10/05/2016 - 15:22

Demand drop behind 3 Oceans cuts

10/05/2016 - 15:22

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Western Australia’s eighth biggest winemaker, 3 Oceans Wine Company, has laid-off non-essential staff as it reconsiders its strategic direction in the face of falling demand from its key market in China.

Demand drop behind 3 Oceans cuts
3Oceans will reconsider its business strategy after the current vintage.

Western Australia’s eighth biggest winemaker, 3 Oceans Wine Company, has laid-off non-essential staff as it reconsiders its strategic direction in the face of falling demand from its key market in China.

Owned by Hebei Qianjin Steel Group, which is controlled by Xibo Ma, 3 Oceans has retained its wine making team to see it through the 2016 vintage and keep the cellar door open at its Bussell Highway headquarters near Margaret River.

However the group believes its current strategy is not sustainable, and sweeping changes to its cost base are required in order to satisfy a lower price point in the Chinese market.

3 Oceans was formed in 2008 from the wreckage of the Palandri Wine Group. The deal, thought to be in the vicinity of $30 million, was essentially a Chinese-backed management buy-out led by founder Darrel Jarvis.

Australian Securities and Investments Commission records show Mr Jarvis and another former Palandri director, Chris Brown, who have been directors of 3 Oceans with Mr Ma since that time, left the board on May 5.

3 Oceans winery manager Ke Zheng confirmed that the business had moved to tighten its belt and rewrite its strategy after realising that the growth market for wine in China was at an entry-level price point rather than the medium-to-high-end product it had been exporting.

“At this stage we did make some redundancies,” Mr Zheng said.

“We have just our core people, like our wine-making team.

“The strategy of the company is what we are going to look at, at the next stage.”

He said he was aware of rumours circulating about the business and welcomed the opportunity to provide clarity about the situation.

“Entry level (priced wine) is increasing in the Chinese market,” Mr Zheng said.

“Our vineyard and production is not suitable for entry level.

“From the company’s point of view, we can’t miss out on this opportunity.

“To make ourselves suitable we have to make some internal adjustments.”

He said the company was faced with either reducing the high cost of its own production, most notably labour but also fixed costs, or acquiring wine from third parties.

“In this scenario we can increase our yield and that will reduce our unit cost or we can purchase from outside,” Mr Zheng said.

“That is what we are looking at, at the moment.”

He said the business had not yet committed to either choice.

“No decision has been made because we have still not finished our current vintage.”

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