In the first just the Answer of 2012, Chris Mercer quizzes Wine Australia's general manager for market development, James Gosper. The two met at at last week's A+ Australian Wine annual tasting in London.

just-drinks: Looking at the export figures for 2011, volume and value exports are still down overall. What are you taking from last year's performance?

JG: What's come out of that for us, looking at the glass half-full, is really encouraging sales at higher price points. Among the key markets that were trending down across the board, we've seen the US and UK trending up at higher price points. There's substantial growth, obviously off some small bases, but it's been telling us for the last few quarters that our focus in repositioning the category is starting to pay dividends.

Meanwhile, in the Chinese market, the newest market for us and the market that's growing fastest, we're seeing a very good price per litre for our bottled wine.

j-d: It's interesting to see that China is the largest destination for Australian exports priced above AUD7.50 (US$8) per litre. Is China the future for Australian wine, then?

JG: The Chinese market has huge potential and I think we need to be optimistic, but cautiously optimistic.

j-d: What makes you cautious?

JG: At the moment, one of the things about the Chinese market is that it's very hard to understand. One of the biggest questions I have for winemakers who are getting excited about selling wine into China is: 'Who do you see drinking the wine? Do you see anyone actually opening the cork and pouring it into a glass?'

We need to better understand where this wine is going. Is it going as a gift and not being drunk? Because that's not a sustainable channel. Is it just going into warehouses? Is it just sitting on retail shelves? There's a huge pipeline in China and we could still be filling the pipeline. You know, one of the reasons for such a correction in the US market was that we filled our pipeline and you don't know it's full until it starts spilling out of the end; and then you have to get rid of it. 

j-d: How are you trying to find out more about China's wine market?

JG: It's more about working closely with key importers and learning where they're selling the wines. Wine Australia has been working with Austrade to understand the channel and we're putting a lot of money into consumer education. But, knowing where the wine goes is probably the most important piece to the whole puzzle.

It's interesting: the last figures I saw in China, sales of Bordeaux have fallen off dramatically, and sales of Burgundy have gone up. Is the question: has Bordeaux already run its race? If Bordeaux has run its race, it signals all too strongly that it's an incredibly fickle market, that it's not buying wine for the right reasons. That makes it a very risky market.

James Gosper, general manager for market development for Wine Australia

j-d: How has Australia managed to achieve such high price points in China?

JG: In terms of value per litre [bottled wine], we're only two cents per litre behind the French [market leader]. I think the market doesn't follow any other market trend. The majority of people buying the wines aren't interested in what's going on in London or Paris, I think they buy wine for different reasons. Therefore, a lot of wine purchases are for prestige, for social and corporate gift giving. If you're entertaining, you buy it to impress someone, so buying a more expensive wine is part of the prestige.

j-d: How close is China to rivalling Australia's top export markets in volume?

JG: If it grows at its current rate, it will still take about seven years to surpass the US and UK. I certainly do not disregard this [the UK] market as being able to rebound strongly for Australian wine. This market, there's no other like it in the world for Australian wine. There's always a diverse price point, varietal and regional wine list on retail shelves.

j-d: You clearly still see the UK as a strong anchor for Australian wine.

JG: It might be hard currently to make any money, because of the exchange rate and the economy possibly falling back into negative growth, but we've come a long way and got a big footprint that doesn't get erased quickly. It's ten years as the number one category in the UK.

If I had invested a lot of time and money as a brand in this market, I would be hesitating about divesting in this market to invest in China. I would be keeping as much pressure as I can on this market to maintain my position and I would be investing in developing a cautious long-term strategy in China.

j-d: Looking to the US, it's clear that some top Australian wine companies have had problems in recent years. How do you see the situation for Australian wine there?

JG: The US is a different kettle of fish altogether. Wine Australia has been doing a lot of work with the on-trade. We're still at number two in that market, but if you went into any restaurant in New York and picked up the wine list you'd think we were number 20. It's all in the off-premise and it's all at the wrong price points: lower, less sustainable, less profitable price points.

j-d: What sort of price point are you talking about? 

JG: Generally, about US$7 to $10 per bottle. We've still got some strong brands in the US selling lots of volume. Yellow Tail is still doing very well there and Treasury Wine Estates, I believe, has followed a really smart route in focusing on premium brands.

j-d: How big a growth opportunity does the US continue to represent?

JG: The US is the biggest wine drinking nation in the world. We are still the number two selling country of origin and Americans love Australians. I think it's a very important market, but some of the mistakes we've made in the US shouldn't be repeated.

A lot of the mistakes were to just chase one style of wine and not use your point of strength and popularity to leverage a broader portfolio. We were killing it with Shiraz, points were rolling in from Robert Parker and Wine Spectator, so retailers, distributors and importers all said: 'Give us that style of Shiraz and we'll sell it no problem'. So what did Australian winemakers do? Gave them that style of Shiraz and nothing else. And, when that style falls out of favour for whatever reason, there's nothing else on the shelf. That's where - as I mentioned earlier - you've got a big pipeline of wine that has fallen out of favour, and then you've got to do something with it.

It takes 18 months to clear inventories in that country, sometimes two years, and you've got a sales force as big as the US distributor sales force [with] guys completely turned against the category because: a) there's only one style of wine; b) it's not moving off shelves; and c) you've been selling the same vintage for two years. It's a sort of self-perpetuating issue that becomes a major problem.

Going back and rebuilding the US market is important. We need to build diversity and focus on just a few markets. Just in tri-state area around New York you've got 80m people, the same population as the UK, so it's a big marketplace.

j-d: Looking back to Australia, it's no secret that there have been overproduction problems. What's the current situation?

JG: It's no secret because everyone talks about it. No one talks about European overproduction problems!

It's being addressed a little bit slower than we'd like to see. We'd like to see more adjustment in our supply base.

But, there are two arguments. There's the argument that global supply and demand is pretty much in balance. Australia is out of balance, but that means that we still have opportunities to grow demand for Australian wine and be able to supply that growth if it comes back in. It takes four years to get a crop, so you can't correct your undersupply that quickly.

I think a lot of people are looking at growth in China, and Canada's corrected itself; it was diving, but it's taken a real turn.

j-d: The figures show strong growth in bulk wine exports, too. What's driving that?

JG: We've seen big growth in bulk to Germany. Plus, producers like Pernod Ricard are sending Jacob's Creek to bottle in-market. You've got the big brands bottling in the marketplace, and a lot of that comes from exchange rate pressure.

j-d: I presume the exchange rate pressure is just as bad as it was?

JG: It hasn't moved, no.

j-d: There's been a lot of talk about Chinese interest in Australian wine assets. How aware are you of that?

JG: There's a little bit of interest in wine, but it's not as prominent as people think it is. The Chinese are generally interested in food security and wine falls into food security for them, alongside dairy, wheat, meat production. A lot of Chinese companies are looking at Australia [in general].

j-d: Finally, early last year, we saw some of the big Australian wine companies dissatisfied with what Wine Australia was doing. How is the relationship now?

JG: There were some well-aired differences that Treasury and Australian Vintage had with Wine Australia. In the short space of a year, those relationships have completely changed. We have Paul Schaafsma [Australian Vintage's general manager UK and Europe], who works really closely with Yvonne [May, UK & Ireland director for Wine Australia] now and was one of the most vocal critics back then. We've completely mended any of those issues, and it's reflected in their membership. They're all here today. If they weren't members, they wouldn't be here.