Written by Jeremy Oliver as his response to the draft One Grape & Wine Sector Plan of January 2024
Introductory note
Australian Grape & Wine and Wine Australia recently released a draft One Grape & Wine Sector Plan, a document intended to create a plan of action until 2030 that will assist the wine industry in climbing out of the hole in which it currently finds itself. You can download the document here.
I am submitting this detailed series of comments because a couple of days prior to the release of this draft I posted an article called Can Thor save Australian wine? which attracted significant attention and feedback. It was written to try to bring some reality and focus to the issues presently facing Australian wine.
Given that it’s perhaps easier to be critical than constructive, I decided to write my own response to the One Grape & Wine Sector Plan, which I would submit via the official link and publish on LinkedIn and Oliver’s Wines, my new platform. Its contents follow.
Wine Australia is a Federal Government body responsible for research and innovation, marketing and regulation. It is funded by a combination of levies on the industry, some funding by Government, cost recovery and user-pays activities. Its funding sources are summarised here.
Australian Grape & Wine is the industry’s representative body to Government and is funded through voluntary levies by its members.
Australian wine – a reality check
Australian wine is beset by structural problems that are either impossible to resolve or are else collectively shoved under the carpet by those who jobs are to attempt to solve them. Australia is well beyond the point where the issues can be resolved by a change of messaging or a focus on feel-good internal issues. Nothing is about to alter without major structural change.
With declining volumes and values of its exports and a domestic market that is drinking less wine and less alcohol at large, Australian wine is in a world of pain, the like of which I have not seen in the 40 years I have been writing about wine in this country.
Today Australia can’t sell 40-50% of its wine at full price and the actual proportion may be even higher. Most of the wine made in Australia is produced with no market in mind and no idea of who might buy it or drink it. Our makers are largely unaware of what their potential customers are currently drinking, why they are drinking it and what price they are paying for it. Australian producers are making the wines they want to make and are then hoping customers will come. However, the same Australian producers are all too frequently making wines that people don’t actually want to drink.
As an aside, while we have a massive over-supply of wine, we have an under-supply of properly good wine, a reality of which most wine brand owners are entirely oblivious.
Australian wine is expensive. Despite all the costs and margins associated with bringing them into Australia, imported wines out-compete too many categories of Australian wine. Yet in their own countries, these wines typically sell for half the real price they do here. Furthermore, imported wines attract the 29% WET wholesale tax which is rebated to most Australian makers. Go figure.
These are not image problems. They will not be solved by employing marketing consultants or focus groups. Often, it’s the organisations chartered with the task to fix the key problems that become the problem themselves. In some such cases, people might actually need to vote themselves out of the jobs whose comfortable seats they now occupy.
Australian wine – a snapshot
Supply and demand
Australia’s current wine oversupply is something of the order of 860 Olympic swimming pools. For the last three years I have said that if half of the grapes planted in Australia for winemaking were grubbed out, nobody would notice. But of course it would have to be the correct 50%…
Estimates vary but when all uses are taken into account, it takes around 110 litres of water to create 125 ml (a decent glass) of wine. Australia is the world’s driest continent. Perhaps there are more sensible uses of our scarce water reserves than to create wine that currently sells for around 20 cents per litre in bulk? Is it rational that so much of our wine is actually much cheaper to buy than bottled water? Does this damage wine brand Australia or does it enhance it?
Is the production of cheap irrigated wine a long-term sustainable business from economic and environmental perspectives? We’re now either at or approaching the tipping point when water allocations attached to agricultural land are worth more than the wine the same land produces. This will place serious pressure on huge areas of unprofitable vineyards whose wine is worth less than the water required to make it.
More than 60% of Australia’s current wine exports are bulk wines. Most of these wines are made at a loss to their growers and makers. Why is it so important for Australia to try to make the world’s cheapest wine when it is patently not suited to that purpose? Our labour amongst the most expensive, our distance from markets is often extreme, our soils are poor and require expensive sustenance.
If Australian makers steadfastly wish to manufacture the world’s cheapest wine, it could easily be done using juice imported from elsewhere.
It’s not just here; the whole world is in oversupply of wine. We have just it much, much worse. Consumption patterns everywhere are declining. Vineyards are being pulled out in France. Why is the Australian industry still so fixated on the notion of being large, rather than profitable? Is there a case to uproot and repurpose huge areas of Australia’s vineyard?
