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Blog: Another Wine Society in Financial Trouble

Posted: Thursday, 14 July 2016 15:27

 

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Blog: Another Wine Society in Financial Trouble

July 14: As we are getting ready to celebrate the 14th anniversary of the Delhi Wine Club at the 258th wine event, on 20 July at Neung Roi, the best Thai Cuisine Restaurant in Delhi NCR, comes a disturbing news that the oldest Wine Club in Australia celebrating its 70th anniversary is fighting for its continued existence with mounting debts of A$5 million at present, writes Subhash Arora who wonders whether the losses are only due to pressure from supermarkets as claimed by the management or are inbuilt in the business model

Founded in 1946, the Sydney-based The Wine Society (TWS) is fighting for its continued existence after posting ostensibly increasingly large losses, squeezed by the supermarket liquor retailers. It hopes that the reduced 25,000+ member-base will support a major restructure that will allow external investors to prop up the balance sheet and allow the business to borrow to repay its creditors, which includes $4.2 million payable to suppliers on April 30 this year, according to a report in Business Insider Australia.

In the last two years a quarter of the membership has reportedly disappeared, falling from 35,798 in 2013 to 25,337.  The Wine Society says “like every other small to medium sized wine retailer in Australia it has suffered from massively increased competition, led in large part by the supermarket retailers and specialist online operators”.

Wine clubs in countries like Australia and even USA are not like the Delhi Wine Club which was founded in 2002 with the specific purpose of promoting wine culture and with no commercial interest in mind. The club stays afloat by using various strategies none of which involve paying huge salaries and infrastructure costs and other overheads.

Each dinner is priced according to the actual cost which is kept as low as possible by negotiating with the prospective hotel or restaurant which in turns hopes for bigger footfalls as it showcases its cuisine. Similarly, one works with the wine importers who sell the wines to the licensed restaurant at special prices, at times even less than charged to the same restaurant in which the wines are sold, in order to expose the wine drinkers to the particular wineries or the labels. The club may subsidise each event slightly from the kitty formed from the annual subscription charges, but at the end of the day, one makes sure there are no payables or receivables and it retains its no-profit-no-loss status.

A similar model is being more or less adopted by the other wine clubs including the Bangalore Wine Club, Wine Society of Delhi (the oldest such institution in India) and the most recent Nagpur Wine Lovers Club, among the older ones.

Obviously, it would be naive to compare Davids like the non-profit clubs including the Delhi Wine Club or the Bangalore Wine Club with a membership of handful of members- around 150, compared to the 25,000+ involved by this Aussie Goliath. But it does highlight the financial risks involved in being members of the commercial clubs or running the wine clubs as businesses even if they are presumably co-operatives or non-profit based or the clubs with high overheads. It also makes one wonder about the efficiency of such clubs or societies and the management astuteness.

Wine Society of India already shut shop

A similar effort was made as retail business venture in India when the Wine Society of India was formed in India in 2008-9 for the purpose of retailing wine and offering wine education on the side as an incentive to become and remain a member. After suffering continuous losses due to mounting overheads while increasing membership, it folded up suddenly and shut shop on February 1 this year.

Starting with an initial target of 3000 members to break even, the expenses and overheads kept on rising and apparently the Society was still suffering losses this year with over 10,000 members and expecting to touch 12,000. David Thatcher, Group Chief Executive of Direct Wines, the current major shareholder of the Wine Society of India, in London conceded, ‘Part of the problem with WSI has been the archaic, and constantly changing regulations around selling wine in India, particularly with direct to home delivery channels.’ The strict regulations notwithstanding, the fixed overheads can be a killer in relation to the gross profits as seems to be the case with the Wine Society of Australia as it was perhaps in the case of Wine Society of India as well.

Wine Society of India Shuts Shop

Desperate move to restructure

The management of Wine Society in Australia has reportedly been quite candid with members about the financial pressures under which the business has been operating. There has also been a decline in the product range in recent times, as a direct result of credit constraints and restricted cash flow.

The cooperative is planning to split the business in two to help The Wine Society obtain a $3 million loan facility to manage existing debts.  Apparently the board has considered a range of options in recent years, and this is the best solution available. If members don’t approve the changes, then it’s likely the board will move to wind up the co-operative.

It appears to be an uphill task for this Society to remain afloat but the Board will take a decision on July 28. One hopes it can stay afloat and delWine wishes it luck.

Subhash Arora

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