Accolade Wines is offering to buy out red winegrape contracts, allowing growers to exit

Accolade Wines is offering to buy out red wine grape growers in the Riverland and restructure a major contract, warning it is the only path to viability.

Accolade Wines CEO Robert Foye.

Accolade Wines is offering to buy out red winegrape growers in the Riverland and restructure a major contract, warning it is the only path to viability for both the company and the growers.

The company, which owns brands including Hardys, Banrock Station, St Hallett, Grant Burge and Petaluma, wants to restructure its largest grape supply contract, between it and the CCW Cooperative which represents almost 600 growers in the Riverland.

The sensitivity of the negotiations is such that a presentation on the issue by the CCW and Accolade given in February began with a warning that “bad behaviour will not be tolerated”.

Under the current terms of the contract, the CCW must “sell to Accolade all grapes supplied to CCW by its members under existing contracts’’, and Accolade has to buy all of those grapes.

Accolade, in a meeting being held on Monday, will pitch a proposal to growers which includes buying out their contracts for $4000 per hectare, with only red varietals able to take up the offer.

Accolade is also offering to buy out a separate bulk wine contract the CCW has in place for export to the China market, with that element of the deal worth $11 per tonne.

Should winegrape growers take the buyout offer, it is understood they will be free to sell their grapes to any other buyer, or exit the industry entirely.

The restructure will also reduce the contracted volumes under the CCW contract to 150,000 tonnes, with the contract currently uncapped, and obligating the company to take everything which contracted growers produce.

Pricing under the new deal would be set by the weighted district average, rather than a complicated calculation under the current contract, which includes consideration being given to previous vintages and volumes supplied.

The new contract would be for 10 years, with five year renewal periods subsequent to that.

Participation in the buyout would be voluntary, and it is understood it has been proposed to growers as “The only option that allows CCW’s growers and Accolade to remain viable”.

“Those who wish to exit the industry can do so, while those who want to continue

can do so with greater certainty,” documents sighted by The Australian say.

Reasons cited for the need to restructure the contract include the extended lockout from the Chinese wine market, broad cost pressures, declining wine consumption globally and a move towards “premiumisation” in the wine sector.

The Riverland mainly produces large quantities of unbranded, commodity wine, which there has been a large oversupply of in Australia for many years.

Accolade also has relatively new private equity owners, with a Bain Capital-led consortium in February agreeing to buy Accolade from US-based Carlyle Group, which had owned it for six years.

The Carlyle Group, which bought the business in 2018 for about $1bn, is now out of its investment and Australian Wine Holdco is the new owner.

AWL comprises Bain, Intermediate Capital Group, Capital Four, Sona Asset Management and Terry Asset Management.

Accolade has also been talking with small listed producer Australian Vintage about possibly folding itself into the listed entity.

While the crushing Chinese tariffs on Australian wine were removed in March, their removal is not seen as a silver bullet by the industry, with wine consumption having fallen in China in recent years and a need to rebuild relationships after years on the sidelines.

A working group composed of representatives from Accolade and the CCW Coop have been meeting since December last year to thrash out the details of the new proposal, which is being discussed with growers at two meetings on Monday and one on Tuesday.

Accolade chief supply chain officer Joe Russo said on Monday that “as an industry, for us to continue as if no response is required simply isn’t sustainable. We have a shared responsibility to face into this challenge”.

“We’re wanting to take a constructive approach to the biggest industry challenge in many years.

“We’re working closely with CCW and have listened and adapted in developing this package.”

Originally published as Accolade Wines is offering to buy out red winegrape contracts, allowing growers to exit