Adapt or die

There are lessons in the failure of an Aussie wine empire.

An excessive reliance on producing good, bargainpriced wines with tiny profit margins is being blamed for the financial collapse of Australia’s sixth-largest winery, which appointed voluntary administrators on January 8.

In 1877, Samuel McWilliam planted his first vines on the banks of the Murray River in New South Wales. Six generations later, McWilliam’s is still family-owned and a founding member of the exclusive promotional collective Australia’s First Families of Wine.

Once a dominant force in New Zealand – with Cresta Doré, Marque Vue and Bakano, grown in Hawke’s Bay, virtually household names during the 1960 and 1970s – McWilliam’s has recently suffered dwindling sales in Australia. In 2017-18, the company’s sales revenue fell by 13%, leaving it struggling to pay its creditors.

Why the sales drop? Wine consumption per head has fallen in Australia over the past decade, as consumers explore other beverages, notably non-alcoholic drinks, gin, cocktails and craft beers. The runaway sales success in Australia of white wines from

New Zealand, such as Oyster Bay Marlborough Sauvignon Blanc and Giesen Marlborough Sauvignon

Blanc, obviously hasn’t helped.

Too many eggs in one basket is another obvious weakness. Australia exports well over half of its total wine output, but McWilliam’s still relies on the declining domestic market for 85% of its sales. And by specialising in great value-for-money, sub-$10 wines under its Hanwood Estate and Inheritance brands, McWilliam’s failed to attract a new generation of drinkers, many of whom are willing to spend more for top quality.

McWilliam’s current crisis won’t be a total surprise to observers of the Australian wine scene. In 2017, McWilliam’s sold Evans & Tate, its subsidiary in Western Australia, which was also focused on everydaydrinking wine. After breaching some of its lending covenants and losing more than A$5 million in 2018, last year McWilliam’s sought and received a capital injection of A$15.8 million, designed to take the company “to the next level”.

To what extent the recent droughts and bush fires in New South Wales, where many of the firm’s vineyards are located, contributed to the collapse, is still unclear. The administrator, KPMG, has authorised processing of the 2020 harvest and is currently inviting expressions of interest to recapitalise or purchase McWilliam’s.