Bolt-on acquisitions in the sector

by PHILIP WHITE - This was first published in The Independent Weekly in DECEMBER 2007

The Oz last week gave a big slab of its business pages to brewer Lion Nathan's CEO Rob Murray. He'd overseen an increase in his company's operating and net profit figures. "Solid" he called it, whilst warning that aluminium (containers) and sugar (contents) were increasing in price, and the drought was sending the cost of barley boonta.

Rob plans to counterattack with a $40 million hike in his marketing spend, and attack "the younger market" with more "ready-to-drink pre-mixed products". He's also steering Lion Nathan into the rum market with the purchase of the sacred Inner Circle, and you'll see their McKenna bourbon everywhere by Jesus' birthday.

"Lion's wine business" wrote The Australian's Blair Speedy, "which includes such premium brands as Petaluma, Wither Hills and Stonier, booked operating earnings of $6.7 million, up 26.4 per cent." We may parochially add Knappstein, St Hallett and Tatachilla to that list. (Eastern scribes also tend to fail to mention what Lion failed to buy - it didn't even end up owning the driveway to its Petaluma winery.)

But the increase in the barley bill will absorb all those wine earnings this year. And if it doesn't rain with abnormal fervour for most of the year, next year's hike will be $9 mllion. And so on.

Without mentioning what the drought will do to the cost of grapes, Speedy added that while Lion had bought its "wine assets" at the top of the cycle, Rob had no intention of "compounding the error by selling them when the industry was in slump. Accordingly, Lion was still looking for bolt-on acquisitions in the sector."

So, Petaluma. Part of an error? Not such a suite of Vineyards of Distinction? St Hallett? Knappstein? Bolt-on acquisitions in the sector?

Whether Rob Murray uttered these words or not, language like this, and the business philosophies it indicates, is all too cheap and flash, especially as the wine industry councils are finally discovering, and proclaiming, that it's time the wine business got down to making some profits through improved quality, higher intelligence, better attention to wine's gastronomic aspects, and better education of the market.

Given the years those companies spent promoting their distinction, their quality, their terroir and their lure, could they all end up coming from the Knappstein winery, like the myriad brands that exude from Fosters at Nuri? You watch.

Further down the slide, the water crisis daily exposes more terrible truths about the vulnerability of the highly-irrigated discount wine business, and while it's been about twenty years too late, the industry's new twenty year plan makes it clear we should be thinking quite a lot more profit, with less feverish concentration on the sickening downward gurgle of the discount bins of the Old World. Less water; more money.

But the old acquire-and-dilute mentality persists. Southern brewers envy the success and quality of premium European beers. They take over their distribution, then buy their manufacturing rights, and make them here, or in Asia. Fosters, for example, is about to do Carlsberg and Elephant. Lion imports Heinecken and Becks from Asian breweries. These licensed brews eventually cease convincing the cogniscenti that they're as good as the original beers, sold fresh from their home breweries, full of wholesome local ingredients. Examples? Peroni is delicious right now, as is the bright Trumer Pils.

While Lion Nathan is not in the silver pillow business, its determined plunge into kiddylikker could take a more enlightened start. Why bother attempting to put real whisky, gin, vodka, or Coke in RTDs? Why insist on the cheapest bags and bottles having grapes in them? Why not get into the lab with a team of cunning industrial chemists and design a range of new confected drinks that covers the flavour range of the whole damned bottle-o, just go somewhere and manufacture them. Turn off the irrigation, leave the old arid land behind, go to where the sugar grows and the rain falls, and release a set of bright young bevvies at prices and profits that will set the world reeling? Put vitamins and minerals in them, instead of caffeine.

Forget the irrigation, the Mallee, the grapes.

They might even be able to do away with barley.

Now there's a bolt-on acquisition for the sector.