Monday, March 11, 2019

Australia's biggest wine companies

We often read in the media about a particular company being "the biggest" or perhaps "second biggest", often without specifying the criteria. Which wine companies are Australia's largest depends very much on which criteria you use — the biggest sales, for example, do not necessarily generate the biggest revenue.

According to Winetitles Media, there were 2,257 wine produces in Australia in 2018, with a 7.7% drop from 2017 in the number of small producers (crushing less than 100 tonnes). However, the top 5 producers accounted for an estimated 87% of the total export volume, so they may be the only ones you have ever heard of. Circa two-thirds of Australian wineries produced fewer than 5,000 cases, which means that direct-to-customer sales are important for the majority of wine businesses — 90% of wineries have a cellar door, accounting for half of all direct sales (Cellar door survey shines light on direct sales opportunities for wineries).


Various features of these 2,257 producers are summarized on the page The wine producers in numbers 2012-2018, including what types of wine are made, usage of social media, and export destinations. However, I will focus here on the biggest companies only.

The table below lists the top group of companies, showing their size ranking for each of five wine-producing characteristics. The data are taken from Winetitles Media, which lists only the top 20 companies for each of the characteristics. Therefore, data are not listed for a company if they do not make it into the top 20 for any particular characteristic.



Treasury Wine Estates
Accolade Wines
Casella Family Brands
Pernod Ricard Winemakers
Australian Vintage
De Bortoli Wines
Warburn Estate
McWilliam’s Wines Group
Kingston Estate
Yalumba Wine Company
Zilzie Wines
Andrew Peace Wines
Brown Family Wine Group
Qualia Wine Services
Idyll Wine Co.
Angove Family Winemakers
Berton Vineyards
Calabria Family Wines
Tahbilk Group
Total
revenue
1
3
4
2
5
7
8
6
12
10
15
17
9
14
18
13
19
20
11
Sales of
branded wine
2
1
3
4
5
6
7
9
16
11
19
8
13

10
15
12
17
14
Total wine
production
3
1
2
4
5
7
10
11
6
13
9
12
19
8
14
17
16
15
20
Wine-grape
intake
3
1
2
4
5
7
11
9
6
13
10
12
16
8
15
17
19
14
20
Vineyard
area
1
10
2
6
3
8
7
11
4
12
15
16
13
14

17


19

The conglomerates

Treasury Wine Estates (TWE) has one of the most complex, and embarrassing, histories of any Australian company (see Southcorp Limited history). It was founded as a brewing company, which started acquiring wineries in the 1980s, followed by other businesses not related to alcohol. It then sold off the original brewing business (to another brewer), and changed its name to Southcorp. It then sold off the non-alcohol businesses, and focused on wine. In 2001 it merged with Rosemount Estates, at the time Australia's most profitable wine company. This was a reverse takeover — Southcorp paid the money but the Rosemount executives ran the new company. It was all downhill from there, as every decision to rationalize the joint company turned out to be wrong, leading to record financial losses — it is a case study in dysfunctional decision-making (see the book Contemporary Issues in Management and Organisational Behaviour). (Trivia: one of the decisions was to sack one of the two US distributors, who immediately joined forces with Casella Wines to make Yellow Tail the no. 1 imported US wine brand). The remnants of Southcorp were bought in 2005 by a brewing conglomerate, Foster's Group, who tried to run it like a beer business. Beer and wine do not mix, because their modern business models are radically different; so Foster's eventually spun TWE off as a separate company in 2011.

This company was pretty much non-functional because of all of the historical baggage — it has taken until very recently for a turn-around, having discovered the benefits of selling premium wine rather than mass-market wine (TWE delivers strongest organic growth rate in net sales revenue in its history). TWE's recent sparkling results have been boosted by exports to China (Treasury sees ‘tremendous opportunity’ in China to continue to grow), although it is not clear what the future of the Chinese market will be (China takes a shine to Aussie wine). TWE also has wine activities in California and New Zealand, and has announced plans to invest in French wineries (Penfolds owner to buy French wineries to satisfy Chinese tastes). They own Australia's 4th largest winery (Lindemans Karadoc Winery, processing 110,000 tonnes per year), which was the first one to be modeled on an oil refinery (see picture below). Their best-selling brand is actually Beringer, from the USA (9th in the world); but their most famous Australian brand is Penfolds, among many, many others.

