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           Sydney Time

  

            

   Copyright © Ric Einstein 2009

 

 

 

 

The Fosters Wine Asylum  (17 March)

 

Regular correspondent Mac McCuskey who has been known to enjoy the occasional drop of red, works in the Australian Embassy in Washington. Purely in the interests in economic development you understand, and the promotion of all things Oztralian, the Embassy puts some of our hard earned tax dollars to work buying good Oz booze. After all, we wouldnít want them serving critter plonk at official functions, or worse still, Frog stuff.

 

Given Macís affinity to our grape juice, he has managed to horn in on the wine buying action, and has got to know the staff of the wineries/producers who are involved in promoting Oz wine to the Yanks.

 

Before we go any further, a little bit of background is required. In the US, for as long as I can remember, the price of the Penfolds Bin Series, (specifically 28, 128, 407 and 389) was all the same. Every time I saw that Bin 389 was about US$25 a bottle I used to shake my head. Either the customers in Penfolds home market were being ripped off, or the US customers buying Bin 389 should be arrested for grand theft - wine. After all, in Oz the Bin 128 etc were selling for around A$25 whilst Bin 389 was close to A$50. Grange and St Henri also cost way less in the US. When I interviewed Brian Finn AO, the then Chairman and acting CEO of Southcorp about in inequity of this pricing, he told me emphatically that the sale price has nothing to do with the cost of production. Finn said that the days of working out what the product cost and then adding a percentage had long gone. They (Southcorp) would charge what ever the market would bear.

 

Back to Macís email. In it he told me, ďLast Friday I was having a drink with the area's Fosters Representative; a lady that I have known for quite a few years. She told me she had some bad news about Penfolds. Not only was supply going to be down again (as it was last year) but Fosters were going to increase the prices.

 

Last year most of the better Penfolds brands went up (for me to buy for the Embassy) 20% with the St Henri going up by 75%.

 

She indicated that the Foster's crowd had suddenly woken to the fact that that for years they had been selling Penfolds in the US for less than they were charging in Oz. They now want to make the better Penfolds wines comparably priced.

 

I told this dear lady that the Fosters people must be a bunch of prize wankers. No one, and I mean no one, will pay US$330 for Grange, or US$70 for St Henri or US$50 for the likes of Bin 389 in the current climate. I have read a lot of your articles on the Fosters group; they must have all gone to the same school for megalomaniacs.

 

I think the Penfolds products from the Thomas Highland up are terrific wines, but they are going to cut off their noses to spite their face. Stupid buggars.Ē

 

If ever you wanted proof that the inmates were running the Fosters Wine Asylum, this is it. Last year, even blind Freddy could see that the Australian category in the US was taking water faster than the Titanic was at 11.45 pm on 14 April 1912. In an email exchange with US retailer Kyle Meyer, a man that knows as much about the Oz category in the US as anyone, and who has sold more at the coal face than most, he stated, "....it's the serious shaking out that all of us in the premium Aussie wine business knew was going to come."  The people making the decisions at Fosters Wine Asylum must be more myopic than Mr Magoo! And it looks like their short sighted vision has not improved.

 

We are now in the worst recession in memory and the Australian segment is completely tanking in the US market, with the above $20 category being the hardest hit, and Fosters are raising the price of Penfolds in the US, again!

 

As Finn stated, you can only charge what the market is willing to pay. Itís only Australiaís love affair with Grange that allows them to charge A$500 in the local market. Simply put, you can buy Grange in NZ, England and the US for less than in Australia, and when it is released in those countries, there is nothing like the hype surrounding it local release. If one wanted to jack the price up in the other countries to reach parity with the domestic market, and I am not saying that is necessarily a good idea, only an insane marketing person or bean counter would do it at a time when sales look like they are about to tank, or are tanking.

 

The one saving grace with Grange and St Henri is that they can always allocate more to the domestic market, but given the tax Fosters have to pay locally, that may not increase profit.

 

Will Australia be able to absorb more of the Bin series? Given the way SC and Fosters have treated their smaller retailers over the years, I doubt it. Thatís unless they donít mind bending over and smiling sweetly when they offer the increased volumes to the two big Oz grocers that control about sixty percent of the local retail wine market.  


 

Feel free to submit your comments!

From: Adam Catforf: Thursday 19 March

Perhaps as the $A rose to almost parity with the $US one could understand a price hike (given almost everyone thought global economic activity was sound at the time also) in order to bring prices in some way into line with Oz prices and/or relative to cost and to preserve revenue streams Ė though the middle point seems as irrelevant to Fosters as is any respect, in my mind at least, for wine buyers. We have long memories and we are loyal to those who respect our loyalty.

However Ė with the $A at $US.6 (or lower), Fosters ARE now getting more than $50A for 389. Without accounting for shocking timing, little or no justification for original or new pricing structures, to increase prices immediately after currency markets have just provided a significant net gain from many overseas markets Ė and restored revenue per bottle from exports to levels of three or so years ago, just makes one scratch the noggin that little bit harder!?
 

TORB Copyright © Ric Einstein 2009

 

 

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