Released in 1996, Strategy 2025 was a blueprint developed by Australian wine to map a course to become the world’s fourth largest and most profitable wine exporter by 2025. Accelerated by taxation incentives which directly encouraged the massive development of Managed Investment Schemes, it took just a few years for the planting requirements for this target to be achieved in full. Welcome to our over-supply.
Vineyards were planted in inferior sites and entire regions that should never have been planted in the first place were established in record time. All without a single thought as to who the consumers for these wines might be, what wines they preferred and what they wanted to pay. There was no plan to figure the best way to get these wines to customers around the world, so as these vineyards came into production Australian producers walked straight into the trap set by global retailers – notably English supermarkets and later major Australian retail chains – both of which remain a bleeding wound to industry profitability today.
Taxation and wine
Australian wine producers pay a 10% GST on the wholesale price, then a 29% Wine Equalisation Tax (WET) on top of that. Producers are able to claim back up to $350,000 per year on the WET, meaning that their first $1.2 million dollars of sales are WET-free. This tax rebate has become the business model for the overwhelming majority of Australian wine producers. In what other country does this occur?
And is it equitable that a small number of wine producers actually pays all the WET eventually collected?
However, in reality, those larger businesses that do pay WET are being hit by our government for a 29% margin on top of GST, itself broadly equivalent to another trade margin. So, the government is effectively being paid as if it is a layer in the distribution system but without doing a thing for it. Imagine the difference in profitability of Australian wine producers which focus on the domestic market (WET and GST are not paid on exports) if this layer was reduced or even removed? Could the WET be a major reason why Australian wine is so expensive in this market?
Could there be an argument that all wine producers pay the same whether ad valorum, volumetric or a combination of the two?
Australian retailers have taken regular advantage of the WET to partner with producers to create own-label wines which they then sell for artificially low prices because of the WET rebate they attract, and which they then share (to some extent) with the producer. This was never the intent behind the WET rebate.
New Zealand’s sauvignon blanc has for at least the last 25 years dominated sales of white wine in Australia’s domestic market, yet New Zealand producers can avoid WET. New Zealand producers are today subsidised by Australian taxpayers. Might it perhaps be time to reconsider this entire scenario?
Next comes the issue of the very nature of the application of the WET (and GST), which by its nature is ad valorum. In other words, if you wish to make better wine and sell it for a higher price, you will attract and have to collect and pay more tax. What is the message here? Is the tax system actively penalising those seeking to make better wine?
I’m clearly no tax expert, but decades ago I learned that the base logic of taxing alcoholic beverages is to recover those costs associated with medical expenditure related to over-consumption of that category. Is it even vaguely plausible that the more expensive wines which attract more tax are linked more closely with alcoholic abuse and consequent medical expenditure than cheaper and larger format wines such as those sold in casks? Are those who pay the bulk of this tax the same people that are likely to require medical support as a consequence?
Perhaps the industry needs to reconsider a volumetric element to the way its products are taxed that relates the volume of alcohol being purchased to the tax it attracts. This argument has traditionally got nowhere because the companies still determined to sell wine in larger formats (ie wine casks) have been powerful enough to scupper any meaningful discussion of this topic.
Again, why are sections of the Australian wine industry able to hold the rest of it hostage in this regard? How can Australia – for reasons already mentioned – justify attempting to make the world’s cheapest wine and the cheapest form of alcohol available to Australian consumers? Can this be justified in a wider context? Is that where the Australian wine industry sees itself? Is this status quo good for Australian wine?
Retail duopoly
It’s time for the wine industry to explore avenues to curtail the power of Australia’s entrenched retail duopoly of Endeavour Drinks and Coles, no matter how complex this process might be. The corporate regulators have failed spectacularly in facilitating this situation and by enabling a single company (Endeavour Drinks) to have a degree of vertical integration and power not seen anywhere else on the planet.
Australia’s retail duopoly could shortly move into a producer monopoly should Endeavour Drinks continue its current growth trajectory and become a production behemoth. It’s legally able to convert Queensland pokie cash into quality wine brands. Can anyone else do that?
The duopoly is surely and steadily killing off independently owned brands, firstly by eliminating routes to market and then by creating financial dependency and commercial slavery.
The objective of the retail duopoly is to stock an overwhelming proportion of wines they either produce themselves or otherwise control. Other than the shareholders of these companies, does anyone else benefit? Does a parallel situation exist in any other country?
