When is it time for a winery to “offload” underperforming brands?
It happens. You’ve had a line, or SKU, in the market for years, but for some reason, it’s never gained traction. So the hard decision must be faced: Is it time to pull the plug on Grandma?
This is the situation Treasury Wine Estates is facing. The Australian company, which lost more than $100 million in 2013-2014, has brands “that [are] not a priority and may be retired [or] offloaded,” according the industry publication, The Drinks Business.
This can never be an easy decision for a big company like TWE. Companies love all their brands, the same way parents love all their children. You can’t throw an underperforming child under the bus, of course, but companies aren’t families, they’re business; and sometimes, “retiring non-priority brands”, or repurposing them in some way, is the only way to stay healthy.
* * *
Does this shock you? It shocks me. “One in four bottles of Californian Pinot Noir and Chardonnay have been through the industrial alcohol removal process supplied by ConeTech in the past year.” That’s another report by The Drinks Business, which adds that the spinning-cone process of lowering the alcohol content of wine is more popular than ever because “winemakers would rather take out alcohol from a ripe wine than risk creating lighter, possibly greener wines from harvesting earlier for naturally lower abvs.”
Well, as Dana Carvey’s character, The Church Lady, used to say on Saturday Night Live, Isn’t that special?
I’ve written before that I don’t mind some technological intervention to produce sound, clean, drinkable wines. These are what Americans want. Critics denounce them as Franken-wines, but to me, that just seems derogatory and mean. Besides, the truth is, since this de-alcoholization is done secretly, no one can ever know just which wines have passed through the spinning cone, so before you give such a wine 96 points and then have to appear foolish when someone outs you, restrain thy criticism.
However, I will venture to say that winemakers are resorting to this somewhat risky procedure because the public drumbeat against higher-alcohol wines has reached such a fever pitch that they feel they have no choice. Many of them, themselves, probably hate themselves for doing it—for giving in. Some of them may be under orders to do it, by the people who sign their paychecks. It’s hard for me to believe that any winemaker willingly and happily sends her wine to the spinning cone.
Speaking of those “greener wines” that are the potential result of picking early—which is the natural way to produce lower-alcohol wines—I’ve tasted some of them at big Pinot Noir tastings, and they’re dreadful. Well, I suppose if you like dried oregano, mint and green tomatoes, they’re all right, but if you prefer cherries and raspberries (which I do), you’ll be disappointed.
Thus we find ourselves staring directly at the schizophrenia running through our modern California wine business. The bullet quote in The Drinks Business article is this: “The consumer preference is for riper style wines, with juicy fruit, but consumers want this with more moderate alcohol levels.” Someone should politely tell consumers you can’t get ripe fruit without high brix, which in turn translates into healthy alcohol.
But that’s not a message that consumers want to hear, and so producers—caught between the proverbial rock and a hard place—increasingly are turning to the spinning cone. And if California goes back to a series of warm vintages, like we used to have, we’ll see even more wines spun out.
If the mass-market consumer can have reduced fat mayonnaise with the same taste as regular mayo, why can’t they have reduced alcohol wine with the same full-fruit taste they expect?
Brian raises a good question but with the wrong product. Low fat mayo may be a satisfactory product, but it is not as good as regular mayo, in my opinion, of course.
Nor, for that matter, are diet soft drinks better tasting than those made with cane sugar.
But this is wine. And its quality is judged as wine. And, while we have no idea what 25% of all Chard has been thus processed, we do know a thing or two about how Chard should taste.
I am happy not to know. As a wine critic, I evaluate wines, not process. And my only caveat about process is that it not hurt me or the earth. If a Chard is good and it wont make me or the earth sick, then it is good, full stop.
By the way, the same it true for low-fat mayo and diet soft drinks, both of which I consume because they are better for my health than the the originals even though they do not taste as good.
