A POOR 2011 vintage, a rising dollar and stronger competition from rival countries: it all adds up to a recipe for crisis for Australia’s winemakers.
“This is absolutely the hardest time that you could ever imagine the industry could be in,” Alister Purbrick, chief executive of central Victoria’s Tahbilk Wines, told the Sydney Morning Herald recently. “There is nothing else that could go wrong in our industry that’s not already wrong at the moment.”
Purbrick’s pessimism seems to be well founded. New data from Wine Intelligence suggests that mainstream consumers in established markets are drifting away from Australian wines. Sales volumes are still high, and the clean, fruit-driven styles Australia is known for will probably never go out of fashion. There’s also evidence that Australia is making progress in the super-premium space, though from a very small base.
The latest Wine Intelligence consumer behaviour data on the US and UK reveals that the proportion of regular wine drinkers who say they’ve consumed Australian wines in the past six months has fallen significantly since 2008.
In the UK, traditionally Australia’s biggest export market, 59% of the monthly wine-drinking population say they have drunk Australian wine, down from 73% in 2008; in the US the decline is even more dramatic, from a high of 48% of the monthly wine-drinking population in 2009 to 28% in 2011. “The most serious problem for Australian producers in the UK is there is growing evidence that the everyday consumer is disconnecting from Australia,” says Wine Intelligence chief operating officer Richard Halstead. “In the UK alone there are 4 million people who used to buy Australian wine and now say they don’t. If you ask them, they may well say they still like Australian wine – it’s simply a case of not having a reason to buy it, or perhaps more accurately a better reason to buy wine from elsewhere. ”
Why should this be happening? Halstead argues that rising prices of Australian wine, thanks mainly to a strongly appreciating Aussie dollar, has hampered the country’s value for money proposition among mainstream consumers. At the same time, a surge in demand for lighter white wines has dented the traditional Aussie Chardonnay trade and benefited New Zealand, whose
consumer base has grown from 21% of the UK wine-drinking population in 2008 to 25% now. “And in reds, a number of other countries – Chile, Argentina, South Africa, and Spain – have successfully emulated the fruit-centric, low-tannin style that made Australia famous,” Halstead adds.
Worrying US picture
“Perhaps the more worrying picture is in the US. The data suggests that one in five American wine drinkers – around 15 million consumers – have stopped drinking Australian wine in the past two years. Again, I would caution against thinking these people have actively abandoned the Australian category – they may just be substituting their regular Aussie Shiraz purchase for an Argentinian Malbec.”
Nielsen statistics for the US off-trade market show that Australia is still the second most successful exporting nation, after Italy. But in the year to September 2011, sales value crashed by 9% and volumes by 4%.
Tim Boydell, director of sales and marketing at Angove Family Winemakers, says Australia’s main problems in the US are the strong Australian dollar, changing fashions, oversupply and the discounting this encourages, and “the Yellow Tail factor – it became so successful it was no longer cool”. "Our run as the flavour of the month as the New World wine of choice has been halted,” he says. “However, it had to, let’s face it. Wine is like fashion and food: trends change and consumers move with the trends. We have had to modify our offer and ensure that we take on board feedback, and review research from our expert partners, to ensure our offer is relevant to the marketplace and fashion of the time. We have done so and are growing in sales.”
Boydell believes that the problems in the UK market are slightly different. “The UK market has always been incredibly price sensitive,” he says. “If the deals do not work the buyers will find a supply country which will make them work.”
The challenge is made harder by the small number of buyers who control the bulk of sales, and the cosmopolitan nature of the market. “They have made sure that Australia is interchangeable with other New World wines,” Boydell says.
“Fashion has also moved on in the UK. Importantly this is driven more by our inability to hit price points. The consumer likes our wine at a price, according to the buyer. We have seen a decline in the UK market over the past five years to the point where we have little in the way of branded sales and the sales we do have are buyers’ own brands, exclusive brand or bulk. The volume is substantially reduced from where it was when it was a standout number one export market for us.”
Stephanie Duboudin, Wine Intelligence’s country manager for Australia and New Zealand, agrees that currency has been a major headache for exporters. “The high Australian dollar has crucified profits for producers in export markets, with many producers selling at a loss just to keep the channels of distribution open in the hope that the dollar will recede again,” she says. “It’s very common for producers to be pulling out of export markets at the moment.”
She also suggests that Australia has become a victim of its own laudable attempts at diversification and regionalism. “Australia has more than 60 wine regions across a range of areas and climatic conditions. This leads to a complicated message to communicate about brand Australia and what styles of wine we produce.
“We were originally known for good quality fighting varietal wines in these key export markets. That message has been broadened to include more premium wines, which has, in turn, made it more complicated for the average consumer in the UK or US to understand what we do best.” Not surprisingly, many Australian producers are turning their gaze to emerging markets closer to home. “Asia is certainly the focus region at the moment for Australian producers,” says Duboudin. “There is a very positive association between Australia and many Asian countries. We are near neighbours and it has been the one region with the shining light of growth in sales for Australian wine.
“It is very likely that, for many producers, Asia will become more important than some of the traditional export markets – but it’s unlikely to be the case for everyone. Asia is a complex operating environment and the pay-off is there for those that get it right with the right product offering, packaging and, the most important factor, good distribution. But it’s certainly not going to be the case for everybody.”
Lucy Anderson, director of Asia for Wine Australia, says Asia offers a mixture of opportunities. “Currently, mainland China offers the biggest growth potential for Australian wineries due to the population and growing number of wine drinkers in the market,” she says. "There are a number of other countries where we are seeing steady increases in Australian exports. However, all of these markets are off a relatively small base – such as Vietnam – or are relatively mature markets such as Hong Kong and Singapore and don’t necessarily have the same potential number of wine consumers.”
Already the Asian markets offer a better price per litre for Australian wines than the US or UK. But isn’t China a problematic market in that consumers only seem to be buying at the top and bottom ends of the price spectrum? “I do not think Chinese consumers ‘want’ wines at the top end or bottom end – rather, I think this reflects the current reality,” says Anderson. “In my opinion it is the middle ground that will end up being the winner – wines that offer quality, are trusted and known brands and appeal to local tastes. Australia is well positioned to deliver these wines.”
Understanding Chinese consumers is tricky, not just because the country is so vast and cultural differences exist between major cities, but because the market is evolving so quickly. For instance, Wine Intelligence focuses its consumer research on four cities – Beijing, Shanghai, Wuhan and Guangzhou – and on the upper-middle class wine drinkers who live there.
The big question is whether this expanding urban population, with its fixation with western drinking habits, will grow big enough to compensate for the downward trends in the US and UK. Says Boydell: “China is massive. They have an incredible thirst for knowledge and the fashion is very much in our favour – it is cool to drink wine. We are seeing potential across the board but the top and bottom get the most focus from the Chinese. China will be our number one export market in the next four years if it keeps the current rate of growth.”
Anderson at Asia Wine Australia hopes exporters will take an intelligent approach to China. “I think the metrics for measurement are changing and we should not just look at volume growth or market share,” she says.
“There is no point in Australia exporting larger volumes to Asia if the price points or volumes are not sustainable. If we look at current figures, China and Hong Kong make up 7% of export volume but 13% of total export value. This demonstrates a sustainable position. However, there is still a lot we do not know about China which makes it difficult to predict the future.
“I think, and hope, that Asia – China in particular – can provide Australian wineries with an opportunity to get things right. By this I mean ensuring price points and volumes are sustainable, building loyalty to brands/region/country, not to price-points, and planning for the long term instead of being satisfied with short-term results.”