Category Archives: People

On 21 July Foster’s Group Limited changed the name of its global wine business from Fosters Wine Estates to Treasury Wine Estates. The change followed Fosters decision in May to split its beer and wine divisions into two separate companies to be listed on the Australian Stock Exchange in 2011.

Despite the name change, the stench of failure hangs over Fosters wine assets. It’s a sad story, tragic for some participants, involving a near decade long destruction of wealth. On glug.com.au, David Farmer cites an estimate of around $8 billion to build Foster’s wine assets but a current value of just $2.5 billion.

Fosters moved into wine in 1996, acquiring Mildara Blass – a highly profitable business driven by the big volume Yellowglen, Jamiesons Run and Wolf Blass brands. Headed by Ray King, Mildara Blass was seen in the industry as a model for return on investment.

Ironically, at about the time of the Fosters acquisition, King detailed to a masters-of-wine gathering the wine industry’s history of dispersing wealth. It wouldn’t happen under King’s watch, but the same fate awaited Fosters.

In 1997 Fosters acquired Cellarmaster Wines, a highly successful, vertically integrated direct marketing business, based at Bondi Junction, with winemaking, packaging and distribution assets in the Barossa Valley.

Then in 2000 California’s Beringer Wine Estates joined Fosters wine business and the name changed to Beringer Blass Wine Estates (shortened in 2004 to Beringer Blass). By then the difficulty of running a wine business had become apparent. In the year to June 2004 the wine division returned just four per cent on its $4.4 billion of assets – compared to the beer division’s 25 per cent on $2.2 billion of assets.

But the wine headache was set to grow bigger, ultimately sweeping Chief Executive Trevor O’Hoy away.

As Foster’s ran into rough weather, another disaster had unfolded at Southcorp, owner of many of Australia’s greatest and oldest wine brands, including Wynns Coonawarra Estate, Penfolds, Seppelt, Lindemans, Leo Buring, Coldstream Hills and Devil’s Lair.

In 2001, the Oatley family engineered a merger of its highly successful Rosemount Estate business with the much larger Southcorp Wines. The Oatleys held a sufficiently large stake to control management, installing Keith Lambert, Bob Oatley’s son in law, as head. Catastrophe followed.

Poor management decisions saw market share decimated in the UK and Australia. And an unworkable arrangement saw John Duval, Southcorp chief winemaker, and Philip Shaw, Rosemount chief winemaker, appointed as joint chief winemaker. A holy trinity might work, but not an earthly duality. As the debacle unfolded both departed for their own reasons, making John Duval the first Grange maker not to see the job through to retirement.

In Australia, wine retailers large and small detested the merger and instantly changed their buying habits – much to the delight and profit of medium sized companies like McWilliams and De Bortoli.

No retailer likes to be controlled by a supplier. If, before the merger, purchases from Southcorp and Rosemount equalled, say, 50 per cent of a retailer’s total, after the merger, they’d likely fall to 30 per cent. The merged Southcorp-Rosemount learned the hard way that they were the tail, not the dog. And the big retailers would wag them, not the other way around. Lambert duly departed and John Ballard stepped in to repair the damage.

In 2005, before Ballard could complete the job, Fosters moved in, paying top dollar for Southcorp. Bob Oatley walked away with cash and the destruction of wealth gathered pace.

Fosters first major blunder after the acquisition was to funnel all sales across it vast beverage portfolio through a single sales force. Friends in the trade at the time said it was farcical. And the loss of market share experienced by the merged Southcorp-Rosemount was repeated by the merged Southcorp-Fosters.

After repeated write-downs and then a major review in 2009, Fosters structurally separated its wine and beer divisions. In May this year they went a step further, announcing the split into two listed companies.

This sets the scene for further shake-ups in the global wine and beer businesses. The beer business could easily be gobbled up by a larger player when the wine albatross is cut free. And it’s anybody’s guess as to where the wine business ends up. Will it prosper as a single entity? Or will it ultimately be carved up.

It’s a disparate group of brands, some of them now severely damaged. But there are some great gems with huge international potential, including Wynns and Penfolds. What a pair they’d make for the right private investor!

For the moment, though, there’s no talk of a carve-up. David Dearie, Foster’s wine boss for Australia and New Zealand, launching the new Treasury Wine Estates brand, said, “the new name and business identity reflect the wealth of treasured wine brands including global favourites Beringer, Matua Valley, Penfolds, Lindemans, Wolf Blass and Rosemount to regional labels such as Coldstream Hills, Devil’s Lair and T’Gallant”.

Dearie also talked of “a cultural change for of us working in the wine business as we return to a dedicated focus on viticulture and winemaking”.

This gets to the heart of great wine brands – the compelling stories of regions and vineyards and the people behind the wines. Marketers in large companies have largely failed at this, so we have reason to remain sceptical. As well, the treasury comes with dross as well as gold dust.

