Skip to content


Australia’s Growth Continual, Almost Dominant

wineAn aspect of the meshing of Australian and U.S. producers is that the U.S.-based companies may turn increasingly to Australia for wine supply. As Jon Fredrikson, editor of the The Gomberg Fredrikson Report noted in his publication, there were 3.5 million gallons of bulk wine imported in 2002–this despite the California oversupply–with more than half of that from Australia to support brands like Alice White. (Alice White is a Canandaigua brand that is shipped in bulk to California and bottled there.) As it becomes more expensive to plant new vineyards in California, Australian bulk offers an attractive alternative.

Robert Nicholson of International Wine Associates in Healdsburg, Calif., predicts that Australian imports could reach 20 or 25 million cases annually, up from the present 12.4 million cases. Nicholson said that the U.S. is Australia’s second largest market, accounting for 27% of the volume and 34% of the value of all Australian exports. The UK is the top market, with 43% of volume and 38% of value. The other top markets for Australia are New Zealand, Canada and Germany.

In terms of price per liter; the U.S. is the leader, at an average price of AU$6.13, compared to AU $4.17 in the UK, Nicholson said. (AU$1 = US$0.65.)

One of the keys to Australia’s success has been brand building. Rosemount, Lindemans, Penfolds, Banrock Station and others are, of course, well established in Australia. The brands that have created the most interest among marketing whizzes are the more-or-less export-only brands, like Jacob’s Creek, Alice White and the new phenomenon, [yellow tail].

[Yellow tail] opened with a bang, selling 1.3 million cases in 2002, its first full year in the U.S. market. There are no signs that growth has slowed. In fact, John Soutter, the general manager of Casella winery where [yellow tail] was created, said that expansion into new markets was being held up to protect volume of supply for the U.S. “Shipments to the USA are still growing,” Soutter said. “We are currently at about 3.5 million cases per annum and will reach 4.5 million cases by the end of the year.” If I’m doing my numbers right, that would mean a 300% growth rate for [yellow tail] for 2003 over 2002.

Soutter said that the brand was launched in British Columbia last August and the entire year’s allotment was sold out in eight weeks. [Yellow tail] is moving slowly into the UK market, chiefly in smaller regional supermarkets and retail chains. Soutter said the giant supermarket groups “demand too much money in support, and we do not need to invest as heavily as they demand. We are getting great numbers where we do sell, and it is only a matter of time before our position in the UK is strength-ened and [yellow tail] will be in a position where we will not need to invest as heavily as they demand.”

How’s that for an in-your-face marketing strategy?

The amazing Australian growth has continued despite problems faced by Southcorp, the largest producer in Australia. Southcorp makes about one-third of all Australian wine–22 million cases–and owns 19,000 acres of vineyards, more than any other producer. But the company began running into financial problems late last year and new managing director John Ballard has forecast a pre-tax loss of AU$12.8 million this year, compared to a AU$369.8 million profit last year.

In an editorial, London-based asked: “The question still remains, how on earth has a company armed with a portfolio of brands that includes Wynns, Lindemans, Penfolds and Rosemount, got itself into such a mess?”

There seems to be no single answer for Southcorp’s woes. Sources in London say it began with excessive longterm extensions of credit to the British retail trade, followed by lower than anticipated sales, which in turn led retailers to return “consigned” wines to Southcorp.

The growing strength of the Australian dollar certainly hasn’t helped. In mid-May, it was trading at 65 U.S. cents, the strongest it has been in almost four years.

One key measure that has been taken is a move to a depletions basis, as opposed to a shipment or volume basis, for managing the business. This change led to a decision to reduce stocks held by distributors and retailers. The impact of that will be to reduce volumes sold in 2003, compared with 2002, on the order of 1.5 million cases, according to a Southcorp statement. According to a report in the Financial Times, Southcorp believes this change will boost retail demand.

(A spokesperson for Southcorp interpreted the corporate speak: “It’s a big change in strategy for Southcorp and the way we do business. We are moving away from a ‘shipping’ model towards a depletion or ‘consumer pull-through’ model. The company believes this will get us more in line with consumers’ wine drinking patterns and minimize loading in the trade, which is such a problem for the industry as a whole. It is not the norm for a wine company to do this and is part of an overall strategy on the part of Southcorp to become a consumer-driven company.”)

“We are confident this approach will result in more effective control over product pricing, promotional expenditure and overall business performance and will enhance longer-term profitability,” Brian Finn, Southcorp chairman, told the FT.

In an e-mail interview, Robert Porter, general manager for corporate affairs said: “The company does not comment directly on the reasons for share price performance. Obviously, the company has issued a trading market update recently which reflects weaker performance in part of our business plus lower volumes associated with our decision to move from a shipment- or volume-based business model to one more aligned with consumer demand. The factors which have brought about the company’s weaker financial results have been identified and are being addressed.”

Whatever Southcorp’s problems in the stock market, Porter is bullish about the corporation’s future in the wine market. Southcorp shipped 5.1 million cases to the U.S. in 2002 and expects to ship 5.5 million cases this year.

“We expect strong underlying growth for the Australian wine sector in the U.S. market over the next 12 months and beyond. Medium-term, we see the potential for Southcorp’s volumes in the U.S. to grow from 10-15% off of what is a strong base. Southcorp’s three core brands, Penfolds, Rosemount and Lindemans have been awarded ‘Hot Brands’ again this year–this is the 11th time for Lindemans,” he said.

Overall, Brand Australia is in a strong position, not only in the U.S. but around the world. In fact, it might be time to lay down some bets on just when Australia will overtake Italy.

Posted in Uncategorized.

0 Responses

Stay in touch with the conversation, subscribe to the RSS feed for comments on this post.

Some HTML is OK

or, reply to this post via trackback.