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Australian Wine In New Effort To Diversify And Move Upscale

March 7, 2013

Humbled in recent years by the twin scourges of oversupply and a rising domestic currency that reduced returns on exports, Australia’s wine industry has been retrenching.

While individual producers have employed various measures to combat those headwinds—like shipping more branded wines in bulk and raising prices when possible—the industry is now collectively preparing a new push in the U.S. and other export markets. The new effort aims to show the breadth of Australia’s wine styles and price points, particularly at the higher end.

Overall, Australian wine exports to the U.S. rose 8.5% to 194 million liters in 2012, but slipped 5.4% by value to A$451 million ($461m), according to the Wine Australia trade group.

“The real ‘sweet spot’ for opportunity is the $15-$19.99 area,” says Angela Slade, North America regional director for Wine Australia. “It’s here that Australian wine can consistently show regional diversity.”

Slade believes there will also be opportunities ahead for volume brands to take share in the $8-$12 price point. Below that level Australian producers will have difficulty turning a profit in the U.S. market due to the strong Aussie dollar, which has increased by about 40% against the U.S. dollar since 2005. In terms of wine styles, “cool-climate” offerings showing more structure and acidity, which have been gaining favor with Australian winemakers, could be a larger part of the mix looking ahead, she says. A consumer campaign to improve Australian wine’s visibility is in the works for 2014. This year, Wine Australia is focusing on restoring confidence in the category among distributors and the trade, which Slade says is arguably a bigger challenge.

As Australian producers attempt to introduce the U.S. to a wider range of wines from Down Under, they continue to explore ways of circumventing the foreign exchange conundrum. Yellow Tail producer Casella Wines is planning the release of a higher-priced ($10 a bottle) label this year in a bid to increase margins, and many Australian wineries—at a variety of price points—have been forced to hike prices recently. Another route is to lower costs by shipping branded wine in bulk to be bottled at its export destination. In 2012, the volume of bulk wine shipped to the U.S. priced between A$2.50-A$4.99 ($2.55-$5.10) per liter increased threefold to 1.1 million liters.

Meanwhile, the industry appears to be making headway in its bid to balance supply and demand. The removal of some 10,000 hectares (25,000 acres) of Australian vineyards has helped reduce annual production by 25% and brought inventory levels to a 10-year low, easing oversupply pressure.

 

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