Crusty outfit determined to beat greed's grape glut

AUSTRALIA'S oldest privately owned company celebrates its 180th year, but it has never experienced anything like this crisis.

AS Australia's oldest privately owned company celebrates its 180th year in business, its managers know the current downturn is unlike anything they have experienced before.

But with two world wars, the Great Depression and the 1991 recession embedded in the history of the Lionel Samson Family Group, they are prepared to "roll their sleeves up and get dirty" to give the company a chance.

Established in 1829 by Lionel Samson as a general store and liquor business, the group has grown into one of Western Australia's largest independent wine and beer distributors.

Although fine wines have always been part of what the family-owned company does, diversification has been key to its success.

Based in Perth's nearby port of Fremantle, the company specialises in winemaking, vineyards, wine and beer distribution, packaging and bulk-bag logistics, and national road and rail transport.

Its brands include Plantagenet Wines, Storsack Paccom, Paccom International and the Sadleirs Transport Group.

Group managing director Richard Erskine, 64, came on board in 2004 with a brief from the Samson family to stabilise the company's financial position and expand the business.

Knowing volume was crucial in the liquor trade, Mr Erskine sought a like-minded business in the wine industry to join forces with.

He established a joint venture with rival Casama Group to offer a full range of fine wine and beer distribution in Western Australia.

And although he describes the union as being "instantly profitable", he said the Australian wine industry faced a unique set of challenges that were separate from the global downturn.

"The primary issue is the industry is grossly oversupplied," he said.

"There has been too much planting in the way of grapes and a lot of the planting has been the result of managed investment schemes."

Managed investment schemes typically offer tax-advantaged investments in agribusiness, such as forestry, mangoes, almond farms and grapes.

Before the recent collapse of the industry's two largest players, Timbercorp and Great Southern, managed investment scheme sales were booming, with 75,000 people investing in crops, such as grapes, largely for the upfront tax deduction they would receive.

Mr Erskine said this led to a 35 per cent to 40 per cent oversupply of grapes in Australia.

"It has certainly affected us," he said. "Our sales are just holding at the moment. They are certainly down from what they were four years ago."

The group's wine sales, coming entirely out of its Plantagenet winery in the Great Southern region of the state, have been falling for the past 18 months and are down about 20 per cent.

"When you have an oversupply market, there is not a lot we can do about it," Mr Erskine said.

"We just have to be patient until we can get supply and demand equal again, which we are forecasting to happen in the next two to three years."

In the meantime, the plan was to hunker down, trim operating costs as much as possible and get through the cycle.

It is a strategy that is not foreign to the Lionel Samson Family Group, as a business has survived some of history's worst moments.

"It is absolutely staggering that they managed to survive the First World War, when many of their staff went off to war and never came back," Mr Erskine said. 

"When you see that sort of survival rate going through the Boer War,  World War I,  World War II, and then the Great Depression of the 30s, you have to ask yourself, how do they do that? They always say ... it is honesty, integrity and hard work that makes them successful. I am staggered with the tenacity the family puts into the business and their commitment."

That high level of commitment is being tested again during the current downturn.

Sadleirs Transport managing director Ian Cook believes the downturn is far more severe than the 1991 recession.

And unlike some market commentators who have identified signs of a possible recovery, Mr Cook believes business conditions are getting worse.

"We are a fairly good lead indicator of what's happening in the marketplace because we are moving goods right across the board -- consumer goods, industrial goods -- and they very much reflect what's happening in the market," he said.

Fortunately, the Lionel Samson Family Group has always run a lean business, so there is no need for any redundancies at this stage.

Mr Erskine said the company operated on minimum debt, a strategy that had served it well during the credit crunch.

"They have always had a minimum position on debt because extended debt usually will get you into the ditch very quickly as you are seeing everyday in the newspapers today," he said.

"They have run the business conservatively, maximised on retained earnings so we have always got some money for a rainy day and the whole group today is financially very sound."

The group's total turnover last year was $147 million, with sales consistently increasing 10 per cent to 15 per cent a year over the past five years.

But although each of the company's businesses are dealing with their own set of challenges during the economic downturn, Mr Erskine is confident about the group's outlook.

"We are lambasted every day with negative financial information and we are just focusing on where the opportunities are because in every downturn there are always tremendous business opportunities that come out at a price that is much better than during a high point," he said.