Australia Outlook – French Lessons

Demystifying wine has brought a great deal of success for Australian winemakers, but it has also contributed towards deep discounting. Could the Australians now actually learn a valuable lesson from the French? asks Penny Boothman

The only thing Australians do better than making wine, is talking about making wine. And this year’s Wine Industry Outlook Conference, Creating the Competitive Advantage, held on November 24 at the Adelaide Convention Centre, was no exception. Fill a room with 400 experts and you get 400 opinions on how full or how empty the proverbial glass is, but one message was clear: premium wine is the way forward, whichever market you’re targeting.

Premium wines may seem like a peculiar focus for a country that has wine in surplus – and make no mistake, the surplus is still top of everyone’s agenda – but it is also widely recognised that this should not be the raison d’être for all future marketing activity.
In fact information and analysis manager for the AWBC, Lawrie Stanford, attributes the current surplus situation to a succession of high-yielding seasons, and believes that the trend is finally on a downturn as forecast plantings are minimal.

Jim Caddy, chairman of CWW Co-operative Ltd, spoke about the delicate supply situation from a grower’s perspective and reiterated the need for grape growers and winemakers to work together. “Tell us what you want, and we’ll grow it,” he said. “We have to communicate with each other.”

Stanford also indicated that, just as the red grape supply surplus could be passing, Australia is about to enter another surplus of white grapes instead. Such is the cyclical nature of supply and demand.

Arend Heijbroek, industry specialist in wine and spirits from Rabobank International, provided a global perspective on drivers of change in the wine industry over the coming year, listing demand, distribution, marketing, supply technology and consolidation as potential influences for the industry. Heijbroek also believes that China is not the only country poised to soak up the wine lake, citing all the BRIC countries (Brazil, Russia, India and China) and Singapore as important future markets for Australian wine exports.

US opportunity
However, as important as new markets are, there are still significant opportunities in existing export destinations, such as the US. “The US wine economy is actually looking pretty good at the moment,” said Jamie Odell, MD Foster’s Wine Estates. “Price points above US$15 are actually growing at 27%, so Australia’s 15% growth [in this price band] may look pretty good but we’re actually under-performing. The average Australian price is
still falling in the US.” After 2001, domestic wine prices in America were on the increase, but Australian prices began to fall due to the abundance of supply and a tendency to discount. “A whopping 89% of Australian wines in the US are being sold at between US$6 and $8,” continued Odell, “and that’s in stark contrast to US domestic wine where it’s only 22%; and our growth in that category is 15% whereas the US is only growing at 6% in that price band. We really have to start driving our price points up, start talking about the differentiation of our wines, our luxury wines. That’s how to grow a long-term sustainable position at the top end.”

Some Australian producers are still smarting from the old French insult that they produce vin industriel, but Odell thinks that they could in fact have a thing or two to learn from their gallic cousins. “We criticise the French for not understanding marketing, for being too conservative in their approach to wine, but the fact of the matter is that there is no better country in the world at developing luxury brands. They’ve done a fantastic job for centuries developing brands at high price points. We can’t ignore the risk to us if we continue to accept that criticism and just play into it.”

Learning from the French may be a revolutionary idea but in the meantime no one has forgotten that the UK is still the main export target for Australia, and brand owners are looking to any sector of the on- and off-trade they can use to gain greater distribution.
There was a certain lady journalist from a very highly regarded UK trade publication on hand to give the producers the lowdown on exactly what’s happening in the UK, and how they can best raise their image – and sales – in this vital market. Suggestions included targeting the impulse sector and the on-trade, both of which have higher average bottle prices than supermarkets, as one way to improve value; another is using region-specific labelling to encourage consumers to trade up.

Increasing competition
It may be of little comfort to Australian winemakers, but Australia’s position on the world stage is actually far from unique. Consultant Brian Croser warned, “Chile will be a serious threat when they get their commercial act together.” The competition for market share is hotting up and Croser urged colleagues, “Don’t just fish where the fish are, but fish where the juiciest fish are.” Indeed, when it comes to exporting premium wine, some markets will reap higher benefits than others.

But even if your targeting is spot-on there can still be other barriers to successful, profitable trade. Import and export tariffs represent a real problem to smaller producers, as well
as larger ones, so the fact that Chile is very aggressive about negotiating free trade agreements puts Australian exporters on guard. Australia currently has free trade agreements with New Zealand, Singapore, Thailand and now the US, but there could be more in the pipeline.

“The best possible world would be one with no tariff barriers, the whole world would be a free-trade area,” said Alexander Downer, minister for foreign affairs, in his opening address to the conference, confirming the government’s commitment to lowering trade tariffs for Australia.

Good news for the future then, but these things take time to come into force and the immediate outlook is a little more challenging. Stephen Strachan, chief executive of the Winemakers Federation of Australia, had a reality check for the assembled delegates: “2006 is going to be bloody tough, there’s no question about that. We grew too quickly because of decisions we made a number of years ago.”

He also underlined the fact that alcohol, and therefore wine, is seen as a significant threat to world health. Binge drinking and alcohol misuse hasn’t just been hitting the headlines in the UK, and CSR (corporate social responsibility) is the new catchphrase to be factored into all marketing activity if Australian wine isn’t to be seen as contributing to these problems.

Nick Blair, general manager international at the Orlando Wyndham Group spoke about how to capture future market opportunities, underlining the fact that Australia’s success came from its ability to demystify wine and present a clear, uncomplicated consumer proposition. Blair believes that this Brand Australia is “one thing that people can’t take away from us”, but he also offered a word of warning about dangers of eroding this valuable equity with heavy discounting.

Perhaps the final word should go to Jamie Odell: “I truly do believe that this industry is now at a crossroads, and we do have a choice to make.” Precisely what Australia’s winemakers choose to do remains to be seen.  db January 2006

Speakers:

• Arend Heijbroek, industry specialist wine & spirits, Rabobank International
  International Wine Outlook
• Lawrie Stanford, manager information & analysis, AWBC
  The Australian Wine & Grape Outlook
• Jim Caddy, chairman, CWW Cooperative Limited
  The Supply Partnership
• Stephen Strachan, CEO, Winemakers’ Federation of Australia
  Future Shock
• Penny Boothman, assistant editor, the drinks business
  The UK Market
• Brian Croser, consultant
  Wines of Distinction
• Nick Blair, general manager international, Orlando Wyndham Group
  Capturing Future Market Opportunities
• Jamie Odell, MD, Foster’s Wine Estates
  A Portfolio Approach