More than at any time since the mid 1980s, when growers were being paid to pull old vines out of their Barossa Valley vineyards, Australian wine is up to its neck in crisis. Just three months out from the 2010 vintage, it would be a fair comment that all but a small percentage of wineries would simply rather leave the grapes on the vine.How has it come to this? Simply put, each of the three major markets for Australian wine more resembles a losing battleground than a source of financial optimism. The domestic Australian market is a tough place to trade in. The industry’s oversupply Ð much of which has been caused by tax-driven investment schemes and recent speculative entrants to grape growing Ð has effectively put a lid on prices. Depending on which authority you quote, Australia is currently producing about 22-30% more wine than it can sell. In my view these estimates are actually conservative, since there is still too much ordinary wine made by large companies that does not have a logical and profitable market.Competition between our two major retail groups has also played a strong role in reducing the overall value of the domestic market. As I write, you can buy the excellent Wynn’s Coonawarra Estate Cabernet Sauvignon 2007 for $19.70 in Dan Murphy’s. While the suggested RRP of this wine is $35, it really should be closer to $45 per bottle. Small wine retailers cannot buy this wine at a price even approaching what Dan Murphy’s is selling it for. At a time when Australia’s wine future is all about building profitable brands, there is little logic to support this kind of behaviour.Very few wine companies are making a significant profit in the Australian market. The recent news of De Bortoli’s $1.6 million loss is sending shockwaves through the wine industry, since family owned wine companies have tended to perform better through these tough economic times than the publicly listed entities. The UK market resembles a slaughterhouse for Australian wine. The strength of the Australian dollar, the extremely high costs of doing business in the UK and the structural power of the supermarkets Ð which control 85% of the country’s wine trade Ð has left most Australian operators looking to exit this market, once seen as our most valuable asset, with dignity. Australians can’t make money with the current deals of 3 bottles for å£10, not even if they were only bottling air.Those companies not looking to exit are hoping to scale down their UK operations to target niche, but more profitable markets, such as restaurants. This is a costly and long-term strategy, but is all about building a level of recognition for Australia’s quality brands, which is the only profitable hope for Australian wine.So what will happen to the existing stocks of cheap wine earmarked for sale in the UK? They’re likely to be dumped either here, driving up the over-supply, or will be repatriated to China. More on that later.There are strong parallels between the US and the UK. While [yellow tail] is almost single-handedly responsible for Australia’s volume growth in the US market, its success has spawned such a great legion of imitators that the Australian section of American bottle shops now resembles Australia Zoo. Australia’s image is now associated with less-expensive wine that is obviously not meant to be taken too seriously. It’s hard to charge higher prices in this environment.There is one last chance for the Australian wine industry to save itself, which is the Asian opportunity. But, like every other wine producing country, Australia is expecting Asia’s largest potential market, China, to solve its problem. Sadly, however, there are already signs of history repeating itself.There is already an entirely unregulated flow of poor bulk wine being exported to China, at extremely low prices. There are already questionable Australian wine brands that are supposedly tailored to the Chinese tasting and label culture, most of which miss the mark and devalue the Australian offering. Furthermore, there is a plethora of labels produced by Chinese would-be permanent residents in Australia engaged in establishing largely unprofitable wine export businesses from Australia, with a view towards qualifying for permanent residency in Australia. Typically, their wines are poorly made, packaged and marketed, but their owners do not care. Neither does it matter to them if these wines are sold or not. There is no logical reason why credibility of Australian wine industry should be put to risk by aspirant residents of this country, yet that is precisely what is happening.Australia desperately needs to fund well-coordinated and hard-hitting promotions in China, but the promotional spend by countries competing against Australian for space in this market is significantly higher than the modest resources Australian wine is presently allocating to the single market which might save its bacon. Now is the last chance for Australian wine. It needs to do more, better and more quickly.
