Another day, another Penfolds bargain!

On one hand, it’s always a pleasure to see wine sold to customers at a bargain price. On the other, there is something terribly wrong with the prices that the new set of Penfolds Bin wines is selling for today. If I were a Penfolds winemaker, I’d certainly feel short-changed to see wines like Bin 128 2004 selling for well under $20. But winemakers and executives from other companies have also voiced strong concerns that it’s no good to see such wines sold so cheaply. It devalues the industry, it dents industry confidence, and it reduces profitability for all participants whose wines are habitually measured by the marketplace against the leading brands.

Let’s look at these prices against the broad environment of Australian wine today. The wine glut is virtually a thing of the past, so there is no reason for retailers to sell off wine quickly at extreme discount on that basis that they will remain flooded with high quality stock for anything beyond the short term.

In all likelihood, 2008 will be a short vintage. While some of the latest investigations have revealed surprisingly good bud numbers, the odds remain in favour of a small vintage due to ongoing moisture deficiency. In other words, we will remain deficient in wine stocks for some time. Usually, that sort of news pushes prices the other way.

Neither are we about to be wallowing under a deluge of high-quality Australian wine from the 2005, 2006, 2007 and 2008 vintages. Just when Australia needs good volumes of high-level wine to redress its approach to export markets, we get hit with the very worst of global warming, cyclical drought, unprecedented frost, diabolical smoke taint or whatever you want to blame it on. So, perhaps the retail market might have taken a longer-term view to ensure that wines of good to high quality are sold near their true worth, so they would remain on their lists for a longer period of time? Not in this country.

From the perspective of maximising retail profit, why have retailers discounted the Penfolds Bin wines as obvious loss-leaders or traffic-drivers in present vernacular? Couldn’t they have made more money in other ways? If, for instance, they chose not to sell their allocations right away, the wines could then be released later on, at a significantly higher price. Not so long ago one of the major chains did this very thing, to their credit and undoubtedly to their profit. If that is too demanding, surely a retailer would otherwise maximise profit by pricing these wines to remain in stock over a 12-month period? They would have 10 months of the year with the market to themselves.

In Penfolds’ case, its sales team has been told that while there is a strong and high quality make from 2004, the quantity and quality from the succeeding vintages are less. This has not made a jot of difference to the outcome, but shows at a glance just who is not pulling the shots here.

In the meantime, Penfolds is left in the marketplace with a series of wine brands whose prices are close enough to be covered with a handkerchief.

If you want a Penfolds shiraz, here is what is on sale in Melbourne today:

Rawson’s Retreat Shiraz Cabernet 2004 and 2005: $11

Koonunga Hill Shiraz Cabernet 2004 and 2005: $12-13

Thomas Hyland Shiraz 2004: $17-22

Bin 128 Coonawarra Shiraz 2004: $16.50-20

Bin 28 Kalimna Shiraz: $19-20

The Thomas Hyland label was initially conceived by former Southcorp CEO Keith Lambert and his team to provide a buffer between the cheaper Koonunga Hill range and the Bin series. This would also provide some protection for the Bin wines, since it would be easier to increase volumes of non regional-specific Thomas Hyland wines than the Bin wines, whose reputation depends more strongly on the availability of fruit of a requisite standard. Certainly, a smart move initially, with fine intent behind it.

But clearly, it hasn’t worked. You actually pay more today to buy the buffer than the Bin reds themselves. And it’s a sad joke that you pay just $5.50 more for a Bin 128 than you do for a Rawson’s Retreat. Where is the sense behind this? Other than the consumer, who has never had it so good if perhaps indeed also as confusing, who is winning? Nobody. It surely is not sustainable.

The reality with Australian Trade Practices Law is that producers can set maximum but not minimum prices. For as long as I can remember, the two brands to have suffered the most by cyclical releases well below their true pricing and value have been Penfolds and Wynns. Year after year, very good to great wines under these labels are released to a predictable seasonal feeding frenzy. The public, not unnaturally, wait for these releases with stuffed wallets, since they’re not foolish. Obeying nothing other than commonsense behaviour, they scour the press for the cheapest prices and, displaying no loyalty to one retailer over another, buy where the prices are best. Again, they’re not the losers here.

For whatever reason, there has been a steady shift in the balance of power in the domestic retail market between the producers and the retailers, which the recent wine glut has only exacerbated. The pending reality, due to the combined effect of climatic influence, a lack of recent plantings and increasing wine exports, is that the over-supply will shortly disappear and the balance could well swing quite quickly the other way. If this happens, as recent history suggests it might, we could have problems of the opposite kind but of equal measure. Add this to a domestic wine retail market in no small measure of turmoil, with one major retailer up for sale and the other acting as aggressively towards prices as ever before, and the wine industry is certainly under the blowtorch.

It’s neither my intention nor my role to suggest where that balance would sit most appropriately, for as always, these things are dynamic and imbalances always redress themselves one way or another, sometimes catastrophically.

For the long-term sake of iconic Australian brands like Penfolds and Wynns, perhaps it is in the interests of all – even the retailers – for them to see out the present frenzy with reputations and customer bases intact. Australian wine needs a strong and profitable domestic base, just as Australian consumers need to have access to wines at fair prices.

I just hope that events lead to a more balanced and sensible wine market in the near future. Meantime, the closely watching French are surely shedding crocodile tears. Please login to post comment