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AUSTRALIA WESTERN: The river runs deep
“standfirst”>With a climate and terroir resembling Europe’s classic low-yielding regions, the wines of Western Australia’s Margaret River deliver excellent value, if not volume.
Sarah Ahmed asks whether its surrounding areas can achieve similar recognition
A minnow when it comes to volume, with only 3% of the national crush in 2006, in terms of value Western Australia (WA) punches well above its weight. The Wine Industry Association of Western Australia (WIAWA) estimates that WA accounts for over 20% of Australia’s premium and super-premium wine production. So why does this remote state have such a large quota of “regional heroes” and “landmark wines” at higher price points?
Top down
The straightforward explanation is that WA’s output is not skewed by massive, irrigated, inland areas like the Murray-Darling Basin, whose warm climate reliably churns out inter-state brands, the cannon fodder of cut price promotions. It is simply not equipped to play the numbers game like the eastern states.
Accordingly, as Margaret River pioneer David Hohnen explains, WA’s modern wine industry had a regionally differentiated, premium focus from its 1960s origins when the government encouraged diversification into Margaret River and Great Southern, whose challenging viticultural conditions more closely resemble Europe’s classic, low-yielding regions. The switch away from the Swan District to cooler regions south of Perth has laid the foundations for WA’s generic reputation for elegant wines, which Rob Bowen, Houghton’s senior winemaker, claims are “some of the most food friendly in the world”. The shift also dictated a higher price point where Gordon Grant, Palandri’s CEO, says, “We don’t have the climate or the water to produce South Eastern Australia’s (SEA) yields.”
European cachet
This inherent point of difference combined with what Grant describes as “a more European oriented style” has usefully distanced WA’s wines from SEA’s commodity brands and the country’s stereotypical fruit bombs. The European resonance finds its apogee in Margaret River, WA’s iconic wine region, which shares Bordeaux’s temperate, maritime climate and gravelly soils. In an early example of homoclime matching, the region’s pioneers – family-run wineries – focused on Bordeaux grapes. In so doing, they established a clear point of connection with fine wine consumers: terroir wed to winemaking excellence. Leeuwin Estate’s Art Series Chardonnay has achieved comparable status for the region’s Chardonnay and, like famous French counterparts, Margaret River’s landmark wines have a strong track record at auction. Cullen’s Diana Madeline Cabernet/Merlot, Leeuwin Estate’s Art Series Chardonnay and Moss Wood’s Cabernet Sauvignon are three of only 11 wines awarded exceptional status in Langton’s Classification of Distinguished Australian Wine.
Investment and wider distribution
In the 1980s and 90s, Margaret River’s prestigious reputation attracted deeper pocket corporate players. This development, which coincided with expanding global markets, contributed to a huge leap in exports from A$0.8 million (£0.3m) in value in 1988/89 to A$50.7m (£21.2m) in 2005/06 (WIAWA).
Despite fears that the bean counters might jeopardise the quality focus, Hohnen, who sold his interest in Cape Mentelle to LVMH, says corporatisation has been positive where “it injected a high level of professional management skill and secured distribution in the best supermarkets, independents and on-trade”. Grant adds that, while the pioneers put WA on the map with super premium wines, the economies of scale and volumes produced by the corporates have extended the repertoire, placing premium WA wines into the hands of the bigger buyers. Big players like Houghton, Palandri, Evans & Tate, Capel Vale, Howard Park and Ferngrove Estate have successfully used fruit from outside Margaret River, especially Great Southern, to provide WA quality and style at a price point. Hohnen remarks that even where Margaret River fruit is being produced in greater volumes: “its typicity still shines, even when harvest yields are high”. In consequence, WA’s wines have achieved greater market penetration and consumer recognition while maintaining WA’s upmarket image.
Growing pains
Strong criticism has, however, been levied at a third wave of investors drawn by tax breaks afforded to managed investment schemes (MIS). The WIAWA reports that WA’s land under vine increased by 80% in the last six years. The sharp growth in production, reputedly MIS-driven, created a serious oversupply of black grapes over the last few years and a proliferation of inferior, relatively cheap “cleanskins” (bottles with no regional label). Michael Kerrigan, Hay Shed Hill’s co-proprietor, says: “It’s not workable to play in the upper end of wine quality and be an investor-based company … the demands of production and ownership are too far apart.” Growers and major players alike, notably Evans & Tate and Xanadu, have run into difficulty following the MIS oversupply, sparking fears about the sustainability of WA’s premium reputation and prices.
