AUSTRALIA FINE WINE: It’s tough at the top

It hasn’t been easy to develop a top-end image from a position of oversupply. But the Australians are determined to crack the elusive £6 barrier in the UK. Patrick Schmitt reports

Although this is an article about Australian wine a drawing by cartoonist Hugh Macleod for South Africa’s Stormhoek brand springs to mind. Two figures are talking, one says, “A good product at a good price.” The other responds, “You are such an asshole.” Why recall this? Because, it amusingly illustrates an important point; anyone can – and everyone does – claim to offer value for money.

“Quality and price are not points of difference; you have to find something else to keep the customer interested,” explains Nick Dymoke-Marr, managing director at Orbital Wines, the UK agent behind Stormhoek and Australia’s Camden Park.
And for Oz, which has been guilty of selling its mainstream wines almost exclusively using money-off deals, it is time for a change of tack. Not only is the current Australian surplus – fuel for half-price offers – forecast to disappear in around two years time, but the consumer is not loyal to lines on promotion.

Also, by focusing on price, and tweaking wines to suit the supermarket shopper, “The UK consumer sees Australia as reliable, full-flavoured wine that will deliver well up to £6,” admits Kirstin Moore, regional manager, UK & Ireland at Wine Australia. In other words, Australia’s fine wine credentials have been sacrificed at the altar that is the gondola end. But with past actions come lessons for the future, and Australia now appears acutely aware it needs to develop sales of upmarket wines for profit, kudos and increased presence in the UK. At the moment, the country is trading in a narrow price band through a consolidated retail base. It is a high-volume but somewhat precarious position to be in, made increasingly shaky by rising costs of selling wine in the UK market.

Oversupply has also forced a continuous decline in the average price of exports. In November 2006 Wine Australia figures showed a 7% decline in the average price of Australian wine to A$3.73/litre. Those shipped to the UK alone were down by 3.4% to A$3.49/litre (MAT November 2006, Wine Australia).

In short, volumes of bulk shipments have been increasing more than bottled wine exports, and hence the decline in average prices. This situation will no doubt change in 2007 when yields are likely to be 20% down due to frost and drought, but in the meantime, developing a top-end image is at odds with the continued “dumping” of wine on the UK market. As Brett Fleming, European manager, Rathbone Wine Group, says of Australia’s finer offerings, “We have got the product and the wineries, the challenge is persuading the consumer to buy more expensive wines.” And, like Moore at Wine Australia, he believes, “There is still this idea that you only buy Australia up to £6.”

So what can be done? Many believe Australia needs to build an image of diversity using regional brands as the basis. “This will maximise the opportunity to be specific on wine styles,” explains Clare Griffiths, vice president of brands marketing at Constellation, alluding to the likes of the company’s Leasingham Clare Valley Riesling. Similarly, Martin Johnson, CEO, Evans & Tate thinks, “The answer for Australia and other places is regionality … it is simpler for consumers to understand that certain things grow better in certain types of terroir, for example Shiraz from Barossa.” Johnson makes the point that not only is the consumer “looking for order and structure”, but also that people “all over the world are moving up and they are looking for beverages to deliver more – for instance craft beer, boutique vodka and gin and single malt Scotch. The wine business is no different and regionality can bring to the table something other beverages can’t.”

Hence Wine Australia has been busy compiling a Directions Industry Strategy which will “talk about the diversity that exists in Australia”, according to Moore. It will be presented to the UK trade at the London International Wine & Spirits fair in May and will form the basis of a global approach for Australia. Moore says the report will include market analyses as well as viticultural research, highlighting, for instance, the characteristics of varieties from particular regions.

Regional red herring?
But not everyone is convinced by the regional approach. After all, some of Australia’s top wines such as Penfolds’ Grange and Hardys’ Eileen Hardy are a result of inter-regional blending. Matt Douglas, general manager for on-trade at Bibendum believes Aussie regions are “too large, too unknown and too variable to be able to market successfully”. He also feels that Australia’s well-known top-end wine brands have been built successfully without reference to specific terroirs. “People who buy d’Arenberg have no clue where it is from; they understand the character, and know about the consistency through reading and buying experience,” he says. Certainly Pierre Mansour, buyer for Australia at The Wine Society, points out, “The biggest impact on sales is down to the power of the brand – so Grange sells more easily than a less-known but just as premium producer.” He adds, however, “Regionality is becoming more important and we will be relaunching our Australian list next year to take this into account.”

