It Had to Happen!  (31 March)

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 domestic share.

But 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.

 

Feel free to submit your comments!

From: Adam Catforf: Thursday 19 March

Perhap

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