RICH PICKINGS: A tipple too far

When Andrew Dal Broi signed the contract to buy a winery back in 2007, he received a call from a mate in the industry, welcoming him to the joys of winery ownership.

"Congratulations guys, you just lost a small fortune,” the caller said.

Dal Broi, who is now the founder of Winegrowers Direct, a wine sales business that deals directly with winery owners, says his friend's words would turn out to be true.

"You are forever looking for money to put back into the place and there is a real lag with your return on investment,” he says, pointing out that the vines planted this year may not produce a return for months or even years.

On top of that, Australia's wine sector has for years been battling a global grape glut that has had a savage impact on prices. It's not a sector for the fainthearted or, frankly, the canny investor.

Dal Broi's experience would be familiar to many wealthy entrepreneurs for whom winery ownership has become a favourite pastime in the last 20 years. In some cases they were enticed by tax breaks, but in most they were wine connoisseurs looking to take their hobby to the next level.

The rich list is littered with entrepreneurs who have branched out into wine.

Transpacific Industries founder Terry Peabody has the Craggy Range winery in New Zealand. Queensland's Terry Morris has the Sirromet winery in Queensland. The Besen family own TarraWarra in Victoria's Yarra Valley.

Bill and Imelda Roche have Roche Wines in the Hunter Valley, while the king of brand extensions, golfer Greg Norman, sells wine under the Greg Norman Estates label.

One former rich list member who turned his wine hobby into a major business is Doug Rathbone, who owns a portfolio of wineries including the renowned Yering Station in the Yarra Valley, Mount Langi Ghiran in the Grampians, the Parker Coonawarra Estates in South Australia, and Xanadu Wines in Western Australia's Margaret River.

Over the course of 15 years, Rathbone built his wine group into a $100 million business that even had its own $30 million bottling plant in Port Melbourne.

But this week it emerged that Rathbone's wine business is up for sale, with investment bank Credit Suisse circulating an information memorandum with prospective buyers.

Rathbone, who is the chief executive of chemicals company Nufarm, has been trying to offload some his wine assets for some months – the bottling plant went on the market in October of last year.

According to a report in The Australian Financial Review, the sale coincides with a sharp deterioration in Rathbone Wine Group's financial performance, with the company stumbling from a $50.7 million profit in 2010 to a $2 million loss in 2011. Revenue last year hit $39 million.

The company has $110 million in net assets, but exactly how much Rathbone can expect for the business is not clear for a couple of reasons. Loss-making businesses are never easy to value, but in the wine industry right now conditions are so difficult that offloading assets has become a long and challenging task for vendors.

Andrew Dal Broi says the weaknesses in the wine sector have been highlighted to him again in the last five weeks, when four liquidators have knocked on his door trying to get his help in offloading excess stock.

Mainly these are boutique operators who have small wineries producing high quality wines – the segment of the market where most rich list wine makers have aimed.

While focusing on the premium end of the market (as opposed to the mass market) is a smart move in many segments, the grape glut means the supply of quality is so great that prices have tumbled.

"We get approached a lot by the boutique wineries. The wines are fantastic but the market is just not there at the level they want,” Dal Broi says.

"We tell them we can get them $8-10 a bottle, but getting $18-20 a bottle is very hard. The market for those high end wines is very, very, very limited. It's probably 1 per cent of the entire Australian market.

"The amount of investment that these guys put in is enormous and the returns they are getting just don't make sense.”

It's little wonder there have been a series of winery collapses in the last 12 months, including Pettavel in Victoria and Step Rd Wines in Adelaide. Numerous vineyards have also been put up for sale.

It's also worth noting that two fallen rich list members, Craig Gore and Luke Saraceni had wineries in their portfolios – when your main business is struggling, the pressure of running a winery does not seem to help.

Doug Rathbone slipped off the BRW Rich 200 last year, a victim of the higher cut-off and a steady decline the value of Nufarm shares. He's also sold several share parcels in recent years, apparently to cover personal liabilities.

Selling his wine group may ease any pressures Rathbone is under, but the job of offloading the business does not look like it will be easy.

For now, wine is looking a lot like horse racing for many of our wealthy entrepreneurs – more an expensive hobby than a genuine money-making opportunity.