Overall, one gets the impression that although many of the retailers and brand owners believe in the regional concept – and are hoping to capitalise on it – they are understandably unwilling to wait for it to drip into consumer consciousness. In the meantime it is the producer brand that must be developed and extended upmarket using a range of approaches. “The wines are regional but we are not using a regional message,” says Adrian Atkinson, wine development director at Pernod Ricard, when discussing Jacob’s Creek and its upper tier under the Heritage umbrella. “The message is about quality and the heritage of Jacob’s Creek,” he explains.

Focus on £8-plus
For Jane Hunter, European marketing director at E&J Gallo, distributor of McWilliams wines in the UK, “The focus is on growing £8-plus business.” To develop sales at this level, she stresses “the importance of conveying heritage, announcing awards and accolades at the point of purchase” as well as transmitting an impression of limited availability. “Consumers don’t want to take something round to their friends that they already have in the wine rack,” she explains. A regional message is still important for McWilliams, but it should “underscore” the above.

McGuigan Wines’ Tempus Two, Tesco’s best-selling brand over £10 in Christmas 2005 according to Paul Schaafsma, regional director for the UK and Europe, has gone for the regional approach, be it Barossa Shiraz or Hunter Valley Chardonnay. However, Shaffma believes the success of the brand in the off-trade has much to do with the packaging which, being highly distinctive, has ensured people pick it up off the shelf. In the on-trade, he thinks the wine, which is listed in The Dorchester’s China Tang and Gordon Ramsay, has done well partly because of the somewhat obscure varietals for Australia – for instance Verdelho and Sangiovese. “They are not mainstream and have created some interest,” he says.

On-trade presence
Nevertheless, if there’s an area where regional differentiation is an important foundation for the success of individual wines it is the on-trade. Here, a range of geographically distinct areas provides a reason for listing a number of varieties from a single country, and a way of organising them. The on-trade is also vital for building Australia’s fine wine presence in the UK, not only because it provides a home for expensive, obscure wines, but also because in this environment they can, and need, to be hand-sold.

Supporting this view is David Gleave, MD at on-trade specialist Liberty Wines, which handles the likes of Cullen, Brokenwood, Plantagenet and Shaw & Smith wines. “The regional message is proving key,” he says. “We have done well with Shiraz from five or six different areas, and regions are particularly important when the common refrain is ‘all Australian wine tastes the same’.”

However, at over £40 on lists, Bibendum’s Douglas makes the point that it’s hard to sell wine wherever it’s from. “Volumes are never going to be large, be it for Australia or France,” he says. Nevertheless, he admits that d’Arenberg’s Dead Arm Shiraz, which is often priced at over £100 on lists, has no problem selling. “We could probably sell twice as much as we get every year,” he says. Also, he points out that both France and Australia are performing well at the top end. As for other competitors, “California is not the flavour of the month right now and the volumes of New Zealand Pinots are skinny at this level.”

He says of fine wine in restaurants, “Either diners go for solid brands they know or a small boutique grower who is the new thing. If you are unknown and expensive, it’s not easy.”

Supermarket challenge
For Australia to develop sales of its more expensive offerings, it must consider all channels of the UK trade, not one in isolation. “The restaurant sector is important for building [top-end] brands,” says  Evans & Tate’s Johnson. “It is relationship-orientated and manpower-intensive but worth it.” But the brands must also be present in the off-trade, he says, because, “Consumers will then ask for the wine in retail.” And as for the retail sector, Johnson adds that, “The lines between the channels are blurring; Tesco is becoming significant in fine wine and not all the independents are good with fine wine.”
This certainly suits Australia’s big players who are still strongly focused on the multiple sector and have long-term relationships with the major supermarkets. Gallo’s Hunter in particular sees the potential for the supermarkets’ fine wine offering: “Tesco is defining its fine wine strategy and it is critical McWilliams is part of that.” 

Modest gains

Australia’s average price in the UK off-trade is £4.28 (ACNielsen MAT to we 04.11.06). This is 2p up on the same time in 2005 but it lags behind the overall market increase of 7p from £3.84 to £3.91, as well as the leaps made by many of Australia’s nearest rivals; France’s average price is up 12p, the US is up 8p.

Nevertheless, premium wine sales are increasing for Australia. In the UK off-trade Australian premium wines are up 27% in the £8-£9 price band (ACNielsen MAT to w/e 04.11.06), while the total market is up 4%. Furthermore, this area of the market represents 76,000 cases for Australia, and 445,000 cases in total. France has 212,000 cases in this price band, but has seen a decline of 9%. The US has dropped 5%, although Spain, South Africa and New Zealand are up 30%, 14% and 9% respectively. But, creep over £9 and Australia performs rather less well, even showing a decline of 20% over £10 compared to an overall market drop of 10%.

© db January 2007