Yet another obituary…

In the wake of Keith Lambert’s departure from the top post at Southcorp the knives are out for Australian winemakers. An editorial at the important just-drink.com website suggests that ‘the fact remains that there are huge stocks still sloshing around Australia, in part a consequence of producers planting too much, too quickly. This has put the companies on the back foot with the increasingly powerful retailers.’

This poses a big question that shouldn’t be too difficult to answer. That question is: While present conditions of over-supply of red wine on the domestic market are empowering the country’s two major retailers to dictate terms to some degree over the major wine providers, how long will it take before export growth and a lack of plantings in current real time re-empower the major wine producers to have a stronger hand with respect to retail pricing in Australia?

Several thoughts come to mind. Firstly, no Australian industry is more cyclical in its nature than wine. Any party that oversteps the normal bounds of trading in any given short term will inevitably face a reaction when circumstances change, which never seems to take too long. Secondly, when times are tough, the big companies are usually in the best possible position to exploit their economies of scale to build brands and reinforce their presence. So who does best when economics sort themselves out? The big companies, every time.

The facts are these: Based on no change in export growth whatsoever, Australia has a likely three-year period in which red wine production is likely to exceed demand. Our big companies have developed very strong brands, locally and internationally. They have also managed to secure strong distribution for these brands, although they have achieved this in vastly different ways. Australia produces some of the most competitive and robust brands in the world of wine, yet we still account for significantly less than 10 of all wine export sales. And this has been achieved in the face of three of the most difficult vintages in modern history.

Anyone writing Australian wine off as a result of the unusual and perhaps illogical developments over the past few days is patently out of touch with the facts. The international wine market has never been as competitive as it is today and it is in the long-term interests of Australian wine to show that it can out-compete its competitors on a value basis. If that means a level of discounting in the short term to shore up market position and to make life difficult for competitors, so be it. Yellow Tail is a perfect example of how Australian wine can succeed at a very competitive price point.

Headline-seeking ‘editorial’ from sources like just-drinks.com is little more than hot air. Today’s editorial culminated with these pearls of wisdom:

‘The danger is that this sort of discounting will become the norm, a situation that could do irreparable damage to Australia’s image and eventually the quality of its wines, as reinvestment becomes impossible with wafer thin margins. There has been too much mutual finger pointing in the last 12 months, with each company too keen to blame one another or the retailers for the industry’s woes, instead of acting on the problem. Ironically it could be that nature has begun the job, with the prolonged drought that has brought this year’s harvest down by over 10.’

That is indeed as it may appear if you confine yourself to a small bandwidth of fact. Headlines and catch-cries are all over the place, while relevant facts concerning the majority of the key players are sadly lacking. Australian wine has become a very big and very serious industry. It deserves better analysis than the poorly informed and short-term opinion it is presently experiencing. Please login to post comment