As the Australian wine industry’s struggle for survival appears to become even more acute, is it not guilty of ignoring the one English-speaking market with the capacity to help it?
There’s not much of a business case to be engaged in the making of Australian wine right now. And that’s without even acknowledging the constant erosion to the wholesale value of the national wine marketplace through the retail duopoly of Coles and Woolworths. Little wonder that people are actively planning quitting the wine industry or putting out the for-sale sign at an unprecedented rate.
According to the 2015 Production Profitability Analysis for the Australian winegrape industry produced by the Winemakers Federation of Australia, 85% of Australian vineyards operate at a loss, an increase from 77% in 2012. And while the WFA states that a staggering 92% of grape production in warm inland areas is unprofitable, this phenomenon is far from restricted to the less-fashionable, warmer inland regions. An unimaginable 43% of cool climate viticulture in Australia makes a loss, although this figure has declined from 49% three years ago. Let’s look at some specific high-profile regions. 32% of Coonawarra growers make a loss, along with 50% of Margaret River growers (up from 38% three years ago) 94% of Hunter Valley growers and all but one percent of growers in Mudgee. While this data is far from definitive, it still carries a serious message.
The ABC recently unearthed a specialised vine removalist, Tom Stephens, who has two crews travelling all over Australia pulling grapevines. He says he thought the business idea might last a year or two, by which time the grape industry would be back in some sort of demand balance. Five years later he is pulling out 30 acres each week.
Adelaide-based wine industry law firm Finlaysons has been running a national series of workshops entitled ‘Decision Time – bringing in an investor or buying or selling a wine business’. Most wineries are family-owned, and the emerging generation of wine company owners are less than enthused about taking over the businesses that in many cases brought their parents to their knees.
One of the reasons Australian wine is in its current shape is its chronic oversupply – a legacy of the of the industry’s previous fleabrained approach to doing business that confused volume for profitability; discounted case sales for brand loyalty. Even to this time, as Peter McAtamney from Wine Business Solutions identifies, our marketing statutory bodies are excessively focused on driving volume rather than profit. He asks ‘Has no one projected out the Austrian model of driving up revenue whilst decreasing sales volume and seen what that will do for Australian wine businesses’ cash flows?’ Not many, is the answer.
The wine industry is also to blame for losing sight of its consumer base. While it’s now deeply committed to new varieties, styles and concepts, this commitment really came two decades too late. McAtamney agrees that for way too long Australian wine put all its eggs in the basket of shiraz, cabernet, chardonnay, riesling and semillon. It created the environment in which wines from Italy, Spain and especially New Zealand – which owns about 40% of the Australian domestic white wine market – could open the door and keep it ajar.
Similarly, for too long Australian wine producers fed the US market a diet of Parkerised shiraz soup. It was a matter of time before the last thread of clothing fell from this Emperor. It happened around eight years ago, just after the Americans had commenced their new diet of inexpensive Australian wine dressed with some cute Australian critter on the label. Yellowtail began this, to be sure, but I hold this brand entirely blameless for the activities of the legion that imitated them, many of whose wine should have come with a health warning for all people and not only pregnant women. Yellowtail created a new market sector in the US – it didn’t cannibalise a single high-value market there.
While all this was going on and while Australian wine had captured the awareness of the American trade, media and drinking public, who was telling the real story of Australian wine – the high quality mid-market wines this country produces better than any other? As McAtamney concurs, Italy, New Zealand and Argentina waltzed in and did the work Australia should have done – promoting wine with a sense of quality and aspiration…and price.
The US is the largest traditional export market for Australian wine. Yet right now American wine drinkers have no idea what Australian wine is about. Therein lies an opportunity, especially given the long-awaited decline in the value of the Australian dollar. Despite this, sales of Australian wine to the US have been losing ground there for the past six years, falling 8% by value last financial year to $415 million during the period, with bottled exports showing ‘declines at all price points’ according to Wine Australia. Right now the fastest growing segment of the US market is $10-20 – just where Australia should make a killing – and a profitable one at that.
