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Treasury Estates: Australian for Wine?

Foster’s renames its wine division; Diageo sells a major Bordeaux firm

Mitch Frank
Posted: July 22, 2010

Does a wine business by any other name look more attractive to investors? Foster's Group Ltd., the Australian brewery and global wine producer, announced Wednesday that it is renaming its wine division. The new Treasury Wine Estates is still a part of Foster’s, though it's unclear for how long.

"We want to signal a cultural change within our global wine business, one that is focused on honoring our unique assets," says Stephen Brauer, managing director of Treasury's Americas operations. "We feel the name change is an appropriate way of highlighting the rich history behind our iconic brands, and ensuring our identity is focused on wine."

There is a rich history, with 30,000 acres, 20 wineries and 50 brands from Australia, New Zealand, France, Italy and California, including icons like Penfolds, Beringer and Chateau St. Jean. The company has struggled in recent years, however, especially in the recession, and executives announced in May that they plan to split the wine and beer divisions into separate companies next year. One or both could be sold. Analysts believe Treasury could be worth between $1.25 billion and $3.57 billion.

Brauer and other executives were quick to say that the name change is not part of a plan to sell the wine division. "It does not signal any impending decisions as we continue to evaluate the demerger of our wine business," says Brauer. "The new name and identity is part of our evolution as a global wine business, and that is the only implication at this time."

Diageo withdraws further from Bordeaux

Diageo, the world's largest drinks company, announced Wednesday that it is selling the Bordeaux wine firm Barton & Guestier to Castel Frères for an undisclosed sum. The move is a further withdrawal from Bordeaux for the company's American import arm Chateau & Estates, which had been managing Barton & Guestier. B&G produces a wide range of wines from Bordeaux, but also the Loire Valley, Beaujolais, Burgundy and Rhône. Castel, France's largest wine firm, acquires B&G's brand, inventory and Chateau Magnol.

Diageo announced earlier this year that it was reviewing its wine operations. Chateau & Estates has largely ended its Bordeaux imports, and Diageo wants to focus on core brands it owns, including Sterling and Beaulieu Vineyards in California. Last month, Diageo sold 2,000 acres of its California vineyards to a real-estate corporation for $269 million but with an agreement to lease the land back for 25 years.

Alex Andrawes
USA —  July 23, 2010 11:41am ET
Diageo, the 800lb gorilla in the distribution, production and importation business has abandoned Bordeaux (this is not new news) and now Burgundy, and now has sold its B&G brand.

Based on the input I have gotten from my industry peers, the demand for French wine, especially classified growths and grand cru's, has very been weak this year. Price increases up to 18% and release prices of higher end French wines exceeding 1000 euro per bottle are all factors. Where are the consumers that will buy and hold onto these wines either to drink or to invest? The answer to that is China.

So I divert your attention to recent news that California wine exports to China have exceeded 95% growth this past year. Are Chinese consumers, who are no doubt becoming more educated in fine wine, swaying toward new world wines? Do wines that a have a faster approaching drink-thru window become more appealing to the nouveaux Chinese consumers? Obviously!

Now to the French wine producers and their system of negociants who no doubt see things in the short-term. If your Chinese customers start to trend toward US, Argentina, Chilean, Australian and other new world wines, to whom will you sell your wine? How will you go about re-targeting young wine drinkers who will become your future customer?

All I can say is that if businesses who developed the French wine market are abandoning the system they helped create, there may not be a giant problem now, but there will be a big problem in the future...

Unless the world ends in 2012...


Alex Andrawes
CEO, President
Larry Lascola
Healdsburg, CA, USA —  July 26, 2010 2:36pm ET
It's a good business decision on Diageo's part. While Chateau and Estates has long been associated with the Bordeaux market, the actual business of Bordeaux continues to be costly and the reward and ROI is not nearly as attractive.

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