Vol. 2 No.3 Bigger is better in Wine

…or is it? Got you there because you thought TB had caved to the big guys. Bigger is decidedly not better. For instance, who is the largest wine company in the world? Who owns the most vineyard land in California? Will China (biggest country) become the biggest wine consumer and/or producer? What is the fastest growing price segment of American wines?

Most definitely, TB does not have the answer to these questions or many others but he can shed a little light.

Who (i.e. which corporation) is the largest wine company in the world?

If you said Gallo, you would be wrong but they are in second place. Also, they are not just the producers of Hearty Burgundy and other inexpensive but good quality for the price) American wine but have diversified into premium wines. Years ago they were the largest in California and had the largest intra-state trucking company (to move the wine of course!). But they are number two to Constellation Brands.

However, there are big changes going on in the wine industry, just as in brewing. In 2014, the U.S. became the biggest wine consuming nation overtaking France. Late last year, AmBev which owns Budweiser and is the largest brewing company in the world, began an acquisition of number two SABMiller for $108 BILLION. How could the U.S. and EU allow this to happen? All TB knows is that if the deal didn’t go through – for any reason – there was a breakup clause of $5 BILLION. Now ask this: would anyone in their right mind risk $5 billion when there are huge anti-trust questions? To TB, the answer is NO! The gears must have been greased with the EU…but what about the U.S.? It appears that the only concession that must be made is that they can’t sell BOTH Miller and Bud in the same bars. Big deal! Not sure if that applies to their super premium brand, Stella Artois.

According to Wikipedia, the third largest wine company is the Castel Group, which was started by a wine negotiant in Bordeaux.  They own 17 chateaux – none of which you have probably heard of the best being a Bordeaux Superior. Why haven’t you heard of the names? Because most are sold in…CHINA!!! More interestingly, they own a large 1,400 hectares in Algeria, and 1,600 in Tunisia, and Morocco. Those produced 640 million bottles, most sold, and I presume, bottled in France without disclosing it is not French wine – something that is finally becoming an issue there. Later, they added a distribution network by purchasing Nicolas, a wine merchant you can find all over Paris and other large French cities. TB adds this because they also have 25% share of SABMiller – South Africa that is creating some issues with the SAB/AmBev merger…probably will be worked out amicably…with Castel the winner.

But now lets shift to the fastest growing company that you probably have never heard of: Treasury Wine Estates, an Australian Company that has its U.S. headquarters right in Napa, California. Diageo was a big wine company, one of the largest but sold off their wine division to TWE, an Australian Company. In addition, Pernod Ricard, which went on a buying spree in 2014 purchasing Kendall Jackson, Stags’ Leap Winery (don’t confuse with Stag’s Leap Cellars that won the Judgement of Paris tasting that brought California wines to the fore), and makes one of TB’s favorite wines, Petite Sirah – nothing compares to it.

Other California wineries are Acacia, Blossom Hill, Sterling, Beaulieu,and most notably Beringer Estates, which they purchased from Foster’s who also got out of the wine business to focus on beer. In Australia, and New Zealand they have numerous holdings including Penfold’s, Rosemount, Rawson’s Retreat, and more. They also own Gabbiano of Italy.  https://www.tweglobal.com/brands

Think of the beer,wine and spirits game as a game of Monopoly, because that is what it has become, and in the process created an oligarchy, much the way the tobacco companies created barriers to entry through having multiple brands…same as beer.

The big lever today however is China. China, with its love of Chateau Lafite Rothschild, which even at $1,000 a bottle often mix with tea or coke as they do not like tannins. That however, is changing…rapidly…as wealth rises and just as in the U.S., the newbies want to show their worldliness and thus are shifting to wines. Their two largest wineries, Changyu and Great Wall, produced mediocre wines – at best, but the quality is increasing. Here is where TWE comes in. First, they are known in China and trusted and have found ways around the labyrinth of Chinese regulations, which can change as often as daily…or even hourly. Note their copyright laws do not protect the person who came up with the name, but the one who filed first in China…even if the real company has been doing so for years. Generally it is a Chinese filer so he has an edge immediately, and like the scam lawyers in the U.S. who search for old, obscure patents to extort money from major corporations to avoid being sued for patent infringement.

Just last week, TWE announced that demand and shipments to China are way above projections. This company, which KKR and attempted to takeover, yet the man behind it fought them off and won, has two advantages in China: first, proximity: no wine producer is closer to China which dramatically reduces transportation costs; and ssecond, they are a trusted name in China. So for the first time since buying Mondavi stock, and Chalone Group, while discarding Mario Andretti Winery, TB bought some of the stock on Monday.

