From the WSJ:
Australia’s commodities boom created the $200,000 high-school dropout, theworld’s richest woman, and the least affordable housing market on earth. And it could soon put a dent in the makers of Yellow Tail, the best selling Australian wine in America. From the WSJ’s Caroline Henshaw:
Australia’s largest family-owned winery relies on the U.S. for three-quarters of its sales, but the Australian dollar’s rise against the U.S. dollar has made its products less competitive against wines from rival regions such as California’s Napa Valley and South America.
Casella Wines is looking to shave costs and secure a deal with lender National Australia Bank ahead of an extended Jan. 30 deadline. A failure to secure a new loan could force the company to sell off vineyards or other assets, Chief Executive John Casella told The Wall Street Journal.
Casella recorded a loss of 30 million Australian dollars (US$31.6 million) in the last financial year, down from a A$43.5m profit the year prior.
The Australian dollar has strengthened by about 50% against the U.S. dollar since the beginning of 2009, and that’s a big problem for Casella, which can credit the massive success of its Yellow Tail brand in the U.S. to its sub-$7 price point. There isn’t a lot of room to raise prices on a product best known for its price, and the company says Yellow Tail is still selling like hot cakes — it just isn’t profitable any more. The plan is to wait it out and hope the Aussie dollar returns back to earth.
“Provided we have the support of our financiers, we can make little or no money for a year or two,” Casella’s CEO Joan Casella told the Australian Financial Review. “I’m hopeful the dollar is overvalued and we can return to some normality.”
I also head a story yesterday about the publisher, Lonely Planet, another former tearaway export success. You may know it was bought by the BBC a while back. What you may not know is that since then its operations have been stripped back and sent somewhere cheaper. The Lonely Planet office in Melbourne occupies the old Bradmill office on the Marybyrnong. An elegant illustration of the transformation from protected textiles to an intellectual property driven services industry that is now being crushed by the high dollar.
The longer you leave the former battler where it is, the worse this gets. At some point, perhaps already in the rear vision mirror, there’s nothing left to rebound when the currency finally falls.