NEWS: Treasury will destroy $35 million worth of wine

[n4sir]

Treasury will destroy $35 million worth of wine and reduce shipments to the US to rebalance its inventory levels
by Cameron England
The Advertiser
15th July 2013

http://www.adelaidenow.com.au/business/ ... 6679496804

TREASURY Wine Estates will destroy $35 million worth of wine and provide up to $40 million in discounts to get rid of excess wine in the US.

The company - which owns Penfolds, Saltrams, Wolf Blass, Annies Lane, Ingoldy, Pepperjack, Rosemount, Seppelts, Leo Buring and Wynns - said it would make $160 million worth of provisions related to excess stock in US, and was taking action to reduce the oversupply.

This includes action to destroy their old and aged commercial stock, ensuring that only the freshest and highest quality wines are available for brand-conscious US consumers.

"TWE expects to raise a provision in fiscal 2013 for this initiative, with the cost expected to be up to $35m," the company has told the Australian Stock Exchange .

"To further accelerate the sale of excess current vintage wines in the US distribution network, TWE expects to provide up to $40m in additional Discounts and Rebates''

Treasury also said it would reduce shipments to the US which would lead to it "carrying excess bulk and finished wine and some onerous grape contracts'' which it would write down to the tune of $85 million.

Chief executive David Dearie said the company had been carrying too much stock in the US.

"TWE has worked hard to establish a reputation for quality. We remain committed to providing trusted and iconic brands for our loyal consumers, and this commitment has resulted in our decision to work with our partners to destroy old and out-of-date product in the US distribution network.

"Excess inventory affecting TWE's US supply chain has arisen as a result of three elements: over ambitious forecasting of new commercial product launches, improved distributor logistics, and old and out-of-date stock which both TWE and our distribution partners would prefer to destroy.

"TWE's leadership team in the Americas believes old and obsolete product is limiting the company's growth ambitions. As such, decisive action must be taken to address these barriers to growth, and I am confident that the steps we are taking support our long term growth agenda.''

Treasury said its earnings before interest and tax was expected to be about $216 million for the financial year, in line with analysts' forecasts.

[ticklenow1]

"old and out of date stock"??? WTF.

They could send it all back to Oz and we could have a big offline in every City in the country. Destroy it??? Seriously.

Talk about corporate wastefulness. I work for a very large company and it just shits me to tears to see the waste and yet they still nickel and dime their staff.

These companies never cease to amaze me....

Cheers
Ian

[camw]

"old and out of date stock"??? WTF.

They could send it all back to Oz and we could have a big offline in every City in the country. Destroy it??? Seriously.

Talk about corporate wastefulness.

As an example, they could be talking about entry level Sauvignon Blanc that was meant to be consumed young and is now many years old because it has sat on shelves or in warehouses - it wouldn't have any commercial value and spending money to send it back here would be more wasteful.

[JDSJDS]

Try lowering the damn prices! Many 'premium' wines sit on the shelves here now, as the prices have gone up so much over the last few years. Penfold's in particular are really overpriced - who the hell is going to buy a Bin 389 for $70?!?

The discounts won't occur in Canada (monopolies don't play that game), but there will be some good deals in the US.

[phillisc]

Asia will be next.

Yipee, next months Wynnsday, John Riddoch back to $50, or keep it for a few years out the back and then dump it at the tip.
Race you lot to be the first one to pick over the corpse.

Can you shed any light on this moronic decision Moira, or should I move to the US and fill up a hire truck?

Cheers
Craig

[Michael McNally]

What this means is:
Throw out anything that will actually repulse customers (as in Cam's example)
Discount to buggery anything that is halfway drinkable but not iconic (critter brands and lesser lights of lesser known brands)
Discount a bit/lot the lesser known brands and the lesser lights of bigger brands
Reduce the margins a bit (or not at all) on the leading lights of the bigger brands.

Shareholders (through reduced dividends), staff (through conditions and salaries) and taxpayers (through writedowns against tax) will pay the cost.

The executives who gambled on expanding so rapidly and excessively into the US.....will no doubt still get their bonuses at the end of the year (in fact they probably have to do all of the above to get those bonuses so that is why this is occurring),

Cynical? Nah.

Cheers

Michael

[crusty2]

Here in Aus. it costs 50cents each to delabel and relabel a bottle. Labor in the USA is probably a lot cheaper than Aus so would be significantly cheaper per bottle to delabel.
TWE could easily delabel the lot and sell as cleanskins.

$1 buck chuck anybody?

phill

[llredwine]

Try lowering the damn prices! Many 'premium' wines sit on the shelves here now, as the prices have gone up so much over the last few years. Penfold's in particular are really overpriced - who the hell is going to buy a Bin 389 for $70?!?

The discounts won't occur in Canada (monopolies don't play that game), but there will be some good deals in the US.

+1,
2008 Bin407 selling aournd $70 in DM in Aus. paid $35 2 yrs ago in cols liquor shop.
those premium wines are extreme popular in Asian country. Can make good profit.

