Tuesday, May 04, 2010

Thinking about the land of Oz

Twenty years ago, I annoyed one of the biggest wine producers in California by suggesting that Australia’s winemakers had become the vinous equivalent of the Japanese motor industry. Good at listening to the market and giving it what it wanted.

Today, if some of the loudest voices in the Australian wine firmament are to be believed, the only Japanese comparison to be made is with Toyota, the company that has had to recall nearly 10m of its vehicles and stands accused of causing well over 30 deaths. Before anyone accuses me of hyperbole here, listen to the speech made earlier this year by Brian Croser, founder of Petaluma to the American Association of Wine Economists. In it he talked of the “highly visible current tragedies” of the “fewer than 10 very large, multi-region operators” who were apparently solely responsible “for Australia’s global wine demise and grape and wine surplus…”

Of course, there’s no denying that the Australian wine industry is in trouble, especially when compared to the glory days of just a few years ago when its ascendency seemed to be unstoppable. But it hasn't actually injured or killed anyone and no major company has gone bust, so to my mind, terms like “tragedies” and “demise” do seem to be a little over the top.

Let’s consider the facts. During the 1980s and 1990s, Australia built an export-driven industry from an almost standing start. Like many another successful business, it invested in increased production facilities. Then, as has happened all too frequently in other industries, rivals raised their game, market conditions toughened and the Australian winemakers lost their competitive edge. This was exacerbated by water shortages which raised production costs and then by a global economic crisis. There’s nothing very extraordinary about this story. Last year, Starbucks had to close hundreds of the outlets it had opened over the previous five years; an expanded Christian Lacroix sought protection from bankruptcy and then, of course, there were the US car giants... Examples like this fill the news pages every day.

According the Australia’s doom-mongers, Britain is where everything has gone most wrong – where discounting by the big companies has killed the goose that was laying such tasty golden eggs. So how badly are Australia’s winemakers doing there? Well, according to Stewart Blunt of Nielsen, over the last year, Australia has lost market share, dropping from 21.2% of the market to 20.4%. It’s still the biggest player, but California, South Africa and Italy are all snapping at its heels. And, just as importantly, when you take into account a weakening UK currency and a hike in duty rates, the average price of Australian wine has fallen in real terms. Today, a bottle would set you back £4.51; 12 months ago, it would have been just £0.04 cheaper. France, by comparison has seen the price of its wine climb from £4.64 to £4.97 – which is more or less accounted for by the duty and exchange rates which have had to be absorbed by the Australians.

France’s higher prices came at a significant cost, however: a fall to fifth position on the list of UK imports and a drop in market share from 14.1% to 12.3%. South Africa, one of the countries that has stolen customers from Australia is doing brilliantly – largely on the back of one discounted brand – First Cape – and at an average price of just £3.87. Italy is scoring a lot of runs – with own-label Pinot Grigio, and an average price of £4.10. The US, another winner – thanks to sweet rosé gets a few more pence per bottle – at £4.30, but is still under the market average of £4.35.
Australia remains the biggest player in the UK market, and still commands a higher price per bottle than any of its three biggest competitors. Contrast this with the loss of market share of France, the country, many Australian winemakers would seemingly most like to emulate, with its focus on cool climate regions, small producers and regionality.

Australia has to get its house in order, but its problems are far smaller than those of, say, Spain which last year yet again faced the question of how to dispose of nearly a third of its crop.
Which brings me back to Japanese cars. In March, Toyota sales in the US were 40% higher than in 2008 against a market that generally rose by 23%. My unfashionable guess is that, like the motor manufacturer, Australia may be able to call on a lot more consumer trust and affection than it currently likes to imagine.