I have no such stance on wine. I want the best tasting, and if pulling a bit of alcohol out does not change that equation, then I fail to see so much as the least reason to bitch. But, if it does lower quality, then folks like me and Steve and all the rest of the experienced critics will call those wines out for what they are. And we will call them out as wine, and not on how they got there.
Very/very well said, Charlie. Couldn’t agree w/ you more.
Tom
“Speaking of those “greener wines” that are the potential result of picking early—which is the natural way to produce lower-alcohol wines”
I believe one should never pick early, or pick late for that matter. The “natural” (and ideal) way to produce lower alcohol (which doesn’t necessarily equate with “unripe” or with “greener”) wines is to plant vineyards in locations that have climate characteristics that allow grapes to achieve phenological ripeness without excessive sugar. California’s growing (pun intended) problem is that locations that formerly produced ripe and balanced fruit now produce fruit that is overripe and unbalanced (leading to alcohol removal) and the investments in these vineyards and their associated infrastructure is too great to abandon in favor of sites with a more moderate climate. Of course, certain critic’s preferences for high-alcohol jammy wines have also coincided nicely with the influences of global warming. With the right site, it is entirely possible to produce ripe fruity wines that do not require alcohol extraction – folks up here in Washington do it all the time – no mint, green tomatoes, or oregano – and also no heat and stewed prunes.
Treasury can take its lead from Procter & Gamble, which is selling off most of its “underperforming” brands.
Wall Street Journal headline: “P&G to Shed More Than Half Its Brands”
Link: http://www.wsj.com/articles/procter-gamble-posts-higher-profit-on-cost-cutting-1406892304
(Products that came into existence because it is easier for a Brand Manager to bring “new” products to market through “product line extensions,” than it is for technologists to conceive and invent wholly new categories of products.)
“I will venture to say that winemakers are resorting to this somewhat risky [de-alcoholization] procedure because the public drumbeat against higher-alcohol wines has reached such a fever pitch that they feel they have no choice.”
I would posit a different reason: In a product where each and every input cost measured by the penny counts, wineries may be resorting to industrial alcohol removal processes to avoid paying the higher tax on 14-plus % ABV wines.
Making a virtue of a business model necessity?
Alcohol contributes to the bouquet and flavor and texture of wine.
“Artfully” removing alcohol without diminishing a wine’s attributes is likewise fine with me.
I concur with Charlie’s agnosticism: the result trumps any “process.”
(Aside: As a college student at Santa Clara University, I recall Silicon Valley winery San Martin concocting low-alcohol “soft” wines in the 9% ABV range. They tasted unappealingly “grapey” — and the venture was quietly abandoned.)
I encourage winemakers to experiment with an “artful” post-fermentation blending of discrete lots of underripe picked grapes with fully ripe picked grapes (as distinct from underripe and ripe picked grape “co-fermentations”) as an overlooked practice to lowering alcohol levels . . . which has a long-standing (but underpublicized) history in France.
A case of “everything old is new again” (but not the pessimistic “plus ça change, plus c’est la même chose”).
A selective bibliography on Treasury’s woes . . .
Excerpts from the Melbourne Herald Sun “Business” Section
(September 24, 2013):
“Penfolds Maker Treasury Wine Estates Ousts Chief David Dearie After Writedowns, Spoilt Wine”
Link: http://www.heraldsun.com.au/business/penfolds-maker-treasury-wine-estates-ousts-chief-david-dearie-after-writedowns-spoilt-wine/story-fni0dcne-1226725037753
By Jane Harper
“Treasury Wine Estates says a strong stateside focus will be crucial for its new leader after the troubled US division claimed the scalp of chief executive David Dearie.
“The Melbourne-based group said it was committed to keeping its Americas business, despite conceding the division had struggled to deliver acceptable returns for 13 years.
. . .
“Treasury — the world’s biggest pure-play winemaker with brands including Penfolds, Wolf Blass and Rosemount — shocked the market in July after announcing it would be forced to destroy $35 million of deteriorating cheap wine in the US.
