An overview of the Australian wine industry in 1994

Wine retailing

Why has wine retailing for so long remained the domain of independent operators? After all, most retailing decades ago fell under the control of large, efficient chains.

It’s a complex question and to some extent highlights the difference between wine and groceries. But perhaps more than anything it’s merely a remnant of a time when restricted licenses inhibited efficient marketing and distribution. That era is over.

Irresistible forces are at work changing the face of wine retailing forever. Just as the corner grocery disappeared in the 1960s, the independent liquor retailer of the 1990s is under siege and being decimated.

The phenomenon is less apparent in Canberra than elsewhere in Australia for the simple reason that unrestricted availability of liquor licences since 1975 allowed first of all the rise of strong, anti-orderly-marketing independents, then the gradual wider dispersion of wine sales through supermarkets.

At the production end, as long as a proliferation of wine makers produced more than was needed to satisfy demand, chaos ruled in the market place. Instead of brand marketing, we saw throughout the late seventies as table wine consumption became a way of life and right through until the end of the eighties, wine sales driven by discounting mainly at the hands of independent retailers riding a great but largely profitless wave of consumption.

The very profitlessness of wine making accounted for a steady wave of ownership changes and rationalisation. You could, for example, hear sighs (wheezes?) of relief as Rothmans and Phillip Morris, both of whom bought Australian wineries in the seventies, managed to bail out in the eighties – Rothmans off loading Chateau Reynella to Thomas Hardy and Sons, and Phillip Morris passing Lindemans to Penfolds, after shedding some historic vineyard assets at bargain prices.

The concentration of production ownership and better capitalisation we see today provides one of the major spurs to rationalisation at the retail end.

Well-capitalised producers determined to earn a return for shareholders by developing high-margin brands, take a different view of the retail trade than did the stock-flooded desperate producers of five years ago. Increasingly, success of a brand is under control of the producer and not the whim or palate of the retailer.

On that account alone, independent retailers are searching for a reason to exist.

The other major force, destined to counter the weight of a few large producers, is the determination of the big retailers, Woolworths and Coles, to grab what they see as their share of the wine market.

Woolworth’s Macs and San Remo outlets may not have the image of fine wine outlets. But the giant is only sleeping.

Where Coles appears to be getting clobbered by Woolworth’s in groceries, its more than 300 Liquorland stores are striding across the take-away liquor scene with a vengeance. The group claims to have lifted its share of Australia’s off-licence sales from around 25 to 29 per cent in recent years.

A good part of that growth is in bottled wine sales gained at the cost of independents. If a dalliance with mail order via the American Express Wine Club appears to have been unsuccessful, the first of its re-badged fine-wine stores, Vintage Cellars, at posh Mosman in Sydney, did well enough to encourage the opening of several more.

By the turn of the century, it seems likely the big supermarkets will have learned to retail wine effectively and will surely enjoy more than half the market. At that stage producers may find their brand-building power sapped by the immense bargaining power of these retail giants, who, like their British counterparts, may simply build their own brands if they cannot get what they want.

It’s unlikely, though, that the big retailers will ever effectively handle the wines of small producers. It’s just too hard to spread a hundred cases or less of a wine around so many stores.

And I suppose that leaves opportunities for independent operators prepared to forge allegiances with small makers and dabble in imports. The independent wine retailer of the future will have to be sharp enough to work on tiny margins on big-maker brands in competition against the supermarkets and add a little cream through offering the range and variety offered by smaller makers.

Extra service, local knowledge, and a willingness to work seven days a week may give well-located independents the edge they need to survive.

Wine drinking

Australia has been sobering up since 1981-82 .Between then and 1991-92 our per capita intake of pure alcohol fell from 9.8 litres to 7.7 litres. We’ve cut our intake of spirits slightly, beer dramatically (from 128.6 litres a head to 101.9 litres) and wine significantly.

Per capita consumption of wine peaked at 21.6 litres in 1985-86, reaching a low of 17.7 litres in 1990-91 and bouncing back to 18.6 the following year. The latest ABS figures show a trend towards declining consumption.

But producers are smiling at rising sales of bottled red, white, and sparkling wines. In 1993 Australian producers sold into the domestic market 46.2 million litres of bottled white (up 6.7 per cent on 1992) , 26.2 million litres of bottled red (up 5.4 per cent), and 26.5 million litres of bottle-fermented bubbly (up 4.9 per cent).

Quite clearly we’re drinking less wine but better quality, confirmed by those figures and symbolised by our ranking as 9th largest market for genuine Champagne. Where imports puddle along at just a few per cent of total consumption, we last year drank 919,000 bottles of the real thing, up 4.2 per cent on the previous year. Surely that’s a good economic indicator.

Wine making

Australia is a small wine maker, ranking 11th globally by volume.

We are out produced on a massive scale. Compare our 1992 output of 458.5 million litres with that of the ten biggest producers:

Millions of litres

France 6540.1

Italy 6868.6

Spain 3703.6

Former USSR 1,800.0

United States 1,562.0

Argentina 1435.1

Germany 1,340.0

South Africa 999.8

Portugal 755.5

Romania 750.4

Within Australia, South Australia remains king of wine makers and is projected to stay that way. It crushed an average 324,900 tonnes of wine grapes for the three years to 1991-2, compared to 122,900 for NSW, 94,400 for Victoria, and 10,600 for Western Australia.

