Challenging times call for focus

07/05/2009 - 00:00

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AS Western Australian wineries deal with the downturn, there is opportunity for operators to take stock of their business, focus on the areas that need attention and enhance their brand, their bottom line and their chances of survival.

Challenging times call for focus

AS Western Australian wineries deal with the downturn, there is opportunity for operators to take stock of their business, focus on the areas that need attention and enhance their brand, their bottom line and their chances of survival.

Deloitte partner Gary Doran has had previous industry experience as an administrator of Palandri in 2008, following the failure of its managed investment scheme structure.

After servicing the wine industry directly for the last seven years, Mr Doran has clearly identified a number of issues facing the industry locally, nationally and internationally.

"People go into a new area or new venture and it's in demand, and one like Australian wines becomes attractive to invest in," Mr Doran told WA Business News.

"It's classic that people get into it and then it gets oversupplied and as a result you then get consolidation.

"The issue laid on top of that, which is not unique to the wine industry, is the economic crisis we're facing."

A key issue for the industry is related to consumer spending.

"What you'll see is consumer behaviour with less disposable income," he said.

"So people will move down price points, so that will affect who's winning at the retail stores.

"Also, clearly the national marketplace has tightened up and the consumer spending, particularly the UK which has been a big market for some of the Australian wineries, will tighten."

Considering the volumes of wine exported by WA wineries, the value of Australian dollar is also pertinent.

"Our exchange rate is completely different to what it was 12 months ago and that's going to have a big effect," he said.

"But it is two sides of the coin: so there will be a positive upside of exchange rate but don't forget that while the US dollar has moved the Euro has probably gone down against the Australian dollar as well."

Another issue Mr Doran highlights is related to the duopoly in the country's supermarket sector.

"The continuous strengthening of those in the distribution channel, being controlled by Woolworths and Coles, and the issues those [companies] are facing with consumer slowdown and pushing back onto suppliers, forcing them to try and bring down costs," Mr Doran said.

"I think it would be very challenging for anyone in the wine industry at the moment."

From these issues, Mr Doran highlighted a number of tips for success in this turbulent climate.

"I think the lessons learnt would be more around the volatility of this industry," he said.

"They've got to have a good set of forward looking forecasts that factor in scenarios and options - what happens if the US dollar, Australian dollar changes again unfavourably?

"And making sure you have steps to react quickly - it's a very volatile market and it can change very quickly, so don't be left standing.

"There's a saying: if the tide goes out don't get left standing because you may have your pants down."

Mr Doran emphasised that communication is paramount.

"You've got to be nimble, you've got to be talking to your stakeholders, particularly your financier and you've got to be open and communicative," he said.

"And you've got to be looking forward and saying 'what happens if this happens?' and 'what happens if that happens?'

"You've got to have those contingency plans and you've got to be presenting them to your financiers."

Mr Doran believes it's important to know who the consumer of your wine is and where the price point is.

"It's straight forward, most of business comes down to the fundamentals, and understanding your business," he said.

And the final tip: cash is king.

"You can't afford to have a whole lot of inventory sitting in warehouses or in tanks because that's costing you money," he said.

"Saying, 'I'd love to sell this at 15 dollars a bottle because that makes me more profit', you might want to get that out at 12 dollars, make less profit but actually generate more cash flow which addresses the banker."

 

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