Accolade Wines is now owned by the private equity giant The Carlyle Group, having recently been bought from another equity firm, CHAMP, plus Constellation Brands in the USA (the world's 2nd largest wine company, which is itself embarking on a premiumization strategy: Constellation brands to discontinue 40% of wine & spirits portfolio). Accolade is a classic example of the aspiration to become a virtual wine company, one that manages the sales and marketing of consumer brands but no longer owns many vineyards (similar to Constellation: Why you don't need land for a winery) — it has been steadily selling most of the ones that came with its various winery acquisitions. It has also recently announced a major restructuring plan (Carlyle Group takes knife to Accolade Wines); and it recently acquired the head of TWE's Asian operations (Treasury Wine's top Asia executive departs to rival Accolade Wines), which probably indicates a new direction.

Accolade owns Australia's 2nd largest winery (the Berri Estates Winery, processing 230,000 tonnes), so it does actually make wine — indeed, it is Australia's largest producer, as well having the greatest grape intake. Accolade has a big portfolio of premium Australian brands, but their best-selling brand is Hardys (8th best-selling wine brand in the world). It also has brands from Chile, Italy, New Zealand, North America, South Africa and the United Kingdom.

Pernod Ricard has wineries in Argentina, California, France, Georgia, Mexico, New Zealand, Portugal, South Africa and Spain, so Australia may not play a big part in its global plans. However, its main brand from Australia is Jacob's Creek, the no. 1 bottled wine brand in Australia, both by volume and by value. It was recently ranked Australia’s 8th strongest brand (Jacob’s Creek ranked in Australia’s top ten strongest brands 2019), the only wine brand to make it into the top 10. Oddly, when Pernod Ricard decided to re-brand all of its Orlando branded wines, it changed all of the premium wine names to Jacob's Creek, which was its mass-market brand name — one does not normally replace a higher-status name with a lower-status one. The company has recently announced that it will be using 100% renewable electricity in all Australian sites by mid-2019.; and it is reported to currently be considering the sale of its wine division (Pernod considers offloading $500 million wine unit).

Australian Vintage is the descendant of a conglomeration formed from a merger of McGuigan Wines and Simeon Wines. They own a lot of vineyards, but don't really have any premium brands to speak of — they target the lower-middle market at best. Their current financial report is optimistic (AVL’s profits up but predicts vintage yields will drop). They own Australia's 3rd largest winery (Buronga Hill Winery, processing 150,000 tonnes per year); and they recently invested in a fancy new packaging facility (Australian Vintage invests AU$11m in packaging facility). They seem to be very proud to have been the first wine producer in Australia to run 90% of their operations on solar and wind power (Australian Vintage signs ‘landmark’ renewable energy deal).

Karadoc winery

The others

Both the Brown Family and Tahbilk specialize in premium wines — note that they have a lower ranking on intake and production compared to their higher position on revenue. They are both still family owned, and have been for a very long time (see Keeping the family wine business is often hard). The Tahbilk winery still has some of its original buildings, including its famous wooden tower, where tastings are held. I well remember one visit in which I had to cup the tasting glass in my hand for several minutes in order to warm the wine sufficiently to taste it! The Brown Family, on the other hand, have probably the biggest tasting room I have seen. They are located on the road to one of Australia's skiing fields, and the overlap between skiing enthusiasts and wine enthusiasts is large. This has allowed the winery to be one of Australia's greatest experimentalists, because they can try out new ideas on a large and inquisitive customer base.

