How Fosters and Southcorp trashed Australia’s greatest wine brands

Another Aussie icon fell into foreign hands today – Fosters. I’m not crying into my beer, because I never liked Fosters or VB or Crown Lager. Ghastly stuff. I like European beers like Grolsch and Pilsener Urquell and König Pilsener.

Foster’s beer revenue has been falling for years. They lowered the alcohol, says John Elliott, big mistake. Not a word about improving the horrid brew. Australians have become more demanding. Sadly, Fosters acquired most of the great Australian wine brands in the last couple of decades. The company didn’t improve any of them either, instead they milked some and trashed others and then gave the game away.

3 continents, 54 brands, 12,000 hectares

That’s the banner slogan on the website of Treasury Wine Estates http://www.treasurywineestates.com.au/ . Never heard of this outfit? The company was created and spun off by parent Fosters Group earlier this year in a ‘demerger’. In explaining the reasons, Fosters CEO John Pollaers described the wine business as a ‘distraction’ to Fosters’ beer business.

The distraction to Fosters’ beer business includes a list of hallowed brands that were the backbone of this country’s wine industry not much more than a generation ago: Leo Buring, Seppelts, Penfolds, Lindemans, Wynns, Saltram, Metala, Seaview, Tollana, and Bailey’s of Glenrowan. They include newer wineries like Mildara-Blass, Rosemount, Rothbury, St Huberts and Yellowglen, along with Stags Leap and Chateau St.Jean in California, and Matua Valley in NZ. More details here http://www.tweglobal.com/our-brands/ .

In a nutshell, Fosters owned the equivalent of half a dozen holy grails, but they were a mere distraction to the barbarians who ran the brewery. How did it come to this?

A little history

Once upon a time, Australia’s established wine companies were owned by the families which had founded them, or their relatives and associates. Until the 1960s, most lived in perfect harmony with each other, and with the growers they’d bought grapes from for decades. Table wine was still an acquired taste, so they made their money from sherry, port and brandy. They didn’t make a fortune, but they weren’t in it for the money.

Photo courtesy of Matt Turner

Suddenly Australia changed. There was a mining boom, and the nation prospered. The stock market went apeshit, real estate prices soared, and regulations were relaxed. Private punters bought shares, companies went public, and public companies went on buying sprees. Along the way, the movers and shakers of this boom discovered table wine, and Australia became the land of long lunches.

Lindemans went public in 1953, Penfolds in 1962. Old families with many relatives who’d lost interest in the core business, demanding to get their share of the loot instead. They sold the farm and cashed in. More farms would be sold. The seventies saw the emergence of US-style entrepreneurs, corporate raiders and asset strippers, experts at the leveraged buy-out (today’s Private Equity consortiums do the same thing). Here are a few examples:

In 1972, Phillip Morris bought Lindemans
In 1972, Allied Vintners, a division of a huge UK distiller, bought Wynns
In 1976, brewer Tooth & Co bought Penfold’s Wines
In 1980, Adelaide Steamship turned corporate raider and bought David Jones
in 1981, David Jones acquired a controlling interest in Tooth and Co
in 1983, Carlton and United Breweries (Fosters) bought Tooth and Co
In 1983 Elders IXL purchased Carlton and United, which became the Elders Brewing Group (and the Foster's Group in 1990)
In 1984, SA Brewing Holdings bought Seppelt & Sons
In 1985, Penfolds purchased Allied Vintners Group’s Australian holdings which included Wynns, Seaview, JY Tullock and Sons, and Killawarra
In 1989, Pernod Ricard bought Orlando Wyndham (makers of Jacob's Creek).
in 1990, Penfolds bought Lindemans
In 1996, Foster's bought Mildara Blass for $500 million, and Rothbury Estate
In 2000, Fosters bought Beringer Estates in the USA for almost $3 billion

What is a little more difficult to find out is how SA Brewing was sold to Lion-Nathan, while part of the company retained the Penfolds/Seppelts wine interests and became Southcorp in 1994. The company sure was diversified, with a major stake in the household appliances market, but it sold those interests off by the millennium.

Boom or Bust

In 2001, at the height of Australia’s wine export boom, Southcorp paid Bob Oatley the princely sum of $1.5 billion for Rosemount Estates and became the world's largest premium brand winemaker. From here it all went downhill and, in 2005, Southcorp was bought by Fosters. And now Fosters flicks the greatest wine empire on earth off as a distraction to its boring beer business.

Somewhere in the late nineties, one of the last families - Thomas Hardy & Sons - merged with Riverland giant Berri Renmano Limited to form BRL Hardy Limited, at the time Australia's second largest wine group. In 2003, BRL Hardy merged with Constellation Brands to create the world's largest international wine business. Here was another company with a stellar list of famous old names: Hardys, Houghton, Stanley Leasingham, Redman and Reynella among them. Gone the way the others did.

On a smaller scale, NZ brewer Lion-Nathan went shopping and ended up with Croser, Bridgewater Mill, Knappstein, Stonier, Smithbrook, Petaluma, Mitchelton, Hillstowe, Tatachilla and St Halletts in the bag. A few of the old family wineries with significant holdings held out against the tide, among them Brown Bros, Henschke, McWilliams, Tyrrells and Yalumba. These wineries have grown tremendously in the last few decades, and still make good wines.

The Bottom Line

After every take-over, the new owners would assure wine lovers that nothing would change – in fact things would improve because of new investments. In almost every case, they ended up doing harm to the brand. I remember back in 1978, after Tooth & Co had bought Penfolds, they flogged it off at a 30% discount - $8.99 a bottle, down from $12.99.

Sanity prevailed with Grange, but the rest of the range is a shadow of its former self – Bin 389, 28 and so on. Great wines no more. The last Bin 28 I bought was the 2000, and it was more than ready to drink after just 7 years, with brown hues and bottle age aromas. These wines used to last 25 years, and get better and better. The only thing that's gone in an upward direction with Penfolds bin reds is the pricing. The cheapest of them are over $30, and Bin 389 is over $60.

While the barbarians held sway, prime vineyards were sold off, and some were lost forever. Grange for one. Florita in Watervale, where those gorgeous Leo Buring Rieslings came from in the sixties. Jim Barry bought it, thank heavens. Quelltaler’s 1984 Riesling was in the same class, but today it's called Annie's Lane and churns out cheap commercial wines. Lindemans sold the Sunshine and Ben Ean vineyards in the Hunter, the source of those great old Semillions.

Enough of that. I get depressed when I think about what was lost forever so that some passing corporate exec could show a short term gain on the balance sheet of some conglomerate. Fosters ended up with all the great names but couldn’t think of a decent name for love or money – Treasure Wine Estates? Earlier this year, BRL Hardys was bought by the CHAMP private equity company who christened its acuisition ‘Accolade Wines’.

These companies have no idea what they have, or what they’re doing. They know nothing about wine and vineyards, and they know less about marketing. They don’t even know how to craft a decent name and logo, for heaven’s sake. A pox on their houses!

Kim