[GraemeG]

It's 'bulk' and cask-quality wine they're talking about, not things that would sit on the shelf here for more than $15 a bottle.
Karadoc's a factory, you know, churning out fast-moving-consumer-goods, not some artisan above-ground cave-equivalent.
cheers,
GG

[phillisc]

Yes Graeme, we all get it that it is cheap cats piss (aka sav blanc) that would be brown by now, and essentially no great loss.
I applaud the Americans for not falling for this vile crap and perhaps should give their palate's more credit.
However it is the business principle that's at fault here and the blatant disrespect to the consumer.

You have a CEO who is clearly not on top of the failing business model.
Wines at $60 a case to total $35 -40 mill... In terms of physical product volume and space for stock of that value you are looking at over 10 000 pallets.
Even stacked 10 high and 5 deep that's a warehouse of several hundred sq. M. in size, not a couple boxes out in the back shed.

Secondly as Ian rightly points out, TWE keep doing over the Australian market and expect us to al roll over like dogs and lap it up.
They also expect us to work ourselves up in a lather to buy the next glitzy exclusive one off limited and rare release.

All the time that incompetence at the top continues to be rewarded....CEOs generally last about 5 years....bout 2 to go then??

Cheers
Craig

[Panda 9D]

I heard most of the wines being destroyed are American labels.. not Australian ones.

[Mike Hawkins]

I heard most of the wines being destroyed are American labels.. not Australian ones.

Doesn't surprise me - Aussie wine just doesn't sell at all in some parts of the country.

I used to buy 72 bottles of Lindemans Limestone Ridge at a time for the princely (total) sum of USD350, and stores would have willingly sold me many multiples of that. I'm guessing they got incentives for moving it, as I was always getting calls to see if I wanted more or knew of others who did. I know one store in NY had 100+ cases of the same vintage of LR for 5 years - it simply didn't move no matter how far the price dropped. Wolf Blass Black label was $200 a case of 12 for a while there as well, and it didn't move. It seems the old Southcorp sent so much stock to the US expecting the bubble to continue indefinitely and when it burst, there were simply no buyers out there.

(why 72 bottles? It was hard to get more than that in to some of the newer NYC taxis !).

[phillisc]

Mike you make me weep, for our money you get 6 dozen LR and I get a 6 pack...sums up what is wrong with this company.

Now where is that NYC cab?

Cheers Craig

[Mike Hawkins]

Sorry, my post wasn't meant to show off or upset. It just shows how Aussie wines are now regarded, and I just don't see how a US recovery is possible for Aussie labels. LR is my dad's favourite wine, and he was really ticked at the time when I told him the price !

[Diddy]

TWE just agreed to pay out $49m compensation to shareholders related to this debacle.

http://www.theage.com.au/business/treas ... y5f2k.html

[Bobthebuilder]

Try lowering the damn prices! Many 'premium' wines sit on the shelves here now, as the prices have gone up so much over the last few years. Penfold's in particular are really overpriced - who the hell is going to buy a Bin 389 for $70?!?

Ironical I am much more inclined to spend closer to that dollar if it's got some age on it!

[felixp21]

They mentioned all the wineries they own, but forgot to mention they also own a couple of wine critics.

[JamieBahrain]

Geez the corporate world sux. I just shake my head when I go to work and I wonder how the rank and file go with Treasury?

[Ozzie W]

Despite all this, the share price has tripled in the last 2 years!

[Mahmoud Ali]

The discounts won't occur in Canada (monopolies don't play that game), but there will be some good deals in the US.

I'm not so sure of that. The government monopolies in Canada still buy the wines from a local importer who sets the wholesale price. There is nothing to prevent an importer from lowering the wholesale price to clear out excess stock. In Alberta retail is privatized but wholesale still goes through a central warehouse. It is the local agent who sets the wholesale price.

I can recall an example where I spotted stacks of 2001 Clos du Mont-Olivet Chateauneuf-du-Pape on a shop floor for C$22 a bottle. The back label had the local importer's name (Christopher Stewart which also imports into British Columbia) and I knew one of their salesman fron several in-store tastings. I called him and asked him what was the back story to the price reduction. He said there was nothing wrong with the wine, just that they had the '99, '01, and '03 in their portfolio and the '07s were on their way so they wanted to clear some out.

Apropos the news item, and maybe related to the clearing out of Treasury stock, the Hardy's HRB d636 Cabernet Sauvignon which normally retails for about C$50 (far too much in my opinion) was being flogged by a local retailer for about C$15 while quantities last.

Mahmoud.

[Diddy]

Despite all this, the share price has tripled in the last 2 years!

Apparently the $49m was fully insured - not a bad result for the shareholders!

[Ian S]

Wow, I didn't realise there was insurance against incompetence!

[sparky]

Geez the corporate world sux. I just shake my head when I go to work and I wonder how the rank and file go with Treasury?

My TWE funded redun-ovation is going very nicely thank you

[Michael McNally]

My TWE funded redun-ovation is going very nicely thank you

Every cloud....... Pleased someone benefited Moira!

By the way, I think TWE destroy waaaaaaaaaaaaaaaay more than $35 million wort of wine per year. Rosemount Estate, Coldstream Hills, Jamieson's Run, Seppelts. They are ruining a Billion dollars wort of wine with their big = better, oak = good, attitude to Australian wine.

Cue TWE rants.

Sorry

Michael

[JamieBahrain]

Good for you Sparky, glad its worked out !