Paul McIntyre: Ominous signs for wineries

Here's a frightening statistic for any New Zealand wine producer eyeing the Australian market: 70 per cent of all wine labels in Australia's 7000 or so independent liquor stores sell less than one bottle per month per shop.

That's a lot of dead stock, by some accounts more than A$1 billion worth. What's more, new research shows 77 per cent of Australian wine buyers say they have difficulty selecting a drop and 44 per cent find the exercise "an ordeal".

Combine these findings with Thursday's scenario in which the Foster's Group's $A3.2 billion takeover of Southcorp Wines has surpassed the 90 per cent shareholder acceptance threshold and we have some potentially ominous implications for boutique wine labels - New Zealand and Australian - trying to cut it in the Australian retail game.

The big news, of course, is that for the first time an Australian company is the global leader in a consumer goods category - a merged Foster's-Southcorp entity will effectively be the world's biggest listed producer of premium wines. And with Foster's also owning the Carlton & United Beverages brewing and spirits unit, the group will account for 45 per cent of all alcohol consumed in Australia.

The major brands in the merged operation include Victoria Bitter, Carlton, Wolf Blass, Penfolds, Lindemans, and Rosemount. With all that muscle comes leverage with the retailers.

Woolworth's and Coles Myer have been feverishly snapping up liquor retailers for the past five years and are now the two dominant players but there are still more than 7000 independent liquor stores across the country.

The more progressive independent owners are now starting to think like their bigger national chain rivals, regarding dead stock as dead money, and they don't like it.

Selling one case of a wine label per year is not financially prudent, so expect to see considerable rationalisation in retail wine ranges in coming years.

This is not going to happen overnight in the independent retail sector but it's coming and, surprise, some of the big wine producers see an opportunity to pounce.

Southcorp has probably been leading the charge in this area. About a year ago Southcorp hired Rod Macqueen, former Wallabies World Cup-winning coach, to shake up the in-store environment for wine.

Why in the name of the great game is Macqueen involved in that one, you ask. Well, Macqueen has been involved in a number of business ventures all the way through his coaching career and one of them is a retail merchandising operation called Advantage Line. It designs, manufactures and manages more than 5km of display formats in department stores and the like for firms such as Revlon and Makita.

Knowing the public was increasingly bamboozled with wine selection in retailers, Southcorp gave Macqueen a blue-sky brief to find a solution.

A commercial artist by trade, Macqueen & Co came up with a "store-within-store" concept called The Wine Bar aimed at making wine shopping much easier for punters.

In the independent stores which run with the idea, Southcorp's range is presented in a way which aligns wine types with meal occasions and price points. And interestingly, to keep it simple, Southcorp has slashed its range.

Southcorp's sales boss for Australia and New Zealand, Neil Barker, won't say by how much, but the rationalisation does create a precedent for wholesale range cuts in independent retail stores. "Some products quite literally become casualties," Barker says. "Our research shows 90 per cent of sales come from 20 per cent of SKUs [stock keeping units] stocked."

The really interesting angle coming out of Southcorp is that Macqueen's baby has increased wine sales more than 30 per cent for the overall category for the retailers that have installed The Wine Bar. Southcorp's sales are up even more but it won't divulge the figure.

The takeout? Smaller ranges and easier purchasing choices mean consumers buy more wine.

If Foster's decides to keep rolling out The Wine Bar initiative to more of the 7000 independents - and there's no guarantee of that in these big mergers because management ego and power plays often override commercial prudence - then bank on some far-reaching changes for all those boutique wineries on both sides of the Ditch. They may indeed survive but it will take some innovative thinking with new distribution channels, rather than traditional retailing, to keep the grapes growing.

* Paul McIntyre is a Sydney journalist.