AUSTRALIA EXPORTS: Jumping at the chance

In their attempts to build value and reduce their surplus, Australian wine exporters are becoming disillusioned with the pfennig-pinching Germans and have decided to woo the Chinese instead. Clinton Cawood reports

Australia’s wine surplus has been highly publicised, and export figures in the last year are further evidence of this. But, with the country’s presence worldwide, it benefits from opportunities in a number of diverse markets.

According to Australian Government statistics, the volume of Australian wine exports increased by 8.2% worldwide, while value rose only 0.2%, resulting in a drop in price per litre of 7.4% (MAT Nov 2006). Very few of the countries that import Australian wine showed an increase in price per litre, and the majority of growth has been in the bulk sector (accounting for 27% of total exports). This increasing volume and steadily decreasing price per litre is consistent with trends in recent years.

UK opportunities
It is not surprising, then, that producers are focusing on raising value, either by selling more premium products, or by concentrating on markets more likely to pay premium prices. Paul Schaafsma, McGuigan Simeon’s regional director for the UK and Europe, reports sales per year of “three million cases in the UK alone, but one million of that is branded, while the rest is private label”. Schaafsma confirms that there is intention to change that ratio in favour of branded wine sales.

The UK does present an opportunity to do this, as the last year has shown. Export volume is up by 3.7%, but only up 0.2%
in value according to the Australian Government, and ACNielsen reports an increase in average bottle price from £4.26 to £4.28 (MAT to w/e 04.11.06), a better performance than many other countries in the UK market. Australia’s average bottle price of £4.28 is second in the UK only to New Zealand with a stellar average price of £5.93. The slight increase in the average price of Australian wine in the UK is promising when compared to many of Australia’s other export markets, providing significant potential for producers.

Jane Moulynox, brand manager for Barramundi, sees the UK “as a key market”, but also “highly competitive and price-driven.” She says, “Our price structure reflects this competition, and we are acutely aware of the need to compete with the wines from every corner of the globe.” Moulynox also points out that, “Barramundi is positioned in the UK market as an entry-level Australian offering at £4.79, whereas in Australian and American markets Barramundi enjoys a slightly higher shelf-price in general.”

North American dream
Another area that continues to be a successful market for Australian wine is North America. In both the US and Canada, volume has increased (up 5.1% and 7.8% respectively), although value has decreased in both areas as well. Moulynox does point out, however, that, “North America is experiencing growth in the Australian premium segment.”

“I’m not sure if, stylistically, the consumer is the same in Canada and the US,” says Schaafsma. “But we sell good amounts of Australian wine in that market.” Carmel Kilcline MW, Percy Fox’s wine development manager, says, “North America is a very attractive market for most Australian producers, and many endeavour to support the regional and more premium image.”  Simon Hill, sales manager for the Wingara Wine Group, confirms that, “the US and Scandinavian markets are very interested in regionality.”

This focus on regionality is one contributing factor to the high prices achieved by Australia in North America. As Torbreck’s chief winemaker and managing director, Dave Powell, explains, “Except for North America, [the major Australian export markets] are used to buying inexpensive Australian wine.”

The US undoubtedly presents good potential; the ubiquitous Yellow Tail reportedly sold 8m cases in the last year there alone. As a wine market, however, North America does present its own particular difficulties. As Hill explains, “The fragmented nature of North America poses its own challenges, and it just takes a lot of time and shoe-leather to maintain the listings and get new business.”

Three-tier system
The structure of the North American market also complicates matters for wine importers. Schaafsma explains, “In the US you have the three-tier system, and Canada is obviously tricky because there’s a government-run monopoly in some areas, but in some areas there isn’t.” According to Matthew Nugan, general manager for Nugan Estate, “The three-tier system in the US makes obtaining distribution a challenge. It can be very frustrating when you’re getting established. However, once the distribution is obtained, the opportunities are huge.” He also confirms that the varying structures in Canada result in “a mixed offering, but Australia seems to be having good success in most provinces”.

