Oct. 26 (Bloomberg) -- Ferngrove winery, which grows Shiraz, Cabernet Sauvignon and Semillon grapes in Western Australia’s Frankland River, last year faced declining sales and the prospect of breakup if business didn’t recover.
As it sought partners, a Chinese investor visited last October and bought 14,000 bottles of wine to test on friends and associates back home, said Ferngrove Managing Director Anthony Wilkes. They liked what they tasted: in February, the winery received a A$1 million ($1 million) investment from the investor’s private firm, which has since increased to A$10 million giving it about 60 percent of the winery, Wilkes said.
“If they hadn’t come in, the business would potentially have been sold, or parts of it been divested,” Wilkes said. “At the end of the day, we looked at what the alternatives were and this was definitely the best outcome.”
Australian vineyards such as Ferngrove, facing a wine glut, slumping exports and rising competition from countries including Chile and Argentina, are turning to China for salvation. Chinese buyers are proving receptive as they seek to meet surging demand among the nation’s rich, who are developing a taste for grape wine and the expression of wealth it conveys.
Vineyard values have lost as much as 50 percent since 2008 across Australia’s 60 wine-producing regions -- including the Barossa Valley and McLaren Vale in South Australia known for their Shiraz; the cooler Yarra Valley in Victoria, famous for its fruity Chardonnays; and Western Australia’s Margaret River, renowned for its Cabernets -- according to Toby Langley, director of Adelaide-based winery broker Gaetjens Langley.
Since 2010, vineyard prices dropped 11 percent in Australia, 14 percent in Bordeaux, France, and 25 percent in Napa Valley, California, according to a 2011 Wealth Report released by Knight Frank LLP and Citi Private Bank, a unit of Citigroup Inc. Prices rose 8 percent in Chile’s Colchagua Valley and 13 percent in Mendoza, Argentina.
In the Hunter Valley, where grapes were first planted in the 1820s, Chinese investors have bought six wineries in the past three months and three more sales are in the works, said Cain Beckett, director of the region’s biggest winery broker Jurd’s Real Estate. The Chinese influx is helping revive values of the Semillon and Shiraz-growing region’s 126 vineyards, which had slumped as much as 20 percent since May 2008, he said.
“Some vendors have been on the market for four years, and expansions haven’t happened since the 1980s,” Beckett, 28, said in an interview. “Now, things are looking much more positive with Chinese investors interested and actually able to invest. We’ve even achieved sales above the asking price.”
Dynasty, Bright Food
Winston Wines Pty, based in Xiamen, China, bought its first Australian winery in July and two others since then in the Hunter Valley in New South Wales. Bigger Chinese firms including Dynasty Fine Wines Group Ltd. and Bright Food Group Co. are studying acquisitions around the world and in Australia to sate the newfound taste for wine from China’s million millionaires.
Dynasty, partly owned by France’s Remy Cointreau SA, produces more than 93 million bottles from vineyards in northern China including Tianjin, Shandong and Ningxia. Now, the Tianjin- based company, in talks to buy a winery in New Zealand’s south island, expects opportunities to acquire vineyards in Australia as owners struggle to repay debts, said Rex Yeung, secretary of the group, China’s third-biggest winemaker by sales.
“There are a lot of wineries under financial difficulties,” Yeung said. “If that leads to more liquidations, there will be more opportunities to buy.”
Grape Wine Rise
While rice wine has traditionally been among the most popular alcoholic beverages in China, demand for imported grape wine is surging as rising affluence and more overseas travel exposes more Chinese to western customs, and increasing health consciousness draws drinkers away from beer and spirits.
The number of Chinese millionaires in 2010 increased fivefold from 190,000 six years earlier, according to a Boston Consulting Group survey published in May. The country’s consumption of imported wine quadrupled between 2005 and 2009, and is expected to climb another 56 percent by 2014, a Vinexpo study released in March found.
Jack Xu, a 35-year-old Shanghai-based shipping broker, started drinking Australian wine in 2002. Xu, who drinks wine about once a week, mostly socially, said health concerns led him to eschew Chinese varieties in favor of imported grape wine.
“I drink Australian wine because of its good quality, and compared with other foreign wine, it’s relatively cheap,” Xu said. “Sometimes you can buy a bottle of mid-level Australian wine at 100 yuan. But I couldn’t hope to taste French wine at the same price. And Australian wine is sweeter with a richer flavor compared with wines from other countries.”
Bright Food, China’s second-largest food company, is mulling a bid for Melbourne-based Treasury Wine Estates Ltd., two people familiar with the matter said in July. Bright Food’s Shanghai-based spokesman Pan Jianjun said the company has plans to invest in Australian wineries, though it hasn’t been in touch with any companies yet. He declined to comment on whether it is considering buying Treasury Wine.
