In my last Snippet The Fosters Wine Asylum I castigated the beer company for its
handling of prices in relation to Penfolds in the US. I finished of by stating,
“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. That’s
unless they don’t 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.”
A few days ago, in a
news article on Bloomberg’s, it was reported that “Foster’s
Targets Increased Domestic Sales of Australian Wine.”
According to the article, “Fosters may keep more of its domestically made wine
for local sales as it seeks to revive earnings growth.” Given the unholy mess it
has made of its export push into the US, and insane marketing/pricing decisions,
sooner or later Fosters had to wake up and realise that it may be easier to
divert some of its potential export allocation back to the home market. However
the job won’t be easy for a number of reasons.
Firstly, going back some years, Southcorp shafted many of the small wine
retailers. And they shafted them royally! Ten years ago, you could walk into
almost any small wine retailer and find the Penfolds Bin range on display. In
those days, it was unthinkable for any small wine retailer not to stock Pennies
wines. Not stocking them seemed like a road to disaster. A wine shop was not a
wine shop without the Bin range.
At that time, a small wine retailer could look forward to an allocation of say,
six bottles of Grange, the same amount of Bin 707 or possibly a dozen, a dozen
or two St Henri and some Magill Estate. These small retailers would also buy
cases of Bin 389, 128, 28, 407 etc. They were regarded as staple stock; just
like bread and milk is a supermarket staple.
The allocation of Grange was money in the retailers’ pocket. The wine came in
and could immediately be sold at a handsome profit. The Bin 707 and St Henri
were not far behind. The retailers looked at the quick profit on these wines as
a bonus for stocking the rest of the range. All the little vegemites were happy
and life was good. That was until Southcorp decided to try and broaden their
base and started a sustained push to try and capture a chunk of the US market.
Much of the Bin 28, 128 and 407 were still allocated locally, but a chunk of the
pie, went to the US. It was perceived by many that the export chunk of the pie
was heavily stuffed with Grange and Bin 389. When some retailer found out that
Bin 389 was selling for the same price as Bin 28 in the US, they saw red. When
their allocation of the top wines dropped to as little as a six pack, 1 Grange,
2 x Bin 707, 2 x St Henri and I Magill, many small retailers said, “expletive
deleted them!” If that’s the way they are going to treat us, they can stick
their whole Bin range. And guess what? When these small bottle-o’s stopped
stocking the Bin range, the sky did not fall in, and their businesses survived
quite well without them. They found out they did not need Penfolds after all.
Other bands took their shelf space and now Fosters have found they have lost
Penfolds were not concerned. They had their “plan” to capture the US market and
they could always sell any left over Bin series that would have gone to the
small independents to the big two grocers, even if they had to discount the
price a bit…. Or that should probably read, a bit more!
Fast forward till today! Foster’s decided wine divisions earnings are now less
than they were six years ago! The company has done such an incredible job of
mismanaging the business that their wine business’s earnings before interest and
tax of A$243.3 million in the six months ended December 2008, was A$10.4 million
less (A$253.7 million) than it was in the same period in 2002. The mind boggles!
So much for the success of their export push! And it only cost Fosters just over
6.2 Billion Oz bucks to put the Fosters wine empire together.
Between Southcorp and Fosters, they have done a superb job alienating the small
wine retailers, but not to worry, they only represent about forty percent of the
wine retail market. Fosters still have the other sixty percent to talk to; and
even better, they only have to talk to two customers; the big two grocers. And
the big two has the capacity to take as much Fosters wine as Fosters wants them
to take. The only issue is how badly Fosters will be screwed in the process.
I can’t imagine to many small independent wine retailers having much sympathy
when Fosters come cap in hand asking for more business.