Moulynoux points out that, “Whereas the UK is particularly competitive and dominated by multiple grocers, North America and New Zealand present opportunities in the independent and on-premise sector.”

German jitters
A less promising market is Germany. Despite its position in the top five export markets, it is notorious for providing a low average price – by far the lowest in the top five, and declining. As Schaafsma simply puts it, “Average bottle price – I don’t even want to talk about.” He does go on to explain that, “Within Germany the majority of sales are bulk wine. It’s unfortunately not our greatest margin-driving sales. We’d prefer to be selling branded product, but the market controls that.”

Another limitation, as Hill explains, is that, “It is difficult to sell white wines in Germany, Austria and Italy because of their own domestic production.” He, too, agrees that, “In Germany the average price is very low (under E3 a bottle), so we’re working in the ultra-premium sector. This is not the case in most other markets. We have to adjust the way we manage the brand in Germany.”

Judging by export figures, the low prices offered by Germany have begun to affect the importance of this market to Australia in general. Schaafsma, speaking of the average prices in Germany, says, “Everyone knows that – you either deal with that or you don’t.” It seems that other producers are choosing not to deal with it, as Germany is the only major export market that shows a decline in sales in the last year (-6.4% in volume). For example, Kilcline explains that for Percy Fox’s brand, 7th Continent, “Germany is quite price-sensitive, so for the positioning of our brand it is not a priority.”

Emerging Asian markets
In contrast, China – which is buying Australian wine for even less than Germany – is quickly becoming an important export market. Nowhere is Australia’s wine surplus more obvious. The volume of Australian wine sold into China increased by a massive 575.2%, yet price per litre declined by 59%. According to the Australian Government’s Wine Export Approval Report: “Bulk red wine accounted for just over 70% of the shipments [to China], while bottled red contributed 19%.” As Kilcline explains, “It is clear that the Australian wine industry as a whole sees the emerging economies in Asia as an attractive opportunity. But distribution challenges remain for many producers.” Moulynoux, meanwhile, confirms, “Asia is an extremely important emerging market.”

Scandinavian monopolies
Another market that presents both opportunities and challenges, is Scandinavia. Denmark and Sweden in particular are important to Australia’s wine exports, both showing strong growth in the past year. HwCg’s marketing manager, Henry John, explains that the newly formed international branch of the business “has a specific mandate to trade in Scandinavia and Benelux. Scandinavian countries and Holland are the best targets for us.”

The challenge in Scandinavia, as Nugan explains, “is obtaining listings in the monopoly markets. However, once listed the sales can be substantial.” As Hill puts it, “There are the obvious difficulties of getting a foot in the door in Scandinavia. Kilcline believes, “The positive side of such a system is that new entrants to the market can secure a listing based on the quality of the wine. There is not an automatic advantage for the mighty brands, so that is very reassuring for new players.”
Hill also comments that, “70% of the Scandinavian market is bag-in-box, so this is a major consideration for us.” These kinds of concerns are of particular importance when exporting to a number of different markets, each with individual needs.

Tailored styles
A major factor for producers is different consumer preferences in terms of wine style. For HwCg, John explains, “We do tailor our wines for a UK palate. We are aware of what the UK palate perceives as being dry, as opposed to medium-dry, for example.” For markets like Scandinavia, which is new to HwCg, John says, “There are currently no plans to specifically tailor styles to that market, but there will inevitably be winemaker input. It will be a learning curve for us all.” Kilcline explains that for 7th Continent, “Stylistically we have aimed to reflect the regional expressions of our wines.” “[Nugan Estates] handles the market differences by listening to what customers need to be successful in their market. Then we try to cater to their needs as much as possible,” says Nugan. “Having said that, we will not compromise our wine quality for any market. It’s the ultimate test, whether consumers will buy the product a second time, and hence is critical to a brand’s success.”

In terms of packaging, John also points out, “There will be certain legal requirements. Norway, for example, needs separate back labels, and we will have to address that.”

