Largest Australian vintner suffers on weak US demand

One of the worlds biggest vintners experienced a big loss from poor U.S. sales, leading it to destroy thousands of gallons of wine due to wines prime has expired. Treasury Wine Estates, the Australian based wine-maker and distributor said it would book a loss of 160 million Australian dollars ($145 million) against its U.S. business for the fiscal year that ended June 30.

The winery whose brands range from the mass-market, budget U.S.-made Beringer up to $1,000-a-bottle Penfolds Grange from Australia, said yesterday it had miscalculated U.S. demand in the past year, forcing it to discount or destroy older wines that had passed their drink-by date. The company warned it expects to ship less wine to the U.S. this fiscal year, contracting its US operations significantly.

As the vintner relies heavily on sales of less-expensive labels in the U.S., such as White Zinfandel, a key Beringer varietal, they dont have nearly as long a shelf life as a high-end Chardonnay or many red wines, said for Wall Street Journal, Jon Fredrikson, head of Gomberg, Fredrikson & Associates, an industry consultancy in California, noting that many people who used to reach for a white Zin now opt for Moscato, a similarly sweet wine. Even so, he added, it is “very rare for large quantities of wine to be destroyed.

Furthermore, much of Treasurys U.S. sales are in low-priced wines at a time when US consumers are turning more expensive. U.S. store sales of wine bottles priced between $3 and $5.99 edged up just 1.5% and bottles priced $6 to $8.99 dropped 3.3% in the 52 weeks ended May 25 in volume terms, according to Nielsen. By contrast, volumes of bottles priced $9 to $11.99 and $12 to $14.99 rose 13% and 9%, respectively, and those above $15 increased more than 6%.

U.S. wine consumption rose 2.2% last year, and rose 3.6% in retail sales, according to Technomic, an industry tracker. But for Treasury Wine, the fifth largest winery in the U.S., American sales slipped 1.9% by volume, while those of market leader E & J Gallo Winery rose 3.5%, Technomic estimated cited by Wall Street Journal.

Treasury Wines shares fell 12% Monday in Sydney followed by Treasury Wine Chief Executive David Dearie defending the vintners strategy of chasing sales in the U.S., where he predicted total wine sales could rise to 450 million cases a year within a decade. “Its a fantastic growth opportunity, at the right price points,” he told investors on a conference call.

Global wine consumption has surpassed production for more than half a decade, dropping global inventories by about 40% since 2006, according to Rabobank. Global production fell about 6% last year, led by declining output in Europe, while consumption was roughly flat.