Still, despite heavy debts, Evans & Tate’s strong Margaret River brand attracted a number of interested equity partners. After lengthy speculation, its restructuring was finalised in July with co-investment from financial services company Pendulum Capital and the Hunter Valley family-owned winery, McWilliams (who also become its global distributor). Likewise, Xanadu emerges better equipped to manage supply and demand. Since its de-listing and acquisition by the Rathbone family in 2005, production has decreased from a peak of 2,300 to 640 tonnes in 2006. Its winemaker, Glenn Goodall, says: “The rate of growth and bigger crops from young vines across several regions [as 100 hectares of MIS vineyards came onstream] perhaps contributed to a loss of focus with many different brands.” He adds, “By volume, a far larger proportion of this wine was in the extremely competitive lower price bracket.” Goodall welcomes the refocus on premium wines made from the varieties and blends for which Margaret River is famous.
Opportunity or threat?
While pulling in the horns is one option, Bowen believes that properly managed MIS with professional viticulturists do not challenge long-term sustainability. He says: “The majority of MIS have been planted in premium areas of the state and most of wineries’ contracts attach restricted tonnages.” He adds: “It is all about site selection and management … picking out the best parts of a vineyard … also much of the plantings in WA are under 10 years of age and as these vines mature, better and better wines will be made.”
In the meantime, WA has been granted a temporary reprieve from its oversupply in the form of a fabulous, low-yielding 2007 vintage, which provided the opportunity to sell surplus to the drought, hail and frost stricken eastern states. Kerrigan reports: “There was enormous demand for WA fruit from large winemakers in the east. For the first time in several years very little fruit was left unpicked … and already there is strong demand for the 2008 vintage; fruit prices are jumping rapidly.” Evans & Tate’s chief winemaker Richard Rowe says reds, the majority of the new plantings, represented the biggest percentage of what was shipped out.
Opinions are divided as to whether selling surplus to the east provides longer-term relief. Talk of a new inter-state GI, “Greater Australia,” which would encompass WA, has come to nothing. Bowen reckons: “It looks very much like the eastern states will have another below average vintage in 2008, so uncontracted growers should have another home for their fruit in the next couple of years.” He adds there is also an opportunity where, “WA’s wine style is so different, the eastern states’ players may have to change the style of their normal offerings, which should link them long term to the WA suppliers.”
Tony Davis, Howard Park’s senior winemaker, expresses doubt, believing: “there has always been a healthy market for premium WA fruit from the east, but the logistical cost tends to make it an expensive option.” He concludes that unsustainable vineyards will not survive the bulldozers where “the prices are below cost for most producers”.
Nurturing the golden goose
As Margaret River dusts down its halo, has the message not to kill the goose by diluting regional differentiation and devaluing WA’s quality brand sunk in? Although Stephen Bradshaw, Ferngrove Estate’s group export sales manager, reckons “it would be helpful to have the Greater Australia GI to open up options for periods of shortages and oversupply”, he is not alone when he says, “it is more important to create WA and its regions as recognised and sought after categories in their own right … the wines are quite different in style to most of SEA and we need to make the world aware of this fact”.
It remains to be seen whether regions other than Margaret River can add value to WA’s generic reputation for elegance by fostering clear associations with grape varieties. Hohnen admits of his new Margaret River venture, McHenry Hohnen Vintners, that while Margaret River’s standard Bordeaux blends and Chardonnay are a “door opener”, pushing Rhône varieties is harder work, even though they also thrive in Margaret River’s Mediterranean climate.
Grant, who says, “I would never expect a Frankland River Cabernet Sauvignon to sell over one from Margaret River”, believes that other regions should focus on points of difference. Great Southern produces excellent Riesling, while its sub-regions Frankland River and Mount Barker major on Shiraz as well as Bordeaux varieties. In Pemberton, single varietal Sauvignon Blanc performs well and Picardy’s Bill and Dan Pannell are setting the pace for Pinot Noir and Chardonnay using Burgundian clones. As Bradshaw points out: “Margaret River is not a one-stop shop by any means, in quality, value or style.”
What does seem clear is that WA’s premium regions have much to gain from Wine Australia’s Directions to 2025 strategy to encourage trading up by promoting “regional heroes” and “landmark wines”. The strategy’s sustainability drive might also address some underlying problems where improved access to global market intelligence aims to give investors a better understanding of supply and demand.
© db September 2007