Spirits, RTDs & non-alc reap rewards for Australian Vintage in FY22

Australian Vintage has turned its focus to the four hottest categories in drinks – spirits, RTDs, super-premium wines and non-alc – as it aggressively pursues new growth avenues.

Chief Executive Craig Garvin has revealed the company is about to add a fifth booming category to its portfolio, with the launch of a range of seltzers in the next six months.

Acquiring a super-premium wine brand is also at the top of his agenda for FY23.

Australian Vintage last week reported a sales revenue increase of 78% for its pillar brands in FY22, however net profit declined 11.6% after tax to $17.3 million, with international shipping costs rising by up to four times and putting pressure on margins. 

Underlying EBITS were $33.3 million, 7% higher than prior year, with an underlying profit of $21.5 million despite inflationary, foreign exchange and logistics pressures.

Garvin said: “Our consumer-led portfolio approach is working, reinforcing Australian Vintage’s continued investment in marketing, as we improve overall margin, product mix and market share in key geographies.

“Super premium and luxury brands have grown by 20% since 2019 and are now contributing 13% to total revenue. These brands are expected to continue to grow by 20% CAGR over the next 3-5 years.

“High margin product innovation is showing significant growth on prior year including McGuigan Zero at 55%, Tempus Two at 20%, and Nepenthe at 31%.

“Core to our strategic intent is being a global business where Australian Vintage will continue to invest in brands, despite inflationary pressures. We have significant growth opportunities in Asia and Canada over the next five years as we have now implemented key people and operational changes.”

Innovation drives growth

Garvin said innovation continued to be fundamental to the company’s strategic success.

“Australian Vintage is world leading in no-and-low alcohol with McGuigan Zero reaching the number one zero-alcohol wine in the UK and Australian markets,” he said.

“The recent launch of our new wine and spirits based drinks business creates a tremendous global opportunity for high margin revenue growth leveraging our operational know how and assets.

“We have been able to add new revenue streams with minimal capital investment, generating a positive contribution net of investment, further supporting our double-digit ROCE ambition.”

Garvin said COVID-19 saw a peak in wine consumption in key markets driven by retail purchase for home consumption.

“This year’s brand performance is pleasing given the overall market declines in retail post lockdown and has converted to increased market share and brand performance. Australian Vintage is proud that no operational shifts were missed due to COVID-19 and the continued care and investment in our employees has translated to higher engagement across the globe.”

UK, Europe and Americas results

Despite industry-wide supply chain issues post Brexit, the UK continued to grow market share for Australian Vintage, led by
McGuigan and Tempus Two.

Australian Vintage’s market share grew at twice the rate of the overall UK wine market, which declined by 10%. In the no-and-low category the overall UK market grew by 11% with Australian Vintage products growing by over 50%.

McGuigan Zero is now the number one alcohol free still wine brand in the UK. Higher margin Tempus Two is the fastest growing Top 50 brand in the UK grocery growing at 75% over the prior period.

Strong recovery continued within Canada for Australian Vintage brands and long-standing partnerships, generating
growth of 26% over the prior period.

The brands driving growth in Australia and New Zealand

The Australia and New Zealand segment delivered an increase in branded sales of 3% for Australian Vintage, offset by a decrease in a low margin contract processing arrangement.

All four pillar brands were in growth, driven by Nepenthe +30%, Tempus Two +10%, BVWC +8% and McGuigan +3%. AVG achieved market share gains in both Australia (growing +5% versus the wine market growing at +3%) and New Zealand
(growing +9% versus +5% growth for total wine).

Towards the end of the year Australian Vintage also launched collaborations with Sarah Jessica Parker for Sevenly and The Butcher’s Cellar with Butchers Meatstock Alliance.

Entering the RTD category

Australian Vintage entered the spirits/RTD segment in May 2022, after revealing in March that it had devised an ingenious strategy to use the alcohol it removes from its McGuigan Zero range.

Australian Vintage “spins” off the alcohol from McGuigan Zero at its Buronga winery near Mildura and Garvin said it made perfect sense to use it in other products.

The company noted the RTD segment is a $10 billion category in Australia with margins in excess of 50%. It is the fastest growing alcohol segment globally with high attraction for younger consumers.

New data from Roy Morgan’s Alcohol Consumption Report shows the pandemic passion in Australia for RTD drinks hasn’t receded, with a record number of people consuming them each month.

Roy Morgan CEO Michele Levine said: “The standout performer of the last few years has been RTDs, which have kept increasing despite the ending of lockdowns and almost all pandemic-related restrictions. A record high 16.7% of Australians, up 3.2% points (+680,000) from a year ago, now drink RTDs in an average four weeks.

“A deeper look into the RTD market in Australia shows the increasing popularity of seltzers over the last few years is continuing to drive the increasing consumption of RTDs generally. ‘Hard seltzers’ began to hit the Australian market in significant numbers in 2019, just before the pandemic struck, and these newer alcoholic products are still attracting an increasing array of customers.”

Australian Vintage said its strategic entry into this “attractive category” has high potential to improve its performance and help offset global inflation.

The company’s new drink ranges includes:

  • Tempus Two Gins, includes the world’s first Prosecco Gin, Shiraz Gin, as well as a Botanical Gin.
  • Rescued Spirit Co. – do your planet a flavour with a sustainable brand that ‘rescues’ citrus fruits from local producers in the Murray Darling to give them a second lease on life. The range of gins and vodkas is made using renewabl energy and 100% recyclable materials.
  • Gelato Drinks Co. – a range of gelato-flavoured drinks.
  • Mr Stubbs – a range of “bar-worthy” RTD cocktails crafted to be enjoyed at home.

Garvin told the Australian Financial Review Mr Stubbs had been the sales stand-out to date.

“We’ve found it hits a sweet spot,” he said.

Garvin also revealed the company was preparing to launch a range of canned alcoholic seltzers.

“We’ve got some prototypes,” he said. “We will be doing it within the next six months.”

AVL Wines announces Net Zero 2040 commitment

AVL Wines has set an ambitious climate target – informed by current climate science – to achieve Net Zero carbon emissions by 2040 across its entire value chain.

Taking an evidence-based approach to achieving Net Zero, the company has set a long-term target to reducing Scope 1, 2 and 3 emissions by 2040. In the near term, the company will reduce absolute scope 1 and 2 emissions 42% by 2030 and reduce scope 3 emissions 52%.

Garvin said: “Sustainability is paramount to our success in the future. It’s a critical issue but also one of the biggest opportunities of our time. It’s more than a social license, it’s a value creator and a key driver for innovation. Consumers want to support brands and businesses that put people and planet first and we’re seeing this in the purchasing decisions of our customers. We are undertaking world-class initiatives and embedding sustainability into our DNA. We are on a journey, with an ambition to be net positive in everything we do.”

Acquisitions on the horizon for FY23

Australian Vintage said global inflation was putting pressure on input costs in all markets. In the UK, inflation coupled with
record global shipping costs have seen margin erosion for all suppliers.

The company said it will address these challenges via continued focus on growing the higher margin branded wine and drinks business, operational efficiencies, and actively pursuing price increases.

Garvin said Australian Vintage is also eyeing expansion in the super-premium wine market.

He told the AFR he’s on the hunt for a luxury wine brand, and has three prospects in his sights … if he can negotiate a good price. He’s seeking a brand with a cellar door attached that sells wine for between $30 to $100 per bottle.

Australian Vintage celebrates spirits launch success

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