Australia | Jun 28 2006
By Greg Peel
Resource investors beware – this is what happens when supply eventually catches up to, and outstrips, demand. The Great Australian Wine Glut which has come close to taking out long standing vintners like McGuigan Simeon (MGW) and Evans & Tate is also having an effect on the world’s biggest wine company. And the hangover may last a while.
The most recent AC Nielsen data shows Foster’s wine performance in the UK continues to be very poor. Sales have hit their lowest level for 17 months. It would seem that Aussie wine, which has moved from curiosity status in the UK to premium appreciation over a couple of decades has now reached the level of cheap and no longer cheerful.
SB Citigroup reports trade feedback from the UK indicates "downgrading" of Australian wine in the eyes of the Pommy drinker. Extended discounting has taken its toll. Wine is one of those products that drinkers understand does not work on a basis of cheap equals good value. Cleanskins aside, cheap usually means rubbish.
Oh how the mighty have fallen. Brands such as Wolf Blass, Rosemount and Lindemans – once revered in this country – desperately need revival. The Southcorp acquisition is beginning to look like a case of bad timing.
The news from the US is slightly more promising, with the data showing growth in "premium price points". However, Australia has enjoyed a rails run in US wine sales ever since the French denounced the invasion of Iraq. "We will now call them Freedom Fries!" wailed George. All things French, including wine, was put on the blacklist. But now it seems the tide has turned, with American drinkers (probably beginning to think Chirac was right) returning to French wine once more. Sales are up 22% year-to-date, and Champagne is back in fashion.
The beer side of Foster’s is not exactly rosy either, with Citi noting VB sales are on a downward spiral. VB replaced Foster’s (the beer) as Australia’s favourite fluid, which was okay as it kept things in house at CUB. Unless Carlton Draught can continue to pick up the deficit, Foster’s will give up market share to Lion Nathan (LNN).
Lion Nathan is not exactly humming either, as although hurling young girls into the air has cemented the position of Tooheys New, and XXXX is still popular, other brands such as SA’s West End are struggling.
As a result of the AC Nielsen data, Citi has reduced its price target on Foster’s from $6.09 to $5.87 and retains a Hold rating. Foster’s closed yesterday at $5.40. At least beer is considered defensive.