Strong vintage buoys local winemakers

Australia's wine industry has been doing it tough in recent years, a situation exacerbated by the economic downturn.

But there are some positive signs emanating from the industry, including this year's vintage results.

Fresh in most people's minds are the collapse of prominent wine companies Palandri, Evans & Tate and Xanadu Wines, all of which are being rebuilt under new ownership.

WA is not alone in experiencing instability. Just last month, Foster's Group appointed agribusiness firm Landmark to handle the sale of 31 of its vineyards, while last year Constellation Wines Australia announced up to 350 redundancies.

The demise of corporate wine groups shows the danger of pursuing aggressive debt-driven growth in an industry that, like all agricultural sectors, is inherently volatile.

The failures contrast with successful family-owned wine groups, like the Holmes a Court's Vasse Felix, the Prendiville family's Sandalford Wines and the Horgan family's Leeuwin Estate, which show the benefits of deep pockets and patience.

The purchasers of distressed wine assets in Western Australia believe they have bought valuable brands that will deliver value over time.

Hunter Valley winery McWilliams purchased the Evans & Tate brand, vineyards, cellar door and stock in December 2007, leaving the winery for Boar's Rock to snap up.

McWilliams chief executive, George Wahby believes the power of the Evans & Tate brand will be demonstrated in a recently launched $2.5 million national advertising campaign, which will run for four years.

Victoria's Rathbone family bought Xanadu in 2005, four years after Xanadu floated on the Australian Securities Exchange and then struggled in the corporate arena as aggressive expansion collided with a grape glut.

Chinese-backed company 3 Oceans Wine Company, majority owned by businessman Xibo Ma, bought the Palandri business in 2008 following the appointment of an administrator, Gary Doran from Deloitte.

"Palandri's collapse was nothing to do with the wine industry, that's certainly more to do with the managed investment scheme structures and the cost structure of those and the business plan that was adopted," Mr Doran said.

Mr Doran been working in the wine industry for about seven years and, along with most WA winemakers, was not surprised to have seen the collapses occur. "An industry comes into vogue because there's money to made," he said.

"People flood the market and it gets oversupplied and then you have a readjustment and this is that classic phase.

"We're going through a classic case of consolidation and rationalisation."

3 Oceans Wine Company general manager for trading and marketing Andrew Blythe said the group's established relationships in Asia will be used for future growth.

The company is one of many wineries currently implementing measures to counter cost increases and deal with weak market conditions.

"We're looking at doing contract processing, contract crushing and contract winemaking...we've got a 5,000 tonne facility there and we need to put as much through that facility as we can," Mr Blythe said.

"And all the little things add up: trying to cram more product into our own warehouse down at Margaret River, renegotiating contracts with warehousing and transport, becoming smarter with supply chain, those types of things."

Mr Blythe also believes the downturn may help in alleviating the critical issue of oversupply which has been dogging the industry for the past few years.

"After vintage I think you'll start to see some wineries really struggle," he said.

Industry veteran Tony Devitt, one of the family owners of small Cowaramup winery Ashbrook Estate, agrees with this outlook.

"I'm not surprised at the quantum of change that we've seen, and I wouldn't be surprised if the quantum of change continued for some time," Mr Devitt said.

"I think a lot of people came in with rose-coloured glasses.

"Even in good times it's a difficult market and you're competing with every beverage on earth, whether you believe it or not, and you need to understand it."

Mr Devitt believes the downturn in plantings will help to address the general oversupply of wine that afflicts the industry, and is more concerned over New Zealand white wine.

"I think it's extraordinary that our (retail) wine market has allowed white wines from New Zealand to dominate our white wine market," he said.

Constellation Wines Australia, the owner of leading WA wines Houghton, Amberley, Goundrey and Brookland Valley, shares the same view.

Constellation Wines' senior vice president of technical and operations, Peter Watson, said WA semillion sauvignon blanc producers were suffering due to the significant growth of New Zealand sauvignon blanc, especially the smaller wineries who face a number of obstacles.

"There's just huge competition amongst small producers today and it's not being assisted by the proliferation of the major chains in the wine market," Mr Watson told WA Business News.

"The two major chains sell more than 50 per cent of the wine in the Australian market today, so...they are only going to conduct their business with a certain number of wineries.

"They're not going to be dealing individually with 2000 wineries so it makes it very tough for a lot of small wineries."