| In a Statement, Treasury Wine Estates says it's planning to get rid of excess, old and deteriorating inventory in the U.S. since it was unable to sell the wine as fast as planned. The wine was stored in warehouses for months, possibly even years. "We remain committed to providing trusted and iconic brands for our loyal consumers, and this commitment has resulted in our decision to destroy old and out-of-date product in the U.S.," said the company's CEO, Dan Dearie, in a press release.
The company is also offering up to another US $35 million in discounts and rebates to its distributors to ensure it can get its excess capacity out in the retail shelf space as quickly as possible.
A break up of wine sales in the USA as of June 2013 indicates that 25% of the market is for those costing less than $5 including boxed wines. Maximum share is that of wines selling between $5-8 (27%). Another chunk is consumed at the mid-level wines (16%) costing $11-15. A small population (6%) drinks mid to high-end wines. Only 4% of the wines consumed are over $20.
Most of Treasury's sales in the US are in the low-priced segment even though American tastes are gradually shifting to better (read more expensive) wines. US retail store sales of wine bottles priced between $3 and $5.99 went up only 1.5% and bottles priced $6 to $8.99 actually dropped 3.3% in the 52 weeks ended May 25 in volume terms, according to Nielsen, as reported by Wall Street Journal. By contrast, volumes of bottles priced $9 to $11.99 and $12 to $14.99 rose 13% and 9%, respectively, and those above $15 increased more than 6%.
Total U.S. wine consumption rose 2.2% last year, reaching 345.1 million 9-liter cases, and rose 3.6% to $32.3 billion in retail sales, according to Technomic. But for Treasury Wine, the No. 5 player in the US, American sales slipped 1.9% by volume, while those of market leader E & J Gallo Winery rose 3.5% according to estimates. Treasury Wine's sales in the U.S. slipped below 13 million cases last year from 16.5 million in 2009, according to WSJ.
It is perplexing to note which wines are to be drained and written off. While most media is referring to the wines being cheap, low-ended young wines which spoil after a couple of years of harvest, the figures of a million bottles earmarked would indicate the average value of $35 a bottle, by no means cheap or non-age worthy wines as the media infers.
Rohit Mehra, importer of Penfolds, Rosemount and Lindeman’s (Wolf Blass is imported by Pearls and the American Beringer and Stags Leap are imported by Aspri in India), who imports 7,000-9,000 cases of these wines annually had no clue and had also read the media reports only. However, he emphasised that there is no question of such a situation arising in India. For one, the volumes are very low. Besides, it would not be feasible to drain off wines just like that in India - the Customs rule make it mandatory: drink it or drain it, but first pay the customs duty of 150%. ‘We pay interest every quarter on the duty payable on the unsold wines left in the warehouse. Though the bond is good for one year, importers of good standing are able to extend the bond for another year by paying the interest on duties. If we are unable to sell, we have to de-bond the wines by paying duties or we must re-export even if it means dumping in the sea rather than draining in the gutter.’
Dumping in the sea would not be helpful to a producer like Treasury. If it is drained in public view, the wine cost may be written off, according to American experts. Such unsalable wine could also be distilled but the costs, especially after the bottling, far outweigh the recovery benefits, hence draining off might be the best solution. It is not clear why it could not be given away at special, one-off heavy discounts. Obviously, if the wine has gone bad, it would result in a bruised reputation.
This is not the first time that Treasury had to suffer this ignominy. In 2011, a sum of $1 billion was written off when the wine division was spun off the erstwhile Fosters.
Tags: Australia, USA, Treasury Wine Estate, Penfolds, Rosemount, Lindeman’s , TWE
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