Other big producers focus on bulk wine or cheap wine, including Warburn Estate, Kingston Estate, Zilzie, Andrew Peace, Calabria and Qualia Wines. They are located in the large inland Murray-Darling irrigation areas, originally populated by returning soldiers but thereafter dominated by southern European migrants — Warburn, Kingston, Zilzie, Andrew Peace and Calabria are all still family owned. Most Australian wine drinkers will never have heard of these companies, but if they drink inexpensive wine then they are very likely to have tasted their wines — Warburn, for example, owns the Coolabah bag-in-box label as well as the AC/DC celebrity brand. These wineries tend to be large exporters of unbranded wine.

Idyll Wines and Berton Vineyards did not start out in the irrigation areas, but have instead moved into them from the premium end. Idyll, like Qualia Wines, offers "end-to-end solutions" for customer own-brand development, as well as having brands of its own.

Both De Bortoli and Casella originally started out as immigrant bulk-wine producers from the irrigation areas — Casella owns Australia's biggest winery (at Yenda, processing 250,000 tonnes), while De Bortoli own the 5th largest (at Bilbul, 100,000 tonnes). However, both companies have been trying to break into the premium market over recent years. Both are still family owned, with De Bortoli being the older, being founded in 1928 compared to 1969 for Casella, which much the larger company. De Bortoli came to fame as the result of its Noble One (Botrytis Semillon), still recognized as Australia's premier Sauternes-style wine; and its Black Noble rivals any Pedro Ximenez wine from Jerez. The company used this springboard to start buying wineries and vineyards in the premium areas of south-eastern Australia; and it is now the archetypical large family producer covering all brand segments.

I have discussed Casella before (Yellow Tail and Casella Wines). They have been using their rise to the top position for US wine imports (with Yellow Tails as the 5th best-selling wine brand in the world) to fund the acquisition of wineries and vineyards in the premium areas of south-eastern Australia. This is clearly (as it is for De Bortoli) a recognition that you don't survive long in the wine industry by selling bulk wine at slim profit margins, especially with the modern trend to premiumization among drinkers. However, Casella have also been trying to maintain their no. 1 position in the American market, by forestalling any drop in buyers. Their Super Bowl ads over the past three seasons were extremely expensive, and there is little evidence that they produced any increase in sales. The ads are, instead, all about maintaining "brand awareness ... in a declining category and outpacing all of our competitors" (Yellow Tail returns to Super Bowl for third year).

There are some very long-standing family firms in the table, including McWilliam’s, Yalumba and Angove (see Keeping the family wine business is often hard). These are the archetypal survivors: mid-sized family companies targeting the premium market, who have not succumbed to corporate takeovers. The latter is the fate of almost all mid-sized wine companies in Australia — once they attract attention, the corporate predators descend, they are bought, stripped of their assets, and their wine brands are devalued. I have spent my entire life as a wine consumer watching this happen time and time again to premium-wine companies — stay small or be eaten. One has to respect those families who have resisted this onslaught.

Seppeltsfield Road

Other companies

There are also a couple of companies missing from the above list, but which have large vineyard areas.

Seppeltsfield Wines (9th largest vineyard area) may well be the first winery I ever visited, back in the late 1970s. The Seppelt brand is now owned by TWE, but the property was bought from TWE's predecessor a decade ago; and the new company has been been buying other premium vineyards, as well, some of them from TWE. My main memory of my visit is the impressive arrival along the Avenue of Palms (see the picture above) — a 5 km driving avenue of more than 2,000 Canary Island Date Palms, which were planted by Seppeltsfield workers during the Great Depression (to keep them employed).

Duxton Vineyards (5th largest vineyard area) is a massive consolidation of pre-existing vineyards in the inland irrigation areas (including two of Australia's largest vineyards), planning to produce 5% of Australia’s wine-grape harvest each year. It sells grapes, and a few wine brands of its own, but specializes in bulk juice and wine.

Finally, it is worth mentioning the rapidly increasing investments from China, both by buying established companies (Grape expectations: The Chinese investors buying into Barossa Valley wineries) and by establishing new vineyards (eg. the Weilong Wine Grape Company's activities in the irrigation areas).

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