FARMER'S VISION: 1984 WARNING IGNORED

Chainstores Wielding Chainsaws
"What You People Are Part Of
Is The Beverage Industry ... "

by PHILIP WHITE - WRITTEN FOR INDAILY ON 25 FEB 11

“I think we should dwell on the thought of what happens to this industry when we get chainstores taking over and applying chainsaw marketing techniques which cut down on the number of brands on the shelves.”

This was journalist, tea merchant and liquor store owner, Richard Farmer, addressing the Sydney Wine Press Club in Len Evans’ Bulletin Place restaurant in Sydney in June 1984.

“If you think there’s a bit of a scurry to get your goods on the shelf now, I think you should start worrying about the scurry that’ll happen when Coles and Woolworths control a great portion of the Australian Wine Industry.”
 
Farmer (left) had started with a terse reminder to the eager gathering, which bristled with boutique winery people. Boutiques were the new thing. 

 “You forget that what you people are part of is the beverage industry,” he preached. “Your product competes in the marketplace with beer, liquor, softdrinks, mineral water, tea and coffee. Too often people in the wine industry take too narrow a view of what their potential market is and who their opponents are in this market.”

I had about three hundred wineries on my books then. At least 2,000 new ones have appeared since. The Farmer Brothers stores in Canberra and Sydney were long ago swallowed by the very competition Farmer was warning of, and Coles and Woolworths have nearly half the liquor retail business in their stranglehold.

The world is awash with very cheap wine. If you’re not too fussed about its quality, there’s an incredible amount of it sloshing around the Australian grey market, and at ridiculous prices. The giant duopoly faces a very moist smorgasbord. One of the dozen or so major bulk merchants released a catalogue of 16 million litres a fortnight back. This included 2000 litres of 2008 Adelaide Hills Pinot Noir at $0.70 per litre, and stretched to a 900,000 litre batch of 2010 South-east Australia Chardonnay which could be negotiated below $0.88, and 500,000 litres of “white-free” McLaren Vale Classic Dry Red starting at $0.90.

A more recent catalogue from another broker seemed to offer more batches of more expensive wine, but included deals like 200,000 litres of 2010 Riverland Chardonnay at $0.95 per litre.
 
Not long ago I overheard a big store buyer screaming into the phone of a bulk wine maker, demanding more Pinot gris whatever it was made from; this catalogue has 25,000 litres of Riverland Pinot Gris at $0.75.

But most alarming are the lower cool climate prices: Frankland River Chardonnay starts at $0.65 (67,000 litres) or 250,000 litres at $0.85. 2010 Margaret River Riesling starts at $0.64 (64,000 litres). The pearler is 128,000 litres of Strathbogie Ranges Verdelho at $0.55. The high, cool Strathbogies are just over the ridge from the jewel of the Victoria industry, the Yarra Valley. How they got to plant Verdelho in such volumes leaves me breathless. And just how good would the 120,000 litres of 2004 Western Australia Cabernet/Shiraz Merlot be at $1.10? At $1.60 for 154,000 litres of 2009 Merlot, the irrigated Murray-Darling looks like making better profits than the 306,000 litres of McLaren Vale Merlot of the same vintage at $1.10. If you think that’s only because Merlot’s on the nose, and nobody should attempt to grow it in McLaren Vale anyway, there’s the little matter of 610,000 litres of 2010 McLaren Vale Shiraz at $1.20!

While there are such alarming volumes of plonk available at such rates, Australia’s shelves are nevertheless stacking more cheap imports than we’ve seen since the ’eighties, when the Aussie dollar was very strong against the European currencies.

Farmer went on to boast that he could import a case of bottled, labled wine more cheaply than Australian wineries could buy empty bottles from the monopolist bottle maker, ACI, and predicted that within months, Farmer Brothers would be buying sixty per cent of all their Australian wine from only three manufacturers – the biggest.

Since then, two of that infamous PLO – Penfolds and Lindemans – have disappeared into Fosters, which is now determined to get out of wine and back into brewing, while the O, Orlando, is now owned by the French Pernod-Ricard monolith, and is called Jacob’s Creek.

Farmer insisted that he DID stock wine from the small makers, but said they weren’t competitive. “You cannot con the consumer,” he said, “and the consumer knows the wine from the small vineyards just aren’t as good. I don’t know how many money-making boutique wineries there are in the Hunter Valley, and I don’t think there’d be too many in Victoria, either.”

In the quarter century since then, the number of boutique wineries has another zero on it, and while one could argue that their average quality has improved marginally, it’s also arguable that the sort of prices we read above easily cancels that margin of advantage in the eyes of most consumers. This is especially so in the case of virtual wineries, where Mum and Dad can’t sell their fruit, get Jacinta, who’s done good at art, to make a nice label, pay somebody to make some wine and launch a product. It’s even worse when some smartarse with a spoiler on his car buys bulk wine from the grey market pays to have it bottled with an even dumber label and splashes it everywhere.

“We should remember that small vineyards are the hobbies of rich men,” Farmer concluded. “I think it’s the same in France. I don’t think anybody makes money out of small vineyards. I don’t really think that’s what the wine industry is about. But if you read our wine writers, that’s what you may be tempted to think it’s about.”

In recent years, Coles and Woolies have depended enormously on the three biggest winemakers to fill their shelves. But one of them, the world’s biggest – Constellation – has virtually disappeared, the Fosters beer men are trying to dump another, and increasingly, the medium-quality shelves are filling with imports. Read Jacob’s Creek. I’ll bet that like Lindemans, this brand will soon appear on wine from anywhere the French seek to source it. They have established their precedent with the Steingarten, Colin Gramp’s priceless tiny Riesling vineyard planted in the sixties in the German fashion. That name now lives on bottles of Riesling from anywhere else. Pernod-Ricard are planning enormous vineyards in China.

Last time the foreigners got such a grasp, all that time ago, it took a major currency correction and then many years for Australian producers to regain that shelf space. And now, even given the bargains available at the refineries, we hear orders being placed for cheaper imports to fill the bladder packs.

To make it even worse, both the duopolist retailers are moving quickly to remove any middlemen from their Australian supply chains, and manage their own bottling. The only thing stopping Woolworths proposed purchase of the vast Barossa wine refinery, Cellarmasters, and its enormous Vinpack bottling plants in the Barossa and McLaren Vale, is the Australian Competition and Consumer Commission, which is awaiting further details before it approves the takeover.

The wine industry doesn’t yet to seem the realize the battering is only beginning. Again. But if the punter is happy to drink the sort of stuff the Australian wine show system continues to award bronze medals, things are looking pretty good for her.

Especially in the exotic import section.