Avenue Vine

To make matters worse for an industry battling a strong dollar and retailers keen to capitalise on the oversupply, the country's second largest listed winemaker believes the grape harvest this year could surpass the record tonnage in 2005.

Yesterday, McGuigan Simeon illustrated the dire state of the industry when it posted a 61 per cent slump in half-year net profit to $6.19 million, which the company blamed on the grape glut and increased market competition. Revenue fell 6 per cent to $161.7 million.

Managing director Brian McGuigan said his company had passed the worst of the downturn but believed the "difficult operating conditions" would continue for the next 18 months to two years.

"They are the most difficult conditions I have seen during my 46 years in the business. I am confident we are past midnight. Yes, we are still in the dark but I can see … that the rays of dawn are on the horizon," he said.

Winemakers are responding by reducing their take of grapes from growers, which Mr McGuigan estimated would see contracted growers unable to get rid of more than 100,000 tonnes from this year's harvest.

McGuigan Simeon itself faces threats of court action after it suspended receipt of 50,000 tonnes from almost 200 growers contracted to the winemaker.

But chairman David Clarke said the basis for the contractual changes was "sound" and McGuigan Simeon hoped to resolve the issue this week. In total, the company is likely to crush as much as 240,000 tonnes of grapes this year.

Mr McGuigan, who will be replaced in the top job by former fast-food executive Dane Hudson next month, said retailers were negotiating tough deals because of the well-publicised grape glut but he urged the industry not to succumb to product discounting because of the damage it could do to brands.

"You can sell more wine by reducing prices but at the end of the day you don't have any image in the brands," he said.

Shares in the Hunter Valley company have more than halved in the past year. Yesterday they fell 3c to $3.01.

The directors cut the interim dividend by 5.25c to 5c. It is payable on March 27.

Source: “Wine glut to hang about, McGuigan says,” Matt O'Sullivan, February 23, 2006