Constellation Brands, of the world’s biggest winemakers, has booked $US100million ($107 millions) in impairments against embattled Australian wined business and warned of flat growth in the United States this year as high unemployment saps sales at restaurants, cafes and pubs.
The owner of local winder BRL Hardy as well as a portfolio of popular international beer and spirits brands said on premise sales in the US were hardest hit by the economic downturn, overshadowing improved wine sales in Europe and early signs of a possible end to the crippling grape glug in California.
It reported over the weekend that branded wine sales for the fourth quarter dropped 6 per cent against the previous corresponding period, dominated by a 12 per cent fall in North America. There was a 23 per cent increase in Europe, driven by improved volume, while sales in Australia and New Zealand were unchanged.
Although it’s Australian and British operations remained profitable for the 2010 fiscal year they did experience another year of reduced profits.
Constellation Brands, which paid $US1.9 billion for BRL in 2003, said after an annual asset review it had decided to record impairment charges of $US103 million, of which a majority was related to the write-down of its Australian wine trademarks. BRL is Australia’s biggest wine group and owns brands such as Hardy’s, Banrock Station, Leasingham and Houghton.
It also recently cut its Australian workforce to centralise more wine operations at its key European bottling and packaging plant in England.
Tough trading conditions during the global financial crisis have triggered hundreds of millions of dollars in write-downs in the wine industry. Recession in key markets of the US and Europe combined with a high Australian dollar have rubbed out earnings for Australian wine producers, with Foster’s blaming the headwinds for slashing wine earnings by $US83 million in the first half of the year.
The Constellation Brands chief executive, Robert Sands, said he was cautious about predicting an upturn in North America and that 2010 would be characterised by continued slow traffic at restaurants and other on-premise sites.
“Until we really start seeing some significant improvement in unemployment we really don’t expect trends to change significantly.”
He was encouraged by data showing that consumers are trading up within wine price-points, with higher priced wines selling at a faster rate than cheaper, sub $US5-a-bottle brands, although “luxury wines” priced above $US20 were being hit by aggressive discounting and promotional activity.
Mr Sands also said grape supply in the key growing region of California was “well balanced” and that apart from a large harvest in the North Central Valley in 2009 the overall crop size was average to small.
This could be good news for the sector following a grape glut that has destroyed margins and slashed profits.