“The industry is in crisis; anything less than that is avoiding reality,” reportedly says Jeremy Oliver, an Australian winemaker and critic. “It is interesting that nobody really saw this coming.”
From 1999 to 2007, exports had grown three times. But even as volumes grew, there was a pressure on profitability because of appreciating Aussie dollar and the reduction in prices to an almost unsustainable level. The industry is also facing increased competition from lower-cost rivals and changing consumer tastes.
So what went wrong, and what should they do to come back up? Some vintners feel that the Australian wine needs an image makeover while others are changing gears to capture the relatively undeveloped Asian market, including India which is high on their wish list.
Encouraged by tax incentives, investors planted vines and opened wineries at super-sonic speed in the 80s and 90s, taking the British market by storm, surpassing Italy and France as the country’s top seller in 2004.
But the problem was that 85% of sales in Britain was to a few big supermarket chains, which could influence pushing the prices down. Though the volume doubled in the past decade, the price per liter fell from A$ 4.36 to A$ 2.95. The drop of over 32% made it unsustainable for many. The increased competition from other New World producers in Chile, Argentina and South Africa was also detrimental to the prices.
Says Oliver, “It’s not sustainable for Australia to try to produce the world’s cheapest wine; we’re totally unsuited to it.”
Producers in several major wine regions have seen irrigation costs soar in recent years because of a prolonged drought. The higher labor costs and its distance from major markets have also made it harder for the country to compete globally, says the report.
In the USA, Australian imports have fallen 4%vby volume and 25% by value from their peak in 2007. From the late 90s, top-end Australian wines were highly acclaimed by the powerful Robert Parker who was really impressed with the South Australian Shiraz and gave them high ratings making their sales soar.
But that act made the producers complacent about marketing. At the upper end of the market, Australia became identified by “one grape (Shiraz) and one region,” a strategy doomed to fail when that variety inevitably fell from fashion.
At the bottom end of the market, some have blamed the runaway success of Yellow Tail and similar wines that gave consumers the impression that Australian wine was a mass-market commodity. Many producers admit that the emphasis on low-cost, high-volume exports has damaged the rest of the sector.
These troubles have been compounded by a recent rise in the Australian dollar, which went from about 50 cents to the U.S. dollar in 2002 to near parity last year, erasing profit margins.
The Winemakers’ Federation of Australia recently predicted that the industry would have to reduce the amount of wine it produced by as much as 20 % to stay profitable. This would result in many wineries closing down or being forced to consolidate.
Lawrie Stanford, the manager of information and analysis with Wine Australia, the government body that helps direct Australia’s overseas wine marketing reportedly says, “We’ve done the volume growth, and we overdid it a bit. The industry is recognizing that. What we’re doing now is pulling back a bit.”
Wine Australia plans to take the marketing focus away from “brand champions”- recognizable labels that sell at rock-bottom prices. It will focus instead on smaller producers that highlight the differences among regions and varieties. They hope to see fewer Australian bottles on sale, with more labels pitched at the medium priced segment.
China seems to be their benefactor –with growth in exports being from 0.5 million liters in 2000 to 19 million liters this year. The average price pl. last year was also higher at A$ 4.23 compared with A$ 2.91 dollars in Britain and $3.22 dollars in the USA. In Japan and Singapore, the average price per liter was even higher, over $5.
Many winemakers are keeping these figures in mind as they move to reposition the industry |