News
Due accolades
The Accolade Wine Nation UK Report is quite a read containing plenty of good news for Australian wine, showing that the UK is not a dead market but is worth pursuing. The release accompanying the report says: “The average price of a bottle of wine in the off-trade is set to top the £5 [$7.80] mark by July 2012.”
Media appeared to leap on this information as if it held some value. Having entered the UK wine trade in the 1970s I have witnessed the £1, £2, £3 and £4 barriers broken. As the report states: “Duty rises alone will push the price perilously close to £5; since 2002, 80 per cent of the steady rise in the price of a bottle of wine can be attributed to tax increases.” However, inflation isn’t included. A bottle of wine retailing for £1 in 1973 including tax should, using the retail price index, be retailing at about £9. This simple fact shows consumers are getting a fantastic value, as reflected in the poor returns of many wine companies.
Not doubting the authenticity of the Accolade report, but the ground is constantly moving. The report says: “Wine accounts for 37 per cent of all off-trade alcohol sold, making it the largest category by value (£5.2bn).” This is put as a positive; the negative being the UK government is also aware of this fact. Released in December, a report from the UK Office of Budget Responsibility predicted the following to flow into the UK Treasury:
In billions £ 2010-11 11-12 12-13 13-14 14-15 15-16 16-17
Spirits duties £2.7 £2.8 £2.9 £3.0 £3.2 £3.3 £3.5
Wine duties £3.1 £3.3 £3.6 £3.9 £4.2 £4.5 £4.9
Beer & cider duties £3.7 £3.8 £3.9 £3.9 £4.0 £4.0 £4.1
The 58 per cent increase in wine duty over the next six years is attributed to a projection that there will be an 18 per cent increase in wine consumption and a 17 per cent decrease in the volume of beer sales. The fact that duty will go up is a minor point of this report the meat is much more startling, showing the UK will need austerity measures longer then the government says and beyond that a tight period will continue.
2012 and beyond
The Agricultural Commodities: December Quarter 2011 report from Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) holds both promise and caution for the coming year.
World economic growth is predicted to be 3.6 per cent in 2012, a fraction lower than the estimated growth rate of 3.7 per cent in 2011. The stark truth is in the regional reporting. OECD countries are put at below 2 per cent. Non-OECD Asian countries are tipped to grow at just under 8 per cent. However, even they are down, from 9 per cent in 2010. Latin America is put at 4 per cent growth in 2012 and Russian Federation, Ukraine and eastern Europe just below 4 per cent.
For Australian wine the largest export destinations are the US, UK, Canada and China. Australia is included in the chart below as reference for the domestic market. The report gives the following economic growth figures; note the 2011 and 2012 figures are estimated. Figures for Canada are not given.
Study a Brazilian
The question: is there room for increased wine exports to Brazil? There are no direct flights from Australia to Brazil, it has a growing wine industry of its own and is also close to large wine producers, Chile and Argentina. However, Wine Australia, Austrade Brazil, Winetitles and Instate Pty Ltd are confident there is room for more Australian wine.
There is to be a study mission next April. The sales pitch: “This year, Brazil is forecast to overtake the UK to be the sixth largest economy in the world. Brazil is hosting the soccer World Cup in 2014 and the Olympics in Rio de Janeiro in 2016.”
Chile and Argentina are the dominant suppliers of wine to Brazil (35 and 24 per cent respectively). Then come Italy (17 per cent), Portugal (11 per cent) and France (6 per cent) Australia comes in at supplier number eight. The excitement is to be found in the increase from diddly-squat in 2009 (223,000 liters) to 657,000 liters in 2011. The caution being, it’s still less than 1 per cent of Brazilian wine imports and half of the nearest competitor, Uruguay.
No point in crying
Stephen Strachan, CEO of the Winemakers Federation of Australia (WFA), cannot be criticised for standing up for the rights of his members as he and they see them. Strachan has recently been in front of a federal parliamentary committee. However, I find it difficult to follow his argument re supermarket own brands being the cause of loss of intellectual property to established brands, as recently reported in the Adelaide Advertiser.
No doubt it leads to a loss of sales and it may appear unfair that supermarkets look for a bigger slice of the cake. Own label puts money in the pockets of their shareholders rather than in those of brand owners.
But does it mean a loss of wine sales overall? Perhaps consumers are not buying brand X but does that mean they are not buying wine at all? According to newspaper reports Strachan claimed the intellectual property had been built up over generations and included ‘winemakers stories, terroir, regionalities.
Let’s get a grip on this. Region is static. More often than not a place’s suitability as a wine region was discovered more by accident then design. Bordeaux grew because of its port and river system that could transport and export goods, and wine just happened to be one of those in demand. As far as Strachan’s claim for terroir, that is utter tosh, as it’s the environment of the vine no matter where it’s planted, including the one in a pot on the 14th floor of a Sydney high-rise apartment block. Winemaker’s stories are as much the intellectual property of those producing their first vintage as those whose families have been making wine for generations.
Senior Yalumba winemaker Louisa Rose is quoted as saying: “The wine industry in Australia has spent a huge amount of time and effort building up brand names and identities [such as] in the Barossa for many years. It really is up to the industry to convince customers that there is worth in regional identity and individual brands.
It is up to the industry; it’s not up to government interference. The power of supermarkets and the increase of own label has been ongoing for a decade at least. The fact that the wine industry failed to observe the trend and take appropriate action is no one’s fault but its own.
Supermarkets both home and aboard have made it very clear they plan on moving to about 50 per cent own brand. It’s up to the wine industry to work out how to cope with that situation, not pathetically whinge to a parliamentary committee. The industry either sorts it or loses it.
News from the orient
Kenneth Yeo, a partner for Specialist Advisory Services at BDO Ltd based in Hong Kong, predicts Chinese wine consumption will grow up to 90 per cent between 2009 and 2014. He also predicts in 2012 total consumption will equate to of 103.5 million nine-litre cases. According to Yeo, based on 2009 figures 83 per cent comes from domestic production with 60 per cent of that (about 51 million cases) in the hands of four companies that have the most market share in different regions:
• Yantai Changyu in Shandong and Fujian provinces
• China Great Wall in northern and southern China
• Tonghua Grape Wine in north-eastern China
• Dynasty Fine Wines in eastern China
A new wine from California being exported to China is Yao Ming Napa Valley Cabernet Sauvignon 2009. Its owner (Yao Ming) is a 2.3-metre, 30-year-old retired basketball player who last played for the Houston Rockets. His wine is not cheap at US$289 a bottle and nor is production small at 5000 cases. Perhaps more interesting is Pernod Ricard China acting as agents.
It’s not really about wine, it’s about the star image behind the wine. As Yao Ming wine is produced from several vineyards there is no reason why Pernod Ricard Australia couldn’t produce a wine that would sell for the equivalent price. The only aspect missing is that Australia doesn’t have a Chinese-born AFL, cricket or rugby player that is a recognised star back home.
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