Wine Trade in Recession and Mr Lenihans Budget

At the time of the supplementary budget earlier this year I blogged a piece titled, '7 Reasons Why Mr Lenihan Should Lower Taxation on Wine in Ireland.' Well, it's that time again when we see how many billions our fiscal masters get the budget wrong by - again. I don't say this with malice. No, I follow trends. The trend has been that when the economy was on the way up this shower couldn't even guess how many billions of Euros were going to be raised by the exchequer. When it was on the way down they were, once again, consistently wrong. Now that it's tanked out they seem to think we should listen as they count the 'millens' into 'billens'. They are getting it wrong again. It's a trend folks. No other description fits the bill.

Place the wine trade into this context. Its a service industry reliant on imports. Therefore it is not entitled to any form of grant aid or other governmental support. It doesn't get a 'dig out' when times are tough. Very few individuals have made fortunes out of the trade. No, most have just worked diligently and honestly. It has been a successful trade where growth and employment have been impressive over the past fifteen years. In addition it is a very serious revenue earner for the exchequer. Excise, and VAT on the excise, collected by the drinks trade are important to the health of the Irish economy. Wine for home consumption is the growth part of the domestic side of this trade. Whiskey is the growth part of the export side.

Why would anyone wilfully and purposefully damage this trade? It would seem to an outsider that anyone found guilty of such an attack could be classed as an economic terrorist or perhaps even (unwittingly) treasonous.

Why would anyone raise taxes to such an extent that, while consumption increases, the tax take actually decreases? It would seem to be a completely indefensible act and one guilty, at the very least, to the charge of being stupid and incompetent.

One of my simple 7 requests was that Mr Lenihan should at all costs stem the flow of shoppers flocking to the North of Ireland. The high value cost of alcohol is a principle reason why its worth going North at all. Well, with taxes so high on alcohol in the Republic it is now more than a cross border flow. It's a torrent. Trolley loads of spirits and wines are being packed into the backs of cars across the border for (illegal) resale into the South every minute of every day! It's a complete joke. A national shame. No-one in authority seems to want to do anything about it. No-one seems to mind that it's now possible to phone in your illegal booze order and have it delivered to your front door!!

Yesterday I blogged a piece that suggested it might be a good time to enter the wine trade. While I did point to many of the problems that the trade has at present I think I failed to emphasise properly how difficult it might be to be a member of this trade where all of your costs are based on a healthy economy. Clearly a healthy trade is one that participants can exit with some degree of ease. Right now there are many traders who would like to get out but are stuck with high rents, wage bills etc while at the same time margins are depressed and footfall is growing lighter. That's tough. Then Mr Lenihan effectively encourages shoppers to go North! Trapped and nowhere to go.

This is a good trade that needs a few basic incentives thrown its way. No one is looking for bailouts or NAMAsationing. All it needs is a level playing pitch where those who break the law are arrested and those who make the laws are intelligent. How simple is that?

This is my 100th blog. Ireland and the Recession. No time to procrastinate. Is it a good time to get into the Irish wine trade? Is it a healthy trade?

Smart and modern Next Door, Sundrive Road

http://www.simplywines.ie/ seem to think so. They're opening a new wine warehouse soon. The Cellar Master in Stillorgan (http://www.cellarmaster.ie/) has survived to celebrate its 1st Birthday. Mark Lambes bonded wine warehouse business has just expanded into an additional 65,000 case warehouse out at Ballycoolin. Curious Wines in Bandon is working the air waves and the social media circuit as good (if not better) than any business in Ireland. The supermarkets are fighting each other in the trenches for market share and I have been contacted in the past month by three separate individuals who want to 'get into' the wine trade. Comans has just launched the new and exclusive McKenna Collection of wines from Chile. Is all of this just a search for a cash margin business in times of economic meltdown or is it a reflection of a trade doing well in an economy short of ideas?

Cellar Master Wine Warehouse Stillorgan Co. Dublin

We had a recession back in the 1980's. At that time the wine trade was very small. No-one would have really cared if it suffered or not. Beers and spirits ruled the day and the rest of us ('wine people') were considered a bit 'odd'. I joined that trade in 1984. As a sort of a trip down memory lane I opened two German Rieslings at my Wine School last week. I bought the oldest wine back in the mid eighties at an auction arranged by the receiver of the McGowans wine business. (It had been hugely successful out of large mixed grocery premises at the foot of Carysfort Avenue in Blackrock, Co. Dublin) It was a 1979 Kabinett from the Nahe. The second, a 2005 Mosel, I bought out in Savages of Swords for €4.99 last week. I'm not sure if it came from a receivers auction but at that price it must have come from a closed business.

Both wines were exceptional. Look at the labels in the photo. Time has certainly changed labels out of Germany! Other than that, the point is made that the wine trade in Ireland has grown up, changed, to an extent come full circle and now faces a very real crisis.

Currently the switch to home drinking as opposed to pub drinking is real. It's apparent benefit to the wine trade, its suppliers and retailers though is probably only a short term benefit. I say this because the trade is shrinking both in volume and margin achieved. Costs are not controlled by the trade. Insurance, transport and government taxation will all rise shortly. Indeed it is hard not to see costs continue to rise over the next few years. (Wages will be reduced but employers contributions of the smaller take home wage packets will increase!) Allied to this will be the continuation of a reduction in retail footfall and cross border shopping. Remember, two years ago the trade imported just over 8million cases. This year it might shade 7 million.

Yours truly with Brian McEvoy at the recent McKenna Collection launch

Is this a healthy trade? Depends on how we look at it.

