Australia UK Market – What Price Loyalty?

Australia’s deep-cut promotional tactics are turning UK wine consumers into deal junkies who would just as happily switch to other producer countries – as long as the price is right, says Patrick Schmitt

It doesn’t matter what you do when Australian wine is on promotion – producers from around the world could ship, strip and flip their winemakers in the aisles, but if there’s a wall of half-price Aussie wine nearby, no-one will notice. So successful has the discount-led approach been that, until recently, few from elsewhere could get a look in. However, while such deep-cut promotional strategies in the UK supermarkets have proved highly effective in drawing shoppers to the Australian category, or at least certain Aussie wines, it is also a technique accused of building a Frankenstein-like creature out of the British consumer, who now, deal-obsessed, is destroying those brands which bred him.

In other words, the regularity and depth of some of these wines’ promotional programmes is, as was expected, beginning to make them hard to sell off-promotion and in channels other than the supermarket sector. Not necessarily bought for their inherent appeal but because of a perceived saving, these wines are finding it hard to convince consumers of their worth when sold at full price – and hence the specialist and on-trade sectors’ decision to shun them.

Further, these branded bottles have not encouraged consumer loyalty, but merely generated familiarity, so regularly are they found stacked high on gondola ends. Hence, well-packaged wines from outside Australia can succeed just as easily with the same approach. As Paul Stratford, managing director, Stratford’s Wine Agencies, says, “Some of the big Australian brands are struggling because they have been substituted by Californian brands. People are just switching brand, but not necessarily country allegiance.”

Similarly, Steve Barton, director at Brand Phoenix says, “The danger is that others can play the same game. California has done it. Gallo, for instance, did a half price promotion on Sycamore Canyon, while South Africa’s Kumala, which was built on a half-price mechanic, has kept growing with half price deals on its Zenith extension.

“More countries are adopting the same consumer tactics,” he continues, “and that could chip away at Australia. It could lead to less exposure for the country on the shelf. Also, there’s a risk that consumers could become tired of Australia’s constant thumping on about price. If these are replaced by promotions from the likes of South Africa, Chile, or Argentina, which are all countries with an element of discovery about them, as long as the wine is just as good, the consumer will move.”

Nevertheless, the evidence suggests your average Brit “is still loving Australia”, adds Barton. “The consumer seems very happy with the country’s ability to provide an everyday drinking experience.” Australia now accounts for over one in five of every bottle of wine sold in the UK, having increased its market share to 22%. It is posting a growth of 9% in volume according to ACNielsen (06.08.05) to almost 20 million cases. It is also creeping further ahead of France which is experiencing a volume decline of 5%, while the US is surging forward at a rate of 19% growth to almost 13m cases (France has dropped to below 16m).

However, all that promotional activity is reflected in Australia’s average price, which has slipped slightly from £4.33 to £4.28, although it is well ahead of the average bottle price of £3.84 and second only to New Zealand. On the other hand, Australia’s average bottle price in the specialist off-trade is below the average, at £4.82 versus £4.92, having dropped from £5.30 to £4.82 in the space of a year – surely a sign of extensive discounting in this sector?

It appears that in the UK off-trade Australia’s growth is greatest below £4, with a 24% increase below £3 and a 20% rise between £3 and £4. This compares to an increase in total light wine of 3% and 7% in these respective price bands. Australia is even showing a 3.5% decrease in wine sales between £4 and £5 although there is a notable increase of 18% in sales over £10. The conclusion? The Australian category seems to be polarising, with the greatest growth at the top and bottom ends of the price spectrum.

The greater quantity shifted at the lower end means Australia’s volume growth is outstripping that of value, 9% to 8%, while the average price per litre of Australian wine has dipped by 1%, (while for total light wine there has been a rise of almost 2%). These are the side-effects of a surplus at home and deep discounting in the UK multiple retailers. 

Of course, many in Australia are now beginning to realise the importance of building sustainable brands and a category with wines at all levels. Like South Africa’s aim to build sales in the £5-plus sector, Australia is also looking to the more premium end of the market, and to do this, it is trying to develop a regionally differentiated offering.

Stratford notes such a focus is already beginning to take effect. “I’ve certainly seen an increased interest by national accounts in buying wine from Australian regions,” he says, “but that’s partly because these wines are being produced at a more affordable level. For instance, we have a Hunter Valley at £4.99 in Somerfield. You couldn’t dream of that
a couple of years ago. We also have a wine from Western Australia at that price, and it does have a regional characteristic to it.”

To sum up, as Constellation’s Christopher Carson sees it, “There are two ways to look at the current Australian position. One, there is an even greater opportunity to grow market share because there is plenty of wine available, or two, now is the time to grow the premium aspect of the category. There is an oversupply but more so, in relative terms, at the premium end. There should be no doubting that the majority of Australian players will be seeking to gain more market share in 2006.”  db January 2006

The Future’s Rosy

Aside from Australia’s attempt to increase its premium presence, many feel it could be better represented in the rosé sector. Rupert Lovie, D&D’s marketing manager, makes the point that Aussie rosé growth is “below that of the overall market – 18% versus 27% (ACNielsen MAT 03.09.05).

Furthermore, this increase is coming from a small base – just 0.9% of Australian sales, (red accounts for 56.7% and white 42.2%). This compares with an overall UK off-trade split of 5.5% rosé, 45.5% red and 48.4% white.”

Brand Phoenix’s Steve Barton believes that California dominates the rosé category because, “There is an absence of entry-point rosés from any of the leading Australian brands – Banrock Station rosé is around £5 and Jacob’s Creek rosé is £5.99.” He has high hopes for his own NXG Shiraz rosé at £3.99. Lovie also sees the “move of many retailers to ranging rosés together on the fixture” as something that will help boost Australian rosé sales because, “Australia’s brand strength will have a chance to engage the rosé consumer.”