?s only a guess, because we ?ve never met and I don ?t know you (though I greatly respect your work) is that you were having a Baez-like moment. Could all the changes in the wine business and the way wine is made have really happened because of you? You were, all those years ago, just an attorney who loved wine. There ?s no way you, one man, could have changed so much, is there?

Afraid so, and you only have a couple of choices now. Accept your role, like Hemingway (without the looniness, hopefully). There are an almost infinite number of wine writers who wish they were in that position. Or, if you really think Parkerization is wrong, say so. Say it forcefully and often. Look back at what you wrote and see where, maybe, you opted for unctuousness (one of your favorite terms) over subtlety. And did it happen more often than you remember?

Regardless, accept that most of us would not be doing this sort of thing if not for you. I, for one, am grateful for that.

Sincerely.

Jeff Siegel
The Wine Curmudgeon

Big Wine: 5 companies, 60 percent of sales, 200 brands

Call it serendipity. Shortly after my blog posts about Big Wine at the end of last year, a Michigan State study offered even more data about how Big Wine works and how it has changed the business.

The paper, “Concentration in the U.S. Wine Industry,” was compiled by Phil Howard, an associate professor who studies consolidation. After doing soft drinks and beer, he told me, wine was the next logical step.

“And even I was surprised by what I found,” Howard said. “Wine was much different than what I thought. If you go to the stores, it seems like you have all these choices, because the shared ownership is not very apparent. We wanted to help consumers understand what they were really buying.”

The study consists of two parts — third-party sales data and store visits from Howard and his graduate assistants. The former, displayed in some very nifty charts on the study website, paints a fascinating picture of market share as well who owns what labels. Three companies — E&J Gallo, The Wine Group, and Constellation Brands — account for more than half of wine sales in the U.S.

This is my favorite chart. For example, you can see how important Cook’s champagne is to Constellation Brands (about as much as Robert Mondavi, believe it not), and that Bronco, which makes Two-buck Chuck, has a bigger market share than much larger companies like Diageo and Altria, which owns Chateau Ste. Michelle.

The store visit results were even more fascinating. Howard and his graduate assistants counted wine at 20 Michigan retailers, where they found more than 3,600 unique varieties (where chardonnay was one variety, merlot another, and so forth). Those wines came from more than 1,000 different “companies,” although, as the study noted, the “top firms each contribute to an illusion of diverse ownership by offering dozens of brands (and hundreds of varieties), many of which do not clearly indicate the parent company on their label.”

The reason for that, said Howard, is not difficult to figure out: “A company known for producing cheap wine and not quality wine does not necessarily want to be identified with a premium, high-end brand.”

Other key points:

• The only unique varieties of wine found in more than half the retailers were Clos du Bois chardonnay, from Constellation, and Cavit pinot grigio. In other words, wine has no national brands, in the way every retailer in beer carries Bud Light and Coke and Pepsi are in every store that sells soft drinks.

• Half of the stores carried the same six varieties — Blackstone merlot, Ravenswood zinfandel, and Woodbridge chardonnay, all from Constellation, and Apothic red, Barefoot chardonnay, and Ecco Domani pinot grigio, all from Gallo. What this says about retailer selection, customer preference, and distributor clout is worth a second study.

• The top six wine companies in the U.S. accounted for more than one-fifth of the varieties found in the stores. That it isn’t higher speaks to retailer determination to carry other brands, something else not seen in soft drinks or beer.

• Howard said that the variety and number of wines, as impressive as it is, would probably be even more impressive in states that are less regulated than Michigan, which has one of the tightest three-tier systems in the country.

Finally, though Big Wine isn’t as top-heavy as Big Beer, it may be headed that way, said Howard. He said the wine business resembles the beer business in the 1950s, when 30 companies dominated the market. Today, just two beer producers — AB InBev and Molson Coors — account for three-quarters of all sales.