GRANGE ON A VB BUDGET? MAX ALLEN GIVES HIS OPINION

Published: 23 July, 2008

By Max Allen

The first question is: why now? Towards the end of last year, both Southcorp and Foster's seemed to be lifting themselves out of the doldrums, with Southcorp's CEO John Ballard doing a fair job of fixing the mess caused by his predecessor, and Foster's MD Jamie Odell successfully implementing a far-reaching wine trade review. A merger seemed to be the last thing on anyone's mind. So why did Bob Oatley sell his family's 18.8% stake in Southcorp to Foster's last week, virtually forcing Australia's largest brewer and Australia's largest winemaker into a shotgun wedding? Were Allied Domecq or Diageo really circling a little too close for Oatley's renowned patriotic comfort? Or is it more personal, as some observers have suggested? Were the Oatleys feeling so disgruntled about Southcorp's recent treatment of the Rosemount brand that they began negotiations with Foster's behind the backs of the Southcorp board? Regardless, the wheels of an all-Aussie takeover are now in motion. Despite half-hearted rumours of interest from the multinationals, I think we can assume Foster's will eventually be successful in its bid to buy Southcorp. So the second question is: what impact will the merger of these two domestic giants have on the Australian wine industry? For a start, there is the uncomfortable likelihood that we will see some harsh brand attrition. Combined, the two companies would account for almost 50% of wine sales in the crucial A$8-$20 market - a dominance that would seriously displease the Australian Competition and Consumer Commission. As a result, some brands will have to go - either sold off to the highest bidder (Australia's fourth-largest winemaker, McGuigan Simeon, is frantically denying any interest in buying Lindemans, for example) or simply shuffled off to the scrap heap - along, no doubt, with some jobs, winemaking facilities and vineyards. Jamie Odell claims that as retailers look to simplify their offering a simplified and impressive (combined Foster's and Southcorp) product range will be a new and efficient solution in a fragmented and confusing wine category.' While this may make good financial sense (combining the strength of a brand like Penfolds with the efficiency and reach of Foster's distribution is indeed a very persuasive proposition in the face of increased consolidation in the retail sector), I don't believe such rationalisation, simplification and homogenisation is necessarily in the consumer's best interests. What we need now is more diversity, more individuality, more independence, not oceans of heavily branded wines emanating from vast centralised wineries all owned by one or two companies. The irony is that if, for example, the old established names of Seppelt, Wynns or St Huberts, or some of the more recent brands such as Coldstream Hills, are divested as a result of the merger, and if they're purchased by new owners who understand their heritage and cultural value (both very big ifs), we could well see some of that diversity and individuality return to the wine industry.

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