For instance many importers have adopted a more realistic appreciation of what their portfolios should have, as opposed to what they have had over the past number of years (eg three expensive Chablis when one reasonably priced well made wine would have sufficed; or no focus at all, just a shotgun approach where everything from everywhere was listed!)

Relationship Management is back. The bigger companies are not as rude/arrogant towards their customers as they have been for a number of years. Smaller companies are operating in smaller circles and keeping very close both to their customers and to the credit lines they extend. Because of the nature of this 'niggly' detail it could be argued that bigger companies will give up long before the smaller ones. All it needs is one or two to leave the sector ... (mind you Barry Fitz seems to want to control its destiny be getting into retailing through the troubled Galvins business and its Carry Out Chain)

The closed Papillon Warehouse

If margins can be maintained and bad debts kept to a minimum then most wine businesses will make it through to the New Year. Without volume growth we will most likely see a few amalgamations before summer 2010. If interest rates rise this will happen very quickly as businesses attempt to rationalise cost. Perhaps this should happen by choice and happen soon rather than by enforcement later? Why don't a few smaller distributors join forces? It's never really happened here. We seem to treasure a stubborn independence even when its patently obvious that there are too many small distributors fighting for a smaller share of the market! You can only grow into a smaller place when the market is expanding unless you encourage change.

Why would anyone join in to this flux? The answer must be, why not? Every trade needs new ideas and new blood. Back in the eighties small businesses, such as Ecock's and Verlings, brought new ideas, new products and bucket loads of enthusiasm into a trade dominated by large distributors during a recession. The only difference now is that the multiples dominate and the large distributors have lost interest in wine as a subject worth discussing -they closed down the Wine Board and refer to boxes as they would any other commodity. That paves the way for good guys to enter the trade.

I am fond of saying that the wine trade is littered with good intentions and that the best way to make a small fortune is to begin with a large one! New entrants must recognise that the trade has serious problems ahead and without a very clear route to a 'paid for sale' there is no sense in joining in. If that's not a problem than get stuck in. Get modern and exciting and enjoy the ride. The Irish wine trade is not going away -its only changing. I'd say for the better and worth getting into.

Manage your expectations, micro manage your costs, find your niche, keep your customers close, recognise the Recession, Educate and Educate some more, don't listen to the big guys, keep moving!

Why Bother with Wine Fairs?

I'm a great critic of wine fairs. At the high end of things, such as VinExpo in Bordeaux, they are expensive talking shops. At the bottom end, such as forty Italian producers in Dublin looking for distribution across a small Irish market they are simply a waste of time and money. So, why, when no-one has any spare cash, do fairs (in Ireland) seem to be on the increase rather than the other way around?

Let's announce a forthcoming fair:

John Wilson's Favourite Australians
Tuesday 24th November
6.30pm - 8.30pm
The Function Room at Fallon and Byrne,
11-17 Exchequer Street, Dublin 2

Places cost 20 Euro and are available from ireland@wineaustralia.com or 065 7077264.

For a start this Tasting/Fair is aimed at the public and not at the trade. That's good. Very often when a country of origin puts on a fair of some kind its just a pile of wine, people or both thrown together into a room with no apparent focus. No questions are asked as to how the fair is going to translate into sales. Indeed, very often wines are introduced that aren't here, and probably won't ever arrive here, as being an end in itself. Wine Fairs need to remember that marketing budgets are meant to support sales - not the other way around! If it's a trade fair and wineries are looking for distribution then there should, by necessity, be a meaningful attempt to follow leads and contacts after the fair has ended. This never seems to happen.

This Australian fair will show about seventy wines that are here in Ireland. John Wilson is a well known and respected Irish wine journalist. All positive. If you disagree with his comments, or indeed choices, you can give him immediate feedback. It's just not the same when we import our wine speakers - they only come for the money and tend not to have any idea who we are or what we drink. As I say, I am critical!

John Wilson

Australia Inc has a wine plan. It's an integrated one and this particular Fair is just one part of a very large jigsaw puzzle. The final picture will show Australia as a diverse and interesting producer of world class wines. I attended three Wines of Australia tastings last month alone. Each was well worth attending because I was being taught something relevant. I was shown wines and vineyard statistics in context. It's a big and well stitched pattern Australia is rolling out. I know it's marketing but I also see it as a real message - not just, 'here today, see you same time next year, aren't we wonderful.'

Finally, this Fair is good value. Seventy wines for €20.00. Write your favourites down. Christmas beckons.

Over the next two months there will be many very good consumer focused wine fairs all around the country. On the 13th and the 14th of this month the Clarion Hotel in Cork will host the inaugural Good Wine Show. It's a collaboration between Karwig Wines, Curious Wines and Bubble Brothers. I wish them well. Focus guys, focus. At €15.00 it promises a 100 wine selection across three wine portfolios.

I hope that none of these are money grabbing exercises. I hope they are a geniuine attempt to get to know, and to stay with, their consumer base. I hope they offer value and quality. I hope they recognise that the Irish wine consumer is not a fool and deserves to be rewarded for loyalty and diligence over the past ten years.

I hope the wine trade knows that it needs to learn how to add value to its sales. These wine fairs are a great way to do just that. Cheapening prices is just a race to the bottom of a commoditised well of wine. Let's hear it for the wine fair that maps out a strategy towards a better sale rather than just a route to the nearest cash register. Let's hear it for the energy and drive of everyone who follows up on their fairs and really understands that one night wine stands are in the past and have no place in a forward thinking trade.