- Volumes are falling in many key markets
- Price per litre is falling even faster
- More wine is being shipped in bulk – often at low prices
- Southeast Asia, Spain and Sweden are the only real success stories
- Grapegrowers are talking about switching from red wine grapes to white, ‘mothballing’ vineyards or uprooting vines.
The latest export report for the period of April 1st, 2022 to March 31st, 2023, will not raise many smiles in Australia’s wine industry. Value and/or volume are both declining in most of its main importing countries.
As the industry body, Wine Australia, frankly reveals in that report, over those 12 months, export volumes fell by 1% to 620m litres, while the value dropped by 7% – to AU$1.90bn ($1.29bn).
This combination of factors led to a fall in average price per litre of 6% to AU$3.06 (USD 2.08). While the global picture, apart from Southeast Asia, was fairly grim, a little analysis reveals some striking variations between markets.
Trading down in the US
The largest of these, the US, which contributes 20 cents of every Australian wine export dollar actually bought 15% more wine, but traded down, spending 8% less than during the previous period. As the report states bluntly “The growth in volume was entirely driven by unpackaged wine shipments, which increased by 80% in volume to 85m litres.”
Wine Australia’s Regional General Manager Americas, Aaron Ridgway said, “The declines for Australia at the commercial end mirror the broader difficulties in the market for wine at lower prices. Consumers are tightening their spending in the face of economic uncertainty, while at the same time demanding wine that justifies a higher shelf price.”
"Consumers are tightening their spending in the face of economic uncertainty, while at the same time demanding wine that justifies a higher shelf price."
Striking a brighter note, he continued that there is an opportunity in the US$15–25 retail price range because Australia’s wines are “as good as similarly priced wines from anywhere… In fact, Australian wines in that price range are outpacing the total market, driven by Cabernet Sauvignon.” He also noted that “The sustained increase in the number of Australian wineries finding representation in the US, coupled with growth in premium… offsets some of the losses in commercial wine [and] suggests a strong foundation on which to continue to build.”
Less optimistic observers, however, fear that Australian wineries dumping unsold inventory at rock bottom prices in the US may hinder efforts to build a premium image from an already-weak base.
Bargain-basement bulk for the Brits
The average FOB price of shipments to the US was AU$2.61 ($1.74) – significantly more than the AU$1.73 ($1.15) average paid by the UK which, with 19% of Australia’s exports by value, ranks second on the chart. One explanation for the difference in price is the high proportion – 85% - of wine sold to Britain that is shipped in bulk and sold as private label. Even after the recent leap in bulk sales to the US, the equivalent figure there is just 22%.
"It is likely that Australian exports to the UK will continue to decline in the short to medium term.”
Australia and the UK, the country where it has long held the top spot for wine imports, recently signed an FTA. This might have been expected to promise a rise in sales, but Wine Australia reports that “the UK is experiencing deep economic hardship, and the upcoming onset of additional duties on wine will squeeze margins for companies in the market, so it is likely that Australian exports to the UK will continue to decline in the short to medium term.” The 16% fall in volume and a 20% drop in value (and a 5% reduction in price) detailed in the report are attributed to a correction after unusually high off-trade sales during Covid. “As the on-trade re-opened in 2021 and 2022, there was a counter-swing in the demand for Australian wine as Australia’s share in the on-trade is substantially lower than that of the off-trade”.
Quality image in Hong Kong
Next on the list comes Hong Kong with 10% of Australia’s exports by value, which saw a 6% fall in volume – and a mere 1% drop in value. As in China, wine drinkers in the former British colony are evidently trading up. With a spend of AU$181.9m ($121m) for just 7.6m litres, the wine they are buying left Australia at a heady AU$24 ($16) per litre. It would be interesting to know how large a share Penfolds has of these sales.
Tumbling FOB price in Canada
Canada – fourth in the value ranking with a 9% share – provides an apparent ray of sunshine, with a hike of 44% in volume and two percent in value. The difference between these figures, however, meant that the average FOB price tumbled by 29% to AU$2.39 ($1.59) – lower than in the US. Even more worryingly for anyone concerned about Australia’s brand image is the news that bulk wine shipments increased by 86% in volume to 52m litres at an average FOB price of just AU$0.86 ($0.57). As the report drily states “The decline in average value of unpackaged (bulk) shipments, plus their increase in overall volume share from 55-71% of shipments to Canada, has impacted on overall value in the market.”
Singapore buys more, but pays less
Singapore, neighbour to Western Australia, takes 7% of Australia’s wine exports by value, but the AU$134m ($89.14m) value of the most recent 12-month period was 20% less than the year before. Volumes were actually 3% up, so the Singaporeans are buying cheaper wine. Even so, at AU$16 ($10.64), they’re not doing too badly. In any case, shipment data for this market needs to be treated with caution because while “Singapore remains the number one destination in Southeast Asia for Australian wine exports… as a trading hub, some of the wine is on-shipped to other Asian markets.”
Good Morning Vietnam
Those ‘other’ markets in Southeast Asia which collectively really were the positive part of the report. Thailand, Malaysia, Indonesia, Philippines and Vietnam collectively import 17.4m litres with a value of AU$167m ($111.1m) – around AU$9.5 ($6.32) per litre. As a group, their financial contribution is between that of their Asian neighbours, Singapore and Hong Kong and sales are growing encouragingly, by between 35% and 41% in Indonesia and the Philippines respectively, and 57% and 59% in Malaysia and Thailand.
The exception to this rule was Cambodia where value growth was only 4%, but this country only bought 300,000 litres, so it is hardly significant.
"The strength of Southeast Asia has meant that it is moving closer to the export value to the US and the UK, which is a great story for Australian exporters with a focus on diversification.”