“It also had to offer $40 million in discounts to shift the glut of stock.
“Total writedowns of $154 million in the US division weighed on the group’s 2013 net profit, which plunged 53 per cent to $42.3 million.
“The group yesterday ousted Mr Dearie, who had been in the role little more than two years.”
Excerpts from (Australia) Business Spectator
(June 25, 2014):
“Treasury Wine Flags $260m Writedown”
Link: http://www.businessspectator.com.au/news/2014/6/25/food-and-beverages/treasury-wine-flags-260m-writedown
By Mitchell Neems
“Last year, the winemaker announced writedowns of up to $160 million on excess stock held by US distributors. The charges including the cost of destroying six million bottles of out-of-date wine. Fosters had previously written down more than $2 billion related to acquisitions of Beringer and other wines.
“Treasury Wines will book an impairment charge of up to $260 million in fiscal 2014 as it looks to draw a line under a troubled 12 months with a new business model.
“The charge is the latest in a long string of writedowns at Treasury Wine and the former wine business of Fosters Group, after the company overpaid for assets at the top of the market.
. . .
“Treasury Wine last month knocked back a takeover offer from private equity giant KKR worth some $3.05 billion, saying it was too low. There has been persistent speculation that the troubled winemaker remains a takeover target.
“Treasury chief executive Michael Clarke, who has conducted an extensive review of the business since taking over as CEO earlier this year, said the impairment showed the company needs to do things differently and he hoped fiscal 2015 would be a “reset” year for the group.”
Excerpts from The Sydney (Australia) Morning Herald “Business Day” Section
(April 8, 2014):
“Treasury Wine Poised to Cut Jobs, Slash Costs”
http://www.smh.com.au/business/treasury-wine-poised-to-cut-jobs-slash-costs-20140408-369wi.html
By Eli Greenblat
Retail reporter
“The world’s biggest listed wine company, Treasury Wine Estates, could be set to shed jobs and slash its costs in the face of a protracted downturn in its key markets.
“In his opening remarks to analysts and investors this morning, Treasury Wines boss Michael Clarke admitted ‘there is a lot that needs to be fixed’ at the winemaker, which owns brands such as Penfolds, Wolf Blass and Rosemount.
“He confirmed the company needed a leaner cost base and that all options were on the table to improve shareholder value.
“Treasury Wines could also be planning the sale of some of its poorer performing and commercial wine brands.
“Mr Clarke told analysts this morning that 83 brands in the portfolio could be too many to operate successfully.
“He said he wasn’t ’emotionally attached’ to any particular wine brand and was prepared to sell off labels as required.”
Excerpts from The Wall Street Journal “Money & Investing” Section
(September 29, 2014):
“Treasury Wine Takeover Talks Collapse”
Link: http://www.wsj.com/articles/treasury-wine-estates-ends-takeover-talks-with-private-equity-suitors-1411947133
By Robb M. Stewart
Staff Reporter
“A weekslong bidding war for one of the world’s biggest winemakers unraveled on Monday, with Treasury Wine Estates Ltd. saying it had failed to strike a deal with either of two U.S. private-equity suitors.
. . .
“Chief Executive Michael Clarke said talks with an alliance of KKR & Co. and Rhone Group LLC, and separately with an unnamed private-equity investor, had faltered after it became clear that some of Treasury Wine’s shareholders felt both of the identical 5.20 Australian dollar-a-share nonbinding offers undervalued the business.
Excerpts from The Financial Times of London “Companies” Section
(September 29, 2014):
“Treasury Wine Estates to Go It Alone After Rejecting Australia $3.4 Billion Bids”
Link:
By Jamie Smyth
Treasury Wine Estates has rejected two private equity bids valuing the Australian wine maker at Australia $3.4 billion (US $2.9 billion), including debt, and said it would instead focus on plans to grow as a standalone company.
. . .
