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Critics can’t deter Palandri push into US

SOUTH West wine maker Palandri Wines’ $52 million expansion plans into the potentially lucrative United States market – hauled over the coals by Australia’s corporate watchdog – has also been criticised in an independent research report.

The report into the Palandri America Wine Business business model by PIR Agribusiness Research questioned the validity of some of the wine producer’s business assumptions, including its ability to retail its wine at $US16 per bottle, which is expected to return around $138 per case to project participants.

The independent report also highlighted that growers bear all risks without getting any ownership of the brand.

“Growers carry practically all marketing and stock risks by paying for all marketing and brand development costs while holding no equity in the developed brand, winery or vineyards at the end of the project,” the report says.

“An ultra-premium price point of around $US16 per bottle retail may be unsustainable, given most US wine is sold at around $4.50 per litre,” the report says.

Palandri executive chairman Darrel Jarvis defended the price, saying the wine was levelled at a niche segment of the consumer market that favoured ultra-premium wines.

Palandri is hoping to sell 150,000 cases of wine annually within six years to the US market, propelled by an ambitious marketing drive. Forty per cent of the case sale price is allocated for advertising and marketing, well above what other industry heavyweights are allocating for branding. At $A138 per case on 150,000 cases, the marketing budget will be approximately $US4.3 million.

By comparison, Berringer Blass spent less than $US1 million to promote Black Opal, while Rosemount and Lindemans spent around $US2.5 million on its advertising budgets in 2000.

Mr Jarvis said the “shotgun” approach would not be used in marketing to the US.

“We are not here to criticise other people’s business plans. It would be no good us copycatting other business plans,” Mr Jarvis said.

“What we have done is do what everyone says you should do and that is put more money into advertising and marketing and less on the agricultural input.”

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