Last December, Woolworths, the Australian retail giant, announced that it is planning to sell Summergate Fine Wines & Spirits, the group’s alchoholic drinks distributor in China, to an Asia-based private equity firm Gravity Capital, eight years after the group purchased Summergate for reportedly 25 million.
Three months later when the sale was supposed to be finalized, the deal was called off, according to a leaked internal email that the management sent out to its customers. Adding to the shock, shortly after the group pulled the plug on the sale, Woolworths is mulling “an orderly closure” of Summergate’s business operations in Hong Kong, Macau and mainland China.
But in the latest email sent out by Woolworths management seen by Vino Joy News, it says again the deal is back on but the completion of the deal has been defered till the end of April.
The flurry of management announcements sent shock waves to the wine industry, stunned by the fate of Summergate, considered one of China’s top 10 wine importers. The shock also rippled through panicked employees fearful of job loss and represented wine producers who are rushing to find replacements.
Tale of Summergate
The on-and-off sale surrounding the fate of Summergate, one of China’s top 10 wine importers and one-time official distributor of DBR Lafite brands and Penfolds for the mainland, shows the depth of China’s cut-throat market competition and how even big conglomerate-backed wine companies are unprepared for market slump and the onslaught of pandemic.
Founded in 1999 by Ian Ford and Brendan O’Toole, riding on China’s newfound love for red wine at the turn of millenium, it quickly rose to become one of China’s leading wine and spirits importers, among the country’s top 10 in fact. It played an essential role in introducing many of popular imported wines to China early on including DBR Lafite’s brands (Before 2011, DBR Lafite was exclusively imported to China by Summergate) and later the widely popular Penfolds.
In 2014, as China’s anti-corruption clampdown deepens and dismays the country’s luxury spending, it was sold to Woolworths for reportedly US$25 million. The subsequent Free Trade Agreement between China and Australia played into its affinity to Australia, as the group expands its Australian wine portfolio.
But China’s competitive wine market meant that growth for Summergate had slowed. The company streamlined its distribution channels and laid off staff in Greater China region. It had a few leadership shakeups including three CEO changes in just 5 years after it was purchased by Woolworths in 2014.
China-Australia’s worsening relations also adversly impacted the wine merchant. In March 2021, China officially slapped up to 218% punitive tariffs on Australian wine for a period of five years, leading some to speculate negative impacts on Woolworths liquor sector’s path to Chinese market.
Like many wine importers, Summergate, which prides in its traditional strength in on-trade however took a hard hit during hte pandemic. The group in its 2022 Q3 report noted that its Australian B2B food business all reported sales growth except Summergate, which was impacted by “challenging traditng conditions in China as a result of Covid lockdowns”.
China’s strict Covid restrictions and repeated lockdowns forced many restaurants, bars and hotels to close and cut operation hours. Business meals and banquets that used to be the main source of on-trade wine sales virtually stopped during the pandemic. These have dealt a heavy blow to the wine industry, forcing many wine importers to close including Lenovo-owned wine and spirits importing company Joyvio as we have reported.
Net Loss of $30 Million
By the time Woolworths made the decision to sell Summergate last December, less than 10 years after purchasing the business, it is a lost cause already.
Writing in the group’s 2023 H1 report, Woolworths says the sale resulted in “a net loss of $30 million” for the group for the 2023 financial year “as a significant item during the period to write down the net assets of the business in anticipation of the sale”.
Nonetheless, in the latest internal email sent out by Chris Cramond, Director of Summergate Group and Woolworths Group Business Development, he is sanguine about Summergate’s future. “Under Gravity Capital’s ownership, Woolworths Group considers that Summergate will be well positioned for long term success with a team who have significant experience in the wine and beverage sector,” says Cramond.
