Australian wine: Ripe for the picking

Australian wineries are proving popular with Chinese buyers keen to ensure their supply of wine.

WINE PRODUCERS in every corner of the globe have set their sights on China’s vast and increasingly wine-friendly population, but nowhere more so than in Australia.

Australian wineries see themselves as particularly well placed to service the growing Chinese interest in wine; partly because Australia is an English-speaking country that’s geographically within easy reach of the Asian continent, and partly because their softer, rounder styles of wine seem to be suited to the Chinese palate.

However, it’s been well publicised that Australian wineries have been through some challenging times in recent years. With tough market conditions, excess production and falling grape prices, numerous small businesses have been hitting the wall. In many ways, it’s an investor’s dream.

Some Australian wineries have launched an attack, opening export offices and even cellar doors in major Chinese cities. However in recent months the tide has been turning, and the Chinese have been travelling to Australia to ensure their supply of wine in the best possible way: buying wineries.

At any given time, it’s difficult to pinpoint the precise number of Australian wineries that are in negotiations to sell to a Chinese buyer.

In some cases it’s simply that some level of financial backing has been taken on board, but rumours of takeover bids and potential new ownership swirl around companies large and small in every wine region in the country. Many of the buyers approaching Australia already control routes to market in their homeland.

If you’re managing the distribution at the sales end, supplying that demand from your own winery at the production end is a logical step. As an additional motivation, the Chinese Central Government is now actively encouraging overseas investment by privately owned Chinese enterprises through the offer of guidance, policy support and, importantly, tax credits.

Sunshine Creek Vineyard in Victoria’s Yarra Valley claims to have been the first Chinese- national owned vineyard in Victoria, purchased by Mr Zhou Yun Jie in 2008. Zhou and his team created the Sunshine Creek name but say they trade off the Yarra Valley’s winegrowing history and reputation to promote their wines. Production is exported to China where it is sold through the brand’s stores in Beijing.

Similar stories now seem to be cropping up on almost a weekly basis, all over the country. “The phone calls went from, ‘We want to buy your wine,’ to, ‘We want to buy your winery.’ It’s certainly ramped up in the last couple of years,” says Matthew McCulloch, general manager of Chateau Tanunda.

“We’ve certainly seen increasing interest in the wine sector, as we did with Japan buying up holiday resorts in the 1980s and ‘90s. There are some very high net worth individuals in China. A lot of these people may have made their money in mining or other areas where the work wasn’t particularly glamorous, and now they just want to spend their money on something nice,” says McCulloch.

“But the properties they want in the Barossa are Chateau Tanunda, Yalumba, Seppeltsfield, or Chateau Yaldara, because they’re the big impressive buildings.” A Chinese soap opera called Jiang Ai (Cherish Your Love Forever) filmed some episodes in the Barossa in February 2012, the storyline for which was that a rich father was buying a winery for each of his four daughters. You can guess which wineries they filmed at; and in the same way, buyers visiting the country are not interested in corrugated tin sheds.

IN CONTROL

“Their pace of learning is so rapid, everything’s changing in a matter of weeks,” comments McCulloch. “The difference with Chinese buyers is that they want to control all the production and divert it all to China, cutting off any other previous market. Consequently they’re struggling to find what they want.

We tend to respond that it’s not our preferred option. Our preferred option is down a joint venture route, like we have with Banfi in the US. The way we see it, the distribution partner should not be too involved with production,” he sums up.

“They’re aware that Australia is one of the places where good wine can be made and we’re ready to build. If they take ownership they can control the quality of the product and control the brand in the market at the other end.

“Barossa is a high quality region, and one that’s recognised in China, so if someone gets a brand away properly in that market, the value of our production will increase exponentially.”

CULTURAL CHASM

Not all buyers approach their chosen winery directly, and the real estate market in some regions has been reaping the benefits of this renewed investment in rural property. However, it’s not just a case of signing on the dotted line; communication between two cultures with such different ways of doing business can be a serious stumbling block.

“The experience we’ve had with Chinese buyers is that it can be a very awkward process,” says Jill Turton, director of Stocker Preston real estate agents in Cowaramup, Western Australia. “They generally come with an idea in mind that possibly isn’t so realistic. They want to find the perfect option and that’s not always here.

There are options here that buyers could use as a foundation to build on, but they usually want to make a return straight away. That’s their business plan; they want to get a foot in the door and they want to come into the region at the top level, but they also want to pay as little as they can.

“The other experience we’ve had is where the buyers have an in-between person. This person tells us something so we give them the information to go back with and then the buyer wants something else. I think it’s often the case that the buyers are not sure what they’re looking for, so they’re refining as they go through.

“There haven’t been an awful lot of properties sold to Chinese buyers here. They come back three or four years in a row and still don’t take action on a property. The thing that makes it awkward is possibly the cultural differences in doing business between the regions, and having the in-between man makes it difficult too.”

ECONOMIC BOOST

Turton is quick to point out that international investment, from Chinese buyers or anyone else, is perfectly welcome among the local community. After all, these investments boost the local economy and international buyers are still employing local people – winemakers, vineyard managers,marketing and cellar door staff – opportunities that many wine regions have a real need for.

Tasmania is one of those regions, and so much so that the state government has been assisting in a drive to encourage investment from overseas. Carole Rodger and Karl Paal at the state’s Department of Economic Development, Tourism and the Arts have been involved in the project.

“The idea came from various sources, but the project was really industry and market driven. The quality of Tasmanian wines is widely recognised and demand still outstrips supply,” says Paal. “Wine has been identified as a priority food and agriculture sub-sector and is a current contributor to growth. It’s a driver for wine and food tourism and has a strong link to Tasmania’s brand proposition.

It’s a fairly small contributor currently, but there’s real potential for growth.” In the run-up to the International Cool Climate Symposium held in Tasmania last year, the department produced a very detailed booklet providing hypothetical investment scenarios with projected timelines and returns, called Wine Industry Tasmania – a Guide for Investors.

“Our main focus was to understand the industry better and develop materials to support investors. We engaged with the industry and supported Wine Industry Tasmania to hold the symposium. We also held a seminar with consultants delivering some of the information contained within the guide about the Tasmanian opportunity,” says Rodger.

“We’re certainly open to discussion to facilitate any interest from Chinese or other Asian buyers. But it’s early days, and it’s a slow process.”