I just received an interesting phone call and thought I would share it with you. It was from a Sydney retailer “who had been contracted” by a small Heathcote winery to ring up the wineries cellar door mailing list customers to see if they wanted to buy any wine. The caller started off telling me that the wineries 2002 wines had recently received “very high” ratings from both Parker and Halliday. The numbers quoted were 93 and 94 points respectively, but I was not told if it was the Shiraz, Cabernet Sauvignon, Merlot or their most expensive wine that had received the points. A small, but significant oversight that is obviously not important to the person making the sales pitch.

 

The salesman then proceeded to tell me what a great year 2002 was in Heathcote and the wine was on special and had been reduced from $35 to $28 per bottle. Once again, no mention of which wine or wines were being reduced.

 

I asked the rep if the wines were so great, and the vintage was so good, how come they needed to sell them on special. The blunt answer was, “because (owner named) needed the cash”. Whilst that may be a very honest answer, it certainly doesn't make the winery look solid. When I said I wasn't really all that interested in these wines, he started telling me about all the wonderful 2000 and 2001 wines are also still available.

 

The situation that this winery finds itself in is certainly not unique. If my memory serves me correctly, this winery should be getting ready to release their 2003 vintage and obviously has stock of the previous three vintages that are unsold. That would not be a good situation to be in, but one that I'm afraid will plague many of the small players in the industry.

 

According to an article in today's newspaper sales of wine were down in February and I'm willing to bet that with the increase in petrol prices and possible increases in interest rates, domestic wine sales are unlikely to increase for some time.

 

Unfortunately, a number of the micro produces will find their businesses are unviable, and it is probable that hundreds of them will fold over the next few years.

It's perfectly normal for wineries to move excess stock from time to time, but over the last couple of months, there seems to be a huge increase in this activity by two major wine companies. It will probably come as no surprise to most people, that the two companies involved are Southcorp and Beringer Blass. Is it just coincidence, or is it clearing the decks of inventory prior to a takeover; my guess is the latter.

 

A few months ago, Beringer Blass started discounting a large range of Cabernet from Coonawarra, primarily from the Jamison winery. There is nothing unusual about that, particularly when you consider that Cabernet Sauvignon is not exactly flavour of the month. The one thing that was unusual about this was the depth of discount involved; in some cases getting close to 50%. Some would argue some of these wines were overpriced to begin with, or that the quality of recent releases had not been up to scratch, but even allowing for that, the discounts certainly are deeper.

 

The next noticeable move in this game of corporate chess came from Southcorp. Around the same time as the Blass discounting started, signs of discounting were starting to emerge in the Rosemount brand. There were some good deals, but it didn't look like a large major push. That came a later. Various retailers have been approached with a huge variety of deals. 60 Darling St, to name just one retailer, has the whole Rosemount range on special with discounts that have not been seen for a long time.

 

Although the current vintage of Balmoral is 2000, retailers are being offered the 1997 at $30, and in some cases even less, possibly much less. But it doesn't end there. One retailer told me he had been offered a deal, where for every case of Devils Laird Cabernet Sauvignon purchased, they would receive a case of Chardonnay free. Not a bad deal at all, especially if it is passed on to the consumer.

 

In an e-mail from Avalon Fine Wine yesterday, was the following:

 

“A great back vintage list from Penfolds and Wynns straight from their cellars. Quality and condition guaranteed by Southcorp Wines. 

 

Qty                   Vintage             Wine 

    168               1978                 Penfolds Bin 128 - $35

    204               1981                 Penfolds Bin 389 - $65

    214               1984                 Penfolds Bin 707 - $130

    258               1975                 Penfolds Bin 28 - $35

    141               1983                 Penfolds Bin 28 - $35

    93                 1988                 Penfolds Bin 28 - $35

    38                 1981                 Penfolds Grange - $330

    36                 1984                 Penfolds Grange - $330

    60                 1988                 Wynns Riddoch - $70

    57                 1994                 Wynns Michael - $70

                         1990                 Penfolds 707 - $160

 

Now, in the scheme of things, when you consider the inventory that a company like Southcorp must hold, this may not look like a huge list, but it is indicative of the picture that is starting to become clear. Southcorp is obviously dumping stock; even museum stock. Only those within the organisation would know the exact reason, but you can bet your bottom dollar it is related to the hostile takeover attempt by Foster's.

 

From a consumer's perspective, this is an excellent time to buy wine because there are excellent deals out there. The dumping of stock by Southcorp, and to a slightly lesser extent by Blass, will also put pressure on the other companies to ensure they do not lose market share and windup holding excess inventory themselves. This may lead them to sharpen their pencils as well.

 

In the short term, it’s great for consumers, but unfortunately, if the takeover goes ahead, in the long term it will not be so good for consumers, or even many people within the industry. The greater the concentration of power at the top end the worse it is for consumers (and growers.)

