Post on 16-Dec-2015
transcript
Wine Grape Growers Australia Page 12 October 2014Wine Grape Growers Australia Page 1
2014 Wine Industry Outlook Conference
Post Vintage 2014 implications
Speaker: Lawrie Stanford, Executive Director, WGGA
Wine Grape Growers Australia Page 22 October 2014
The Agenda
1. Demand issues
2. Supply issues
3. Business models?
Wine Grape Growers Australia Page 32 October 2014
Wine sales in Australia – history
1984
-85
1985
-86
1986
-87
1987
-88
1988
-89
1989
-90
1990
-91
1991
-92
1992
-93
1993
-94
1994
-95
1995
-96
1996
-97
1997
-98
1998
-99
1999
-00
2000
-01
2001
-02
2002
-03
2003
-04
2004
-05
2005
-06
2006
-07
2007
-08
2008
-09
2009
-10
2010
-11
2011
-12
2012
-13
2013
-14
10 000
20 000
30 000
40 000
50 000
60 000
0
20
40
60
80
100
Domestic cases Imported cases Domestic unit values Imported unit values
Ca
se
s (
lin
es
)
Un
it v
ale
s (
do
ts -
$/c
as
e)
Not indicated on an axis
Flattening in domestic sales
volumes
Relatively constant prices
AUD strengthened – imports less expensive volumes commence rise – the continued price rise reflects strong demand
AUD weakened –imports more expensive, volumes decline
AUD continued to strengthen – volumes commence rapid rise and prices fell
AUD weakens – imports more expensive volumes steady
DOMESTIC FRONT >>>
IMPORTS >>>
Steady volume growth as local interest rises helped by overseas success and
supply coming on-stream
Wine Grape Growers Australia Page 42 October 2014
Sales of Australian wine - history
1984
-85
1985
-86
1986
-87
1987
-88
1988
-89
1989
-90
1990
-91
1991
-92
1992
-93
1993
-94
1994
-95
1995
-96
1996
-97
1997
-98
1998
-99
1999
-00
2000
-01
2001
-02
2002
-03
2003
-04
2004
-05
2005
-06
2006
-07
2007
-08
2008
-09
2009
-10
2010
-11
2011
-12
2012
-13
2013
-14
10 000
20 000
30 000
40 000
50 000
60 000
70 000
80 000
90 000
100 000
0
20
40
60
80
100
120
Domestic cases Exported cases Domestic unit values Exported unit values
Ca
se
s –
lin
es
Un
it v
ale
s (
do
ts -
$/c
as
e)
(Not indicated on an axis)
THE EVENTS >>>
PRICE RESPONSES >>>
The thoughtful see an impending
surge in supply
Everybody agrees the industry is structurally
oversupplied
A downward volume path
Early parity with returns from domestic sales
Export returns wilt under declining demand and a strong AUD – export returns significantly under-rate domestic returns
The GFC
AUD strengthened,
more expensive, demand falls
Wine Grape Growers Australia Page 52 October 2014
Prices and production
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
0
100
200
300
400
500
600
700
800
900
1.61
1.40
1.92
1.93 1.90
1.40
1.83
1.731.60 1.60 1.62
1.75
1.7
mill
ions
tonn
es
$/to
nne
Winegrape crush (LHA)
Winegrape price (RHA) – nominal
Winegrape price (RHA) – real
‘False’ start to launch into overseas markets
Inability to supply and
the recession
‘Catch-up’ complete
Three successive above-average yields – despite drought
Seasonally influenced -‘catch-up’ in prices from 2011
The thoughtful saw the supply surge coming
We all knew oversupply was here
Area reduction commences
GFC hits (UK and US in particular)
Season (annis fungeal
horribilis)
Three years of lower harvests - reduced area or
seasons??
… againEvidence ..
reduced production will improve prices?
Wine Grape Growers Australia Page 62 October 2014
Areas and net removals (13% of peak removed?)
