While there’s an end in sight to the wine glut, it has still been a tough trading time across the domestic wine market. Reporting a 62% slump on profits to $4.9 million, McGuigan Simeon blames ‘bitter competition’ within Australia. Similarly, the US-based Constellation Brands, the world’s largest wine producer by volume, has forecast a fall in net sales between 12-14% during fiscal 2008, citing challenges in the UK market as well as the oversupply of Australian wine. Constellation Brands has found it hard to cover the annual increase in UK wine duty with price increases in that market. It is also planning to reduce the wine inventory levels of its US distributors, and is hoping that new technology in its supply chain will provide benefits through improved efficiencies. It hopes direct these anticipated cost reductions towards improve the price competitiveness of its labels. Despite its result, McGuigan Simeon has just purchased the Adelaide Hills-based Nepenthe for $25 million, a move that strengthens its premium portfolio. It has also been able to increase sales in the UK and Europe by 2% and in North America by 8%. Dromana Estate posted a loss of $724,862 for the six months to 31 December, with revenues down by 6% and losses up by 220%. It is currently seeking to make internal savings of $500,000 a year including reductions in staff. Meanwhile, net profits at Cockatoo Ridge Wines have plummeted to $106,000, 91.6% less than the corresponding period the previous year. Its revenues are down by 55.6% to $7.8 million. Cockatoo’s managing director Neil MacKenzie says the passing of the wine surplus will enable wineries to reduce inventory levels and cut interest bills. However, he argues, ‘Margins will only improve if sales prices can be lifted after many years of stable pricing’. The company is presently hoping to offload its Sovereign vineyard for $5.7 million and has also received an offer for its Playford vineyard. These sales would be used to reduce bank debt.