How good is Australian wine, really?
The biggest elephant in the room
Does Australia make too much wine, or does it just not make enough of the right wine? Australia produces too much technically sound but dull and uninteresting wine that nobody wants to drink. Wines are sleepily made with attitudes and techniques that eliminate any possible expression of character or regionality (let alone terroir). Too many Australian wines taste the same.
It might well be too late to save them, but producers currently taking this approach need to better align their wines with consumer expectations of style, taste and price. It is no longer enough to declare that “this is what we do here” and expect buyers to respond favourably.
An absence where it counts
One place you are unlikely to see anything more than a cursory representation of Australian wine is on the wine list of a classic restaurant overseas. This should be a matter of the highest concern since restaurants are showcases for quality brands and listings are sought-after endorsements.
Why might this be so? Are Australian wines not considered good enough? Maybe they don’t fit in with in international expectations of style or quality. Why do so many highly respected international opinion leaders of wine quality express the view that Australian wine styles have largely disappeared up a cul-de-sac of our country’s own creation, to put it as politely as I possibly can? Here are some possible explanations of how this might have occurred.
There has been a total failure by Australian opinion leaders to constructively shape the styles of Australian wines. Indeed, consumers are constantly being recommended ‘new Australian styles’ to buy – as if indeed there is anything genuinely ‘new’ about them. The underlying inference is of course that these ‘new’ styles are superior to international wines being made from the same varieties, which in all but the rarest of cases is pure nonsense.
Most ‘independent’ wine opinion in Australia today is paid for by the producers who, given that a commercial transaction is involved, demand a high score in return for their investment. These fake high scores have two effects: they sway public opinion towards these inferior wines (because the public have yet to understand the cash-for-comment nature of most Australian wine criticism) and they cause winemakers to become complacent because they’re getting high scores all the time.
By and large, most Australian wine producers with quality aspirations are insufficiently aware of what quality wine actually is and lack an understanding of classic world styles. Their wines might fool Australian consumers, but they won’t fool international gatekeepers.
Wine shows, which too often today are run by the same close cartels of producers, ‘critics’, ‘sommeliers’ and winemakers who spend their lives promoting other members of their enclaves, do little to break out of this narrow vision of what Australian wine might be. With few exceptions, wine shows are today little more than social events paid for by wine producers and sponsors.
The price-quality conundrum
More than at any time over the last 40 years there is a disconnect between price and quality. There are as many rubbish wines with high prices as there are expensive top wines; in all likelihood even more. The current market between $25-$45 is a lucky dip in quality terms – there are wonderful bargains as well as a deluge of mediocrity at this level. You can still buy excellent Australian wine for around $20, but it’s far easier to buy trash at $35. Leaving aside the offline and online distressed stock outlets, you can also buy good, very drinkable Australian wine for $10 and less. Pricing is a jungle for consumers.
Much wine from lesser and relatively young Australian wine regions is priced well above its actual merit. Why? Within these regions there is little to no acceptance that some sites are better than others and that only the best sites produce the best wines. One reason why producers in lower quality regions over-price their wines is because they match prices with better wines from the same varieties grown in more prestigious regions.
Driven by marketing empiricals that have no relationship to quality, many producers have fallen for the notion that their sites are capable of all levels of wine from the cheapest to the very most exclusive. However, too many ‘individual vineyard’ wines taste the same and have no rational basis in quality terms even to exist.
The net outcome of these factors are consumers who are at first confused and then distrusting, many of whom then choose to buy imported wines they find easier to trust.
Marketing Australian wine
Should Wine Australia own the national marketing role?
Having worked with Australian government bodies marketing Australian wine in the US and throughout Asia for many years, I am amply qualified to comment on what I have witnessed at first hand.
In 2024 the question needs to be asked why a government body dictates and implements the wine industry’s funding spend on international and domestic marketing. Is the government smarter and marketing wine than wine brand owners? The government has no skin in the game, takes no risk and does not have any KPIs to answer to. It does not have a track record of employing the finest and the smartest minds. In what comparable industry does this also occur?
Wine Australia’s General Manager, Marketing typically answers to the organisation’s CEO, who in my experience has never had a background in marketing. Over recent years the GM Marketing has had total control over the marketing budget and has not needed to answer to genuine KPIs in terms of effectiveness or outcomes (maybe this has changed recently). Industry has not been able to influence to any meaningful extent how Wine Australia spends the budget it contributes for Wine Australia to market itself.
