AUSTRALIA PREMIUM: Raising the bar

With the entry-level market sewn up, Australia has now set its sights on the premium sector. But does it have the quality and depth of offer required to succeed? Clinton Cawood reports

AUSTRALIA IS A GIANT player in terms of entry level and mass-market wine, having built a number of brands and gained consumer confidence in a seemingly effortless fashion. This is not enough for the country’s ambitious producers, however, and they are increasingly focusing on a higher price point.

But ambition is not the only factor motivating Australian producers to aim for success in more premium price brackets. Consumers in a number of its primary markets are increasingly interested in a more premium offering, while practical concerns in terms of falling levels of supply are another major factor.

Whatever the reasons, Australia seems set to continue to be an increasingly important player in the global premium wine market.

Consumer focus
Wine Australia UK regional manager Kirsten Moore thinks this is best achieved by continuing to do what Australia does best. She believes the country’s producers can achieve higher price points “by continuing to deliver to the consumer wines that they can understand and of course enjoy, while also providing interest and a point of difference”.

This consumer-focused approach, so typical of Australian producers, is of central importance to Liz Stitch, managing director of Cumulus Wines. “For a consumer making a larger investment in a bottle of wine, they need some assurances. The reliability of Australian wines gives the reassurance they need,” she believes. While for Adrian Atkinson, wine development director at Pernod Ricard UK, a primary factor is to “always think of the consumer in everything we do”.

He adds that it is “crucial that we and other producers also continue to add vitality, drive and enthusiasm to the category”. While Pernod may own Jacob’s Creek, one of the largest-selling Australian brands in the UK with wines starting at £5.49, the company has evidently recognised Australia’s potential beyond this price point, offering wines within the brand selling for up to £35.

Ross Brown, head of Brown Brothers, believes that “adding depth and complexity to the Australian offer is the key and there is no doubt the depth and quality exist to do this”.

This is not to say that it will necessarily be easy to continue to develop these price points. “Some good old-fashioned pavement pounding can go a long way, especially with regard to the independent on- and off-trade,” Moore believes. Sean Shortt, Wingara Wine Group’s sales director, shares this opinion. “Our experience of selling wine at the top end of our portfolio is all about targeting the right audience, building relationships and wearing out a whole lot of shoe leather,” he says.

Laurie Webster, sales and marketing director for wine importer Vinoceros, agrees, saying: “Australian wines in the higher price brackets are going to be very much hand-sell opportunities. We need to convince the consumer with £8 or more in their pocket that an Aussie wine can stand proudly next to an Old World offering, and in fact in many cases will provide greater consistency from vintage to vintage and will often over-deliver in terms of quality versus price.”

Viticulturalist Geoff Hardy agrees, stating the belief that Australia needs to “steadily prove its quality-value relationship in these higher brackets with dynamic boutique brands and innovative styles and blends”.

According to Australian wine industry figures, Australia is already making headway in certain higher price brackets in the UK. Export figures suggest an increase in all price brackets above A$5 per litre, and a decrease in the A$2.50–A$4.99 bracket. At the opposite end, however, bulk wine shipments (below A$2.50 per litre) also increased (Australian Wine and Brandy Corporation, MAT June 2007).

The UK remains Australia’s most important export market in terms of value and volume, responsible for 281 million litres of wine, worth A$974m (£387m). However, a greater increase in volume than value resulted in a decrease of 2.7% in the price per litre for exports to the UK.

Aside from bulk wine, the figures therefore show a promising trend towards the premium, but not necessarily a dramatic one. Tapanappa’s Brian Croser believes that: “Australia can only take advantage of higher price brackets in the UK (or globally), when it achieves recognition as a fine wine-producing continent across a diverse range of wine styles from demonstrably unique regions, vineyards and terroirs that add other dimensions to the already crowded and competitive fine wine market now dominated by the Old World, the French in particular.”

Jane Hunter of E&J Gallo, which markets and distributes McWilliam’s Wines, thinks retailers are providing an opportunity in the UK as well, saying: “There is an increase in dedicated space for fine wine in the grocery multiples which is driving people to buy more fine wine for special occasions or to enjoy at the weekend.”

Paul Stratford, managing director of Stratford‘s Wine Agencies, has observed a similar rise in the popularity of “boutique” wines recently. “Consumers, who have been drinking Australian wine for years are now looking to experiment and trade up within the Australian category, with region-specific wines as opposed to catch-all blends from a number of regions,” he says.

Regional heroes

For producers and Wine Australia alike, this regionality is key to cracking these higher price points. As Croser says, “The only Australian terroir to approach the status of Napa Valley Cabernet Sauvignon, Bordeaux or Burgundy is Barossa Valley Shiraz, based on the domestic market appreciation of the style and quality and support from influential international critics.”

Nepenthe, a producer that is undoubtedly focused on the high end of the market, is inextricably linked with its region, Adelaide Hills, and makes use of individual vineyards in the region to offer the consumer more in terms of detail about its wines. MD James Tweddell, believes that what he refers to as “the commercial end of the business” has laid a foundation in the market. “The challenge now is to push the proposition. It’s important to recognise the amount of diversity that you get compared to 10 years ago,” he says.

