Why time is running out for wine businesses that blame the economy for when things go wrong
By Richard Siddle
You don't need to be a seasoned journalist to know that what a business might say in public is not necessarily the truth, the whole truth and nothing but the truth. And the bigger the business, the bigger the discrepancy.
But to be clear that does not mean they are lying, they are simply setting out enough facts to explain what is going on behind the scenes without welcoming us all into the confines of their boardroom.
We see it everyday with our politicians. They will admit to and set out the facts that follow the narrative they want to express, without having to get into areas of detail that would detract from their main message.
Throw into the mix levels of business uncertainty driven by economic instability and you have an even more complicated picture to unravel. The spectre of Brexit and the threat of increasingly restrictive US trade tariffs Is creating an environment of business instability and disruption few can remember. The global recession of 2008/09 was bad, but it did not effect the way international businesses could trade and do deals with each other.
You only have to look at the top line soundbites coming out of any of the major wine businesses' annual results to see what disruptive times we are living in. Which has its pluses and minuses for pressurised company chiefs.
On the hand the disruptive trading conditions they are having to deal with are very real and extremely challenging even for the most organised business.
But on the other hand they also provide a convenient backdrop on which any bad news can be blamed. If sales are not going quite as well as expected then why not blame the turbulent and uncertain business environment rather than any structural or strategic issues with the company itself.
Which makes it harder than normal to really understand what the true picture is at any given business.
Take Australian Vintage. It was first out of the blocks last year pronouncing any drop in profits could be blamed squarely on the fall of sterling and subsequent knock on effect on global exchange rates that left them in a less competitive position in key markets, noticeably the UK.
Now there is no reason to question the impact that sterling has had on its business, but it was noticeably a strong strategic move to take control of what is, let's face it, a negative news story about the financial profitability of its business, and turn it in to a wider issue outside of its control. Which as a publicly trading company was not only the right thing to do in terms of openness and transparency but will have helped regain confidence in its stocks at the same time.
Now after months of speculation we have private equity giant, Champ, announcing it is drawing a halt to its much hyped and proposed float of the Accolade Wines business.
The official reason given is that there were simply too many moving parts in the business to make a sale at this time the right move to make. Or as Accolade’s chief executive, John Haddock, put it: "There's a lot going on inside our business."
High on that agenda would have been the fall in sales as a result of its current over-dependence on the UK market and the drop in the rate of sterling.
But it only goes to show how disruptive the global trading conditions are if a private equity business of the scale of Champ is forced to turn its back on a potential A$1 billion floatation.
There are disruptive trading conditions that we are all having to work in. It is certainly hard for any wine business to effectively plan more than six to nine months down the road as it simply does not know what the economic situation is going to be and what rate it can expect to get for the key currencies it trades in.
The only good news is that we are all in this together.
Both the buyer and seller in any negotiation is having to conduct business with their fingers crossed behind their backs. Which is why those companies with genuine long term trading partnerships between producers and their buyers are well placed to ride through the coming years.
But it will also be interesting to watch how the markets and the trade as a whole responds to businesses who six months to a year down the line look to blame the global market conditions for their own sales performance. It is perfectly reasonable coming out of the firestorm of the last 10 months for wine businesses to currently look at the adverse currency rates for being over exposed in some markets, but is that going to wash 12 months from now?
The financial markets have short term memories and will be putting those companies that do not hit their targets in the coming year on the naughty step of businesses that must do better.
For there is no excuse for not putting your own house in order. Which is why we are seeing so many wine companies looking to take further control of their own supply chains. Be it looking to sell wine in new, more competitive markets, or going as far as making the wine or having a direct investment in the wine they are going to go on and sell.
After all it is noticeable how large wine businesses, producers, importers and retailers do not put record sales increases down to the fact that currency and trading conditions were very much in their favour for the previous year. They are much more likely to pat themselves on the back for their aligned business strategy than look to the general macro economic conditions for how well they are doing.
So always looking to blame wider external factors for when things go wrong is a tune that is going to be harder to sing in the coming months