“Daniel Mueller, an analyst with Morningstar, said the $5.20 [per share] indicative bid was significantly above the research group’s own Australia $3.50 [per share] fair value estimate for Treasury.
“Management is saying all the right things today, but it is a really tough industry and two previous management teams at Treasury also had optimistic messages and failed to deliver,” he said.
“Treasury is the world’s largest pure-play winemaker with vineyards in Australia and the US. The private equity interest in the company has been fuelled by the group’s problems, particularly in its US operations where oversupply last year forced it to destroy 6 million bottles of aged wine and take an Australia $155 million charge. These difficulties led to the ousting of its chief executive in September 2013.
“In June, the company announced a write-off of up to Australia $260 million in brand revaluations and acquisition goodwill, based on weaker growth rates for commercial wine. The acquisitions relate to the period before it was spun out of Foster’s in 2011.
“Mr Clarke, who took over as chief executive about six months ago, said the bidders did not identify any major concerns with the business during their due diligence. He said Treasury performed ahead of plan in terms of revenue and gross profit in the first quarter across Europe, the US, Asia and the US.
Treasury management is pursuing a turnround strategy that includes boosting marketing spending, changing the release dates for its prestige Penfolds brand and cutting costs across its production and supply chain.”
Excerpts from Harpers (U.K.)
(December 16, 2014):
“Treasury Wine Estates to Slim Down Branded Portfolio”
Link: http://www.harpers.co.uk/news/treasury-wine-estates-to-slim-down-branded-portfolio/511027.article
By Gemma McKenna
“Treasury Wine Estates is focusing its investment on 15 global umbrella brands, 20 international brands, and 20 local brands, out of its 80-strong portfolio.
“The group is then proposing to ‘retire’ or sell off some of the remaining 25 commercial brands.
“Chief executive Michael Clarke told the Annual General Meeting in Melbourne today: ‘We simply can’t invest consumer marketing dollars effectively across 80 brands.’ “
For the benefit of Steve’s readers.
Trade periodical Wine Business Monthly’s wine news archive:
http://www.winebusiness.com/news/
And their wine blog archive:
http://www.winebusiness.com/blogs/
I am driven absolutely crazy by “articles” like that in The Drinks Business and the subsequent rush to draw conclusions from the information and what is means for California wine. The rush to do so, without any critical thought, only feeds into the stereotypes that California wine is overly processed, overly made, etc.
Let’s take a look at the article first. “ConeTech’s vice-president of operations at Jack Ryno stated that the company “processes one quarter of all the Pinot Noir and Chardonnay produced in California”. And then later in the article, “Speaking further about the demand for ConeTech’s services, Werner Engelbrecht, from the company’s South African office, said that over 9 million cases of Californian wine goes through the alcohol removal process each year.”
Then look at some numbers —
2012 vintage CA Chardonnay — production was approximately 44 million cases.
2012 vintage CA Pinot Noir — production was close to 15 million cases.
That’s 59 million cases and 25% of that is 14.75 million cases. But 9 million cases of all types of California wine were processed by ConeTech each year?
The numbers simply don’t add up. Draw your own conclusions, but please question the article before going off and accepting the statements contained within as some sort of gospel.
Adam Lee
Siduri Wines
I think we all agree there’s nothing wrong with de-alcing if it makes better more consumer friendly wines. I’ve been saying that since at least 2005
Adam, it is not just that the numbers do not add up, but the article is simply bad journalism by not even raising the question “which wines”.
It it were 75% of coastal Chard, that would still leave 75% that was never adjusted. Never mind that some adjusted Chards and Pinots might actually be improved and turn out to be very good wines.
But, there is an ocean of hot area Chardonnay that sells for $10-12 and another ocean that winds up in jug wines that sell for less or sell at TJ’s for two bucks.
The journalism was imperfect, but wine is wine, and most everyone reading at this level is smart enough to judge wine by its character in the bottle. Unless, of course, the label has to read less than 14% ABV. Those folks live on a different planet from me.