With McGuigan Simeon, Schaafsma has recognised the importance of different packaging in different markets. “One of the things I noticed in the UK was the difference in packaging compared to Australia. Ours was too contemporary; the UK wanted a white, classic label.”

Moulynox says, “We have different bottle shapes for different markets. Likewise, we provide the same product in 12-pack in North America as we do in six-pack for the UK, for example.” This individual approach to different markets is also a factor for Percy Fox, as Kilcline confirms. “We keep an open view in terms of how our packaging formats may evolve, and one of our criteria with our selection of bottler was flexibility on packaging options.”

One of the most obvious differences between worldwide markets is that of preferences for different closures. Hill confirms, “There is a great deal of resistance to [screwcap] closures, especially in Italy and Germany. We’re finding that our European customers are slowly becoming more accepting of screwcap closures.” Moulynox confirms, “Screwcap is a global trend [but] markets such as North America and Asia are more inclined to value cork closure.”

There is undoubtedly an Australian focus on increasing exports, both for bulk sales and for more premium, higher-value offerings. The proportion of McGuigan Simeon’s wine exports, for example, have increased in the past 18 months, up to 60% of total production, according to Schaafsma. “Our ambition is to grow it outside of Australia,” he says.

The opportunities presented by so many diverse markets and an abundance of good quality wine bodes well for Australia’s exports. A consistently decreasing average price per litre is cause for concern, however, risking the reputation of brand Australia, as well as putting income from wine sales in jeopardy. With numerous predictions of a resolution to the surplus in the coming years, this will be an interesting and critical time for Australian wine.

Globe trotting

The reach of the Australian wine industry spreads far and wide, and there are a number of important markets beyond the top five of the UK, US, Canada, Germany and New Zealand (see table above).

In the Asian market, Japan is undoubtedly an important focus, both because of its proximity to Australia and the opportunities it presents for building value. According to Australian Government export figures, Japan represented the highest increase in value per litre in the last year, up 3.1% (MAT Nov 2006), second in price per litre only to Singapore, which is responsible for far less sales.

Japan represents an interesting market for Australian wine. “The Japanese buy on brand name,” explains Henry John, marketing manager at HwCg. “They know about Chablis and the Latours, so it’s about icon building. It’s about providing top wines to make a stir in their market, because that’s what they go for. It’s a very different dynamic.”

McGuigan Simeon is one company that has a distinct advantage in Japan, given its partnership with Tesco. Paul Schaafsma, regional director for the UK and Europe says, “One thing Tesco has done is to offer its existing supplier base the chance to be part of its international suppliers.”

Schaafsma believes the market is full of potential. “There’s been a lot of press in Japan about red wine being healthy for you – it’s converting them from Scotch and water. Red wine is seen as a positive thing.” In addition Australia is a destination for the Japanese to visit, which means that its wines are more sought after. “Australian cues can be brought in,” explains Schaafsma. “We need to depict the nature side, without introducing a critter-brand sort of style. Packaging is important In Japan, especially at a premium price point,” he adds.

On the other side of the world, Ireland is attracting attention. “The Irish market is very important,” says Nugan Estate’s general manager, Matthew Nugan. “It is currently one of our largest export markets, and is a fast-growing and strong market for Australian wines generally.”

Another country that offers opportunities for Australian producers is Iceland, although as Schaafsma points out it is not a volume market. “We might sell five containers, which is nothing. It’s not going to change anyone’s tactics, but Iceland offer premium slots,” he says.

Iceland also ticks another important box for McGuigan Simeon. “Icelandic consumers are quite educated. They buy anything regional, like Barossa Hills,” says Schaafsma.

Finally, with the banning of Georgian and Moldovan wine, Russia represents a significant opportunity for other wine producing nations such as Australia. “It’s a massive opportunity for European and New World producers, if you can find a good distributor,” says Schaafsma.

“Even if the ban on Georgian wine changes, at least we’ve taken the opportunity to show
the Russian consumer what’s available.”

© db January 2007