Chris Shanahan: Will Foster’s stay in the wine business

The quality and style of several great Australian wine brands owned by Foster’s remain intact despite the wine division’s ten per cent sales decline in the first half 2006–07. But will great brands like Penfolds, Wynns and Wolf Blass flourish long term under the Foster’s banner? Will Foster’s remain in the wine business in the long term?

I wonder if, in relaxed moments on the golf course, Foster’s boss, Trevor O’Hoy laments the brewer’s venture into wine. A ten per cent slide in wine sales in the first half of 2006–07 says clearly that integrating a brewer and a winemaker is hard slog — and the analysts are onto it.

One major stockbroker, Merrill Lynch, cited by Richard Farmer on glug.com.au, writes, ‘We have argued in this note that we are non believers in the Australian multi beverage model, that we are non believers that a large company with a portfolio containing non-performing brands can ever out perform the market, and that we are non believers that a large wine company can grow brands without hurting other brands within its portfolio. We also believe Foster’s integration is too complex – and that snags will be a regular feature. In essence, we believe Foster’s operating under its current structure will continue to disappoint. And it is for this fundamental reason that we maintain our SELL recommendation’.

While Foster’s battles to overcome these management, financial, marketing and trading difficulties, the winemaking end of the business has, to date, kept some of our great brands intact. We can still trust and enjoy them. And that means that they still have the intrinsic quality to drive domestic sales and the export push.

Behind names like Penfolds, Saltram, Metala, Wynns, Mildara, Seppelt and Leo Buring lie specific regions, vineyards and decades of winemaking practice. These are the elements that create distinct wine flavours and, in turn, make the brands what they are.

But what happens when disparate winemaking cultures come together in one winery? When you blend Beringer Blass with Southcorp and all the brands associated with each, as Foster’s have done, do you get homogeneity immediately — or over time?

A tasting of the wines shows that it hasn’t happened yet. And a look at the winemaking structure, with chief winemaker Chris Hatcher, shows how this can be maintained for the present. The real challenge could come later, though, if financial underperformance forces more rationalisation.

Each of the brands has a long-term winemaker in charge, for example Sue Hodder for Wynns Coonawarra; Andrew Hales for Mildara Coonawarra; Caroline Dunn for Wolf Blass – Barossa, Langhorne Creek, McLaren Vale, Adelaide Hills; Nigel Dolan for Saltram Barossa and Metala Langhorne Creek; Peter Gago for Penfolds reds – multi-regional; Ian Shepherd for Penfolds whites – Eden and Clare Valleys, Adelaide Hills, Henty, Tumbarumba; Emma Woods for Seppelt Great Western and surrounds; Wendy Stuckey for Annie’s Lane Clare Valley.

That’s only part of the list. But each winemaker has designated vineyards, or sections of vineyards, both company owned and contract grower. Grading for each wine style begins in the vineyard, continues at the crusher during vintage and afterwards in fermenter, storage tank and barrel.

Continuing assessment of grapes and individual wine batches means that quality grading from A (eg Penfolds Grange, Wolf Blass Black Label) to F (wine cask) can be altered as the season and, later, maturation progresses. Thus wines may be upgraded, downgraded or even re-allocated on the basis of style. Maintaining discrete batches right up until the point of final blending facilitates this.

Hence, when you taste a Wynns Coonawarra next to a Mildara Coonawarra, the styles are notably different. And this comes from different approaches in the vineyards, different vineyards within one region, harvest decisions and winemaking approach. Similarly Nigel Dolan’s reds taste different from those made by Caroline Dunn in the same winery.

Indeed tasting tank samples of 2007 rieslings tasted with Hatcher’s winemakers in the Barossa recently showed very marked variations amongst those destined for the Annie’s Lane, Leo Buring and Wolf Blass brands – and even between different quality levels for each.

From a consumer viewpoint these major Foster’s brands offer great value. And the best are exciting, world-class wines. Hatcher says that the focus both here and overseas will be increasingly on regionality and that this will continue to be driven by the winemakers.

Unfortunately, some of these great brands appear to be in decline commercially, if not in quality. We can only hope that Foster’s marketing and trading arms might fall into step with the winemakers so that these great products continue.