General Manager's Review
Company Overview | Production | Trading during 2010/11 | Strategy & Future Performance
Company Overview
Since the public subscription in 1993 Peter Lehmann Wines has worked assiduously to build the brand in both the domestic and export markets. As our home base the Australian market is particularly important and we have enjoyed considerable success over the years.
However, the market dynamics have changed with the two major retailers exerting substantial influence and making it difficult to work through a distributor business model. Accordingly we have restructured the business operation in Australia to deal direct with the retailers and service the independent and on-premise trade through Four Seasons Fine Wines Pty Ltd, a distributor which did not have a Barossa producer in its portfolio.
One of the concerns we had when changing our route to market was the impact on members of our domestic sales team. Although one person was made redundant we ensured options were made available for consideration.
Considerable uncertainty continues in the global economy with the resources boom fueling the Australian dollar compared with our trading partners. The higher dollar impacts on the profitability of exporters and most commentators predict the Australian dollar will remain strong against the US dollar, euro and pound sterling over the short to medium term.
Consequently total branded sales were down 6% in volume and 8% in value over that of the previous year. These difficult conditions are expected to continue over the medium term.
Production
Above average rainfall before and during vintage did cause disease problems in some of the independent growers’ vineyards. However, this fruit was not picked and did not enter the winery. The majority of our growers were unaffected and, due to the ideal ripening temperatures we have produced excellent wines.
Despite the challenging conditions, the total crush was 11,380 tonnes (2010: 10,477) with 11,000 tonnes (2010: 10,138) made for our own use.
Trading during 2010/11
The Australian market conditions continue to remain extremely difficult, with our branded domestic sales down 23% in volume and 20% in value. Over supply, continued market consolidation and the strong presence of New Zealand white wine were major factors negatively influencing the domestic scene.
PLW total branded export sales have been significantly affected by adverse exchange rates, with volume down 1% and value decreasing by 3%. Transactions in foreign currencies are translated at the prevailing exchange rates with profitability put under pressure when the Australian dollar strengthens against the counterpart’s currency. These conditions further emphasise the need for the business to seek growth within the domestic market.
Wine surplus to our requirements is sold on the bulk wine spot market and we saw solid movement with sales of $3.4M (2010: $3.9M).
We had a good year in the wine show arena with the 2005 Margaret Semillon taking out the “Wine of Show Trophy” at the Sydney Wine Show in February 2011. Our top two white wines – the Wigan Riesling and the Margaret Semillon – continue to receive accolades and it is a powerful endorsement of these great grape varieties.
Over the years we have been awarded many trophies and this is testament to the dedication of the growers in growing top quality fruit, the skill of the winemakers and the loyal support of laboratory technicians, cellar staff and the maintenance team.
Sustainability is a key driver for the business and we are now working towards the better measurement and control of the winery’s impact on the environment. The focus is on reducing packaging which goes into the waste stream and lowering the overall weight of wine cases which are transported primarily by road and ship. In addition we are implementing initiatives in the operation of the winery which will eliminate or reduce the use of certain substances which are potentially harmful to the environment.
During the year we were pleased to achieve certification of our Hazard Analysis Critical Control Point (HACCP) program which addresses food safety issues.
Strategy & Future Performance
We have addressed the issues which we can control and acted to stabilise the business in the Australian market by changing the route to market model for Australia. We are already seeing positive signs that the change is gaining traction in the marketplace.
A major review of the range of wines and packaging was undertaken and we have implemented a focused approach to channel management, disciplined range architecture and differentiation of wines in the portfolio through the label designs. This is the most thorough range review since the labels were changed in 1996.
The one common thread to all the stories is Peter Lehmann himself. It was therefore logical to link the new iconography back to him. This has been achieved with a depiction of his silhouette, which will now feature on labels across the family of wines.
The range has been revised to give each tier a distinct personality in line with the wines. From accessible to icon, the restructured brand tiers are: Art Series, Portrait, Futures, Masters and Stonewell.
It is a very difficult logistical exercise to change labels and other packaging elements across a large range of wines to a number of different markets. Staff have worked extremely hard to implement the changes and it is heartening that we have already received positive comments from the trade, on-premise segment and consumers about the changes.
A recent global wine industry study by Morgan Stanley Research expresses the view that there are signs that oversupply in the Australian wine industry, fuelled by the substantial increase in land planted to vines in the late 1990’s, has started to come back into balance.
The land under vine is now 15% below its peak with most planted land now bearing. This will reduce the pressure of over production.
The study also notes that pricing of Australian wine has been below inflation for about 10 years as a result of the oversupply position. The most aggressive domestic discounting seems to have passed and this can only be a good thing for all wine producers and grape growers.
Export markets remain challenging, particularly the USA and UK markets which are the largest importers of Australian wine. They, along with many of the developed countries in Europe, are still struggling to emerge from the global financial crisis. The situation within Europe’s financial sector combined with the sovereign debt of some EU countries makes trading extremely difficult and exchange rates volatile so consumers react cautiously.
Although there are opportunities in the emerging markets of Brazil, Russia, India and China growth will be a slow process as per capita wine consumption is much lower than in the established markets, particularly the UK and Europe. Peter Lehmann Wines is selling to the emerging markets and we are achieving incremental growth. The Company is also slowly building sales in Dubai.
After a year at the helm I would like to thank all the directors, staff, growers and other suppliers as well as the customers and consumers who are great supporters of Peter Lehmann Wines. I would particularly like to thank Doug Lehmann who was Managing Director for 20 years. He has been particularly helpful in providing a sounding board as well as being very supportive of changes.
The Company continues to make wines of outstanding quality and with its strong backing and rejuvenation PLW is expected to come through the current difficulties and progress positively.