 

If I had shares in Foster's at this time, I would sell them. Whilst there may eventually be economies of scale by merging the two companies together, I am willing to bet there will be loss of market share in the short term. That is exactly what happened when Rosemount and Southcorp combined.

 

There will be brand rationalisation and Foster's has already stated a major chunk of low-end winemaking will be contracted out to third parties. How contracting production for low-end wine out will save them money is beyond me. They will be one of the largest, if not the largest player in the business; surely they would be able to achieve economies of scale that would not be open to anybody else (except possibly Yellow Tail and Jacobs Creek.)

 

These situations are always interesting to watch, and the best thing to watch, at this point, are retailer's advertisements for all the great deals.

 At the end of last century, heck that seems like ages ago, one of my pet hate hobby horses was wine investment. When ever the subject came upon wine forums, I would have a rant and express my disgust at those greedy individuals involved in this practice.

 

The reasons for this were simple. Firstly, believe it or not, wine is nothing more than fermented grape juice and was actually made to eventually be consumed. In the vast majority of cases, it also had an extremely limited life. Secondly, the greedy speculators were causing irreparable damage to the buying habits of serious consumers. Their favourite tipple was frequently unavailable, or if available the prices of many of them had skyrocketed. In a consumer orientated, free-market society, the law of supply and demand rules so nothing could be done to rectify the situation except to try and find alternative new brands to purchase.

 

Secondly, in the vast majority of cases, wine is actually a very poor investment and the only people who looked like they were going to make any money out of it were the wine investment companies.

 

In 2001, I wrote an article titled “Wine Speculation or a Wine Gamble?”  At the conclusion of that article I said, "Many people think there is nothing wrong with investing in wine, good luck to them, but like all investments, there is a risk. Whilst some people may be able to make a quick buck now, sooner or later, many of these wine investments may turn to vinegar, metaphorically speaking.”

 

And that is exactly what has now happened. Approximately a month ago, Wine Orb went into receivership and will probably be liquidated. A couple of days ago, the most famous, or is that infamous, Heritage Fine Wine had an official receiver appointed as well. These two companies were probably the biggest in their field and the chances are investors will not see terribly much of their investment, let alone the promised substantial returns.

 

In reality, the people that were making money from wine investment funds with a staff of the funds and possibly the owners/shareholders in the early days. To many of the people that have had dealings with these companies, their current financial state will not be a surprise, especially those who tried to sell their holdings and found it extraordinarily difficult to do so.

 

Do I feel good that these greedy investors have lost their money? The answer is no because it is never nice to see people lose money, however am I glad these investment companies have gone into receivership, and hopefully will no longer be aiding in the speculative investment of wine? Absolutely! The only people who benefited were themselves.

 

Opinions Are like Armpits - Everyone Has a Couple of Them

Over the last week or so, all the professional reviewers are starting to release their tasting notes on the new Penfold Bin releases. These notes, within themselves make for fascinating reading with many divergent opinions on individual wines. Some of the professional reviewers may have similar opinions on some of the wines and totally dissimilar views on others.

 

If you think that is confusing, then start having a look at some of the wine forums at some of the enthusiasts tasting notes. In many instances, person X. will love say, the Bin 128 but not be very impressed with Bin 28 and then you will see notes from person Y that will be very impressed with Bin 28 but entirely unimpressed with Bin 128. Or person C will love the Bin 138 but not be very impressed with Bin 407 and person D will love Bin 407 and not be impressed with Bin 138. Some people find Bin 407 to dry and green whilst some people think it's just a baby that needs time to integrate. One could go on comparing the insubstantial but more importantly, the very substantial differences people found within each bottle of the same wine.

 

The only real consistency is found in the Bin 389 with most professional reviewers and enthusiasts expressing reasonably positive feelings.

 

So what does this all mean? Basically, we all have our own individual tastes and preferences when it comes to wine. Some people will prefer the subtle nuances of Bin 128, whilst some will prefer the more in forward fruit of the Bin 28. In reality, there is no right or wrong to taste and the only persons taste who is important is your own. In most cases, the majority of enthusiasts and even in many cases the reviews of professionals are heavily influenced by their own personal preferences.

 

Wine is like art; beauty is clearly in the eye of the beholder and like art. Some people will look at Blue Polls and think that it was a bargain and some will look at it and scratch their head thinking it was a complete and utter waste of money.

Pennies Spins Up a Winning Heads Combination

During my recent trip to South Australia, I was lucky enough to try the entire range of recently released and upcoming release of Penfold wines, excluding Grange. The following brief impressions will give you a guide to my opinion of these wines until the full tasting notes can be posted in the relevant section of the tour diary.

