Australia not ‘fit for the future’ in the UK

Australia risks being dragged further into the UK’s sub £5 category if it is not able to reposition itself at higher price points, Accolade Wines has warned.

A colourful welcome at this year Australia Day Tasting at Lindley Hall in London

Speaking at the Australia Day Tasting in London, Rob Harrison, general manager for Accolade in the UK and Ireland, said that while Australia as a category was doing “pretty good”, a lack of growth at more premium price points in the UK means it was not ”fit for the future”.

Overall, Australian exports increased by 14% in value to AU$2.1 billion in 2015, its highest value increase since October 2007, with growth achieved in all of its top 15 markets for the first time. The average value of Australian wine increased by 7% to $5.20 a litre, its highest value since 2003. In the UK sales increased 0.2% to $376 million, however crucially this growth has been almost exclusively at the lower end of the market, raising concerns over the market’s long-term health.

In comparison, total sales of Australian wine have grown at both the lower and higher end of the market, with sales of wine in the $10 and above category growing by 35% – the largest increase within any price segment. So while consumers appear to be generally trading up and spending more on Australian wine in other markets, the UK is not following suit.

Deep discounting by supermarkets, which Australia has benefitted from greatly, has compounded Australia’s image as a low-priced wine producer, preventing it from achieving significant growth above £5. Such discounts are now being scaled back, presenting a further challenge to Australian producers in overcoming the subsequent price hike of their wines, while supermarkets’ moves to consolidate and reduce their ranges, in response to the success of discount retailers such as Aldi and Lidl, has increased competition.

Recognising a battle on two fronts, Harrison said there had been an “unprecedented” change to the retail environment in terms of price promotions and range rationalizations since June of last year.

“There were shoppers who would go into stores and just buy half price wines”, explained Harrison. “We have moved away from discounting in the last six to seven months. Australian wine was pretty leveraged on that. That’s where a lot of the growth has come from. Consumers felt reassured by Australian brands. But what we are seeing now is that those discounts are being taken out and it means Australian wine is dropping into a much more concertinaed price range. It’s going to be a real challenge to get consumers to understand our offer and understand where the trade up is coming from. Chile is a good example of that. They are doing it better. They are a little more fit for purpose in the respect.”

Ultimately, Australian brands “will have to exist without price cuts” if they are to achieve continued growth and push into higher price segments, says Harrison. However changing consumer perceptions and giving them the confidence to trade up is a necessarily long and involved task.

“For a long time shoppers expected to pay a slight premium for Australian wines”, said Jane Robertson, category development manager for Accolade Wines in the UK. “About two years ago we saw this flip. The average price of Australian wine sits below the average price of wine. People are expecting more for less. We have an attitude change to fight against to help pull that back into growth in the higher price points.”

Furthermore, much of the category’s growth in the UK is being achieved in the off-trade, with Australian wine still failing to make a significant impact in on-trade channels.

“Australia has one of the lowest average selling prices in the one trade, so you would think that would bring in sales but that’s not happening”, said Robertson. “There is a scrimp and splurge mentality in the UK. People are using the on-trade, restaurants and wine bars, which is where Australian wines do well, to trade up. So when they are going out they are looking for New Zealand Sauvignon, they want to pay more and buy a premium bottle of wine. When you look at Australia on wine lists that higher, premium price point is just not there.”

Efforts to address this and support a push on premium pricing in the UK are already in motion, led by Wine Australia. Explaining its strategy moving forward, Laura Jewell MW, Wine Australia’s regional director for the UK and Europe, education and communicating effectively with the trade was key to reaching consumers and driving growth in the future.

Laura Jewell MW, Wine Australia’s Regional Director for the UK and Europe

Educating consumers on Australia’s varying wine regions was just “one of the tools in the box”, said Jewell.

“Our overarching themes are history, evolution and revolution”, said Jewell. “History of vines and regions, evolution of styles, whether that’s Chardonnay or Shiraz. We had great success in September with italian varieties at our premium tasting and our alternative varieties tasting went well in April. There are so many things we can do and that is one of the things I love about this job, because theres not just one story to tell. We have this history, evolution and revolution and I can bring everything back to that.”

On supermarkets’ recent slashing of ranges (Tesco has reduced its range by a third) Jewell, who joined Wine Australia in 2014 having left her position as senior wine product development manager at Tesco, said the fallout was yet to be assessed.

“It’s a balance, that they will have to work out for themselves, of customers noticing the better pricing on an ongoing basis and being loyal, versus being a promotion junkie and really buying just off promotions”, adding: “All we can do is talk to [retailers] about brand ladders and premiumisation, although I hate that word, and moving people up.”

Showcasing its premium appeal, in March Wine Australia will host its first Langton’s classification tasting in over 10 years in the UK, when around 60 wines with the classification will be presented. To be classified as such, wines must have been made for a minimum of 10 vintages and have a track record in the secondary auction market, with classification dependent on how well a wine performs in an open market, the demand it attracts and the prices it achieves. Penfolds’ Grange for example is a Langton’s classified wine.