China swallows Aussie vineyards

Money from Chinese investors brings salvation for winemakers struggling to stay afloat.

'Vineyard values have lost as much as 50 per cent since 2008 across Australia's 60 wine-producing regions.' Photo / Thinkstock
'Vineyard values have lost as much as 50 per cent since 2008 across Australia's 60 wine-producing regions.' Photo / Thinkstock

Ferngrove winery, which grows shiraz, cabernet sauvignon and semillon grapes in Western Australia's Frankland River, last year faced declining sales and the prospect of breakup if business didn't recover.

As it sought partners, a Chinese investor visited last October and bought 14,000 bottles of wine to test on friends and associates back home, says Ferngrove managing director Anthony Wilkes. They liked what they tasted: in February the winery received a A$1 million ($1.3 million) investment from the investor's private firm, which has since increased to A$10 million, giving it about 60 per cent of the winery.

"If they hadn't come in, the business would potentially have been sold, or parts of it been divested," Wilkes says. "At the end of the day, we looked at what the alternatives were and this was definitely the best outcome."

Australian vineyards such as Ferngrove, facing a wine glut, slumping exports and rising competition, are turning to China for salvation.

Chinese buyers are proving receptive as they seek to meet surging demand among the nation's rich, who are developing a taste for grape wine and the expression of wealth it conveys.

Vineyard values have lost as much as 50 per cent since 2008 across Australia's 60 wine-producing regions, according to Toby Langley, director of Adelaide-based winery broker Gaetjens Langley.

In the Hunter Valley, where grapes were first planted in the 1820s, Chinese investors have bought six wineries in the past three months and three more sales are in the works, says Cain Beckett, director of the region's biggest winery broker, Jurd's Real Estate. The Chinese influx is helping revive values of the semillon and shiraz-growing region's 126 vineyards, which had slumped as much as 20 per cent since May 2008, he says.

Winston Wines, based in Xiamen, China, bought its first Australian winery in July and two others since then in the Hunter Valley in New South Wales. And bigger Chinese firms including Dynasty Fine Wines Group and Bright Food Group are studying acquisitions around the world and in Australia.

Dynasty, partly owned by France's Remy Cointreau, produces more than 93 million bottles from vineyards in northern China. The company, which also sells New Zealand wine in China, expects opportunities to acquire vineyards in Australia as owners struggle to repay debts, says Rex Yeung, secretary of the group.

"There are a lot of wineries under financial difficulties," Yeung says. "If that leads to more liquidations, there will be more opportunities to buy."

While rice wine has traditionally been among the most popular alcoholic beverages in China, demand for imported grape wine is surging as rising affluence and overseas travel exposes more Chinese to Western customs, and increasing health-consciousness draws drinkers away from beer and spirits.

The country's consumption of imported wine quadrupled between 2005 and 2009, and is expected to climb a further 56 per cent by 2014, a Vinexpo study released in March found.

Jack Xu, a 35-year-old Shanghai-based shipping broker, started drinking Australian wine in 2002. Xu, who drinks wine about once a week, mostly socially, says health concerns led him to eschew Chinese varieties in favour of imported grape wine.

"I drink Australian wine because of its good quality and, compared with other foreign wine, it's relatively cheap," Xu says. "Sometimes you can buy a bottle of mid-level Australian wine at 100 yuan [$20]. But I couldn't hope to taste French wine at the same price."

Winston, which began importing Australian wine into China in 2007 and owns 60 stores across the mainland, paid A$2.8 million for the Golden Grape winery in the Hunter Valley, getting 6ha of vineyards, a cellar door, a wine museum with the continent's oldest wine press and a restaurant.

An agreement to buy Capercaillie for A$1.5 million plus stock followed, giving Winston 5ha of vineyards planted with chardonnay, traminer, chambourcin and petit verdot. It has since bought a third winery.

"The popularity of grape wine has been increasing dramatically in China," Jin says. "We identified the opportunity in late 2006 and commenced exporting in 2007 with a couple of containers being sent back to China. The business has grown at rapid speed since then. We have already exported over 70 containers in 2011."

Australian exports of bottled wine to China, now its fourth-biggest market, jumped 39 per cent in the year ended September 30, according to Wine Australia, a government-backed group that promotes the industry.

For Ferngrove, the partnership with the Chinese investor's private firm Pegasus Corp (Australia) has "been very much a blessing for us, given the stagnant, and often declining, sales in overseas markets", Wilkes says. He declined to name the Hangzhou, China-based investor.

Pegasus opened 10 outlets carrying Ferngrove wines on the mainland in August, and has plans for more, he says.

While Winston and Pegasus have already moved into winery ownership, other Chinese investors are examining the market, with help from the Australian Government.

Wine Australia took 100 Chinese delegates - including restaurant and hotel representatives, retailers and wholesalers, and media - on a tour of major wine regions in April.

Bird in Hand, a winery based in the Adelaide Hills, has set up a partnership with Chinese importer Auspride to open two outlets on the mainland, says Justin Nugent, a co-owner. Yabby Lake, from Victoria's Mornington Peninsula, partnered with the Guangzhou (Wohe) Wine Company to open seven stores in Guangdong province and is seeking to open another three, says general manager Tom Carson.

Australia's wine industry has faltered as the currency's surge has made its exports more expensive and as competition has increased from regions including Chile, Argentina and South Africa. Exports, which reached 786 million litres in 2006-07, fell to 720 million litres, worth A$1.93 billion in the 12 months to September 30, according to Adelaide-based Wine Australia.

Foster's Group has responded by spinning off its wine unit Treasury Wine in May after more than A$2.5 billion of writedowns, as competition, an oversupply of grapes and the stronger Australian dollar hurt profitability at the maker of the Penfolds and Beringer brands.

Winston Wines is betting the Australian industry's troubles will be solved by China's soaring demand. The group is renovating and expanding Golden Grape in the Hunter Valley and plans to buy more wineries with production facilities so it can make its own wine to send back to the mainland as demand continues to surge.

"The Australian wine industry is going through a period of adjustment," says Stephen Strachan, chief executive of the Winemakers' Federation. "Some assets are worth a lot more in the long term than what they're being traded for and that's being recognised by a number of Chinese investors."

- BLOOMBERG

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