Stratford believes “selling top-end Australian wine is a very different proposition to selling big brands at the lower end of the scale”. Practically, he explains: “Branding is far less important to the consumer purchasing wine over £10. At that level, it’s more important for the wine to have charisma – a personality and a story behind it.”

This is central to the recently launched “Directions to 2025” from Wine Australia, a strategy that has the support of significant players in the industry. A part of this document entitled “Influencing the consumer” explains that “with these Regional Heroes there exists a healthier return-on-investment for those who grow the grapes and make the wines”. For viticulturalist Bec Hardy, this focus “is very important because it makes people more aware of the many different climates in Australia and the variety of different wines we can produce”.

Andrew Buttery, general manager of Gemtree Vineyards in McLaren Vale, supports the generic body’s strategy. He also believes that “individual producers should take every opportunity to put their wines up against high-quality wines from other countries and show at any price point that Australian wines represent excellent value”. This is critical for Australia’s success at premium price points. Old World producers, and those from France in particular, have traditionally been more adept at creating iconic wines than their New World counterparts, something Australia needs to address.

Time is, of course, the crucial factor in all of this. Brenton Fry, managing director of Negociants International, says: “Marketing always falls 10 years behind what winemakers are doing. We’ve had a decade of refinement in wine sourcing – what the French call terroir. In Australia I’d say there are quite a few icon wines, but there are a lot that don’t make it over here.” Buttery agrees, saying, “There are more than a few examples of super-premium, iconic wines produced in Australia, but many are made in such small quantities that they do not reach the UK.”

For Sarah Wicks, brand manager at Hatch Mansfield, this is also because “the UK market is driven by lower-priced wines, and therefore premium wines are not a focus for this market, but hopefully that will change. Australia needs to champion the super-premium producers, who can pull the reputation of the country up with them.”

Pricing strategy

Opinions are mixed on the subject of how high to aim in terms of price point in the UK. Chris Stroud, events manager at Foster’s, believes that “Australia can go as high as it dares”. And reasonably so: he explains that allocations of super-premium Penfolds have already sold out for the year, with Grange selling for £150. Rutherglen Estates chief winemaker Nicole Esdaile believes, however, that the most promising price point for Australian wine in the UK is £9-£10. “We’re achieving prices much higher than this for our iconic wines in the over-inflated US market, but that market is incomparable to the more discerning UK market.”

Palandri’s David Hodgson points out: “Wine drinkers will notice exponential increments in quality for each step up in price point.” He goes on, optimistically, to say: “From now on we should see a move away from excessive promotions to rational price and innovative value-added mechanics. It should be possible to use our strong entry platform to build appreciation for finer, regional wines.”

Raising awareness
This platform of impressive success in the entry-level market can be seen as either a strong foundation or a hindrance. It is possible consumers may associate Australia with entry-level offerings only, making it harder to encourage them to stay with Australia when they trade up. However, Croser says: “Australia suffers more from its image as a hot dry viticultural continent than it does as a producer of commodity wine in its challenge to establish its bona fides as a supplier of a diversity of fine wine.”

As Fry points out: “If you look at other countries, and France is a good example, they’ve always had entry-level wines and premium-priced wines as well. The New World has had a sensational rise to fame at the entry level, and that opportunity continues up the ladder.” Esdaile puts it simply: “We need to make the market aware that we do indeed make fabulous, world-class premium, super-premium and iconic wines, not just to offset the small-margin volume sector with some more highly profitable wines, but to secure the future of the industry.” She goes on to say: “Australia needs to be a great producer of satisfying, reliable and attractive wines for every day, as well as highlighting its regionality and iconic wines.”

The recent harvest may help with this, with yields down in most areas but quality generally considered to have increased. Following an ongoing surplus in Australia as it does, this affects the Australian export market in a number of ways. As Croser says: “The 2007 vintage disasters (frost, fire and drought) mostly affected the cooler coastal wine regions and the surplus of wine from these regions has largely dried up.”

Quality over quantity

Constellation’s Peter Spencer explains: “When yields are down, quality goes up. The biggest impact [of a shorfall] is on the tertiary brand area at lower price points. In premium wine, we’ll get great intensity in the reds. Some winemakers in Australia are saying it will be the best vintage since 2004 or before. And the consumer will get the benefit.”

According to Kooyong Estate’s Sandro Mosele: “The main reason cool climates will play a more major role is that it is these regions that have improved the most. Almost all of Australia’s cooler climate regions are very young. As such, they have the greatest room for improvement due to both practices and, of course, vine age.”

In addition, Croser believes that Australia now has significant numbers of mature vines in both warm and cool-climate regions “that represent a real opportunity in the global fine wine market”.

Premium and super-premium Australian wine production, and the subsequent growth of these exports, seem set to continue.

The potential is there, as is willingness from those involved. Wine Australia’s long-term strategy supports this part of the market as well, and even factors such as yields in recent harvests are pushing the market in this direction. The future is looking increasingly premium, and distinctly Australian in nature. It is probably time to brush up on those obscure Aussie wine-growing regions.

© db September 2007