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Published 06 March 2013 11:46, Updated 07 March 2013 11:16
“The Mr and Mrs Yarra Valley . . . need to start telling the story of Australia having world-class wines,” Treasury Wine Estates’s David Dearie says Photo: Fairfax Media
Small wine producers worried about competing with Coles and Woolworths should stop selling to the supermarket giants, says David Dearie, the chief executive of the world’s largest publicly listed, pure-play wine producer, Treasury Wine Estates.
“Private label wine exists only because wine companies sell their wine in bulk to retailers and let the retailers put their labels on it,” says Dearie. “You’ve got to look at who is causing the problem. If you’re a wine company and you’ve decided to make excess wine and sell to the retailers, you can’t then complain.”
A recent report from IBISWorld found Coles and Woolworths’ presence in liquor retailing is a major concern for wine producers. The report notes how Woolworths and Wesfarmers (owner of Coles) have “aggressively” increased their share of liquor retailing, expanding the number of Dan Murphy’s, Woolworths liquor, BWS, Cellarmasters, Liquorland and First Choice outlets, and thereby capturing 70 per cent of the liquor retail market.
“This dominance in liquor retailing has given Woolworths and Wesfarmers significantly more bargaining power over wine producers,” the report says. “Increasingly, the supermarket duopoly has also exploited its market power to reduce shelf space for branded products and push their own label and control-label wines.”
Dearie says to avoid this happening, small producers should be investing more money in their own brands and giving customers a “unique proposition”.
“If the winemakers don’t want to compete with the retailers, don’t sell to them,” Dearie says. “If you’re not big enough to stand on your own two feet, you’ve got to question whether your brand is strong enough.”
Some wine producers have been trying to reduce their reliance on Coles and Woolworths by producing quality wines, building cellar door and online sales and exporting to new markets such as China.
But the retailing giants want a greater slice of the premium market. Woolworths is considering buying Barossa Valley Estates, which went into receivership in January. The move would strengthen Woolworths’s own house brands and give it control of some high-quality shiraz, for which the Barossa region is renowned worldwide.
Dearie is against the move, saying there’s already enough companies producing wine in Australia, which caused an oversupply of wine domestically. “There’s already an awful lot of competition, with over 2500 wineries in Australia,” he says. “I don’t think retailers need to produce more wine.”
Woolworths will not comment on the planned acquisition but makes no secret about its ambitions to have “vertically integrated” wine production. In 2011 it snapped up the Dorrien Estate Winery and Vinpac bottling operation as part of the Cellarmasters Group acquisition.
A Woolworths-owned Barossa Valley Estates is anathema to the Winemakers Federation of Australia. It wants the Australian Competition and Consumer Commission to stop the planned move, saying it will lessen competition.
Treasury Wine Estates, Australia’s second-largest wine producer of famous brands including Penfolds, Wolf Blass and Lindeman’s and Rosemount, is itself focusing on producing more premium wine that it can market overseas. Last year the company generated total revenue of $1.7 billion, including sales and other revenue.
But the high Australian dollar is starting to affect wine sales. Treasury reported a 20 per cent fall in half-year earnings last week and a number of other well-known producers, including Casella Wines, are also seeing revenue fall.
Treasury is working with marketing bodies to help reposition Australia as a premium wine producer and is looking at new markets including India, Russia and Brazil as part of a longer-term strategy to sell more premium wine. The Wolf Blass Foundation is also helping fund a major review of the sector, which will examine issues such as declining exports to major markets including the US and UK, and heavy discounting by liquor retailers.
Dearie says smaller producers who want a long-term future need to be part of the push towards premium wine and also tap into new markets. No matter what their size, companies with a “good business model and strong brand have a real chance of success”.
“The Mr and Mrs Yarra Valley . . . need to start telling the story of Australia having world-class wines,” Dearie says. “Go worldwide and premium and tell the story of how good [our] wines are.”