Australian Vintage ends Millewa lease to cut red wine glut

Australian Vintage has cancelled its lease on Victoria’s Millewa Vineyard as part of a wider strategy to reduce red wine inventories and address ongoing oversupply issues. The move is expected to deliver financial flexibility and long-term cost benefits.

Australian Vintage has cancelled its lease on Victoria's Millewa Vineyard as part of a wider strategy to reduce red wine inventories and address ongoing oversupply issues. The move is expected to deliver financial flexibility and long-term cost benefits.

As part of its drive to reduce the volume of grapes coming into the business, Australian Vintage, producer of the McGuigan and Tempus Two labels, has cancelled a long-term lease for the Millewa Vineyard in Victoria. This is part of its strategy to cut inventories, especially of red wines, as the glut of Australian grape production continues.

In May, AVL said that it was planning a considerably lower wine intake from long-term grower contracts rolling off over the next three years.

Inventory outlook for FY2025

AVL said: “Our inventory position for the end of FY2025 is likely to be higher than the prior year’s balance. The higher inventory balance projection for FY2025 is a consequence of declining sales, too much wine intake and inventory build for Poco Vino and Lemsecco.

Poco Vino is an initiative which uses a “make where sold” sourcing framework. The “format-based wine innovation” is planned to deliver what AVL says will be “significant cost efficiencies whilst aligning with consumers’ willingness to pay a higher price.

In Europe, the wine sourced for Poco Vino will come from France and Italy, while in the US it will come from Napa, California. Lensecco is a lemon-flavour spritz.

Financial impact of lease termination

AVL said that terminating the Millewa lease would improve its financial outlook.

“As a result, our previous expectation of neutral normalised free cash flow for FY2025 is revised to be an outflow of approximately AU$13m for the full year. This projected result is an improvement of +AU$15 million on the prior year and +AU$20 million on FY23, on a like-for-like basis, showing the considerable progress the company is making.

“However, the result is disappointing, and we have doubled down our efforts on sales growth and inventory management for FY26.”

Greater flexibility in grape sourcing

AVL said that negotiating the early exit from the Milllewa lease will give it more flexibility in sourcing grapes and allow it to cut its supply of red varieties as supply continues to exceed demand.

AVL said: “Removing these varietals from the supply chain provides a relative net cash flow benefit of AU$8m over the remaining lease term, taking into account a $2m exit fee and ongoing payments equivalent to the lease fees as part of the exit contract.”

AVL added: “The lease term was due to expire after the 2028 vintage; however, [AVL] proactively pursued the opportunity to exit early to support its flexible grape sourcing strategy and inventory reduction.”

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