ABARE forecasts our crush to grow from its three-year-to-1991-2 average of 552,971 tonnes to 712,400 by 1995-6.

Exports

Without the export boom, the Australian wine industry wouldn’t raise an onlooker’s eyebrow.

But by the mid eighties the infrastructure in terms of vineyards, wineries and superior technical skills were in place. No doubt the dollar devaluation came along at just the right time.

In 1983-4 exports were 8.9 million litres, growing to 10.8 million in 1985-6 and leaping to 21.3 million the following year. They’d doubled again by 1989-90 and in 1992-3 reached 103.2 million litres. The value was $293.2 million compared with imports of just $47 million.

Look at the break-up of exports and we can see why some wines are now scarce in Australia and why, after decades of wine-prices lagging behind CPI increases, producers now dare raise prices.

In the comparatively lucrative bottled wine market in 1992-3 export markets took 32.9 million litres of white compared to domestic sales of 44.1 million litres. For bottled red, the figures are: exports 24.7 million litres; domestic 25.3 million litres. I believe exports of bottled red wines has subsequently overtaken domestic consumption. Little wonder all our old favourites are out of stock.

According to the Australian and New Zealand Wine Industry Directory 1994 our biggest export earners in 1992-3 were Orlando-Wyndham ($78 million), Southcorp Wines ($68 million), BRL Hardy Ltd ($40 million) and Mildara Blass Ltd ($21 million).

The wine makers

The Australian and New Zealand Wine Industry Directory estimates 802 wine producers existed in Australia at the start of 1994.

Therein lies the difference between the wine industry and any other food product distributed through the national grocery network. Consumers are just not interested in 800 small biscuit makers, or soap suds factories. But they are interested in all shades of wine.

Nevertheless, the bulk of wine producing power has become concentrated in fewer hands over the last two decades as table-wine consumption and exports took off.

Four companies make 80 per cent of the wine we drink and export. Another half dozen or so account for at least 15 per cent, leaving less than five per cent of the market to almost 800 small producers.

The big four

1. Southcorp Wines

Bruce Kemp is the Chief Executive of Southcorp Wines, Australia’s largest producer and a subsidiary of Southcorp Holdings (formerly South Australian Brewing Holdings) Bruce estimates his group’s domestic market share at 30 per cent of the bottled wine market including sparkling wine and 22-23 per cent of the cask market.

He says the group currently exports 28 per cent of its production and expects that to reach 50 per cent by the year 2000.

Southcorp owns one of the most dazzling arrays of vineyards in the world, the jewel being its 1200 hectares in Coonawarra. Its brands include Wynns, Penfolds, Seaview, Tollana, Lindemans, Seppelt, Matthew Lang, Kaiser Stuhl, Tulloch, Hungerford Hill, Leo Buring. Stock, Woodleys, Killawarra, West Coast, Cattani and Rouge Homme.

2. BRL Hardy

BRL Hardy, an amalgam of the Berri Renmano Ltd and Thomas Hardy and Sons, is a public company headed by Stephen Millar. It claims a domestic market share of 23 per cent. Exports currently constitute one quarter of sales and, like Orlando-Wyndham’s and Southcorp’s, are projected to rise to fifty per cent by 2000.

BRL Hardy owns Houghton, Hardys, Berri Estates, Renmano, Houghton, Chateau Reynella, Moondah Brook, H.G. Brown, Leasingham, and Stanley.

3. Orlando-Wyndham

Perry Gunner estimates Orlando-Wyndham’s domestic market share at 20 per cent. Exports constitute 30 per cent of total sales and are projected to move to 50 per cent by the turn of the century. Domestically and on export markets the company’s most conspicuous success has been Jacob’s Creek, with production running at around 2 million cases annually. That makes it one of the world’s largest wine brands.

Orlando-Wyndham belongs to the French company, Pernod Ricard, and apart from Orlando and Wyndham Estate, owns the brands Morris, Richmond Grove, Saxonvale, Montrose, and Craigmore.

4. Mildara Blass Limited

Mildara Blass, a public company headed by Ray King, seems constantly to post the best profit figures in the industry. Hugh Cuthbertson of Mildara puts that down to a strong commitment to building high-margin brands. The commitment applies to exports as well. These currently make up 20 per cent of sales. On present trends that could be 40 per cent by the end of the century. The company’s domestic market share is about 10 per cent by volume.

Mildara Blass’s brands are: Mildara, Wolf Blass, Yellowglen, Jamiesons Run, Eaglehawk, Krondorf and Balgownie.

The middle-sized producers

After the very big producers, it’s anyone’s guess as to who comes next. But there is a solid cluster of biggish wineries of similar market presence: Yalumba, McWilliams, DeBortolis, and Brown Bros, followed by Rosemount, Peter Lehmann, Miranda, The Alambie Wine Company, Angoves, Rosettos, and Rothbury.

Small producers

Then follow hundreds of small producers, some crushing minuscule quantities. But if the big makers satisfy our thirsts it is so often the small makers pioneering new and usually cool growing regions.

These small makers add not only spice but at times are on the cutting edge of achievement. Without small makers, for instance, we would not have the lovely pinot noirs of the Yarra Valley and Mornington Peninsula.

What this band of small makers demonstrate by their success is the romantic attachment so many drinkers have to wine.

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