Drying sales on the grapevine

Brown Brothers – one of Australia’s leading family-owned wine companies – is looking to sell two of its eight vineyards, White Hills and Whitlands vineyards, located in Tasmania and King Valley.

Whilst the Australian dollar remains at record highs and conditions in Europe continue to tighten, sales volumes in export markets have decreased significantly. Today, revenue received from the UK – which was the company’s largest export market – is roughly 10% of what it was in 2007.

With no change in the exchange rate in sight for the near future, the company has decided to restructure its business. As such, from its eight existing vineyards, Brown Brothers will sell two properties in an attempt to save on costs and increase profits.

In selling its vineyards, the company expects strong interest from both domestic and foreign companies. Local companies could be interested in the purchases to gain greater access to grapes – of which Tasmania currently faces a shortage – whilst COFCO (China’s largest food conglomerate) has recently confirmed it wishes to expand its wine sales in either the US or Australia by purchasing vineyards.

COFCO plans to spend a minimum of $20 million in the next two years on purchasing quality property and brands, which would be greatly appreciated by Brown Brothers. Meanwhile, Woolworths (ASX: WOW) has also recently expressed interest in purchasing local vineyards.

According to IBIS, the wine industry is in the midst of a downturn. Other companies such as Australian Vintage Limited (ASX:  AVG) for example, recognised $109,524 of revenue – down 5.9% from last year, whilst Treasury Wine Estates Limited’s (ASX: TWE) revenue also fell 1.4%.

Aside from volatile export economies and the high Australian dollar, rising competition from low-cost wine producers and changing consumer preferences are also drying up revenues.

Foolish takeaway

The wine industry will receive $1.2 million from the Tasmanian state government in a bid to quadruple wine production over the next decade. For Brown Brothers however, it might just be a case of too little too late.

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The Motley Fool’s purpose is to help the world invest, better.  Click here now  for your free subscription to Take Stock, The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Motley Fool contributor Ryan Newman does not own shares in any of the companies mentioned in this article.

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