Foster's sale highlights wine consolidation trend

By Chris Mercer

- Last updated on GMT

Related tags: Foster's group, Foster

Foster's has taken a streamlined approach to 'brand Australia' on
the world wine market, announcing two wineries will be sold off as
the firm tries to realise cost-savings from its Southcorp buyout.

The Australian drinks firm said it had decided to sell its Lower Hunter Valley and the smaller of its Conawarra wineries "as soon as is practical"​.

The move follows an initial business review of the recent acquisition of Australia's Southcorp wine group, from which Foster's predicted it could make savings of around AUS$40-50m.

Foster's will retain the rights to the brands already produced at the wineries, including The Rothbury Estate and Jamiesons Run. But, crushing and processing will take place at Foster's large, modernised facilities at the Rosemount Denman Estate winery and the Wynns winery.

Jamie Odell, managing director of Foster's wine estates, said the Southcorp deal had thrown up some difficult decisions. "Our decision to sell two wineries is driven by our priority to improve capital returns while preserving wine quality and brand equity,"​ he said.

The move, although an internal one, is an example of the sort of consolidation that was predicted on the Australian wine sector by a recent report.

Almost half of the Australian wineries that participated in a financial survey by Deloitte​ reported pre-tax losses for 2004. Small-to-medium businesses in the AUS$10m to $20m (€6.26m - €12.52m) revenue range were the worst hit, recording average losses worth 8.7 per cent of sales.

Deloitte warned that the situation was unsustainable. Stephen Harvey, leader of Deloitte's Wine Industry Group, said that many wineries may be forced to merge or exit the market.

Such tough market conditions may hamper Foster's ability to sell its wineries, especially due to its insistence on taking the brands produced there for itself. Yet, the firm's decision also fits an Australian wine market even more focused on cost-savings and consolidation.

"Foster's global wine strategy is to build sustainable competitive advantage through world class brand marketing, innovation and supply chain efficiency and flexibility,"​ said Odell.

The Southcorp acquisition looked to have been a good move for Foster's after it confirmed last week that full-year sales up to the end of June had largely been rescued by expanding out of the beer sector.

Southcorp only played a part in 12 weeks of last year's campaign, but Foster's said integration was progressing to plan.

The firm announced back in May that it would conduct a business review of Southcorp before launching an integration process between its own subsidiary, Beringer Blass Wine, and Southcorp.

Integration would focus mainly on back office and support divisions in the short term with Southcorp's sales and marketing teams set to stand alone until early 2006, Foster's said. Around 80 per cent of the integration will take place in Australia.

The deal enabled Foster's to begin launching a formidable 'brand Australia' on the world wine market by acquiring Southcorp's Lindemans, Rosemount and Penfolds brands.

Foster's sales crept up by 1.6 per cent to AUS$3.97bn in the year up to 30 June.

Related topics: Markets, Oceania, Beverages

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