The impact of Chinese tariffs on the Australian wine industry is expected to spark a buyout spree in 2022.
Australian wine exporters sold about $1.3 billion worth of wine a year to China before prohibitive tariffs were imposed in November 2020, with two thirds of Australian producers giving up on selling to China.
Among those who have pivoted away from China is Randall Wine Group, which owns the historic Seppeltsfield Estate winery in the Barossa Valley.
“In 180 years, the Australian wine industry has never suffered such a setback,” owner Warren Randall (pictured main) told WBM Online
“Following a very high quality vintage in 2021 it was time to reset the company’s strategy and pivot away from the Chinese market. Which is a shame because the Chinese wine consumer loves the fruit and taste profile omnipresent in Australian wines.”
Randall announced last week that he had acquired the Penny’s Hill winery in McLaren Vale, which he said was the first in a new strategy built around acquiring smaller premium brands in Australia that have a strong export focus to countries other than China.
In its previous 10 year strategy, the Randall Wine Group was in the process of selling 50% of its annual wine made to China as both premium bulk and bottled wine. The new 10 year strategy is now based around the acquisition of 50,000 to 100,000 dozen branded cases in Australia’s premium wine growing districts, with a strong export sales focus.
Taylors Wines MD Mitchell Taylor (above) also has his eye out for acquisitions. Prior to the trade war, about 15% of Taylors Wines exports had been going to China. Taylor said the quality of assets in the Australian wine industry was high, but there were probably too many single operators.
“There will be some amalgamations,” he told the Australian Financial Review. “I’m predicting there will be more activity over the next 12 to 18 months. We’re looking around at the moment for some bolt-ons to take advantage of synergies.”
Bruce Tyrrell, the managing director of Tyrrell’s Wines, based in the Hunter Valley in NSW, is predicting that the premium end of the market will be at the centre of the buyout action. He told the AFR that drinkers were prepared to pay more than $100 for a bottle, and then wanted to be seen conspicuously drinking it on their social media feeds.
“There are people out there with obscene amounts of money to spend,” he said.
Analysts give their verdict
Tax and advisory firm Grant Thornton recently predicted that Australian wineries will be highly sought-after investments in 2022.
Grant Thornton noted that despite the various challenges presented by COVID-19, the agribusiness, food and beverage industry has been a resilient capital markets performer with Australian businesses achieving “outstanding results” in the domestic and global mergers and acquisitions and Initial Public Offering (IPO) markets.
The company’s Dealtracker report discovered distillers and vintners accounted for 22% of all Australian acquisition deals in FY21. Wineries who have done well during the COVID-19 lockdowns have undertaken creative direct marketing activities delivering boxes of wine to doorsteps around the country.
Cameron Bacon, Partner – Corporate Finance & Victorian Industry Leader of Agribusiness, Food & Beverage at Grant Thornton said: “This year’s latest Bite Size Dealtracker 2021 insights clearly showed the Australian food and beverage sector experienced a very strong rebound in transaction volumes and values since the impact of COVID-19 on the market in the first half of 2020. This report explores which subsectors experienced the most growth in terms of deal volumes and values during FY21 demonstrating their dual popularity as both successful business ventures and trending growth in consumer demand.”
KPMG’s national wine advisory lead Tim Mableson told the AFR: “I expect the wine industry to become more of a focus for investment in 2022 as the sector restructures to address market diversification, oversupply particularly in the red wine category, and predicted falling asset values.
“Larger wine businesses especially will be seeking to capitalise and expand their holdings of vineyards to control supply. Established brands with market presence that fit marketing or growth gaps in their portfolios will be highly sought after.”
MST Marquee analyst Craig Woolford said: “The trend towards $10-plus wines continues globally, and larger wine companies will want to bolt-on smaller premium brands and leverage their distribution reach.”