Separated from the brewery, Treasury Wine Estates will have to perform in its own right. Shareholders are unlikely to stomach more write-downs. And if there are any more, where will new capital come from? For the sake of our great old brands, let’s hope for success. But I suspect that would be more likely with a carve-up.

Copyright © Chris Shanahan 2010

There are changes afoot in the Canberra wine district, following the departure of two of the district’s most influential winemakers from Lake George Winery late last year. Nick O’Leary left the winery in winter 2009 and Alex McKay followed in December.

Part of the Lake George property is up for sale. And O’Leary and McKay are now making their wines separately – O’Leary at his in-law’s Affleck Vineyard and McKay at a leased winery near Murrumbateman.

The Karelas family bought Lake George Vineyard from founder Edgar Riek in 1998. At Edgar Riek’s urging, following Hardy’s departure from Canberra, Theo Karelas and his son Sam hired Riek, O’Leary and McKay to oversee a complete overhaul of the vineyard in 2007. McKay was to make the wines. And McKay and O’Leary had freedom to develop their own labels, Collector and Nick O’Leary.

Then in March 2008, the Karelas family acquired the adjoining Madew property including land, vineyards and a winery-, cellar-door-restaurant complex. McKay and O’Leary led a rejuvenation of the neglected vineyards and consolidated the winemaking equipment into the Madew cellar. The combined properties produced wines under the Lake George Winery label and the Madew name was dropped.

Speaking from overseas last week, Sam Karelas said he was selling Riek’s original Lake George property but would continue trading from the Madew property under the Lake George Winery name. He said he would continue to operate the restaurant.

Alex McKay said though he left Lake George half way through the growing season, he made two wines from the vineyard in 2010 – a tempranillo and riesling.

He says left Lake George because the winemaking obligation there had become a bit much with his Collector brand beginning to work well and demanding more attention.

In time for the 2010 vintage he arranged to lease a small winery owned by Vikki Fischer at Murrumbateman. Fischer made her Cardinia wines there. But, says McKay, as a working mother with three children she found little time for winemaking.

McKay says it’s an efficient little winery and by adding a few bits and pieces it easily handled vintage 2010.

He made “some nice parcels of shiraz, which was a pretty good achievement in a tough vintage” but hasn’t decide yet whether there’ll be a “reserve” bottling as well as the standard Collector Marked Tree Shiraz.

He also has a single barrel of sangiovese, sourced from Wayne and Jenny Fischer’s Nanima Vineyard, Murrumbateman. But it “may never see light of day”.

The standout wine in 2010, he says, is a Rhone style, oak-fermented white blend of marsanne, roussanne and viognier. “I’m very happy with it”, he adds (given McKay’s modesty, that probably means sensational). He’s also pleased with a 2010 riesling made for the Half Moon Vineyard at Braidwood.

McKay continues to work closely with O’Leary. “There’s a fair bit of overlaps on our grape sources”, he says, and it helps if they both keep an eye on the vineyards. They bring different perspectives, McKay adds. But, more importantly, as vintage approaches each year, they spend a great deal of time visiting and influencing the management of vineyards they’re buying from. Ultimately, fruit quality drives wine quality – and their fussiness in this area shows in the wines they make.

On Friday 2 July, for examples, judges at the Winewise Small Vignerons Awards awarded the trophy for best shiraz to Nick O’Leary Canberra District Shiraz 2009 – further cementing Canberra’s leadership with this style of shiraz.

O’Leary’s success in this credible wine show follows similar applause for Collector Reserve Shiraz 2008, made by O’Leary’s long-time winemaking mate Alex McKay, at the 2010 Royal Sydney Wine Show.

McKay says that when he and O’Leary source fruit from local growers they don’t cherry pick the amount to suit their own brands. If they like a block of vines, they’ll buy the lot as it’s neater for the grower and, it seems, opens other winemaking options – like their just released joint-venture Bourke Street Shiraz 2008 ($19).

McKay says there’s a limit to the volumes they can make and sell at the prices their own brands command (currently around $30 for the standard Nick O’Leary and Collector and $46 for Collector Reserve).

But there’s an opportunity, especially in restaurants, for good quality regional wines at a more affordable $20.

They make all of their shiraz as if it’ll be a component of the premium wines, says McKay. But as they move from oak maturation to final blending, for style, quality or volume reasons they eliminate some parcels. In 2008 these shiraz parcels became the first Bourke Street wine, released recently after a year in bottle. It’s a terrific drop. And there’s a 2009 in the wings, along with a few other wines, to be covered here when they’re released.

The 2009 vintage of Collector Marked Tree Shiraz and Reserve Shiraz are to be released in September and they’ll be reviewed here at the time. We’ll also review O’Leary’s trophy-winning 2009 Shiraz in the near future.

And we’ll just have to wait and see who buys the original Lake George and what they do with it, and how the Karelas family fares with the piece they keep. We’ll catch up with Sam Karelas when he returns to Australia and pass on any news.

