Switching On

French wine still outsells Australian by three to one in the on-trade, but this lead is being targeted. Andy Knott reports on the Aussie on-trade offensive

OZ AND ON. The two words have a certain compatibility about them. In fact, slip the "zed" through 90 degrees clockwise and, hey presto, OZ becomes ON. And viceversa. (I should get out more really).

The history of Australia’s stunning performance over the last decade and a half in the UK has not, however, been about the on-trade. In actual fact, the button has been firmly switched towards off.  But we can expect the future to reveal a distinct change in direction with increasing attention to the on-trade.

Last year witnessed Australia’s ascension to the top spot in terms of value in the off-trade. AC Nielsen reveals its market share in terms of value jumping from 20.4% (MAT Nov-Dec 2001) to 23.1% (MAT Nov-Dec 2002), usurping the French throne, which fell from 22.5% to 21.4% during the same period.

In volume terms there’s still a bit of catching up to do, but most commentators expect that to be achieved during 2003. If the trends over the last couple of years continue then this should be easily achievable.

The MAT Nov-Dec 2000 figures reveal Australian volume share at 16.1%. By the Nov-Dec 2002 bi-month this had leapt nearly 20% to 19.8%. Meanwhile, French volume dipped from 23.3% to 21% during this period.

One factor that has been very well documented of late regarding Australian wine’s increasing predominance in the UK off-trade arena will not be lost on Southcorp’s former CEO, Keith Lambert: promotion. A whopping 64%, nearly two-thirds, of Australian wine is purchased on offer in the UK off-trade (or should that be renamed offer-trade?), a figure considerably above the average of 46%, and France’s 40%.

Getting out of this promotional loop is one explanation for Australia’s attention turning towards the UK on-trade, but the overriding factor is one of opportunity. "As retail channels become ever tighter, the on-trade appears as an increasingly lucrative route to market," explains Paul Henry regional manager, UK and Ireland of the Australian Wine Bureau. "The market share of Australian wine in the on-trade is roughly half that of the off-trade.

That’s a considerable market share to target." Indeed it is.  France has remained pre-eminent within this field with sales still three times greater than its Australian counterparts. French market share is declining, however, standing at 40.6% in MAT to Nov 2002, as opposed to 42.8% a year earlier.

While Australia’s market share is improving, the bad news is that this is occurring at a painfully slow rate: with a marginal increase from 12.7% to 12.9% in the same period. (Note: the real success story was Italy, growing from 12.8% to 15.9%.)

The real strength of Australian wine in the on-trade has been achieved in the multiple-specialist equivalent arenas of the off-, namely pubs and branded chains. Australia’s great success story in distribution terms is in approaching near parity with France in managed pub chains, where its distribution level reached 84% byNovember 2002 (up from 74% in the previous year), just two percentage points behind its gallic rivals.

This is precisely the area that Moondarra has targeted.  The Waverley Group-owned brand was launched in its current format in March 2002, exclusively primed for the UK on-trade market. Within 10 months, the brand has established distribution in 6,000 outlets and, according to AC Nielsen data for Dec-Jan 2003, now sits proudly as the fifth biggest wine brand in the UK on-trade (across all countries), shifting 200,000 cases in its first year.

"We had noticed a bit of a gap in the on-trade and so decided that strategically we wanted to be a significant player in the Australian branded wine market," explains Martin Pinner, Moondarra’s brand manager. "We went in with four varietal entry-level styles, priced at the equivalent of £3.99 in the offtrade that could comfortably retail at below £10 in the on-trade, alongside a similar number of wines in a reserve range, equivalent to £4.99 in the off-trade.

"Our greatest strength has been pricing at the house wine level.  Customers have been thinking, ‘Oh, it’s the house wine; oh, it’s Australian; oh, it’s a Chardonnay; I’ll have one of those.’ Hopefully, soon they’ll also be saying, ‘Oh, it’s Moondarra,’ too."

This strategy is not too dissimilar to one that the Australian Wine Bureau is keen to encourage. "Much of Australia’s power lies in branded propositions in the likes of All Bar One and Pitcher & Piano. The language used by consumers is changing substantially from requesting via a regional perspective to a varietal one. What we’ve got to do is make the varietal request become a generic one to Australia," insists Paul Henry.

Positive news for the wine industry at large can be gauged from the fact that fermented grape juice is gaining market share from its rivals in the world of alcohol.  And only a brave loner would dispute that this trend is set to continue. Between January 2001 and November 2002, wine’s MAT share increased by 21%, rising from 10% market share to 12.1%.

Recent studies by Vinexpo show overall UK wine consumption continuing this upward curve, with per capita consumption increasing by a further 16.5% between 2001 and 2006, to 25.4 litres per capita, representing a retail turnover of £6.9 billion, spent on a total of 1.556bn bottles.

The picture for most wine producing countries is enhanced by increasing distribution within the on-trade arena. All countries, bar Germany, show upward figures with the New World performing especially well. In the year from November 2001, Australia’s distribution has grown from 45% to 53%.

Hotels are a further arena where Australian distribution is reaching impressive levels, up from 67% to 79%, although France posts an enviable 95% here. Australian wine’s frequency of appearance is far lower in leasehold/tenanted/independent pubs at 49% and clubs at 43%, but growth continues at over 30% in these outlets.

