Unlocking the News on the Australian Wine Industry - Anthony Keys
Established market
There is plenty of talk about coming out of the global financial crisis (GFC); however, the signs appear to belie the statement. Europe is struggling; Ireland, Portugal, and Greece are on the brink of defaulting on their debts; and the UK is not far behind.
Austerity measures for the UK are coming into play and 2011 is shaping up to be a tough year. The Government has announced budget cuts of £81 billion ($132.33 billion) over the next four years. Around half a million jobs in the public sector are to go and £7 billion is to be removed from welfare support, not to mention an increase in VAT to 20 percent in January.
This will have a knock-on effect and all levels of society will be included. As the UK wine industry is minuscule, there is little by way of protection for the industry and imported wines will be ripe for the fleecing. Any argument put forward about ‘unfair trade barriers’ can be neatly dealt with using the health ticket: ‘Honest Gov, we’re hiking the tax for the nation’s wellbeing; the few extra quid we make on the side is incidental.’
Australia’s export figures (UK) to the end of September make for dismal reading; volume is down 23%, value is down 28%, and value per litre is down 6.4% to $3.34. Every segment, as the following list demonstrates, is down:
• below $2.50 – down 17%
• $2.50 to $4.99 – down 20%
• $5.00 to $7.49 – down 59%
• $7.50 to $9.99 – down 24%
• Over $10 – down 28%
Bottled Red wine – down 24% in volume and 28% in value, with the per litre price down 5.2% to $3.45
Bottled white wine – down 24% in volume and down 29.3% in value, with the price per litre 7% down to $3.12
Finding good news in the bulk wine exports is difficult:
Red wine up 50.5% in volume and up 37.1% in value; price per litre $1.08 is down 9%
White wine up 27.8% in volume and up 19.6% in value; price per litre down 6.5% to 95 cents
George Wahby, McWilliam’s Wines Chief Executive Officer: There is no doubt the UK market is proving challenging, but with sales of 30 million 9 litre cases it would be crazy to spit the dummy and walk away. Saying that, with increases in excise, VAT and the exchange rate, there is no choice but to work with our customers to increase our price offering and ensure sustainability for everyone.
Stephen Shelmerdine, Shelmerdine Vineyards, Heathcote & Yarra Valley: The U.K market was, is and will be important for us and for any company that has painstakingly carved a niche in that most frustrating country.
Gordon Gebbie, Commercial Director, Rathbone Wine Group: I still think the UK and USA are important; however, the multiple retail avenue has become a lot tougher with the strength of the Australian dollar and the continuing oversupply.
I found a particular consumer quote (UK Daily Telegraph 3rd December) encouraging; others (perhaps Treasury Wine Estates or indeed anyone currently banging on about regionality being the saviour in the UK) may not. The quote read: ‘If I'm taking a bottle of wine to a friend’s house and I don't recognise any of the wine on offer, then I might pick up Penfolds wine, since although it’s not the best, it is rarely dreadful and usually acceptable by all.’ Would it (long term) be so awful if Australia dropped to around 15 percent of UK sales and acted as the safe pair of hands. There may not be much glamour in the role, but it’s a sound foundation for our industry in the UK market and the Brits could perhaps pay a small premium for that safety?
Emerging market
A Rabobank (summary) report on China holds some significance. What I found interesting about it was the overall advice regarding how to work the market, developing good partnerships and giving the customer and the market what they actually require rather than what one thinks they require; advice that could apply equally to any market.
There is a degree of standard ‘China’ ground covered (the usual line about this being the world’s fastest growing market and all wine countries wanting a slice) and details about other markets (France leads, Australia is second, red wine preference etc and so on). What leaps out is a statement about the first tier cities being near-saturation (wine trade-wise). First Tier being cities such as (not in Rabobank report):
• Shanghai population 14 million,
• Beijing population 12 million
• Guangzhou population 8 million
• Population figures from 2007
What are interesting are the second tier cities. Apparently there are over 300 of them (again, not identified in the Rabobank report) with around 120 having populations over one million. Tesco supermarkets estimate this will increase to 221 by 2025. Europe currently has 35 cities with a population of one million plus. It is estimated Chinese second tier cities represent about 88% of the country's GDP. An article by Bruno Lannes and Larry Zhu partner’s in Bain & Company (Shanghai office) published January 2009 points out that ‘As a group, those [tier 2] cities experienced a 12-fold increase in household disposable income per capita in the years 2002-06, while retail sales rose 79%. By comparison, in Tier-1 cities household disposable income rose 61% and retail sales increased by 80% in the same period.’
Examples include (in no order of importance) Nanchong, Yantai, Shaoxing, Luoyang, Chengdu, Fujian, Heilongjiang, Hunan and Chongqing.
Drink what?.........when!
TKR has revived a few e-mails regarding Stephen Pannell’s website www.allforonewine.com.au For those not aware of the site it urges Australians to only drink Australian wine throughout January to tie in with Australia day. The questions received are what do I think of it and will I join. What I think, OK fine. Do I support it, no but then I’m not against it. I have strong argument why I think it’s nonsense. Starting with it won’t really do a great deal for Australian wine. It is jingoistic and I see it being not exactly a step back but it’s not a step forward either. Ending with I will drink what I want from whatever county/region I choose and at whatever time of day, month or year it suites me to do so. I also respect the right of others to do the same.
Paint it whatever way, there is still to much
Fosters keeps feeding the media news on the Chardonnay recovery and within certain price sectors this appears true. Nielson statistics (running from 31 December 2008 to end of September 2010) show recent growth for the vareity in the $14 plus (bottle) categories. Although this is good news, growth is mainly confined to the last three months of that two year period when Sauvignon Blanc slipped 3.7 percent and Chardonnay grew 4.9 percent.
Growth in any sector must be thought of as positive, but overall we have to consider there are close to 28,000 hectares of Chardonnay planted in Australia producing around 300,000 tonnes; little drops of positivity remain just that – ‘little drops.’ Big drops of positivity happen when all in the chain are profiting from a product.
Crop or drop?
The recent large rainfalls across most of the eastern states has been good for rivers, the environment and many farmers, but they’re nevertheless generated their own problems. An increased risk of downy mildew is threatening grapevines. Put simply, it costs around $125 a hectare to spray against it and with grape prices extremely low the call has to be made regarding whether it’s worth the expense or it’s better to let the crop rot and drop.
Enquiry about a subscription?
Email Tony Keys: tony@thekeyreport.com.au
Phone: 0438 184 563
The Key Report
PO Box 134
Bangalow
2479 NSW
www.thekeyreport.com.au
|
|
|
 |
For a complete set of Market Reports from 1999 to the Present click the More button
Other Reports
4th Quarter Market Report 2012
3rd Quarter Market Report 2012
Interim 3rd Quarter 2012 Market Report
2nd Quarter Market Report 2012
Interim 1st Quarter Market Report 2012
4th Quarter Market Report 2011
3rd Quarter Market Report 2011
Something's New at Langton's
Back to the Future by Stuart George
4th Quarter Market Report 2010
3rd Quarter Market Report 2010
Heat Affected Cellar Report
Interim 3rd Quarter Market Report
1st Quarter Market Report 2010
|