20
03
-04
20
04
-05
20
05
-06
20
06
-07
20
07
-08
20
08
-09
20
09
-10
20
10
-11
20
11
-12
20
12
-13
20
13
-14
-8,000
-6,000
-4,000
-2,000
0
2,000
4,000
6,000
8,000
130,000
135,000
140,000
145,000
150,000
155,000
160,000
165,000
Reported net planting (ha) Winegrape vine area (ha)
Ne
t pla
ntin
g (
ha
)
Win
eg
rap
e v
ine
are
a (
ha
)
Wine Grape Growers Australia Page 72 October 2014
A view of ‘balance’ – inventory just ‘better’ or ‘balanced’
Stocks-to-sales (raw) is stocks measured against all sales, Stocks-to-sales (adj.) is stocks measured against ‘profitable’ sales (using as an indicator, all sales net of export sales at <$1/litre)
1991
-92
1992
-93
1993
-94
1994
-95
1995
-96
1996
-97
1997
-98
1998
-99
1999
-00
2000
-01
2001
-02
2002
-03
2003
-04
2004
-05
2005
-06
2006
-07
2007
-08
2008
-09
2009
-10
2010
-11
2011
-12
2012
-13
1.00
1.20
1.40
1.60
1.80
2.00
2.20
Stocks-to-sales (raw)
Stocks-to-sales (adj for <$1/L fob)
Upper comfort level
Lower comfort level
Stoc
ks to
Sale
s Rati
o (re
tros
pecti
ve)
Repre- sents wine sales at <$1/L FOB
Wine Grape Growers Australia Page 82 October 2014
Comment PROPOSITION: Bulk wine for export, down to $1/litre FOB YIELD t/haTONNAGE tWINE CONVERSION RATE L/tVINEYARD COST OF PRODUCTION $/haVINEYARD UNIT COST OF PRODUCTION $/tGROWER NET MARGIN %GRAPE SALE PRICE GRAPE COST PER LITRE $/LWINE CONVERSION COST per LITRE (excl wg cost) $/LWINE PROCESSING COST per LITRE (incl wg cost) $/LWINE - OAK AND MATURING $/LWINE BOTTLING, BOXING, WAREHOUSING, FREIGHT $/LWINE COMPANY TOTAL COST $/LWINE COMPANY NET MARGIN %
WINE SALE PRICE pre-WET $/L
WET %
WINE SALE PRICE BY WINE COMPANY $/LWINE SALE PRICE BY WINE COMPANY $/bottleDOMESTIC RETAILER MARGIN %RETAILER WINE PRICE $/bottleGST %
SHELF PRICE $/bottle
19.0 Warm inland 19
750 Mega/bulk wine processorWarm 6 500
$34212% Significant margin sacrifice
$389$0.52
$0.35 $0.35 Mega/bulk processing facil ity $0.87
None $0.00None $0.00
$0.8713% Significant margin sacrifice
$1.00
0% No
$1.00na
na na
na
na INTERPRETATION: Achievable but at the cost of slim, unsustainable margins. As such, represents a conservative position in respect to defining sustainable sales - that is, provides an optimistic view of sustainable sales, a higher sales number and lower stocks-to-sales number than warranted - it could be worse!
Why a $1/Litre fob cut-off for sustainable exports?
Wine Grape Growers Australia Page 92 October 2014
International situation
Wine consumption Wine production
Growing affluence and demand for wine in emerging markets like Nth America and
Asia
Coincides with Australia realizing it’s production
had outstripped demand for Australian wine
GFC dents, but doesn’t eliminate,
the growth
Could this level rise again to 2007 peak?
Consumption steadies at lower than peak but an
elevated level
The case is weak for this decline to be structural adjustment in supply.
Dimension and timing of EU grubbing, entry of new world
producers
Seasonal factors far more influential on production outcomes? Series of low season due to seasons.
More influential seasonal factors 1: global ‘annis
fungeal horribilis’
More influential seasonal factors 2: 2013 bounce-back
Global inventory is better but is it in
balance?
Wine Grape Growers Australia Page 102 October 2014
0%10%20%30%40%50%60%70%80%90%
100%
Bulk Bottled
Sources: “Framework for grower opportunities in the Australian wine sector: global and Australian sup -ply and demand analysis, 2000 to 2013” L Stanford, WGGA, June 2014; Global Wine Markets statistical compendium; OIV world vitiviniculture situation, Wine Australia Export Report Note: 'Europe' is Western European wine net exporters (France, Italy, Portugal, Spain), 'New World' ex -cludes Australia (Argentina, Canada, Chile, New Zealand, South Africa, United States, Uruguay)
International situation – bottled and bulk
Volume Value0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Bulk
Bulk
Bottled
Bottled
Wine Grape Growers Australia Page 112 October 2014
What happens if there’s profit at $0.50/litre?