Copyright © Chris Shanahan 2010

Is Australia ready for high quality regional varietal wines in tetra paks? We’ll know soon enough following this month’s launch of One Planet Adelaide Hills Sauvignon Blanc 2009 and McLaren Vale Shiraz 2008. They’re billed as “the green pour” and the marketing focuses on a zero carbon dioxide output across the product lifecycle. But the wine quality, and sheer convenience of the lightweight pack, means it won’t just be Bob Brown drinking OP.

One Planet Chief Executive, Sam Atkins, says one-litre tetra pak wines enjoy big sales in the USA, Canada and Argentina, with the French Rabbit brand now taking off in Europe and the UK. He says these are mostly cheaper wines, equivalent in quality to our wine casks. Convenience and economy, it seems are the key selling points – just as they are for our home-grown one-litre tetra pak offerings from Banrock Station and Long Flat.

Atkins believes One Planet tetra paks are the first in the world to offer premium regional varietal wines. Retailing at around $14.95 they’ll be pitched squarely against high-quality bottled products – a big ask in the current glutted, deeply discounted market. They certainly have the quality – both comfortably achieve Wine and Food’s three-star standard: the light, fresh sauvignon blanc shows the tropical fruit end of the varietal spectrum; and the shiraz is big, bold and fruity in the particularly robust style of McLaren Vale’s hot 2008 vintage.

The test will be on the shop floor. But Atkins remains confident and has the national support of Coles with its 1st Choice, Vintage Cellars and Liquorland outlets taking on the brand in advance of a wider rollout. In the warehouse-style 1st Choice stores, the wines will have their own purpose-built displays – for visual impact and to separate them from wine casks.

Atkins sees parallels with the successful re-launch of screw caps in the late nineties. Back then winemakers spread the message that screw caps delivered better wine than cork. The change was all about quality. Convenience was incidental. This time the key messages are wine quality and environmental friendliness. If people see the tetra pak only for its convenience, or as just another wine cask equivalent, they may not pay a premium for it.

So how good is the tetra pak as a wine container? And what does the wine come into contact with? Atkins says it’s six-layered product and the wine is in contact with an outer layer of polyethylene. It’s also used for long-life milk and fruit juice.

He believes the manufacturer’s suggested shelf life of two years is conservative, and could be as much as four years. Atkins says he’s tasted wine at two and half years and “felt comfortable with it”. Certainly the current wine is in excellent condition seven months after packaging.  This suggest tetra pak is a better medium-term container than another light-weight alternative, PET plastic bottles with their shelf life of around 12 months.

Atkins created the One Planet concept with Phil Reedman MW. Reedman had played a key role introducing screw caps to the UK as a buyer for Tesco supermarkets. This time they’ve spotted an opportunity to appeal to environmentally aware wine drinkers and for “specialised markets including boating, sporting and outdoor events… airline, rail, cruise ship and ferry industries”, reads the press release.

Atkins says the airlines are keen on a 200ml tetra pak now being developed. And restaurateurs are lining up to for the 750ml packs as pouring wines ¬– to be marketed as “green pours”. He says they like the wine quality and the advantages of handling and disposing of such a light package (10.5 kilograms a dozen versus 16–18 kilograms for glass bottles).

Atkins plans to export the wine and already has distribution contracts in the USA, Canada, Scandinavia and the UK. And he’ll be expanding the range of regional varietals in partnership with contract makers.

The Adelaide Hills sauvignon blanc was made by Sarah Fletcher and the McLaren Vale Shiraz by Tim Burvill. To these will be added a Yarra Valley Pinot Noir, in conjunction with Sticks, a Margaret River semillon sauvignon blanc with the Edwards family and there’s a Coonawarra cabernet sauvignon in the wings. And for the American market they’ll sourcing cabernet and chardonnay from California.

And if you thought Marlborough sauvignon blanc might be a no-brainer, think again. Atkins says it’s now so commoditised and discounted in Australia they opted for material from the Adelaide Hills, for its better image.

The catchy posters and point of sale material for One Planet’s launch push both the environmental and wine quality propositions. One, featuring a picture of Tim Burvill, maker of OP McLaren Vale Shiraz 2008 reads, “ The best of both worlds – for once you don’t have to make a sacrifice to help the planet”.

Philip Reedman MW, formerly of Tesco Supermarkets UK, appears in another with the message, “How heavy is your footprint? – Drink seriously good wine whilst considering the environment”.

And sauvignon blanc maker Sarah Fletcher appears in a third, reading, “Looking towards the future – better for the planet and in turn, the future of our kids”.

We’ve seen wine in tetra paks before. But not of this quality and not with such a groundswell of support from a major retailer, restaurateurs, airlines and overseas distributors. My hunch is they’ve sensed the time is right. Just as we embraced the screw cap a decade ago, we might now be ready for good wine that isn’t in glass.

Copyright © Chris Shanahan 2010