Wine businesses are looking attractive propositions for the big boys of the drinks industry. Tim Palmer finds out why The big sharks in the global drinks industry have just noticed that the wine minnows swimming happily beneath them have become large enough to eat. And the feeding frenzy has begun with Lion Nathan swallowing up Montana in New Zealand and Diageo circling around Kendall Jackson in the US. Allied Domecq is hungry for another meal after consuming the champagne houses Perrier-Jouët and Mumm before Christmas and missing out on Montana ­ although the legal battle continues over this. It is also thought to be stalking KJ. Elsewhere, the giant Australian brewing group Foster's has increased its wine portfolio with the addition of US premium producer Beringer. Diageo will add the Sterling Vineyard operation to what chief executive Paul Walsh calls a "value creating wine business". Sterling is part of the package of Seagram brands it will acquire if the Diageo/Pernod Ricard takeover of the company gets regulatory approval. Walsh says: "Wine is a small percentage of our sales, the growth rates are very exciting and Sterling will give us a sound platform. But wine is capital intensive and we must be confident we can maximise capital investment and drive an appropriate return for our shareholders." This may be a broad hint that Diageo will walk away from the potential Kendall Jackson deal. But whatever Diageo decides, it is obvious from all the recent activity that for many firms, wine has become a very good business to be in. The fresh approach taken by the New World players combined with access to the mass market provided by the grocery chains throughout the developed world has led to consistent growth. In the second half of the last decade world consumption grew by 8%, according to research carried out for Vinexpo by Vertume International. It forecasts that by 2005, 198m hectolitres of wine will be consumed annually, a rise of 5.1% on 1999 figures. The top wine consuming countries are Italy, France, Argentina, Spain and Hungary, but in the next five years wine consumption per capita is set to increase 14.5% in the UK and 18.1% in the US. The fastest growth in wine consumption is expected to come from Asia, particularly China and Japan. This all adds up to a growth market where the increasing focus on brands and premium styles is improving profitability. The big companies with their financial and distribution power can see a relatively easy path to boosting the potential of wine brands. The Southcorp/Rosemount marriage should create an operation which has the critical mass to compete in this consolidating market. It will also make it big enough to be difficult to swallow. The business has been valued at A$5bn (£1.8bn). Chris Carson, the chief executive of BRL Hardy Europe, says: "The big boys have had a scrap and swallowed up Seagram and now they are looking around for other opportunities ­ and these are in wine. "With the advent of brands there is more profit being made and there are several companies in the world making attractive returns on investments at the sort of level that is interesting to the spirits companies. They are looking for a 15% return and there are several wine companies at that level. We are now one of the key players, but we are creating a wash which means the big boys can now see us." Carson predicts: "I think what will emerge is half a dozen very strong global wine businesses. Whether they will tuck in with Diageo, Lion Nathan, Allied Domecq and Fortune Brands, or be stand alone operators such as Gallo and Constellation [formerly Canandaigua] remains to be seen." Some companies will remain staunchly independent. Mondavi, the premium producer from California is likely to be one of these. Its vice president of marketing and sales Russ Weis says: "The crucial issue is family involvement. If the passion is there then size is unimportant. Some of the family companies are asset rich and cash poor but this is not necessarily a factor if the family is dedicated to the business. But I believe in the power of the individual brands. If you have a great name consumers respond to it." Mondavi has shown the way forward for some of the smaller players by developing strategic alliances across the world with other family companies including Frescobaldi (Italy), Mouton Rothschild (France) Eduardo Chadwick (Chile). This helps it gain the critical mass necessary, while retaining its independence. Of course it does not offer total protection, one of those alliances is with Rosemount. {{FEATURES }}

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