Tag: SAB/Miller

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

©Copyright 2015 TBOW, all rights reserved.

Vol. 1 No. 23 something wine and beer are increasingly having in common (adding mea culpa)

Mea Culpa: TB had details of the SAB/Miller – AB ImBev were wrong and have been corrected. In the same sectionit was Heineken, not Stella Artois that purchased 50% of Lagunitas Brewing. Mea maxima culpa.

Also note that TB welcomes your comments both positive and negative – just make them constructive.

The Management aka TB

First, let me make it clear that TB favors small wineries, especially family wineries. That is not to say that bigger ones are bad but the more people who become involved, the less the passion, and passion is a key element in doing everything to make a remarkable wine. What TB loathes is corporate ownership of wineries. You cannot run a winery like a typical division of a corporation, yet it is done all the time and there are different time horizons: longer term for a family owned winery; short-term for a corporation. In addition to wineries, I find similar comparisons with small wine shops (these focus mainly on wine although they may carry hard liquor too), and the chains which can be as big as Beverages & More, and Total Wines.

A new concern is online wine sellers. Why? Because they may be clearing out someones stale inventory and thus able to sell it at a low price, yet because they bought it at a distress price, make a very large profit…and don’t forget shipping costs! But the important thing is they sell either on a rating (with so many out there far too many are getting 90 ratings and even if it is deserved you might not like it). Remember, you are your own best wine critic! What Robert Parker or Trader Bill thinks is irrelevant…unless you are speculating in wine, something else TB loathes as it drives the cost up to you, the consumer.

Now I will give you three examples of family-owned contrasted to corporate-owned:

Taylor Wine Company, one of the oldest in the U.S. and located in Hammondsport, New York. Originally it used native American grapes such as Catawba and Concord. When other growers had success by bringing in the vinifera grapes from Europe, eventually they decided to do likewise. Then they were bought out by Coca-Cola, who apparently didn’t understand the lead time between planting new vines and getting the production from them to be profitable. In the end, Coke filed bankruptcy for the winery, one with a very long tradition even if you didn’t care for the style.

Robert Mondavi Winery, founded in 1966, became the benchmark for large producer California wines until it was surpassed by…yep…smaller family-owned vineyards. In addition to the joint venture on Opus with Baron Phillipe Rothschild, they began partnering and buying out old family owned wineries in Italy with great reputations for quality. Ironically, the film Mondovino showed them in a bad light, having deviated from their roots. Produced in 2004, it was about the time the Mondavi empire peaked and eventually was bought out by a corporation, Constellation Brands, now a powerhouse but before that famous for one wine My Wild Irish Rose…need TB say more?

TB is not gloating about what happened to Mondavi since it was the first winery he visited the year he and his wife were married, 1969. TB had a vertical collection of their Cabernet Sauvignon from inception, 1966, with at least two bottles from each year (the 1966 was purchased for $4.50!). After the sale, interest was lost and one vertical case was donated to the University of Nevada for an auction, and later the other sold at a Butterfield auction. Because of the corporate ownership, TB has not purchased a bottle from the winery since.

Lastly, what the title of the blog is about. How many of you remember the original Samuel Adams? A true craft beer, but IT grew until it and Yuengling became the two biggest selling craft beers in America…if you can still call them that…TB can’t, not at 4 million barrels a year each! Same goes for Stella Artois one of TB’s favorite’s and now available on tap in most restaurants and bars in America. Is that what a true beer drinker wants to see? By the way, if you want to read what one bar owner has to say about them go to Open letter to Sam Adams

Now to the point: do you recall when Miller Brewing was sold to SAB (Stella Artois), and later Anheuser-Busch was bought by the Dutch company AmBev? Frankly, I never cared much for either Miller or Bud, but they were very popular among the masses and that is what counts, right? Well, if you own the company it is.

A couple of months ago it was announced that Heineken bought a 50% interest in Lagunitas brewery, a beer TB thoroughly enjoyed and still likes, however, several people have said, and TB felt, that it doesn’t taste as good as it once did. Furthermore. both Heineken and Beck’s suffered when they began bottling in the U.S. and thus increased production. Big production will do that. But the big issue now is the AB ImBev – SAB/Miller buyout for $106 billion, yes, billion! In addition, the breakup premium is $3 billion, meaning if, for any reason, the deal doesn’t go through, AB ImBev is out that much! This smells to me like there is something assuring them that it will go through despite them being the #1 and #2 beer producers in the world. Some legislators here have voiced concerns or even dissent, but it is the EU that will decide. What this means for consumers should it happen, and TB will bet it does, is control over beer prices globally, something the Sherman-Antitrust Act was supposed to prevent and the EU has fined some of the large U.S. tech companies for their practices, yet here are two in their own backyard and hardly a peep.

This is what TB does not want to see in the wine industry, Gallo, and Franzia Wines (two-buck Chuck), have a huge monopoly on wines but not on premium wines. Fred Franzia says “never pay more than $10 for a bottle of wine.” Are we to take it that the price may go to somewhere above the $5 it is already at?

A local fellow blogger doesn’t believe you should pay more than $20 for a wine, and despite his self-admission that he has never taken a wine class, he rates them and then deducts for every dollar above ten. By that test, wouldn’t everyone buy a Chevy rather than a Porsche? TB’s just sayin’…

So here is what TB thinks: the aforementioned blogger is correct that people can not drink a $25, $30, or more every night of the week. So buy something cheap to drink during the week that you like. But be adventuresome on weekends and try some better wines…preferably with the help of a small wine shop that is knowledgeable and listens to what you like in a wine.

There is very little bad wine being sold today as good wine is forcing it out and people are becoming more aware of what they like. France, converted something like three million gallons of wine into ethanol last year. Why? Because they couldn’t sell it, obviously. There is a message there. TB’s message to you is if everyone tried to consume $10 wine, or even up to $20 and would never pay more, there would still be plenty of wine around, but the wines of character would be gone. At least you could just go and pick up any bottle as they would all taste the same. Fine…that is, if you don’t want a really good bottle of wine.

Perhaps it is like the younger generation: they have recording artists they love but they don’t pay for the music. See the similarity?

Off to have a glass of good wine…

TB

©Copyright 2015 TBOW, all rights reserved.