Bruce Kemp, head of Southcorp Wines, dropped a few home truths about the direction of Australia’s wine industry at the National Press Club recently. The crux of it, for wine drinkers, is that the era of undervalued wine is over.
Profits from domestic sales are needed to fund rapid vineyard and winery expansion demanded by strong export and domestic growth. To put it in Mr Kemp’s words, “It’s most important that we strike a balance in the quality/price equation — we have to maintain quality while preserving margins, both domestically and internationally, to create funds for much needed expansion.”
Just five years ago, no one could have taken seriously a wine industry head saying he was going to keep prices up. That was in the days of wine surplus and cut-throat competition amongst big makers. But the surplus is gone and the big makers have since joined forces. Now we all know, through the higher prices we pay for wine, that makers (domestically at least) are well and truly “preserving margins”.
Higher prices, Kemp pointed out, have not deterred local wine drinkers. “… during the recession, bottled sales stalled as cask sales soared, Australian tastes are now changing to bottled wines.” In the last year, the switch to bottled wines has been dramatic: bottled red consumption grew by 10.2 per cent, white by 9.5 per cent and sparkling wine by 2.1 per cent. That last figure, because it includes all the bargain bubblies, hides a very strong growth in more expensive bottle-fermented sparkling wine.
If that trend continues, we will need more premium grapes. According to Bruce Kemp, the Wine Federation of Australia predicts an increased local demand for premium bottled wine of 42 million litres by 2000. To service that demand, our makers will need an extra 64,000 tonnes of grapes from a new 5,200 hectares of vineyards. And that’s just to meet domestic growth.
The rate of export growth appears even more dramatic, running at a compound annual rate of 27.1 per cent for ten years. In 1983/84 we exported 8.9 million litres of wine, growing to 124 million litres worth $365 million in 1993/94.
Bruce Kemp views Australia’s $1 billion export target by 2000 as “a mission, not an end in itself … it puts the focus on what is needed to achieve the target.”
An additional 25,000 hectares of vines need to be added to the present 62,000 hectares to provide an additional 300,000 tonnes of premium grapes. Altogether, Kemp estimates the investment in vineyard and winery expansion to meet projected growth at home and abroad at around $1.2 billion.
And money is pouring into vineyard developments across Australia. Southcorp, as the country’s biggest maker, leads the way with a $100 million dollar expansion over the next three years: $64 million to vineyard development and $36 million to winery consolidation and expansion. And that’s not counting the long-term contracts to buy from new plantings undertaken by independent growers — an effective way, as Bruce Kemp puts it, to spread the risks as well as the rewards of an expanding industry.
Southcorp seems particularly well placed to grasp its share of growing markets. The company embraces the vigorous and formerly independent winemaking cultures of Wynns-Seaview, Penfolds, Lindemans, and Seppelt. With those businesses came not only brands but perhaps the best suites of vineyards and wineries in the world.
Southcorp’s 3,500 hectares of vines last year fed total sales of $352 million (including $106 million from exports). According to Bruce Kemp, Australia produces just 2 per cent of the world’s wine. But Southcorp ranks as the eight or ninth largest globally, accounting for about 0.6 per cent of world wine production.
Largely, Australia’s newly export orientated wine industry is making opportunities for itself. But as Bruce Kemp points out, some of the biggest risks stem from the rapid growth now underway. We’ve got to keep quality up and prices reasonable both here and overseas. And both quality and price are under pressure as fast growth pushes up grape prices and creates temptations for imprudent wine makers to stretch the blend.
There are just too many competitors from both the old and new world hungry for our markets for us to risk dropping quality. Good quality at the right price is what made our international reputation.