Wine exporters looking to consolidate on a stellar year

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The year 2016 was a great one for Australian wine exports. Matthew McDonald takes a look at what was behind this success and what exporters need to do to keep the wine flowing.

Beginning in the mid 2000s, the Australian wine industry entered a difficult period. The combination of low grape prices and the entry of a lot of new producers resulted in a grape oversupply and poor results.

But last year things turned around.

“There’s definitely a strong degree of positive news that’s coming through for the wine sector, especially compared to what’s happened in the last 10 years or so,” Andreas Clark, CEO of Wine Australia told Food & Beverage Industry News.

According to Wine Australia, in 2016 the value of Australian wine exports grew by 7 per cent to $2.22 billion and volume increased by 1 per cent to 750 million litres. In addition, the average value of exports grew by 6 per cent to $2.96 per litre, the highest level since 2009.

The strongest growth came from the most expensive wines – those priced $10 per litre or above free on board (FOB) – which were up 19 per cent to a record $574 million.

So who is buying all this wine?

China is buying more and more of it. Exports to the nation were up 40 per cent to $520 million in 2016. “China’s now our number one market by value overall. It surpassed the US during the course of last year,” said Clark.

Of course, he added, there were exports to other countries too.

“We have seen strong growth in other parts of Asia as well. Free trade agreements have given a bit of a boost into markets like Japan and Korea, and other parts of South East Asia as well have had some strong growth,” he said.

The results in traditional markets, the US and the UK, were mixed.

“The US has been hard for many years but we returned to 3 per cent growth there last year,” said Clark. “So we’re starting to get some traction back there, but it’s a hard market and there’s a long way to go. We starting to see a lot of the media commentary coming through that’s a lot more favourable and talking up the Australian offer so that’s really good.”

The result in the UK was less positive. While it remains the number one European destination for Australian exports by volume, in 2016, the value of exports to the UK declined by 5 per cent to $355 million while volume dropped by 5 per cent to 236 million litres.

According to Clark, the “headwind of Brexit” affected this result.

“…that’s taken a hit in the short term. Long term, hopefully that will all wash through and we can return to some normalised trading there. But when you’re an exporter you’ve got to deal with the vagaries of the global economy,” he said.

Varieties

As the graphic (below) illustrates, in 2016 export success was varied among the wine varieties.

“We’ve had difficulties with Shiraz in the US recently. People are looking at other opportunities there such as Cabernet or Chardonnay which are strong… or looking at red blends: not so much a varietal descriptor but the red blend category has been strong in the US recently,” said Clark.

“People like the flavour of Shiraz but it’s had a bit of adverse publicity over the past few years so you need to come at that from different ways to make sure you’re meeting consumer need.

“On the other hand Shiraz is very popular in China, so it’s a matter of understanding what’s happening in the market and meeting the needs of the market appropriately.

“It’s taste or just consumer preferences. It can be a combination of taste and how you present the wine as well.”

Export Report_YEDec 2016

China

According to Clark, there are a number of factors behind the success in China.

“Fundamentally Australia’s well positioned as a food and beverage provider,” he said. “Our products are held in high regard. There’s a strong reputation for our ‘clean and green’ credentials.

“They like the taste profile of Australian wine and the free trade agreement has certainly given that some impetus.”

Tariffs on Australian wine imports to China, which were as high as 14 per cent, are now down to 5.6 per cent and will be removed completely in a few years.

The rise and expansion of China’s middle class is also crucial. Indeed, when metrics like population size and current per capita consumption of alcohol are considered, the potential for growth in wine exports to the world’s most populous country is huge.

Clark chooses not to get carried away with the possibilities.

“Some exporters have had great success there, some have found the market challenging and haven’t got any traction,” he said. “There is a strong growth story there. It’s exciting and all the fundamentals indicate it should continue to occur, but it’s not a uniform golden outcome for all.

“You can’t have all your eggs in the China basket. We need to cultivate other key markets as well and support them because in the long run that will put us in a much healthier and more sustainable position.

“At the same time it is a hard market to do business in. You have to get regularly into the market to understand their routes to market and partners and understand their brand proposition so they can have success there.”

What now?

Clark often returned to this theme of the continued need for hard work. If Australian wine makers want to take full advantage of the current success, he stressed, they can’t afford to slacken off now.

“What we need to consistently do is be out there working the shoe leather and putting those messages into the market,” he said.

“Others have got a bit of a head start on us in recent years or jumped ahead of us and we’ve got to give them a compelling reason to come back to Australian wine if they’ve deserted it in previous years.”

Keeping up such efforts can be difficult, especially for smaller players. The Australian wine industry is quite fragmented and has a lot of small producers, so the situation is not ideal.

However, as Clark pointed out, this diversity is also a strength.

“What that large spread of producers provides is a real interest and diversity to the Australian offering. It’s not monolithic,” he said. “We have 65 wine regions and a wide range varieties and styles.”

“Once people start unravelling that they are blown away. It opens up a whole new world to them.”