ARTICLE: TWE urged to spin off Penfolds

[n4sir]

TWE urged to spin off Penfolds
Daily Wine News
27/11/12

http://www.winebiz.com.au/dwn/details.asp?ID=9903

Heard a whisper the planning for the split up of Treasury is well underway - sounds like anthing could be up for grabs for the right price. Some TWE staff are already being told they'll be redundant by March, but not before training up their own replacements.

[markg]

Currently, around 6000 cases of Grange are produced each year, but this could be increased to 25,000 cases without destroying the brand’s scarcity value. It could also bring about a change in the pricing model of Grange.

Must be a special definition of scarcity...

For every bottle of Grange sold to a wholesaler, Treasury Wine Estates currently gets $368. But this could jump to $619 if it switched to selling direct to the consumer

WTF ? Where do they get these gems ?

[Sean]

deleted

[Wizz]

You only have to look as far as whose idea is seeding this article. Macquarie Bank. They are sniffing for a transaction, they dont give a sh!t about the wine.

25,000 cases as scarce - thats the 1st growth Bordeaux model. If these poor folk think en primeur selling on that scale is "direct to the consumer" they really are deluded.

[Rossco]

Currently, around 6000 cases of Grange are produced each year, but this could be increased to 25,000 cases without destroying the brand’s scarcity value. It could also bring about a change in the pricing model of Grange.

Must be a special definition of scarcity

And surely quadrupling the volume of wine under the same label
Wont affect the quality......I mean it's not like twe have a history
Of destroying labels......

[Mike Hawkins]

Given a big chunk of Grange is sold in the US, the clearly 'junior' analyst behind this at Macquarie hasn't accounted for the inability to ship wine across state lines. Thus if Penfolds were to sell directly to consumers over there, they'd have to buy distribution and wholesale businesses in many individual states - something that would erode their margins. As Wizz said, they're just trying to get a transaction.....

[Mahmoud Ali]

"For every bottle of Grange sold to a wholesaler, Treasury Wine Estates currently gets $368."

That's preposterous. I have seen the Grange selling here in Canada for as low as $300 and it was a sale price not a pricing error.

"Currently, around 6000 cases of Grange are produced each year, but this could be increased to 25,000 cases without destroying the brand’s scarcity value."

Really, where is all this Grange-level fruit going? People should be buying that instead of Grange and saving a bundle.

Mahmoud.

[burgster]

I was thinking the same as Mahmoud. Lets get into the label that is currently taking all the fruit that would be used for the 20,000 odd extra cases.

[dave vino]

I could have sworn it was more than 6000 cases already. We had a similar discussion a couple of years back on one of the forums about it and I remember being surprised at the volume made.

[sjw_11]

I recall the volume figure being quoted as 10,000 dozen a couple of years ago, not sure where the latest figure comes from...

It is funny to see people talking about spinning out Penfolds its like watching back to the future...

I mean, recall the history of it all. First, you have several independent wineries (Lindemans, Rosemount, Wolf Blass, Mildara, Penfolds). Wolf Blass and Penfolds at least were both listed... I dont recall what the deal was with Lindemans and Rosemount pre Oatley controlling them together.

Anyway, Mildara buys Blass, Beringer buys Mildara Blass and Fosters buys Beringer Mildara Blass. Meanwhile, Oatley puts Rosemount + Lindemans plus Penfolds and puts them together in Southcorp. Then Fosters buys Southcorp, netting Oatley something like $1.2bn in cash (in CASH... my word)... job done.

But wait, this new model doesn't work so TWE is spun out to be the "wine company". And now the bankers think they should spin out Penfolds. What next, spin them all out and we will go back to the 1980s!!

I do agree though, MacBanks analysts are thinking like M&A bankers... although at a high level I don't necessarily disagree with the view that sometimes "luxury" brands do better when separated from "el cheapo" or discounted brands given peoples purchases are actioned by different motivations and a lot of this is about "wank factor" i.e. brand status etc, which can be damaged by any taint of being cheap, tacky or uncool.

Particularly in a product like wine where the fundamental product itself (liquid in a glass container) does not differ that markedly on casual observation between a $10 product and a $1,000 product.

[marsalla]

No company that owns penfolds does well on the share market. Penfolds needs all those other labels, not the other way around, its the dementor of the wine world, it sucks all the joy out of any labels in its orbit.

[Polymer]

Given a big chunk of Grange is sold in the US, the clearly 'junior' analyst behind this at Macquarie hasn't accounted for the inability to ship wine across state lines. Thus if Penfolds were to sell directly to consumers over there, they'd have to buy distribution and wholesale businesses in many individual states - something that would erode their margins. As Wizz said, they're just trying to get a transaction.....

Only certain states have this limitation ..Otherwise with a proper license you can ship across state lines. Eg. Wineries and retail merchants can...Individuals can not.

Doing an EP type thing I don't think will quite work out the way they think it will....Most consumers won't/can't buy direct...and so retailers would end up tacking on margins anyways...and then who buys it for much higher than it would be now? And then who carries it because they can't clear their inventory? And with their bin series? Is that a joke?

I'm also not sure how 6000 cases going to 25,000 cases doesn't change the supply side...is China buying up all 19,000 extra cases? Is there some demand out there that we don't see? Sure Grange is iconic..but there isn't a rush out there to buy it...we don't see the prices increase on older vintages...You can get great older vintages in other countries for less than current release prices today...Auction prices? We don't see anything special there..in fact we see a discount from RRP...How do you increase the supply by four times and not change the supply side of things? This doesn't even get into quality..how does Penfolds create 19,000 more cases of the same wine? Is there even that amount of grapes, at the quality level they want, that would be able to be sourced? I don't see this doing anything but hurting the quality of both Grange and other labels...I'm not sure this analyst knows anything about wine...or maybe he's brilliant beyond everyone else..

[Rossco]

Doing an EP type thing I don't think will quite work out the way they think it will....Most consumers won't/can't buy direct...and so retailers would end up tacking on margins anyways...and then who buys it for much higher than it would be now? And then who carries it because they can't clear their inventory? And with their bin series? Is that a joke?

I'm also not sure how 6000 cases going to 25,000 cases doesn't change the supply side...is China buying up all 19,000 extra cases? Is there some demand out there that we don't see? Sure Grange is iconic..but there isn't a rush out there to buy it...we don't see the prices increase on older vintages...You can get great older vintages in other countries for less than current release prices today...Auction prices? We don't see anything special there..in fact we see a discount from RRP...How do you increase the supply by four times and not change the supply side of things? This doesn't even get into quality..how does Penfolds create 19,000 more cases of the same wine? Is there even that amount of grapes, at the quality level they want, that would be able to be sourced? I don't see this doing anything but hurting the quality of both Grange and other labels...I'm not sure this analyst knows anything about wine...or maybe he's brilliant beyond everyone else..

Probably one of the best posts I have read on here!

Couldnt agree with you more.....and it seems TWE has been experiencing a slowdown in earnings growth.

http://www.theaustralian.com.au/busines ... 6501032977

"UBS analyst Dan Hurren said it "serves to remind the market of the various risks associated with the wine industry" and that TWE might not be able to secure desired price increases from retailers"

[Michael McNally]

its the dementor of the wine world, it sucks all the joy out of any labels in its orbit.

Beautiful

Thanks

Michael

[marsalla]

Thanks Michael,
I thought it had a good ring

[daz]

Thanks Michael,
I thought it had a good ring

and I'm sure neither Harry Potter nor Frodo would ever sanction purchase and consumption of wines from such as this , TWE, demonically demented source of wine.