Sarah Roberts, Wine Australia Regional Manager for Asia Pacific said, "While economic pressures are having visible impacts for some markets in Northeast Asia, the strength of Southeast Asia has meant that it is moving closer to the export value to the US and the UK, which is a great story for Australian exporters with a focus on diversification.”
Japan and Korea need to do better
It is striking that Northeast Asia – China, Hong Kong, Japan, Korea, Taiwan and Macau – collectively now only buys 30m litres – just over four million more than its southern neighbours – with a value of AU$318.4m ($211.8). Sales to all of these, apart from tiny Macau – a 200,000 litre market – fell. A drop of 9% in both value and volume in Japan is nothing to celebrate, and nor is an 18% cut in volume and 7% fall in value in Korea.
China remains at a low level
China bought 2.3m litres – the same amount as Vietnam, and for a similar value of AU$10.8m ($7.2m). In both volume and value, Chinese imports from Australia over this period fell by more than half compared to the previous 12 months.
Thank goodness for Sweden and Spain
Europe as a whole (excluding the UK) is only worth around 10% more to Australia than Hong Kong. And sales there are falling everywhere except Sweden (5.6m litres worth AU$22.4m or $14.9m; up by 7%) and Spain (2.2m litres worth AU$11.5m or $7.65m – up by a stunning 254%) which sopped up large quantities of bulk wine.
Germany, the largest mainland market by volume, with 27.7m litres, lost 28% of its value while Denmark, which imports 19.3m litres of more premium fare, dropped by 8%. The Netherlands – down 10% - and Belgium – down 14% reflect the general trend. These figures are attributed by Wine Australia to “harsh economic conditions and logistical challenges… across the region.”
For anyone who can remember the days when Australia’s wine industry seemed set to conquer the world, these figures may come as a shock. Many will have imagined that, despite losing its Chinese market almost overnight, Australia would have compensated by growing sales in other countries. Apart from Southeast Asia, this has not happened.
Worse, still, has been the downward trend in the prices commanded by Australian wine and the growth in bulk shipments. As enthusiastic visitors to its huge area at ProWein discovered, there is no reason to question the quality Australia has to offer, or the breadth of styles. But there is clearly an image problem. Too many professionals and consumers – especially in the US – associate this country with Casella’s Yellow Tail and Treasury’s 19 Crimes, and while Penfolds has effectively flown the flag in the super-premium sector, too few other brands enjoy sufficient awareness.
Get the somms on side
Wine Australia’s partial explanation for the poor performance in the UK – that Australia has a weak presence in the on-trade – is also telling. Wine Australia has worked very hard to promote its wines to sommeliers globally, but there is clearly much more work to be done – especially if consumers are being exposed to cheaper Australian private label wines when they go shopping in their supermarkets.
On the bright side, while it is vanishingly unlikely that Australia will regain its dominant position in China – and the margins its producers made there – any time soon, there’s every likelihood that this market will reopen and commercial relationships renewed. The US may never live up to Australian exporters’ aspirations – domestic and South American producers will always have an easier ride – but here too, Australian Cabernet Sauvignon sales are already outperforming the market and there has to be room for growth in the premium and super premium sectors.
However, the closure of the Chinese market, the data in this report, a recent harvest that yielded unwanted grapes, and the countless tanks full of unsold wine in wineries across the country all raise serious questions for the Australian industry. Shipping costs are an issue too. Containers that, only a few years ago, cost less than AU$0.12 per litre to ship to traditional markets now cost five times as much, and there is a growing ‘buy local’ movement.
Thanks to a combination of factors, including greater focus on health and ‘wellness’ and competition from other beverages and substances (particularly cannabis), Australian producers are – like their counterparts in every other wine producing nation - also fighting to gain a larger slice of a globally contracting market.
- Closure of the Chinese market
- Too many grapes
- Full tanks with unsold wines
- High shipping costs
- Growing 'buy local' movement
- Declining consumption
There is already talk in Australia of the need to ‘mothball’ vineyards and/or to switch large areas from red-wine grapes to white. In the Riverland, source of the country’s largest volumes of lower-price wines, producers are looking at other crops such as almonds. The suggestion that vineyards should be uprooted brings painful memories in Australia of the ‘vine pull’ scheme of the 1980s, when large tracts of old Shiraz and Grenache were uprooted and the number of Barossa growers was slashed from 650 to 500.
But Australia is not the only country to be contemplating this option. Between 2020 and 2021, over 6,800ha of Chilean vines in premium regions including Cachapoal, Casablanca, Colchagua, Cachapoal and Maipo were uprooted because of water shortages. This represents a 4.5% reduction in Chile’s vineyards, while Bordeaux is currently removing 10% of its vines.
A growing number of voices in Australia now openly wonder whether a smaller, leaner, more premium wine industry might be preferable to the one it has today. The challenge, however, given the current reliance on inexpensive brands like Yellowtail and 19 Crimes and bulk-shipped retailer own-labels, lies in how to achieve that transition.
What is the right USP for Australian wines?
There is also the question of what kind of USP – Unique Selling Proposition – Australia wants to exploit, if it is not to rely on its established reputation as the home of big, rich Shiraz, fruity-oaky Chardonnay and great but hard-to-sell dry Riesling and Semillon. The quality and value offered by Australia’s increasingly broad range of styles is now unquestionable, but is being ‘good at everything’ as strong a marketing message as New Zealand’s mastery of Sauvignon Blanc and Pinot Noir and Argentina’s near monopoly of Malbec?
The success of its agricultural and cultural sectors – think movies, festival and the Sydney Opera House – has given Australia a well-earned reputation as the ‘can do’ nation. Now is the time for its wine industry to live up to it.
The full report is available on Wine Australia.