Michael Bleby Reporter

Michael writes on emerging markets, architecture and engineering. He has served as a correspondent in Tokyo, London and Johannesburg and has written for Reuters, the Financial Times, The Age and The Sydney Morning Herald.

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New ground rules

Published 03 May 2012 05:02, Updated 10 May 2012 04:15

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Australian wines have a particular taste. The standard rules and methods of production emphasise high acid levels that lead to a “rich sweet wine, with an acid kick at the end”, Decanter magazine wine writer Andrew Jefford says.

That description could be applied to the wine industry as a whole. For a long time the industry has had a sweet and rich ride to the export market but now the strategy of producing cheap wine for overseas markets has come back with a stinging bite.

Australian wine used to be held up as a successful export story. Consistent, reliable production, strong marketing and popular brands have characterised Australian wine for decades and made for highly profitable business.

Not any more. Demonstrating the danger of resting on one’s laurels, the value of Australian wine exports has dropped more than 40 per cent in the past 10 years. The strategy that once worked is showing its age.

The strong dollar, a glut of grapes and entry of product from cheaper producing regions overseas have all helped cut the value of exports – which make up almost two-thirds of Australian production.

In 2002, for example, Australia exported 471 million litres for a total value of $2.25 billion, or $4.78 a litre. Last year, the 703 million litres exported fetched just $1.89 billion, or $2.69 a litre.

The original strategy of branding wines with labels such as Jacob’s Creek blend, which made them uncomplicated to the consumer and reliable in quality – and which gained great traction in the all-important British market – was pioneered by the likes of Southcorp and BRL Hardy and has been continued by their corporate successors.

Somewhere, however, it went wrong. In 2002, Australian wine made up 18 per cent of British imports by volume and 20 per cent by value. Last year it was still 18 per cent of volume but just 10 per cent of the value of British imports. “The big problem was that over the last decade, [Australian wines] were perceived as formulaic,” Jefford says.

“Technically they were unimpeachable but you’re not getting what we call terroir properties. You’re not getting a sense of place, or regionalism coming through very strongly with those wines. Europeans have become a little bit bored because they all ‘taste the same’.

“That’s what I’ve heard consumers say to me quite often.”

Whose fault is it? Industry veteran Brian Croser blames the large corporate producers for not moving towards a region-based marketing strategy earlier.

“The big companies opted really, from the beginning of the export boom in 1986, to be dominant in the branded commodity market – which is organised through supermarkets. Wine is made under contract and can be traded between companies. The place of origin or production is not important. The brand is important – Jacob’s Creek, Yellowtail, Hardy’s Stamps etc.”

Fresh out of its divorce from beer arm Foster’s (now part of UK-listed SAB Miller), Treasury Wine Estates, which holds most of the old Southcorp labels – and the world’s largest listed stand-alone wine company – concedes that the industry didn’t do as much as it could to develop a premium product line of wines defined by geography, rather than by grape variety.

“The eye was off the ball as to what was required to succeed in this business,” TWE’s managing director for Wolf Blass, Simon Marton, says.

Government-backed industry body Wine Australia agrees. It was a mistake on the part of the industry to let the brand of Australian wine become predominantly identified with one product – a big shiraz – Wine Australia’s general manager of market development, James Gosper, says.

Now, Wine Australia is telling potential buyers about the diversity of Australian wine and Gosper sees future demand from emerging countries such as China.

“We believe in promoting diversity because we’ve seen the result of being a one-trick pony, when that trick becomes an old trick, no one wants it any more,” Gosper says.

In one sense, the urgency for change is lessening. The glut of grapes and wine that the world has known for a decade – a result of the massive plantings driven by the large producers between about 1995 and 2003 – is abating, due to a couple of recent poor seasons in Australia and no new plantings in the US. Without any action on the part of producers, that alone will give them more pricing power.

Still, some Australian wine businesses are already pursuing the strategy of marketing distinctive regions overseas and are hoping it will capture consumers’ imaginations. Robert Oatley Vineyards became famous for creating the Rosemount brand, taking it overseas and selling it to TWE predecessor Southcorp. Ironically, it is now moving away from “branded commodity wines” – as Croser calls them – in favour of premium regional brands.

“We need to get to a position where people are talking about Margaret River chardonnay and viewing it the same as one from the Bordeaux,” Robert Oatley Vineyards chief executive Anthony Roberts says.

“We believe that in the long run, the success of Australian wines will be based on the success of these regional wines and the recognition of those wines regions globally. We can do what the French did and what the Americans did with Napa Valley.”

Everyone now seems to be singing from the same hymn sheet. But in the independent-versus-corporate winemaker debate that characterises the Australian industry, the two sides still differ as to how much scope there is to develop terroir-based premium wines.

Croser, who says independent winemakers started to develop regional wines about five years ago without support from the industry body or large companies, says there should be lots of regionally differentiated product.

“It’s not expensive – £10-plus up ($16-plus), even £6 up. You can have terroir-driven wines recognised by consumers as coming from a place, that have got something special about a place and [for which consumers] are prepared to pay a premium, they don’t just quaff them down,” he says.

Can Australia do it that cheaply, though? Stephen Couche, a key figure in the development of the Jacob’s Creek brand, now owned by French giant Pernod Ricard, says the industry cannot come up with such a product at a price that will be accessible for all.

“To benchmark it in UK pounds, how many people can drink bottles of wine a week at an average cost of 15 quid a bottle?” Couche says. “It’s unrealistic.”

TWE’s Marton has a similar view. “There aren’t many people in Australia who can appreciate, let alone afford, what that product is. You’re talking about a super-niche of the market.”

Still, he says, TWE plans to expand that niche. It is increasing production of its premium Wynns label – a wine specific to the Coonawarra region of South Australia – with the aim of getting one-third of all Wynns sales outside Australia, in contrast to the sub-5 per cent export level at present.

Jefford says the strategy is not something that will come easily to Australian winemakers, given their preferred way of working so far.

“It is not about rebranding,” he says. “It’s about almost deciding that something else is more impressive than your brand. There has to be a profession of faith that the place is the superior partner in the equation and brand is the secondary, otherwise these endeavours are doomed to fail.”

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