First, let TB make this clear…he is in no way recommending the stock…just looked like a good buy to him.  It trades in Australia as TWE, and is only available in the U.S. on the Amex pink sheets, symbol TSRYY. It had gone nowhere but shortly before the announcement of the increased demand from China went from $3 to over $6 then settled back to that number which is where TB bought it. It is HIGHLY speculative, but could be a ‘four bagger’ as Peter Lynch used to say.

Finally, what is happening in the beer, wine, and spirits industry is huge transfers of ownership. It went from accumulation to disgorgement (to borrow a wine term). Look at the recent changes: Bordeaux’s main market has shifted to China, decimating sales to England and the U.S., which had been the main market; U.S. overtaking France in wine consumption; corporations doing what they always do: rush into the next new thing and then when it doesn’t produce the results they want, dumping it, as Coca-Cola did with Sterling (now part of TWE), or when they let New York wine company, Taylor, file for bankruptcy, unwilling to wait for the new vitis vinifera wines they had planted to produce.

That is why TB firmly believes in smaller individually or family owned wineries where passion still exists unfettered by the bottom line and therefore producing the highest quality wines. That’s what TB’s talking about…and all about!

 

 

 

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traderbill

How did Trader Bill originate? It was conceived by me as a way of providing information summaries of global financial markets so that friends and associates could bring themselves up to speed on events and changing market conditions upon their arrival at work. In addition, it provides information on speakers and economic releases that day with consensus estimates and level of last release so that the reader is prepared to react, or knows how the market might react upon the release of information. Who is Trader Bill? Initially any reference to me was as ‘i’. This is to remove the aura of ego and to suggest that i am but a humble reporter, albeit with 35 years of investment experience. Investments are demanding of ego, however, or one would not feel that he was qualified to manage someone else’s money in the first instance. Therefore i needed an ‘alter-ego’. Like Winchell and Mahoney, Edgar Bergen and Charlie McCarthy and especially Trader Vic and Mai Tai’s! Why Trader Vic? Because he was a likeable man who delivered pleasure to his customers and knew exactly what their desires were. The reason for the alter ego became obvious once I introduced Trader Bill into my commentaries: people started asking what Trader Bill thought. They had never asked me what I thought before, but suddenly they wanted to know what TB thought! Now mind you they KNEW that I was Trader Bill but for some reason he became bigger than life. Maybe it was the small ‘I’? What does Trader Bill try to do?His goal is to educate from his years of experience. Consider that most of the traders and people managing investments weren’t even around in 1987 for the crash! Consider that Graham and Dodd, and even Warren Buffet are not relevant to them, too old hat. Their historical perceptions of markets and fundamentals (earnings, price/earnings ratios, bonds, debt service coverage) are irrelevant in this fast moving world. This is the NEW ECONOMY, or is it? How did your style originate?Years ago i found that i had a knack and talent for writing. In addition, i developed an ability to analyze market news about 15 years ago. It took the Crash of ‘87. Prior to that i was just listening to what others said about the economy. But bond yields had been soaring in ‘87 yet the stock market just kept hitting new highs. That was when i began to learn about markets. i have both a dry and witty sense of humor (some call it inane!). Therefore i attempt to make even the worst news somewhat amusing: whether it is the absurdity of an economic release, or the comments of a CEO. This is trading desk humor (or gallows humor). It isn’t politically correct but it does ease tension. Ironically, it is seeing the light at the end of the tunnel (in the Navy they say: it’s always darkest before it’s pitch black!), that allows you to be more objective in your analysis, as bad as a situation is there will still be a tomorrow! You will see that i practice three-dot journalism, a style made famous by San Francisco reporter Herb Caen, whom i idolized. At least to me it is effective. What is so special about your analysis?Frankly, i don’t know that it is special, but at least it beats “the market closed down today on profit taking.” What i do know is that most of what you read is spat out without considering whether or not it is rational, like the above statement. Is it right? Sometimes yes and sometimes no, and that is the key to what is different about my analysis: it is meant to make you think. Is Dan Rather right or is Trader Bill right? If it causes you to stop and think about it, regardless of whether you agree, i win! Because THAT is my goal…not to have you think i am a guru, got that? Bet you never heard that ANYWHERE before in my business! Instead they want you to think just how smart they are but remember in this business if you are right 60% of the time you ARE a genius! Another thing that is different is when i am wrong on an analysis i will tell you, not hope you forget what i said. So now you have the tools to do what the speculators and hedge funds do: challenge authority, and if you make money it is because YOU did it not me. i was just a tool, your flunky to do the grunt work and let you decide…course you could be wrong too but at least you looked at the big picture. But the goal is also to have fun! This shouldn’t be a business of hushed tones and grim faces. It is a living, breathing thing and nowhere else in the world do you have the odds as much in your favor as here. Just beware of the guy who wants to put his arm around you and tell you he is your friend. So there you have it. I hope you select me as one of your sources for market information. If you do I promise to work my best for your financial success. Trader Bill

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