This situation leaves over half of Australian wine sales in the ontrade occurring through pubs; with growth opportunities much more prevalent in clubs, hotels and restaurants. If such growth is to be achieved it will occur either through expansion of wine in these categories at large, or by taking market share from the likes of Italy (which enjoys 66% of its entire sales in the restaurant sector) and France (over half of whose sales are located in restaurants and hotels).

So the stage appears to be well and truly set. "What Australian wine needs to target is the independent sector, finer dining and the more aspirational eating establishments, and to punch our weight at the upper-middle levels. There’s an enormous opportunity for us here. It’s where as a category we need to be involved, emphasising our quality, diversity, branded proposition and keen pricing," argues Henry.

He does admit, however, "This area of the market is very fractured and idiosyncratic. Tackling this from a generic perspective opens up new challenges for us, but it’s got to be the

route to go down. The first stage of this particular route to market will be via a series of sommelier tastings. At present, there are four events planned for London this year. The plan is to roll it out across the country thereafter, but the AWB is still awaiting budgetary confirmation.

"This will be the strategy," continues Henry. "It’s something we haven’t done before, but we want to target sommeliers because even if they don’t have direct purchasing power, they’ve got that all-important selling power. From my experience, sommeliers are intrigued by Australia as a selling proposition."

Grange and Henschke will be available at these tastings toprove the peaks Australia can reach. Henry believes these icon wines stand "alone, above and beyond‚ the generic category" and he admits that there’s still a long way to go to reach the levels of Bordeaux, Burgundy and Champagne.

It is, however, at the upper-middle range that primary focus will be concentrated upon. "Our aim is to emphasise regionality and diversity.  Not only is Australia arguably more than one country, it’s a continent. 

We want the likes of Clare Riesling, Hunter Valley Semillon, McLaren Vale Shiraz and Coonawarra Cabernet to enter the lexicon of the restaurant trade. These areas give price accessibility and offer more opportunities for the individual players to develop," argues Henry.

Australian wine has already achieved impressive distribution through outlets selling Asian and fusion food such as The Sugar Club, Hakkasan and Nahm. Peter Govey, head sommelier at the latter, estimates that Australian wine now represents between 20 and 30% of their 300 bins, spanning all price points.

He insists that when he arrived in the UK there was something of a backlash against Australian wines due to a perceived lack of "seriousness", but he has since noticed a sea-change in attitude and finds his customers "increasingly getting behind them".

Govey explains, "We tend to sell by style and grape variety before country.  The style of our cuisine lends itself towards Riesling, Viognier and Gewürztraminer, so that to a large extent means Alsace, Australia and Germany. I suppose due to an Australian chef [David Thompson] and many Australian sommeliers you could argue there’s an in-built bias for Australia but I believe the wines deliver in terms of richness, balance and character."

At the more conventional end of London’s restaurants, Australia is also beginning to make inroads. Former sommelier of the year, James Payne has recently returned to London after a five-and-a-half year spell in the Lake District at Sharrow Bay Country House. Payne now works at The Square and admits to noticing a change in attitude to Australian wine within higher end restaurants, not only among consumers but also sommeliers.

"There was a lot of talk five years ago about Australian wines possessing the subtlety and balance to work in fine restaurants.  I was somewhat sceptical then, but have reappraised my attitude subsequently. Now the vines are that much older and the balance is really coming through in the wines," says Payne.

While Australia currently possesses a minimal representation on The Square’s 1,000-plus bin wine list, Payne will be scouring the independent merchants to locate the "small-scale, boutique, family-owned wineries that possess the qualities to shine in our restaurant," to increase their allocation. Despite being the second (of seven) most expensive red wines by the glass, Fox Creek 1998 Reserve Shiraz (at £12.50 for 175ml) is currently the second most popular in a restaurant renowned for gallic classics.

This reinforces the plea of Michael Hill-Smith MW to emphasise the diversity of Australia’s "amazingly varied and interesting wines". Hill-Smith points to the presence of 1,500 wineries in Australia, which he believes need to forge a presence in the UK on-trade to present an alternative to the top companies’ squeeze in the off-trade.

Hill-Smith will undoubtedly be pleased with the direction that the Australian Wine Bureau is pursuing. "The restaurant focus is an adjunct to where we’ve previously been," explains Henry. "We know we’ve got to add extra interest in a synergistic and complementary fashion.

 We’ve got to get away from this perception that Australian wine is all about cartoon characters and big flavours, highlighting the real, subtle nuances to the body of wine that Australia produces.  The wineries are providing an eloquent riposte to this perception, not only via regional varietals, but also via great blends such as Semillon/Sauvignon and Grenache/Mourvèdre/Shiraz."

There’s a seeming inevitability about Australian wine plateauing in the UK off-trade. The real question is whether Brand Australia can expand in the on-trade. Focus on the independent restaurant sector seems the next natural move, with special attention on the £5-£15 price category; "where the good fight needs to be fought‚" according to Henry. It is precisely in this arena that the "cartoon caricature" can most effectively be challenged to switch Oz on to the next level.