 

Penfold 2003 Bin 138 is an excellent example of the GSM blend with a well-developed complexity, excellent mouth feel and well balanced structure. It's a reasonably serious wine for the price and should age in the medium term and develop into something very fine.

 

Penfold 2002 Bin 128 is a shy and retiring little baby. It is a lighter style of wine and expresses its cool climate origins and is typical of the style. It's not all that attractive now, but given time in the cellar, it should turn into something refined and most enjoyable.

 

Penfold 2002 Bin 28 is packed with in your face McLaren Vale and Barossa fruit. It's big, juicy, well-balanced, bold and is most enjoyable now but should improve. The best Bin 28 for some time, it is back to its typical style and the quality of days of old.

 

If you want something to drink now, the Bin 28 is the way to go, but if you want something a little more subtle and elegant and are prepared to cellar the wine, the Bin 128 is for you.

 

Penfold 2002 Bin 407 let me say from the outset, that I have never been a particular fan of this label and whilst some previous vintages, particularly the early ones were attractive on release, they failed to do much as they developed. The 2002 wine however is certainly a vast improvement. It's an unmistakably varietal Cabernet with grippy tannins and a rock-solid structure that needs time to soften, integrate and build complexity.

 

Penfold 2002 Bin 389 is a very welcome return to form and probably the best under this label since 1996. It's very shy at the moment but does have layer upon layer of interesting flavours which is not surprising when you consider there is a lot of 2002 declassified Grange and Bin 707 fruit in its make-up. If they couldn't make a terrific wine in 2002 one could seriously doubt their winemaking ability. This is a wine I will be buying.

 

Penfold 2001 St Henri once again shows its class and refinement. The wine is currently dominated by grippy tannins that should ensure this wine lasts for an awfully long time; assuming the fruit lives as long, which hopefully it should.

 

Penfold 2002 Magill Estate is just sensational wine and can only be described as a gob full of lip smacking, pure persistent fruit. This is a seriously good quality wine with fantastic structure and the best of McGill I have ever tasted. It will definitely find its way into my cellar upon release; assuming I can find some.

 

Penfold's 2002 RWT has loads of everything in the right proportions but needs a long time to settle down. Whilst it's an excellent wine, I preferred the previous vintage, however given time in the bottle, the dominant, grippy tannins should integrate and the fruit should surface which should make it a whole lot more enjoyable.

 

Penfold 2002 Bin 707 was another most impressive wine. It has both terrific structure and mouth filling, pure deep persistent fruit that just keeps trucking along. This is a complete wine and has all the components to turn into something very special, in fact it is the best 707 since 1996 and hopefully I will be able to afford a few of these as well.

 

In summary, it looks like Penfold's have got their act together again and of these wines are all “bang on style.”

A Fight for the Bottom

Although wine consumption per capita of population in the US is extremely low, the population is huge and the wine market is slowly expanding. The combination of these two factors has seen a humongous push by every wine producing country to gain a share in this lucrative market. Some boutique players are producing wines are specifically for the US market that will not do well in their home market. Many of these wines sell at extremely high prices, have very limited availability and a cult following. Needless to say, these wines can be extremely profitable and produce an excellent return to the bottle. For many years this was where the action was but since the success of Yellow Tail and Two Buck Chuck, it seems all the major players are after a chunk of this market.

 

The low-end market is expanding at an exponential rate as the new wine drinkers enter the market and more experienced consumers look for lower-priced wines. Profit per bottle may be low, but if you can move millions of them, the dollars do add up. As they have the infrastructure, it is also a lot easier for the large companies to play in this market than to try and build a very limited, boutique brand and try and capture a small segment at the top end.

 

Many people may not know that it is not uncommon for producers to pay retailers for the rights to display their product on the shelves. This is particularly common in major supermarkets, when say the new unknown brand of tuna fish is trying to gain a market foothold. It also happens to some extent in the wine business, especially when you see wines at the end of an aisle. In many cases, the producers have paid a bonus or provided extra margin to the retailer for this prime position.

 

Southcorp has had a go at this market with its Little Penguin brand and by all reports, it is not doing brilliantly. As I understand it, one huge liquor distributor that represents Southcorp's brands, is so under the gun to make "placements" of the new "Little Penguin" brand of wines, some stores are actually being paid to take the wine in! Wine is then shipped to the unwilling stores who are then given a substantial reimbursement for the shipment.  

 

The wine has been seen in stacks for a retail price of $5.99 but the wine is supposed to wholesale for $5.33 so I suspect the store was made an "offer you can't refuse." Apparently, the recommended retail price is meant to be about $7.99.
 

The reps need to have a certain number of placements or face the severe wrath of the management.

 

One can only speculate as to how low the price of wine can actually go before people get sick and tired of losing money when in reality, they are trying to make it. There will be a lot more to say about this, especially in relation to the major wine companies and grape prices in the upcoming tour diary.