The years prior to Covid saw unprecedented wastage in overseas and domestic marketing expenditure. The $50 million Export and Regional Wine Support Package was largely squandered by Wine Australia’s marketing management. A document attempting to justify the spend, claiming benchmarked benefits of $381 million and estimated benefits of $172 million (whatever those terms mean) can be downloaded here.
In this document Wine Australia claims credit for the spectacular increase in value of bottled wine exports to China prior to the imposition of the tariffs that killed this market. Yet Wine Australia’s own charts reveal the greatest growth took place between June 2017 and June 2018 in China/HK, prior to any Package-related activity there. Similarly, it claims that the staggering once-off $8 million spend in the US in September 2019 dramatically increased the value per litre of sales to this market. Again, its own chart shows most of the increases had already occurred prior to this wasteful allocation of massive resource.
In both China and the US, huge-scale events were staged for invitees who were not required to meet any sales-related KPIs to receive their invitations. Similarly, I am told that there was no meaningful follow-up to those who attended them.
The Australian wine industry saw little tangible benefit from a $50 million additional marketing spend. Nobody has been held to account. Wine Australia funded an unprecedented level of attendance at major international wine expos in this period. It was a daily occurrence at each for the promotional staff employed to promote Australian wine to instead serve beer to attendees at their stands at 5pm. This was apparently intended to reflect what all Australians do at that time of day and to make us appear distinctive, relaxed and unique (my words there).
Aside from the totally inappropriate use of funds destined to promote Australian wine being deployed to promote a competing category of beverage, the complete social and cultural ignorance of this strategy caused many Australians present, self included, to cringe with embarrassment.
Other comments on Wine Australia
Without naming names, the Board of Wine Australia is seriously deficient in the hands-on knowledge of the wine industry, wine marketing, sales and operations. Only two of the seven members have wine production experience.
Marketing Wine Brand Australia
Wine Australia finds itself in an impossible position from which to market Australian wine. Penfolds can market its entire brand by promoting Grange and trusting the halo effect. It is not possible to replicate this overseas to any great extent because all stakeholders, different as they are, demand a seat at the table and in the tasting. The result is typically that Australia’s best wines, which are certainly capable of creating a halo effect for this industry, are rarely seen and if they are, their impacted is diluted by third-rate company that has been chosen to keep a constituent happy.
Consequently, the message is diluted. Regions and brands that should never be anywhere near key international opinion leaders are promoted well above their merit and brand Australia suffers.
Australia’s marketing has also tended to focus excessively on short-term trends and fads at the expense of developing a true understanding of what Australian wine is actually about. Short term can disappear within a decade, making it virtually impossible for the industry at large to profit from them.
Australians like to say we are at the forefront of wine innovation. Anyone who really believes that needs to get out more. Most of our so-called innovations are actually copies of what other producers in other countries have already achieved, in some cases centuries ago. Instead, Australia might focus on what it’s good at. Short-term success can be very profitable indeed, but it’s also easy to lose identity and focus from what our sites are best able to deliver.
The power of the anti-alcohol lobby and non-alcoholic wines
This will never go away and will certainly become more extreme in its demands, especially in an era of ubiquitous wokeness. The industry needs a strategy to deal with this. Other than to mention the encouragement of responsible drinking, this perennial issue is entirely ignored in the One Grape & Wine Sector Plan.
Instead, there is emphasis given to the making and promotion of non-alcoholic wines, a category that we do not own and are not ever likely to. Non-alcoholic wines are an entirely new ballgame, since they do not (currently at least) reflect anything related to origin or winemaking style. Why would a consumer in Tokyo, Seoul or Boston select such a product from Australia?
Who is going to solve the problems facing Australian wine?
Producers and brand owners. Nobody else can. As we have seen, time and again.
12 actions to restore profit to Australian wine
1. Identifying realistic markets
The successful brands of the future will do exactly what the successful brands of the past have done. They will identify markets that suit the combination of their resources and business model to make wine carefully targeted to the needs and expectations of those markets. They will carefully manage cost structures and retail prices to ensure a profitable margin. They will need to identity their consumers and communicate clear brand stories to them. They will need to know how best to connect with them, and how their story is likely to resonate.
