Lion sells its premium Australian wine business

Posted by AFN Staff Writers on 16th November 2016
Wine Grapes

Accolade Wines has this week acquired Lion’s premium wine business, Fine Wine Partners (FWP).

There is also speculation Lion will be selling its share in Warrnambool Cheese and Butter (WCB).

FWP includes six well-known Australian wine brands: Petaluma, Croser, St Hallett, Knappstein, Stonier and Tatachilla.

Lion says the acquisition price will not be disclosed.

Lion said it decided to sell FWP following a comprehensive strategic review that made clear considerable investment would be required to grow its investment to scale.

“Lion has a range of competing opportunities for investment in its core categories of beer and cider and has been unable to prioritise the investment required to grow Fine Wine Partners to a size justifying its fixed cost base,” said Lion Chief Executive Officer, Stuart Irvine.

“With the improvement in market conditions we have come to the decision that this is the right time to realise a fair price for the business,” Irvine said.

Lion says it will retain its wine businesses in both New Zealand and the United States given the importance of those assets for its New Zealand domestic business. It also plans to grow its presence in the international alcohol market through its Lion Global Markets.

Following in Fosters’ footsteps

Lion’s decision to sell FWP echoes of the Foster’s Group (now Carlton United Breweries – CUB), long before CUB was acquired by SAB Miller and other beer giant mergers.

From 1995, Foster’s started to build its wine division, acquiring several key brands including Penfolds and Rosemount. At one point Foster’s was one of the world’s largest wine makers.

Despite the growth of the business, by 2011 it was not performing well for Foster’s, especially compared to its successful beer business.

In 2011 Foster’s announced its plans to demerge its wine and beer businesses, with Treasury Wine Estates becoming a separate publicly listed company in May 2011.

Wine just isn’t beer – analysis

Lion’s sale of FWP appears similar to Foster’s decision to sell its wine business. Unlike beer, wine production requires longer term holding of inventories. Australians also still drink more beer than wine with Australian Food News reporting in April 2016 that according to Roy Morgan Research, for every 100 glasses of alcohol consumed by Australians in an average four-week period, 48 will be beer whilst only 25 will be wine.

Is Lion also selling its share in WCB?

In the same week Lion has announced the sale of FWP, The Australian newspaper reported that Lion is selling its 10.2 per cent share in Warrnambool Cheese and Butter (WCB).

Australian Food News contacted Lion to confirm whether it is selling its share in WCB but received the response that “The article is speculation and at Lion Dairy & Drinks we don’t comment on speculation.”

If the speculation turns out to be correct it would facilitate 100 per cent ownership of WCB by Saputo, the Canadian dairy company which owns the majority stake in WCB.

In January 2014, Australian Food News reported that Lion had no intention of selling its share in WCB despite its competitors Murray Goulburn and Bega selling out of WCB to Saputo .

Why didn’t Lion sell its share in WCB earlier?

In 2014, Lion said that it had acquired its shareholding in WCB to “further strengthen the close relationship it has enjoyed with WCB over many years”. Lion also said at the time that Lion was looking forward to continuing to strengthen its relationship with WCB.

With the global milk market being very volatile and suffering a glut of milk powder products, the opportunity for Lion to sell would be handy cash. After all ‘cash is king’ in business and could help Lion in Australia become the Lion King.

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