Monday, May 22, 2017

Lazy journalism

This week marks the first anniversary of this blog. This is an important milestone for most blogs; and I have averaged more than one substantial post per week during that time, as I approach 60 posts. By way of celebration, this post is a bit different to most of the others.

This blog usually deals with wine data in the form of numbers, but there are other forms of data that could be used instead. One of these is industry information, as presented by the media. Sometimes, this is more opinion than properly checked information.

Consider this example from The Fabulous Ladies' Wine Society:
Cumulus Wines is a true child of the 80’s. We reckon the owners must have been listening to UB40's Red, Red Wine on repeat on their walkman when they planted out over 500 hectares of vineyard in the barely known Orange region nearly 30 years ago and built a 10,000 tonne winery with storage capacity for 8 million litres of wine. But obviously they were on to something as it has definitely paid off!
Almost everything written there is nonsense, as also is much of what is said about the same winery at Just Wines.

Cumulus Estate Wines is itself very coy about the company's history, with its description giving the impression of one continuous flow of time. However, this is far from the truth, as indicated by media reports at the time of the various events, such as those from the Newcastle Herald, Chris Shanahan (of the Canberra Times), the Pierpont column (of the Australian Financial Review), the Wine Spectator and Wine Genius. The story is long and convoluted, so here goes.

The company's main vineyard area is south of a small town called Molong, which lies just inside the Orange viticultural area of eastern Australia (the vineyard actually straddles the region's border). The vineyard, called Little Boomey, was established by Peter Poolman in 1995, increasing in size to 508 hectares over the next three years. Capital for the development was raised from hundreds of small investors, with the intention that ownership would revert to Poolman’s company after the investors had leased the vines for 15 years. What was then called Southcorp Wines (Australia's biggest wine company) bought and vinified the majority of Little Boomey’s grape harvests.

The Central Highlands Wine Grape Project, as it was officially called, was actually a tax-driven investment scheme with several vineyard areas. It was merged into a new investment company called Cabonne Limited in 1998, which was publicly listed on the Australian Stock Exchange. In 2001, Cabonne took over Reynolds Wine Company (owned by Jon and Jane Reynolds), and changed its name to Reynolds Wines Limited in 2002. It set up its wine making at Cudal, south of Molong, where a high-tech 10,000-tonne capacity winery had been built.

Reynolds Wines soon went bankrupt, slipping into voluntary administration in August 2003. The problem seems to have been what is euphemistically called an "awkward corporate structure", rather than problems with either the winery or the wine business. The company owed AU$18 million in taxes — presumably, the Australian Tax Office wasn't convinced that the original vineyard schemes were truly tax-deductible (a decision that they also applied to other vineyard small-investor schemes).

At the time, the subscribers to the original tax-minimization schemes apparently still owned, as license holders, the grapevines on Reynolds' three properties (reverting to Reynolds between 2012 and 2018), and also had rights to the wine made from those vines. The wine was concurrently being sold through a joint venture with the Trinchero group, from the Napa Valley in California (currently the fourth biggest winery in the USA, by case sales). As a result, Trinchero Family Estates acquired the Reynolds and Little Boomey brand names early in 2004, but had no interest in buying either the winery's production facility or its 900 hectares of vineyards.

The bankruptcy receiver (appointed by the ANZ Bank) sold the Cudal winery, the adjacent 508 hectares of vineyard and other assets to Cumulus Wines Proprietary Limited for AU$30 million — much less than the AU$130 million that Cabonne is reported to have invested in developing the property. Cumulus agreed to underwrite the bank loan only, which means that none of the investors got their money back, neither the original grape leasers nor those later investing via stock-exchange shares (ie. the bank came out of this okay but no-one else did!).

The Cumulus Wine company had been set up in 2004 by an underwriter and insurer called Assetinsure Proprietary Limited (50% owned by investment bank Babcock & Brown), based in Sydney. Philip Shaw (former Southcorp head of production) was appointed as the winemaker to develop the new wine company, focusing on cool-climate grapes from Orange and elsewhere in the Central Ranges viticultural area. The Little Boomey vineyard was re-named Rolling. In 2005, Keith Lambert (another former Southcorp chief executive) acquired a 51% stake in the company.

A worldwide distribution network was established. However, this proved to be overly ambitious, in spite of grants from the Export Market Development Grants Scheme, from the Australian government. So, in 2007 the Berardo wine family, of Portugal, bought the 51% share-holding. The Berardo Group has extensive wine investments in Portugal, via the Bacalhôa Vinhos de Portugal group, a 33% stake in Sogrape (Portugal’s largest wine company), 25% of Henriques & Henriques Lda (of Madeira), and joint ownership of Quinta do Carmo (with Eric de Rothschild, of Château Lafite), as well as owning 50% of Colio Estate Wines (one of Canada’s major wine producers).

This partnership between Assettinsure and the Berardo Group lasted for some; and in 2013 they launched a new wine sales and distribution company, Epoch Wine Group. [Don't worry, you are now well over half-way through the saga.]

However, in 2015 Cumulus Wines was involved in a scrip-for-scrip merger (ie. shares were exchanged instead of cash) with the trading company Wine Insights Proprietary Limited. This company owns Beelgara Estate, from the Riverina viticultural area (south-west of Orange), as well as making wine from the viticultural areas of Margaret River (Moss Brothers label), Coonawarra (Riddoch Run), Mudgee (Frog Rock), Adelaide Hills (Em’s Table), Clare Valley, McLaren Vale and Yarra Valley, among othes. Beelgara Estate was formed in 2001, when a group of shareholders bought the 70-year old Rossetto Wines company, including its winery at Beelbangera, just outside Griffith. This company had then merged with Australian Wine Supply in 2004, and the Wine Insights company was created in 2012, following further acquisitions and partnerships (including contract wine-making and bottling, and bulk wine supply).

The Cumulus merger is reported to have created a joint venture producing, per year, more than 400,000 cases of wine and with a gross revenue of AU$20 million. Winetitles Media now ranks Wine Insights as the 15th largest Australian wine company by revenue (and sales of branded wine) and 20th by wine-grape intake.

However, the venture also put the Rossetto winery, at Beelbangera, up for sale, because the merged group chose to centralize its wine production at the Cumulus winery, at Cudal. This seems to mean that the Riverina grapes are now going to be transported 350 km to be processed (at Cudal), rather than being processed locally (at Beelbangera). Much worse, the Margaret River grapes would be transported 4,000 km for processing, the Coonawarra and Adelaide Hills grapes would be trucked 1,000 km, etc. Environmentally friendly this would not be (with a large carbon footprint), although the accountants must love it.

That's it, for the moment. Nothing stays the same for long in the world of Australia's large wine companies. But the next time you read a media report about some wonderful winery, you should wonder what is the reality behind it.

Addendum 2018

The company has recently reverted to its original name: Cumulus Wines undergoes re-brand.

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