Winston, which began importing Australian wine into China in 2007 and owns 60 stores across the mainland, paid A$2.8 million for the Golden Grape winery in the Hunter Valley, getting 15 acres of vineyards, a cellar door, a wine museum with the continent’s oldest wine press, and a restaurant.
An agreement to buy Capercaillie for A$1.5 million plus stock followed, giving Winston 5 hectares (12 acres) of vineyards planted with Chardonnay, Traminer, Chambourcin and Petit Verdot. It has since bought a third winery, which Jurds’s Beckett, who marketed the properties, and Winston’s Sydney-based Executive Director Michelle Jin declined to identify.
“The popularity of grape wine has been increasing dramatically in China,” Jin said. “We identified the opportunity in late 2006 and commenced exporting in 2007 with a couple of containers being sent back to China. The business has grown at rapid speed since then. We have already exported over 70 containers in 2011.”
Australian exports of bottled wine to China, now its fourth-biggest market, jumped 39 percent in the year ended Sept. 30, according to Wine Australia, a government-backed group that promotes the industry.
For Ferngrove, the partnership with the Chinese investor’s private firm Pegasus Corp. (Aust) Pty Ltd. has “been very much a blessing for us, given the stagnant, and often declining, sales in overseas markets,” Wilkes said. He declined to name the Hangzhou, China-based investor.
Pegasus opened 10 outlets carrying Ferngrove wines on the mainland in August, and has plans for more, he said.
While Winston and Pegasus have already moved into winery ownership, other Chinese investors are examining the market, with help from the Australian government.
Wine Australia took 100 Chinese delegates -- including restaurant and hotel representatives, retailers and wholesalers, and media -- on a tour of major wine regions in April, including the Hunter Valley, Margaret River and Yarra Valley.
“The very expensive wines bought in China are usually from France, and those are very much luxury brand and status kind of purchases,” said Lucy Anderson, the group’s first Hong Kong- based director. “But there’s starting to be greater awareness of our fine wines.”
Bird in Hand, a winery based in the Adelaide Hills, South Australia, has set up a partnership with Chinese importer Auspride to open two outlets on the mainland, said Justin Nugent, a co-owner. Mornington Peninsula, Victoria-based Yabby Lake partnered with the Guangzhou (Wohe) Wine Co. to open seven stores in Guangdong province, and is seeking to open another three, according to General Manager Tom Carson.
Australia’s 200-year-old commercial wine industry took root when John Macarthur planted grapes including Pinot Gris, Verdelho and Cabernet Sauvignon on his property about 50 kilometers (31 miles) west of Sydney, according to Wine Australia. Exports followed soon after, in 1822, with the first shipment of 136 liters to London, according to the trade department.
Wineries, production and exports continued to grow, surviving or avoiding diseases that decimated European vineyards. Overseas shipments hit 786 million liters (208 million gallons) worth A$2.9 billion by June 2007, out of a total production of 955 million liters, according to the trade department, as the Barossa Valley’s Shiraz, Coonawarra’s Cabernet Sauvignon and the Hunter Valley’s Semillon gained global popularity.
Australia’s wine industry faltered as the currency’s surge made its exports more expensive, and as competition increased from regions including Chile, Argentina and South Africa. Exports fell to 720 million liters, worth A$1.93 billion in the 12 months to Sept. 30, according to Adelaide-based Wine Australia.
The nation’s 2011 wine harvest was estimated at 1.62 million tons, a 1 percent increase from the previous year, according to the Winemakers Federation of Australia’s vintage survey, exacerbating the glut.
Foster’s Group Ltd. has responded by spinning off its wine unit Treasury Wine in May after more than A$2.5 billion of writedowns, as competition, an oversupply of grapes and the stronger Australian dollar hurt profitability at the maker of the Penfolds and Beringer brands.
Winston Wines is betting the Australian industry’s troubles will be solved by China’s soaring demand. The group is renovating and expanding Golden Grape in the Hunter Valley and plans to buy more wineries with production facilities so it can make its own wine to send back to the mainland as demand continues to surge.
“The Australian wine industry is going through a period of adjustment,” said Stephen Strachan, chief executive officer of the Winemakers’ Federation. “Some assets are worth a lot more in the long term than what they’re being traded for and that’s being recognized by a number of Chinese investors.”
--With assistance from Jing Jin, Bonnie Cao and Alfred Cang in Shanghai. Editors: Malcolm Scott, Andreea Papuc
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