The Wine Society should be celebrating right now after Australia’s oldest wine club notched up 70 years since its founding in 1946. But instead, the organisation is fighting for its continued existence after posting increasingly large losses, squeezed by the supermarket liquor retailers.
In order to survive, the Sydney-based national club is hoping its members will back a major restructure that allow external investors to prop up the balance sheet and allow the business to borrow to repay debts, including $4.2 million owed to suppliers on April 30 this year.
In the last two financial years, The Wine Society (TWS) posted $1.13 million in losses and in the first 10 months of FY16, was another $1 million in the red.
Over the same period, more than a quarter of the membership disappeared, falling from 35,798 in 2013 to 25,337.
Outlining about the restructure on the club’s website, The Wine Society says the “like every other small to medium sized wine retailer in Australia” it has “suffered from massively increased competition, led in large part by the supermarket retailers and specialist online operators”.
In response to this, the Board and management have been quite candid with members about the financial pressures under which the business has been operating. As a member, you may have noticed a decline in our product range in recent times. These member-affecting issues are a direct result of credit constraints and restricted cash flow. The financial alternatives faced by the Board to continue the Co-operative on a standalone basis in future are not attractive given the significant structural changes to our industry segment.
The cooperative is planning to split the business in two, with a majority of the wholesale company being sold for $75,000 to the Fogarty Wine Group subsidiary Australian Wine Finance (AWF). Peter Fogarty’s family-owned business has brands such as Lake’s Folly in the NSW Hunter Valley and Millbrook in the Perth Hills. Hunter Valley wine business McWilliams also has a stake in AWF.
The deal will see AWF help The Wine Society obtain a $3 million loan facility to manage existing debts. A range of assets will also be sold off, raising around $670,000 to service debt and a range of functions will be outsourced.
The Wine Society will continue to operate as a not-for-profit co-operative, with the wholesale entity operating separately.
“Under this model, The Wine Society Co-operative would retain an equity interest in the new operating and financing vehicle, TWS Wholesale,” the co-op says to its members.
“The aim is to create a sustainable model focused on growth – delivering the best possible offerings for members, at very competitive pricing. The elimination of debt will restore trading terms with our suppliers as well as the necessary funds to improve our wine portfolio.”
Wine Society CEO Peter Wheatley will visit the nation’s capitals for information sessions for members this week, starting in Melbourne tonight, Brisbane on Tuesday and Sydney on Wednesday.
Wheatley says the board has considered a range of options in recent years, and this is the best solution available. If members don’t approve the changes, then it’s likely the board will move to wine up the co-operative.
“The proposed changes to our structure will see your wine club well placed to celebrate its centenary,” the co-op told its members.
The ballot runs until July 28.
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