2. Focusing on potential growth markets
Australian brand owners deserve better, more honest and more intelligent and realistic advice regarding potential outcomes in overseas markets.
Changing environments lead to export opportunities. An example is Thailand, where recent tax changes make it worthy of consideration for some brands. Vietnam, Korea and Japan are potentially growth markets for Australia. China might return as a market, but at around $250-$300 million when and if tariffs are removed. India remains an over-rated and over-promoted opportunity and brand owners should treat advice to the contrary with caution.
The US remains the biggest long-term growth opportunity for Australian wine, although it requires a huge amount of effort.
3. Smart pricing policies
Pricing policy will be key. Prices need to be allocated as independently of costs as possible. If there’s no margin there, the business will either fail or adapt. Too many current producers still use a farm gate plus margin model for pricing, while others apply totally unrealistic prices to wines that always fail to deliver on expectations created by their prices.
4. Reallocate the national marketing budget and strategy
Wine Australia should relinquish its marketing role. Wine Brand Australia should be represented by the industry, with the introduction of a competitive and democratic process for appointment to a Marketing Board.
5. Taxation reform
An independent root and branch enquiry needs to be conducted on the tax policies applied to the Australian wine industry. Wine tax must be re-evaluated to enable more profitability, incentive and fairness.
6. Reducing the size of Australia’s vineyard
This will happen of its own accord. Support should be provided to assist huge numbers of uneconomic irrigated producers out of viticulture. Regions might need significant assistance to refocus their tourism and hospitality marketing, since many have relied upon (over-priced and ordinary) wine for their identity.
On the other hand and over time, presently uneconomic wine companies might be sold at a price that makes them economic to operate while selling their production at a lower and more realistic price. We can see across Europe that provided there are other regional attractions, rural economies can become successful destinations without needing to produce expensive wine.
7. Improving knowledge within and about Australian wine
Initiate industry-operated training workshops to assist makers find their place in the world of wine and better understand wine operations economics, current international buying habits and where Australia actually fits in the wine world (using competitive analysis and tastings).
Wine brand owners should refuse to support the so-called ‘media’ businesses demanding cash from them for comment.
The industry should introduce an accreditation system for wine shows that will demand high levels of selection criteria and independence for judges and introduce more overseas judges. Limits should be imposed on frequency an individual can participate as a show judge per year.
8. Moving towards a more profitable future Australian wine industry
Australian wine will decrease in production. Australian producers will have a clearer knowledge of their strengths and abilities, which will become the focus of their marketing and messaging. Producers will need to find means to make better wine at a lower cost to stay competitive.
There will be a larger number of medium-sized to large companies whose increased production and cost structures will justify the development of significant overseas markets. This will involve the consolidation of brands. Currently there are few Australian producers capable of making enough competitive and high-quality wine to invest heavily in the development of sustainable overseas markets.
9. Redirecting overseas marketing
Overseas promotions should be directed as much at consumers rather than just trade. There is too much Australian wine sitting on shelves and filling trade warehouses. It’s one thing to get a wine onto a list or a shelf, but the job is only complete when consumers take it from them.
Australian wine needs to be driven onto world stage by our wines of international quality and value, and not present itself as a follower of fads and trends.
10. Restoring Australia’s disappearing regionality
Whatever happened to Australia’s regionality? From being correctly recognised as one of our greatest strengths, regionality has been taken off the promotional menu. The Regional Heroes concept of yesteryear (credit to Wine Australia!) was very effective in taking around twenty classic combinations of Australian region and variety around the world. That’s about the same number as most people can remember about either Italy or France.
Our best makers in our best regions have in previous times led and driven our style direction and identity. Historically, these wines were regularly benchmarked with international competitors and classics to keep them honest.
Contemporary winemaking and wine trends have focused more on style than regionality This has come at a cost to quality. There are less classic Australian wines made today than there were in the 1990s. Elite wines always reflect their unique origin and site. This principle is not about to change. Lesser wines can emulate them but need to be sold with profit for a lower price.
11. Develop and implement (again) a strategy to combat incorrect information about the health-related consequences of drinking even modest amounts of wine
Self-explanatory.
12. Have realistic expectations concerning the potential of non-alcoholic wine to save the industry
This category is incapable of saving quality vineyards from extinction and will only benefit some larger irrigated producers with access to market and the marketing and distribution skills to create a profitable niche and brand in a very competitive category.
