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It has been quite a whiles since the Australian wine industry has seen this level of moving and shaking. Two big-name Barossa wineries have been sold; a big McLaren Vale winery is just about to close – and may eventually be sold; dozens of wineries are officially on the market; and industry observers suspect there are plenty more quietly searching for the right investor/partner.

When the Grapegrower & Winemaker tackled this topic for the December edition, we sought comments from Marc Soccio, Rabobank senior analyst, and Kym Anderson, from the University of Adelaide’s wine economics research centre. The thoughts of these experts built on what Casella Family Brands and Peter Lehmann Wines had to say about their transaction. However, our extended interview with John Casella, managing director of Casella Family Brands, wasn’t completed in time to get all his comments in the magazine article. But we think they make interesting reading.

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CHEERS: John Casella and Margaret Lehmann toast the sale of Peter Lehmann Wines to Casella Family Brands.

 

Question: Apparently there is something like 46 Aussie wineries for sale at the moment. What does all this say about the state of the industry? Are the current, wider-industry conditions the reason for so many changes of ownership?

John Casella: We know that the industry is facing some challenges but we are beginning to see some positive changes that should start to take effect. The fall in the Australian Dollar will help with export trade, and FTA’s with key markets such as Japan, Korea and China present new and exciting opportunitiesIn terms of wineries for sale, I’m sure there are a number of reasons at play, but I can only really comment on our situation regarding the change in ownership from Peter Lehmann Wines to Casella Family Brands. The timing was right for both companies in making this decision and there are many synergies that exist between us; it is important to both companies that we are aligned on the vision and strategic direction for the business, maintain our mutual values of family and community, and continue generations of hard work and dedication to winemaking. The proposed acquisition of Peter Lehmann Wines by Casella Family Brands ensures the continuity of values, relationships and stability that come from family ownership. Margaret Lehmann and I agree that wine businesses require the patient capital that is best suited to private ownership and that the acquisition should deliver some much needed capital into the industry.

For Casella Family Brands the proposed acquisition is an integral part of our strategy to build a family of quality brands. With the recent launch of our premium range of wines under the Casella brand umbrella, which include Yellow Tail, Casella Limited Release ($45.00) and Casella 1919 ($100), the Peter Lehmann Wines portfolio further complements and strengthens our brand offering across a range of price segments, which is particularly important as consumers are trading up within the category.

The most-recent moves have seen medium-sized wineries moving into bigger ‘stables’, does this reflect the reality of the situation at the moment – that scale is everything? Do you think medium-sized wineries might look at purchasing smaller wineries to improve their scale? Could this be a pattern emerging?

JC: With the proposed acquisition of Peter Lehmann Wines, there are benefits and economies of scale that will increasingly prove to be an advantage in brand development, production and distribution. We anticipate that the increased scale of the business coupled with the strong brand equity that PLW has built, will generate unique opportunities for the family of brands as a whole. Yellow Tail has afforded us the opportunity to build a solid distribution footprint in over 50 countries and we are excited by the opportunity to grow Peter Lehmann Wines’ reach to bring the wines to a wider audience.

However, scale isn’t everything and doesn’t guarantee success. It is important to understand the market and what consumers are looking for within the category in order to deliver on that from a liquid and brand perspective. We have always ensured that the consumer is at the heart of what we do. Medium size wineries also face limitations in capital requirements and lending conditions that may inhibit this activity.

Would a Treasury Wine Estates sale change the landscape at all? Do you expect to see Treasury sold in the foreseeable future? Could you see offers being made for any of their individual brands?

JC: I’m not in a position to comment on this. What I will say is there is a place for brands at all prices points within the category, but we need to come together to educate people around the world on what Australia can offer, from its history and diversity to the regions and terroir. The Australian wine industry has, and continues to face challenges, but as an industry we need to move forward with positive action.

What’s happening with vineyard sales at the moment? Are values holding or dropping?

JC: This varies from region to region and is dependent on a number of influencing factors, but can largely be attributed to regional supply and demand balance and the cyclical nature of the wine industry.

If I were to refer to regions where Casella Family Brands has a strong foothold by way of a comparison, the Barossa is experiencing capital growth, driven by supply pressures and solid demand, whilst warm climate regions have been experiencing declines, driven by oversupply. It is important to understand that different regions have individual capabilities and capacities, and therefore our business strategy is in matching those regional capabilities with differing market and consumer demands.

Arguably Australia’s most famous wine region, the Barossa, is benefiting from the global ‘premiumisation’ trend both in the domestic and international markets. Regions that are at the other end of cycle are facing pricing pressures primarily due to the higher currency we have experienced in recent times. I expect to see this improve as the lower Australian Dollar assists with export volumes and increasing returns.

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