Stocks-to-sales (raw) is stocks measured against all sales, Stocks-to-sales (adj.) is stocks measured against ‘profitable’ sales (using as an indicator, all sales net of either export sales at <$1/litre or export sales at <$0.50/litre)
1991
-92
1992
-93
1993
-94
1994
-95
1995
-96
1996
-97
1997
-98
1998
-99
1999
-00
2000
-01
2001
-02
2002
-03
2003
-04
2004
-05
2005
-06
2006
-07
2007
-08
2008
-09
2009
-10
2010
-11
2011
-12
2012
-13
1.00
1.20
1.40
1.60
1.80
2.00
2.20
Stocks-to-sales raw Stocks-to-sales (adj. for <$0.50/L)
Stocks-to-sales (adj. for <$1/L)
Upper comfort level
Lower comfort level
Stoc
ks to
Sal
es R
atio
(ret
rosp
ectiv
e)
Wine Grape Growers Australia Page 122 October 2014
Profitable exports at $0.50-$1/litre (bulk wine)? …Comment PROPOSITION: Bulk wine for export, down to $0.50/litre FOB
YIELD t/haTONNAGE tWINE CONVERSION RATE L/tVINEYARD COST OF PRODUCTION $/haVINEYARD UNIT COST OF PRODUCTION $/tGROWER NET MARGIN %GRAPE SALE PRICE GRAPE COST PER LITRE $/LWINE CONVERSION COST per LITRE (excl wg cost) $/LWINE PROCESSING COST per LITRE (incl wg cost) $/LWINE - OAK AND MATURING $/LWINE BOTTLING, BOXING, WAREHOUSING, FREIGHT $/LWINE COMPANY TOTAL COST $/LWINE COMPANY NET MARGIN %
WINE SALE PRICE pre-WET $/L
WET %
WINE SALE PRICE BY WINE COMPANY $/LWINE SALE PRICE BY WINE COMPANY $/bottleDOMESTIC RETAILER MARGIN %RETAILER WINE PRICE $/bottleGST %
SHELF PRICE $/bottle
25.0 Conjecture 25
750 Mega/bulk wine processorWarm 6 500
$260-73% Significant margin sacrifice
$150$0.20
$0.30 $0.30 Conjecture$0.50
None $0.00None $0.00
$0.500% Significant margin sacrifice
$0.50
0% No
$0.50na
na Super-normal marginna
na
na INTERPRETATION: In a qualified sense, this is acceptable to the wine producer - at least they don't lose money, they maintain control over unit fixed costs and therefore have better opportunities for sustainable profit on other product. However, it is unacceptable for the grower - who makes a loss ($150/tonne has frequently been registered in recent harvests). Note that break-even for both grower and wine producer would result in a $0.81/litre FOB meaning additional bulk wine could be quit without loss (at least) but not all.
Wine Grape Growers Australia Page 132 October 2014
Domestic outlets for cooler-temperate wine in under-demand?
A significant major retailer @ late September 2014
t/ha L/t $/ha % $/L $/L $/L % % $/L % $/bottle
Cleanskin - varietal but not regional - target $3.91/bottle
Buyer-own-brand - Red varietal and regionally identified - target $8.63/bottle
Buyer-own-brand - White varietal and regionally identified - target $5.65/bottle
9.0 700 $8,000 10% $0.70 $0.00 $1.10 15% 29% $4.87 20% $3.91
8.4 600 $8,000 30% $1.33 $0.15 $1.10 30% 29% $8.93 32% $8.36
9.9 600 $8,000 12% $1.33 $0.00 $1.10 17% 29% $6.18 30% $5.65
Wine Grape Growers Australia Page 142 October 2014
The story summarized … (1)
Supply adjustment has occurred
– but not to the commonly accepted and required level of 20% of the national vineyard at it’s peak, for supply to equal demand.
Production and inventory are declining from the peak, but …
at 1.7 mt in 2014, production is still high – but, at least …
inventory is declining – so - do we have ‘S&D balance’ or are things just ‘better’?
Australian wine sales are declining - driven by a decline in exports.
Stocks-to-sales ratio tells us that current production is still too high for ‘balance’. But does ‘balance’ imply for proprietary brands – what about profitable options for ‘the rest’?
Wine Grape Growers Australia Page 152 October 2014
The story summarized … (2)
Nuh
… but some? (all?)
Two points (i) price is key and (ii) it is a different business model.
There’s a place for under-demanded cooler-temperate wine in retailer generic and buyer-own-brands
There appears to be a ‘world’ of opportunity in global bulk wine trade.
What’s the alternative to proprietary brands?
Profitability of global bulk wine trade at $0.50/litre would see us ‘in balance’.
Wine Grape Growers Australia Page 162 October 2014
Questioning traditional/common beliefs …
“The industry is over-supplied”
Yes, for proprietary brands - how about dealing with the rest through alternative business models?
“The industry needs to get smaller”
This is reducing the industry to solely proprietary brands. But won’t wine company costs increase?
“The solution is growing demand”
Yes, it’s essential, but not sufficient – will definitely fix the symptoms, but not the causes, the
market is not working. ‘Let the market sort it?’
“Marketing will fix it”
‘Marketing’ is different from ‘improving market prospects’. ‘Market’ the top-end, ‘improve market
prospects’ for the lower.
“Restructuring is occurring ”
Both global and Australian production levels demonstrate a worrying susceptibility to seasonal
influences and the impact of structural adjustment is unconvincing. There are two markets
(broadly) business models need to adjust to suit
Wine Grape Growers Australia Page 172 October 2014
Where will the solution to supply-demand imbalance come from?
1. Reducing supply?
Yes, but is not sufficient
2. Increase demand?
Essential, but it is not sufficent
3. Reduce supply and increase demand?
Yes
4. Innovation?
Definitely – technical, packaging, market
intelligence, economic, commercial ….?
5. Serendipity?
(eg ERs)