Wine Industry Future

Once again Australian wine is at the crossroads. Although most people involved in wine are convinced of its long-term future, few deny that the next five years will be a watershed for one of the few Australian industries with the potential to contribute to our national balance of payments, as an actual export earner and an integral player in the future of our valuable tourism industry.

The facts don’t need embellishment to paint a serious picture. Australian wine finished last financial year 21.0 million litres down, or 5.7. This was in spite of a small increase in export of 1.3 million litres. The domestic market declined by a massive 6.8 on the previous year, a volume of 22.3 million litres. That’s a lot of swimming-pools. This is an historic turn-around, seeing the last time domestic sales fell was in 1971, with only 0.3.

The volume of Australian wine exported grew by 97 in the ’86/’87 financial year and 84 the year after. Last year it grew by only 3.3, affected by exchange rates and the indifferent and inconsistent marketing approach taken by Australian wine companies.

The American market, our third biggest wine export earner, fell by 33.9 and the Canadian market, traditionally a stronghold for Australian wine and currently our fourth major overseas buyer, fell by 11.8. Our second-largest market, the United Kingdom, remained stable with 0.1 growth and Sweden, our number one, grew by 26.4 thanks to a massive increase in its consumption of our table wine. It is, however, fair to say that in the case of Sweden we are helped to no small extent by the after-effects of Chernobyl. Swedes drink our wine so afterwards they won’t glow in the dark.

Huge new plantings of premium varieties such as chardonnay and cabernet sauvignon in many Australian wine regions will soon bear their first crops. Thousands of cases of Australian wine remain unsold in American warehouses and retail outlets, many awaiting a voyage back home.

With the number of price increases the consumer has witnessed over the last few years, it must be difficult to imagine that the wine industry is in anything but a truly prosperous condition. There is an American saying becoming applicable here which goes that the only millionaire winemakers in the Napa Valley are the ex-multi-millionaires.

Wolf Blass’s continuing success clearly underlines that it is possible to make big money out of wine, but his is an example that is all too rare. At time of writing it is premature to state their names without risk, but two very aggressive growth-orientated wine companies which many believed would be next to follow along the Blass trail of glory, now appear on decidedly shaky ground.

Fortunately the drop in the domestic market is at the least profitable end – in cask and bulk wine. The public are now choosing two-litre casks instead of four and five-litre and I can’t remember the last time I saw anyone drink wine from a flagon. Bottled white wine consumption grew by 8.4 and bottled red by 3.5.

Wayne Jackson, Group Managing Director of Hardys Wines, one of the major exporters of Australian wine, is concerned at the wine sales for this calendar year. To the end of July this year, they are down 8 for the same time last year, and not much appears to have improved since. “The domestic market has cooled off. Bulk wine, especially chardonnay, is now available from wineries for the first time in a long time. The price is high at present, but will fall as interest rates hold and we get closer to next vintage when more comes on stream. I expect the discounting of prices and erosion of margins”, he said.

How does a small grower and winemaker view the future of Australian wine? David Fyffe, who with his wife Christine owns and manages the well-known Victorian winery Yarra Burn, expects companies in the premium market to do well and for those producing lesser wine to fall away. His future, he says, will ultimately depend on export, an area he is just beginning to look into.

Exports of Victorian wine have just gone from $11M to $17M in one year, and are now very close to the New South Wales level. How much these figures are boosted by bulk sales from Mildara, Lindemans and Brown Brothers I am not certain, but some small wineries around Australia have been able to make solid growth overseas. Many, it should be said have wasted a lot of time and money for nil or negative result – some of it their own, some of it the governments’. Some small Victorian wineries have tried selling wine overseas before even developing sales representation in Sydney!

David Fyffe would present no such problem. Yarra Burn has national distribution and will run at peak production of 12,000 cases per year in around three years’ time. David Fyffe will look to export around a third of that, believing that 8,000 cases per year is a sound, safe and marketable level for Yarra Burn in Australia. “You are doing well to sell 400-500 dozen to an overseas market if it takes off, so I’m likely to sell small batches to different countries”, he says.

This creates immediate additional work and expense for David Fyffe. Different countries and American states speak different languages and have different labelling regulations. It’s a burden for companies to deal with small quantities of wine. Fyffe has just prepared three pallettes for export overseas. “Our labelling costs went up from 6.4c per label to 18c”, he says. “This equates to $1100 or over 60c per bottle extra for the three pallettes. We have to wear it or add it to the cost.”

David and Christine Fyffe work extremely hard to promote their brand interstate. Last year they spent $18,000 in Sydney alone, on air fares, accommodation, lunches and functions with the media and trade. Their NSW market is still small, and they have to sell a lot of wine to cover that expense. Selling and marketing is the biggest hurdle faced by small wineries, which are often under-capitalised under sagging under high interest rates. Small winery quality is improving and quality is not the major issue. As David Lance of Diamond Valley once told me, “I thought that making the stuff would be the hard part.”

Wayne Jackson blames the upsurge in the Australian dollar during the latter half of 1988 and the massive increases of grape prices during last two vintages for our lack of export growth. “The success of Australian wine export depends on our ability to control costs and the willingness of the industry to market and promote. With grape prices at $A1500- 2000 per tonne it’s very difficult to compete. It’s not enough for the industry just to ship wine overseas”, he says.

“The tax regime in the United States means that small increases in the Australian price of wine are reflected in large increases at the American point of sale”, says Jackson. Australian wine, which was introduced to most foreign markets on a ‘good value for money’ basis, is struggling to retain its market share as its cost increases. As Wayne Jackson says, it’s not that our wine can’t justify the higher prices – Australian wine can match the quality of the vast majority of world wines. Our problem is to persuade the markets we can justify the increases. With the many good, cheaper wines now appearing from South America and Europe it is going to be very tough.

Much of our price problem is directly the cause of the present federal government, elected with the promise not to tax wine. It has since imposed a 20 sales tax, in two instalments. Tony Crawford of the Australian Wine and Brandy Producers’ Association explains that winemakers tried to absorb a significant proportion of the first 10 tax and did not pass it all on to the consumer. That was almost impossible with the second 10, imposed in 1986. Wine prices went up – almost overnight. Worsening economic conditions and high interest rates have reduced consumers’ spending power, so of course the demand for wine has fallen.

Consider too the disinformation of the new health lobby and neo-prohibitionist movement, who condemn the drinking of wine as a dangerous, irresponsible, anti-social and subversive activity. That is another hurdle over which wine, however unfairly, will have to jump in order to survive.

Another spectre hanging over the wine industry is the possibility of an excise tax on wine, which would be likely to be imposed before the sales tax, leading to a double collection. Its introduction would have a disastrous effect on those who produce and market the 70 of table wine still in the form of casks and flagons, who are already in danger enough.

Along with those growers who continue to charge above $1500 per tonne for premium grape varieties, they are the people already with the greatest problems. That is, apart from those who naively enter the wine industry with the belief that a lifetime in law, medicine or banking is a passport to success and happiness in wine. Don’t even think about it.

As David Fyffe says, “I’d hate to be a new label right now.” Please login to post comment