Everybody here frothing at prospects of TWE's future unbridled...

Everybody here frothing at prospects of TWE's future unbridled growth are failing to take into account a few key fundamentals of the wine industry:

1. Wine is a primary product - thus output & quality can vary greatly year to year. It is not uncommon to have an event where by 50% of grape resources are wiped out or quality is dramatically reduced. An event of this nature can happen at anytime during a vines growth cycle (circa 8 - 9 months). They have happened in the past and they will happen again.

2. A luxury wine brand is built not just on the flashy marketing, spin & packing outside the bottle but also what is inside the bottle. A point will come whereby the corporate masters & finance boffins will make a call over the Penfolds winemakers and quality of what is in the bottle will be compromised. Depending on how long or how wide this goes on for will depend on how the standing of the brand will be affected. There is only finite sources of premium South Australian fruit for Penfolds to maintain current quality. Compromises to sustain volume growth will be made in the future. The bulk of TWE's sales, profit & growth in Asia come from Penfolds. The brand is an amazing beast that has delivered but will only continue to do so with a good balance of stewardship between winemaking & finance / brand marketing.

3. Wine trade / industry cycles are long - circa 10 - 15 years. Presently the global wine industry is in a purple patch with global consumer demand in line with or just exceeding production & plantings. Coupled with an aging population shifting from beer & spirits to wine as it is perceived as a healthier beverage alcohol choice. The current patch of good times has been running for 5 - 7 years. In another 7 - 10 years there will be another grape glut & prices will come under pressure. Even luxury brands such as Penfolds where most of their wines have long since decoupled from any meaningful quality/price ratio. Any industry will forget the dark days in times of fat margins & good demand. To think wine growth will not have issues up ahead is naive.

Long may TWE's growth continue - but there are risks to manage & uncontrollable weather events that will happen. I am a hold for the moment - but I will give TWE another 24 months tops before I cash out and watch the cycle unfold.