Foster's sets sights on the big spenders

Foster's brands such as Penfolds have been hit by the US recession. Photo / Alan Gibson

Foster's, Australia's largest brewer, says the high Australian dollar is continuing to hurt its wine exports, although prices for wine have stabilised in recent months.

Foster's said yesterday that it was aiming to improve margins in its wine business by getting consumers to trade up to more expensive wines, particularly in the United States.

Foster's rejected an offer from private-equity firm Cerberus worth up to A$2.7 billion ($3.5 billion) for its wine business last month, but left the door open to better offers.

The wine business could attract interest from other private-equity firms, including Kohlberg Kravis Roberts and TPG , though KKR may have its hands full after this week's A$1.7 billion bid for Australian fund manager Perpetual

Other potential offers could come from London-based SABMiller, Japan's Asahi Breweries, as well as China's Tsingtao Brewery and Bright Food Group.

Sales of Foster's wine, including top US brand Beringer, Penfolds and Wolf Blass, have been hit by the US recession and a trend away from low-end, bulk wines in Australia.

Foster's is the world's second-largest winemaker but A$2.7 billion of writedowns in the past decade almost halved the unit's book value to about A$3.1 billion amid grape gluts and the rising dollar.

The Foster's wine business sells 36 million cases of wine a year to generate A$1.9 billion in revenue.

The company's wine business might be worth as much as A$4 billion given its brands, vineyards and inventory, analysts at Morgan Stanley said in a May 31 report.

Foster's made its first wine acquisition in 1996 with the A$482 million purchase of Mildara Blass. It paid A$2.7 billion for California's Beringer Wine Estates Holdings in 2001, and its A$3.2 billion buy of Southcorp in 2005 cemented its ranking as the world's second-biggest winemaker.

Regarding the market for beer, Foster's said it had stabilised its share of domestic sales at about 50 per cent in a market that might decline as much as 5 per cent in the second half of this year.

Shifting consumer tastes to pre-mixed spirit drinks and cheaper liquors were eroding beer sales, John Pollaers, head of the Carlton & United Breweries unit, said this week.

New Foster's products such as Fat Yak had helped to limit the decline as traditional brands such as Victoria Bitter, the nation's top brew, continued to lose customers, he said.

Victoria Bitter, which generates about A$845 million of annual sales through retail outlets, is losing favour with younger drinkers seeking sweeter and cheaper alternatives.

Next month Foster's will start selling three new labels, including Fusion Black, a sweeter beer, as it seeks to stem the customer switch.

- AGENCIES