Wine — slash and burn, burrow and build in 2011

Overproduction, slash-and-burn retailing and our strong dollar should keep a lid firmly on mainstream wine prices throughout 2011. Adding to that chaotic mix are rising volumes of clean skins and labels owned or controlled by retailers, a dollop of parallel importing and the less-obvious but increasingly important activities of online retailers, auctioneers and direct marketers.

An indication of the pain ahead, for some, came last year when John Geber, proprietor of the Barossa’s Chateau Tanunda and successful wine exporter, claimed the strong dollar was slaughtering Australia’s exports and could ruin Australian producers. Geber didn’t say it, but our failed exports stays at home, adding to the oversupply, depressing domestic prices and putting further competitive pressure on established brands.

The oversupply also fuels the explosion of new labels and cleanskins sprinkled throughout the retail, online, auction and direct-marketing worlds. Confusing as this proliferation of new labels might be for wine drinkers, it tends in aggregate to increase competition and lower prices.

In the hands of skilled marketers, unknown labels can both protect and mask retail margins in a way that could never be achieved were all retailers to sell the same brands. Cellarmasters, Australia’s leading direct marketer, led the way with exclusive labels in the 1980s. Big retailers are now headed down a similar path.

Cellarmaster persuaded wine producers to supply exclusive variants of their branded products. This enabled them to fetch a premium on well-known brands by avoiding price comparisons with the regular label sold by other retailers.

On the other hand mainstream retailers today tend to create their own labels from scratch or arrange exclusive import arrangements with overseas producers (although they sometimes offer products exclusively from well-known local producers).

Liquor retail consultant David Farmer says that in the UK, over half the products sold by Tesco are house brands. But on a recent visit there he noted how shabby and degraded Tesco’s merchandising appeared – a downside he attributes partly to stripping out more glamorous, strongly marketed brands and partly to the poverty of the house labels on offer.

This suggests that if retailers drop the carefully built brands from their offer, the glamour, and ultimately the value of the retail offer goes with it. But we’re a long way from that point in Australia as big retailers rely on discounting strong brands to drive traffic – albeit in a quickly changing way.

In a recent presentation to independent Australian retailers, Farmer highlighted a technique Woolworths now uses to build the credibility of its house wine brands: positioning them in advertisements alongside comparably priced national brands – a simple way to suggest equal quality and, at the same time, to milk perhaps a century of goodwill behind the known label.

House brand wine labels these days don’t say “house brand” or “Coles” or “Woolworths”, “Aldi” or any other retail name. They look just like regular wine labels, more often than not with regional and varietal information on them. Coles, for example, offers Two Churches, its own Barossa brand, through their 1st Choice, Vintage Cellars and Liquorland outlets.

This growing shift to labels they own or control gives the big retailers more market power than the big producers. It must horrify them to see their biggest customers became their biggest competitors. The retailers have them over a barrel.

But it’s not just the big guys offering exclusive labels. For example, Kemeny’s, a high-profile Sydney independent retailer, now peppers its advertisements with its Hidden Label brand – no doubt to avoid the fight it can’t win: going head to head with the majors on strong brands. And these days every retailer, large and small, offers cleanskins – unbranded bottles.

Farmer believes cleanskins have grown at the expense of wine casks which have plummeted precipitously from 46 to 40 per cent of total Australian wine consumption in just a few years.

On www.glug.com.au, Farmer ranks cleanskins of various kinds in five of the top 25 positions of Australia’s biggest selling bottled wines. He estimates the volume of these top five categories of cleanskin at around 800 thousand cases annually.

As these are sold on price, tempered by hope (we all want Grange for $5) cleanskins selling in this volume inevitably maintain pressure on wine prices within their general price category.

Among all this chaos, though, some wine brands prosper, partly because many drinkers feel insecure buying unknown or no-label wines. Jacob’s Creek, for example, weathered the GFC and private label storm in the UK and, after a battering, is now growing again.

And in Australia, there’s a far more gentile wine scene operating out of sight of mainstream retailing. Every region now has its small volume, high quality producers like our own Clonakilla.

And across the regions, including tiny Canberra and massive Barossa, keen young winemakers without vineyards continue to team up with established growers to make exciting, single-vineyard wines in small quantities.

This activity offers better returns to grape growers, a living for winemakers and really interesting, generally inexpensive wines for drinkers. On a larger, long-term scale, this new wave of small winemakers exerts an influence beyond their size on the style of wines we’ll enjoy in the future.

These guys think long and hard about what they’re doing. And because more often than not they’re not making to a template, they bring welcome changes to regional style – just look, for example, at what Tim Kirk, Nick Spencer and Nick O’Leary are doing for the increasingly fine style of shiraz coming out of nearby Hilltops.

So, the prediction for 2011: lots of wine, lots of cheap wine, lots of good wine, lots of imported wine, greater diversity of top regional specialties, and increasing parcels of exciting stuff from our small makers.

Copyright © Chris Shanahan 2011