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Beverages
Global Wine Industry Excess
May Be Behind Us
Investment conclusion: We have been structural
bears on the wine sector since our last in-depth study of
the global industry in 2001. We continue to have
significant concerns about the industry’s capacity to
earn returns above its cost of capital through the cycle.
We do believe, however, that there is a cycle, and our
analysis suggests that the worst of excess global supply
may be behind us. While in the short term slackening
consumer demand will sustain industry pressures, as
key economies recover, we think global industry
fundamentals will look okay for the first time in years
(and years). This may provide a backdrop for industry
profitability to improve significantly.
What's new: This note uses multiple data sources to
build a global picture of wine supply and demand.
Where we differ: We think the consensus is that global
oversupply of wine will continue for the foreseeable
future. Our view is that when key consumer economies
begin to recover (US, UK, France, Spain, Italy), we may
well have a situation of excess demand for wine, as (i)
old world production has fallen; (ii) old world
consumption declines have slowed; (iii) while new world
production growth has slowed; and (iv) new world
consumption growth will recover when consumer
demand recovers.
What’s next: Improving industry fundamentals into
F2010 may create the backdrop for FGL to demerge, in
our view, perhaps as early as F2010. While the
company has been vague about its intentions, we
perceive it to be moving (slowly) down a path to
demerger, as we have discussed in our recent reports
on the company.
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