Australia On-Trade – Dreaming of a White Tablecloth

06 January 2006 By db staff writer

“standfirst”>Australian wines are performing perfectly adequately in the mid-level on-trade, but they would dearly love to be dining at the top table with the French, says Robyn Lewis

Success in the on-trade is absolutely key to growing not just Australian wine but the overall category,” says Calum Grant-Wood, on-premise business sector controller for FGL Wine Estates, owners of Penfolds and Rosemount among others. “The continued increase in eating out and the move to wine drinking, with or without food, offers an opportunity for us all to grow,” he adds. The question is, of course, if Australian wine with its massive off-trade success is in a position to capitalise on such an opportunity?

The ACNielsen statistics for the on-trade (MAT to September 2005) show the light wine category in the on-trade to be down 2% in volume but up by the same percentage in value. In total it is worth some £2.3 billion with restaurants, hotels and other bars making up the larger chunk of that, worth around £1bn, followed by managed pub chains, with 20% value share of the market, worth £460m and up 6% by value and 8% by volume. Leased and tenanted pubs come next, worth £326m to the category (and up an impressive 10% by value and just 3% by volume), followed by independent pubs, worth £236m and clubs worth £187m.

Rosé potential
Within the light wine sector Australia has posted a small decline in volume (down 3%) and value (down 2%) and is worth £387m. In a further breakdown we can see that £168m comes from red wines and £216m from white, which is roughly in line with the light wine average – though with rosé, Australia significantly under-trades, with just 0.8% of on-trade value against an overall rosé on-trade market of 2.9%. Interestingly, Australia shows a 32% growth in on-trade rosé sales but equally posts a 19% decline in MAT value over the same period.

By country Australia comes in second place to France by volume and third by value, where Italy’s gain of 7% to £408m over the period has edged it above Australia. The US, Chile and South Africa are also beginning to look like contenders in the sector, posting 40% increase by value to £160m, 12% rise to £162m and 17% rise to £140m, respectively.

“South Africa, California and Chile are in faster growth than Australia at the moment in terms of the on-trade,” explains Waverley TBS’s Martin Pinner. “However, I would say that from the consumer’s point of view, Australia is the mothership for all New World wine; when they come to spend £15 to £20 on a bottle in the on-trade Australia owns the hearts and minds. So the way ahead for Australia must be to keep retaining the higher ground against other New World countries and to work closely with the trade to get behind the wine and also engage the consumer more.”

In this mid-priced sector of the market Australia does appear to have made some serious progress, as evidenced by the growth in value despite the dip in volume and by the sheer number of Aussie brands that dominate the on-trade brand charts – out of the top 20 on-trade wine brands 11 are Australian. Jacob’s Creek features near the top (third, behind Stowells and Blossom Hill) with a 0.2% share of the market by volume, and 1.7% by value; followed by Moondara (1% share by value, 6th position); Hardys VR (0.7% by value, 7th position) and Banrock Station (0.3% by value, 8th position), all MAT to September 2005. Other Australian appearances in the top 20 include all the Hardys ranges, Lindemans, Rosemount and Rosemount Jigsaw.

Constellation Europe, owner of chart dominator Hardys, confirms it has been concentrating efforts on the sector and has enjoyed some success. “There is a huge sales potential for Australia in the on-trade. Customers want to see brands they recognise and trust in the on-premise sector and Australia, with brands like Hardys and Banrock Station, can provide this,” says Constellation Europe’s VP marketing, Clare Griffiths. “The runaway success Australia has seen in the off-trade serves to provide an excellent platform for further growth and success in the on-trade. Through consumer insight, the right wine list and effective marketing, the success of Australian brands in the off-trade can – and I’m sure will – be replicated in the on-trade environment.”

But, she warns, it won’t be easy. “The size of the wine offering in the average on-premise account tends to be quite small, as it is simply not practical to offer consumers the same level of choice they have in the off-trade. Unfortunately, there are the same number of brands fighting for this smaller space, so competition is fierce. Education is key to growth for Australia in this area. We are investing heavily in licensee and on-trade training and, as part of this, last year we launched an interactive wine course in the form of a DVD and booklet. If bar staff are aware of the breadth of what Australia can offer and can talk knowledgeably about the different varietals, and even wine growing regions of Australia, this will help drive sales of Australian wines in the sector.”

Top-end targets

As we have seen, there is evidence of this strategy working at the entry and mid-level end of the market, but will our cousins Down Under be able to replicate this growth at the top – the white tablecloth end of things?

“It is more difficult at this end,” confirms Grant Page, on-trade and specialist account manager at Thierry’s. “There are a number of brands that are doing well at a medium level but at the upper end, where smaller producers with a more diverse product have potential, Australia is performing very poorly. Australia is often not considered to be in the vanguard for the on-trade, who have in many cases moved onto other New World countries, and there is also a definite move back to France and Italy as key on-premise categories (as those earlier Nielsen statistics demonstrate). There is real potential to achieve penetration at the top-end but it relies on the long-term commitment of the producer and for the products to be in the correct distribution network. The key is for the correct products to be targeted to the correct area of the market and there needs to be long-term focused strategies in place.”

Slow progress

This approach is backed up by UK agent Bibendum, which says progress is – slowly – being made.  “The mid to upper-end of the trade is still very much traditional but the opportunity lies with the smaller producers, whose wines are not in mass distribution and who can generate loyalty and following in the on-trade,” says Michael Saunders. “This will require hard work in the market and producers will need to think about the wines they are producing. The on-trade needs wines of finesse, uniqueness and style, not the brute force fruit-bombs that destroy much of the food they are supposed to be drunk with. We also need to continue with the unified approach to the message that has served Australia so well to date.”

A big part of that “unified approach” is the work that the generic office has done, including an increasing emphasis on Australian regions, a strategy that is intended to push premium wines and appeal to the on-trade but which is fraught with difficulty, as Mike Paul of Western Wines points out.

“My concern about pushing regionality in Australia is
that they clearly want to avoid creating an AOC/DOC equivalent, and one can see why. However, if there are no real quality controls or controls on yields or varietals that can be planted how will they guard against producers who cynically use the added value of a region but produce poor quality wine or promote varietals or wine that bear no hallmarks of the region? In other words ‘regionality’ needs policing if it is to be credible to the opinion formers who will determine whether or not it works as a promotional tool.”

For others the idea has more appeal. “I fully endorse the generic approach and think that Paul Henry and his team deserve much credit for the approach they have taken,” says Brett Fleming, European manager of Yering Station. “In fact I would suggest we would not be enjoying the success we are without it. At Yering we have been very true to our vision of delivering tangible taste differences in regional expression and have been very successful with it. We’ve wines in The Fat Duck, Gordon Ramsay and Nobu, to name but a few.”

And it isn’t just the small to medium wineries that have managed to penetrate the top-end with such an approach either. To come back to the man who was quoted at the start of this article, FGL Wine Estates’ Calum Grant-Wood: “Any initiative which helps to increase consumer knowledge about regional Australia is to be welcomed. It is early days for this but there is an increasing interest in the trade for these wines.”  db January 2006