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Copyright © Ric Einstein 2009
Problems and Solutions (5 February)
Since I wrote the recent article ‘Where To Now?’ a couple of readers have provided me with some fascinating facts that are worth sharing, as this information relates to important issues for the Oz wine industry. This article will cover those other issues and suggest possible solutions.
Before we get into that data, it is important to note that at the same time as my last story was posted, the latest economic data from China, Japan and the UK has been released. The prediction is that deflation will hit China in 2009 and that their economy will stall. That’s bad news for the Australian economy as China is our largest export market. The UK, our second largest export wine market, is now officially in recession, as is Japan, another large importer of Australian products.
The latest Wine & Spirits Daily report zeroes in on some of the background causes of our wine woes. For example, it states: “A main problem, according to several insiders, is a tradition of marketing Australian wines based on low price and catchy labels rather than what is in the bottle. Reuters reports that large Australian wineries are the ones suffering the most because they “have allowed the quality of their products to decline in a bid to meet demand in the good times," said another Aussie winemaker.”
It’s impossible to argue with the (critter) label wine comment. There was a huge explosion of these brands over the past decade, as well as a push for the bottom end of the market. Neither of these two strategies makes long term sense. And long term sense is required when building a brand, or trying to carve a place for yourself in a new, or rapidly expanding market.
In terms of the decline in quality by some of the large brands, oh me, oh my! I have been banging on about this for the last decade. The best example, and it could be used by the Harvard School of Business as a classic case of how to completely wreck a successful brand, look no further than Rosemount. And the destruction of this brand started prior to Southcorp getting involved.
The other side of this coin was the wineries that decided their wines, which had not increased in quality, were suddenly worth way more than they had been charging. The best example of this was BRL Hardy. In the space of a couple of years, the price of Leasingham Classic Clare, as well as the Hardy’s Icon range pretty much doubled. If there had been a noticeable increase in quality, then a commensurate increase was reasonabley, but with BRLH, as with many other producers, that was not the case.
As the Wine & Spirit report shows, Australia is not the only country suffering in the wine world. In December, France saw the biggest declines, with dollar sales down 10.8% and volume dropping 19.2%. As far as imports are concerned, Argentina saw a massive 213% increase in dollar sales of wines priced between $11 and $15.
To me, the most telling data that shows just how much the US market is suffering is seen in the sales of Frog Bubbles. Data shows that sales of Champagne by volume declined 36.4% in the four weeks to January 4. Christmas and New Year are traditionally a time that people splurge and by Champagne. Even when times are tough and people are tightening their belts, the sale of Christmas food and wine rarely suffers. If anything, when belt tightening is in action, the Christmas celebration becomes more important. Families often spend more on food and wine, whilst cutting back on gifts, so this drop is a significant sign.
The importers of Oz wine are also feeling the strain. “It’s the worst it’s ever been” was one importers comment.
I have it from impeccable sources that two smallish Barossa producers have not been paid by their importer for an extended amount of time. We are not just talking about being a bit late, this falls into the “it could (possibly) be terminal” category.
Early last year when I spoke to a number of producers, they told me how well they were doing in the Canadian market. To quote Mark from Mallesco, “Canada was late to slow down, but when it did, it came to a complete halt.” (Each province in Canada has one Liquor Control Board that controls all booze purchases for that state/province, so it’s a monopoly situation.) In January, the largest provincial Control Board did not just cut back on its purchases, it completely cancelled its tender. They are buying zilch, nada, nuthin!
I do not want to sound like a doom and gloom merchant but this is reality. The industry is in for tough times. However, there has never been a better time to start to re-position the Australian category in our major export markets. We need to move away from critter wines, sunshine in a bottle, and overblown Shiraz and show the world what Australian wine is all about.
We need to promote regionality, a diverse range of grape varieties, and more of our elegant wines. Sell two things; what is in the bottle and the sizzle, rather than the (critter) label and a generic positioning (sunshine in a bottle or Barossa Shiraz.)
I have noticed on the US wine forums, and they are the best indicator of what is happening in the premium wine world, the start of something positive and an opportunity our industry needs to latch to for all its worth. As the palates of some US wine lovers are maturing and they are gaining more experience, these wine lovers are starting to show an interest in exploring mature Oz wines. Not the stuff that has been made for the US market, but the sort of wines that we Australian revere and like drinking at home.
There has never been a better time of the industry to build loyal clients in export markets. It can be done slowly and on a small scale, but over time, it should pay big dividends. Showcase mature Oz wines at tastings or better still, show these wines at dinners in overseas markets. The people who pay to attend a dinner with matching, aged wines, are the sorts of people that will buy wines to cellar, even in this difficult market.
During the World War Two, it was extremely difficult to buy Scotch Whiskey. Johnny Walker kept advertising (in a small way) throughout the war. At the end of it, when Scotch became freely available again, Johnny Walker became the worlds biggest selling Scotch. A position in held for many decades. Slowly, slowly, catch the monkey, and this method could start to engender a long-term revival in Australian wine. The real benefit in targeting this market is that it is a more mature one, and one that is not chasing the newest and latest thing. This market is capable of thinking and deciding for themselves. They don’t need to be told what to like and not like by a guru. These buyers are the long term customers.
Things might be tough, but there are opportunities for the players who are dedicated to the wine business for the long term, and are not thinking about selling water heaters (or beer) instead. Likewise, it is an opportunity for the industry leaders to re-position Australia’s wine image. The only question is will they show enough leadership to make it happen!
Feel free to submit your comments!
Copyright © Ric Einstein 2009