Tag: AB ImBev

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!

 

 

 

Vol.1 No.24 …why bigger isn’t better…in beer OR wine…

In the last episode, TB unloaded on the AB ImBev-SAB/Miller buyout. Do you really think that is good for the industry? Consider this: TB went to lunch yesterday and on the list of craft beers was Stella Artois…at $8 the most expensive beer on tap. Hmmm, is it that good? It IS good, but with literally hundreds of craft beers springing up all over the country, their might be more competition than the behemoths think. There is a good profit in a craft beer and attempting to raise the price on Bud, Miller, or even Stella likely won’t fly as the closer they get in price to those fine craft beers being made virtually everywhere in the country, people might just revolt from the swill that passes as beer (oops, I exaggerate but you get the point).

Now let’s look at the BIG wineries…to satisfy their audience who most likely aren’t oenophiles, they strive for consistency from year to year. The also have to buy grapes from many growers and their profit margins aren’t that wide – the profit comes from volume. That is why a winery that produces 10,000-25,000 cases cannot charge less than $20 and frequently has to charge $25 to $35. But as TB has frequently noted: globally, good wine is forcing out bad…bad wine cannot be sold at any price. Last year, three million gallons of French wine were turned into ethanol. Think those winemakers got the point?

Some people who rant about wine prices blame it on fancy labeling, heavy bottles, and many more issues. The fact is that 80% of the cost of producing wine is labor. Now add in the investment in real estate, the cost of maintaining vineyards, stainless steel, oak barrels, and much more…and guess what? After all that, even if you do everything right, you can have a bad year. That is why the late winemaker Joe Heitz told me that people think wine is romantic…it’s agriculture…farming.

So, don’t you think those people deserve to make a profit? They are not faceless corn or wheat farmers, who people never consider when there is a drought, infestation, or a huge glut that drives prices down…and don’t forget farmers…and grape growers have big cash flow issues and have to borrow to match their revenues and expenditures. Did you stop to think of that?

Previously, TB said, drink your Two-Buck Chuck or whatever you like during the week then get adventurous on weekends. Spend some money on good wines you have never tried or like. One way to satisfy both conditions of value and quality is to go to restaurants associated with a wine shop. There, you buy the wine and bring it to the restaurant (usually next door), and they waive the corkage fee. Now you can buy a $30 wine and not pay $50 for it. I will list two that I know, one in Walnut Creek, California, PRIMA, a northern Italian restaurant, and one in Minnetonka, MN, called Spazzo, also Italian. But there are others and you can find them, if you look and ask around.

While we are on this topic, it appalls TB to see wine lists that take advantage of the customer. First, the markup in sparkling wines is outrageous…sometimes a common Prosecco can cost as much by the glass as an entire bottle. Then there are the wine list themselves. No self-respecting restaurateur – or a sommelier that works for one – should have the commonplace wines on their carte de vins that has a plethora of the most common names at double or even triple the price. Along with this goes the wine lists that you swear you have seen before. Most likely you have with a few changes. Distributors offer to print the wine lists for free and then pack them with their own wines and provide the pricing. That is one stupid move by a fledgling owner and says volumes about her care for the restaurant. If she does this with the wine, does she look for the best meats and vegetables or just the cheapest? On my last trip in a great restaurant in Genessee Depot, WI, that I bet none of you ever heard of, The Union House, built in 1864 (?), I had a wonderful wine dinner. It will be discussed in a blog most likely early next week. Folio Wines provided the pairings and the chef did wonders with them. The distributor who set up the dinner said he was originally a consultant to restaurants on their wines before becoming a distributor. The wine list here showed his expertise…who would have thought? By the way, as obscure as the restaurant sounds it is only about ten minutes off I-94 near Delafield, and coming from Minnesota about half an hour before you get to The Dells. A must!!!

On etiquette, other than the examples above, never go to the store and buy a current release wine and take it to a restaurant. It is bad form here and you will still have to pay the corkage fee, which nowadays can be as high as $20 a bottle (oh, and that is a 750ml bottle so don’t try sneaking in a magnum at the same price). You can bring in a treasured bottle but always ask when making the reservation…and here is a tip: sometimes offering the somme a taste of a memorable wine will result in the corkage fee being waived.  But note it is either bad form or not allowed to bring wine into a restaurant in Europe…think about that.

In Adventures on the Wine Route, Kermit Lynch describes going to the cellar of a vigneron in Burgundy and tasting some exquisite wines. The man then said lets go get something to eat and they went to a local truck stop (not a joke), where a carafe of the house wine was ordered. Kermit noted that it tasted like “shit”, and the man said it is worse than that, it is “shit de merde”. So why would a man with a great cellar at his disposal do this? He said to bring his own wine would insult the owner. More food for thought.

Now if TB hasn’t succeeded in hammering into your brain what wine is all about, you may as well stop reading because you don’t get it and never will. That is your prerogative. But if you want to see hard-working people make a living, and want to continue to drink their wines…show them some respect and support…please!

To those of you who want to hear about the trip and the names of some of the wineries, TB promises he will do it next week. It is a lot to organize…thank you for your patience.

TB

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