2005 review and a look ahead

2005 may be seen as a turning point for the Australian wine industry – the year when surplus production, created by an export induced vine planting spree a decade earlier, finally began to take its toll on winemakers and grape growers while providing drinkers with a cornucopia of low priced wine.

The squeeze on margins, while delivering lower retail prices, severely curtailed rewards to wineries, setting back most of those listed on the Australian Stock Exchange, and took an even greater toll on grape growers – most conspicuously in recent weeks those with contracts cancelled by McGuigan Simeon Wines.

With the wine surplus likely to drag on for another few years, the good times for drinkers should continue as the industry adjusts through growing export demand, domestic discounting, mergers, rationalisation of brands and winery ownership, grafting to varieties more in demand and, almost certainly, forced sales and liquidations.

The year began auspiciously with Foster’s bid for Southcorp – owner of Penfolds, Wynns Coonawarra Estate, Lindemans, Rosemount Estate, Leo Buring, Rouge Homme, Seaview and other familiar wine brands.

Ultimately the bid succeeded and the merging of the two businesses proceeds as the managers bring the Southcorp brands, vineyards, wineries, marketing, accounting, etc. under one roof with Yellowglen, Wolf Blass, Mildara, Ingoldby and others.

In 2006 and beyond investors will see whether or not the promised synergies and savings flow to the bottom line. And wine lovers, ever nervous of ownership changes, will see if some of Australia’s greatest wine brands – built on complex grape-growing and winemaking cultures — continue to deliver.

In other words, will Wynns Coonawarra still taste like Wynns Coonawarra? Will Penfolds still taste like Penfolds?

As an outsider looking in, the first signs are that the grape growing/winemaking cultures behind the prestige brands will survive in the short term.

Of more concern, though, is whether or not the marketing and marketing communication can be brought up to speed with the production/cultural side of these icon brands.

In my opinion, the Foster’s mass brands like Yellowglen bubbly have been effectively marketed. But the recruitment of fast-moving-consumer-goods professionals doesn’t seem to have paid off so well for the premium brands. Why? I think it’s because of a lack of understanding what makes these wines unique. And it shows in the communication.

This presents a huge challenge for the industry. If the aim is to introduce drinkers at home and abroad to our great inter-regional blends and increasingly good and diverse single region specialties, then the big companies must lead.

And their marketers must understand and communicate the regional, varietal and winemaking values that make the wine what it is. This is the core of any premium wine brand – flavour and character, not contrivance, not what a focus group thinks.

Of course, brand building requires a long-term commitment. And it’s easy to be distracted from that goal when surplus and slashed margins eat away at the rewards.

While the near chaos and deep discounting seen in 2005 appear set to continue for a few years, when the dust settles it’ll be the wines that mean something that survive and attract our dollar.

The best small makers tend to focus on what’s special about their region and vineyard and lead drinkers to it. Let’s hope for the sake of the vast majority of drinkers reliant on bigger companies that the innovation and leadership that’ve built our world-leading industry don’t give way to bureaucratic timidity and me-tooism.

Copyright © Chris Shanahan 2006 & 2007

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