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In spite of a strong currency, the continued problems of heavy discounting and worries about the harvest, Australian wine exporters remained characteristically upbeat at the Australia Day Tastings held in London last week. just-drinks' Olly Wehring visited the tasting and found out that there is little an Australian enjoys more than a challenge.

A look back at 2003 has led many Australian winemakers to sum up last year in one word - challenging. The harvest had its difficulties, retail consolidation both at home and abroad stepped up a gear, and the Australian dollar grew to frighteningly strong proportions. And what is more, it would seem that many of these challenges remain for the coming year.

Among the markets that these problems are being felt most acutely is the country's largest market, the UK. And in the UK, Australia faces a further challenge, one to a degree created by its own success. While the last 10 years have seen Australian wine not only become more popular to UK consumers, but also soar to number one ahead of French and Italian wines, it has also in some ways lost its sheen of mystery.

Hans Astrom, director for Europe with Peter Lehmann Wines, sums up the situation perfectly: "Australian wine has lost a lot of its sex appeal," he says. "There is more interest in wines from Australia than there used to be."

Paul Stratford, managing director at Stratford's Wine Shippers & Merchants was another to notice the problem: "The edge has gone off Australian wine a little bit," he says. "There is a need to introduce new ideas, for example in packaging or wine styles. Australian wine's style has been very consistent. This needs to change." This would appear to be a fundamental issue that the industry needs to deal with going forward. Going from nothing to top of the heap in 10 years is a marvellous achievement but resting on their laurels while the others, namely the Old World forces, are gearing up for a fight would surely be folly.

The success story of the last 10 years has been built on aggressive marketing and discounting. Looking forward over the next 12 months, all wine producers are singing from the same song sheet, when they point out that what Australian wine needs to promote above anything else is its regionality.

Brett Fleming, European manager at Yering Station, says that this is the best way to maintain the successes of the past: "To assume that Australia makes boring wines is untrue," he says. "Monolithic trade has been the bulk of Australia's wine industry. But people are slowly realising that Australia has regionality.

"There are two types of consumer," Fleming continues. "The bargain-hunter - and we created this monster - and the consumer whose palate has grown more sophisticated. We've got to start putting beacons out to educate consumers about the regionality available in the Australian market."

Andrew Hardy, general manager and winemaker at Knappstein Wines, agrees, and believes Australian wine producers are well-placed to push this point: "It is certainly going to be hard to sustain the success of the last 10 years," he concedes. "There could be a swing back to the Old World wines of France and Italy. One of the solutions to this is our regionality. The days of plonking a winery anywhere have long gone." By promoting the different wines from specific Australian regions, winemakers can look to promote loyalty in their brands, as 'bargain-hunters' become more affluent and sophisticated.

Brand promotion is another major issue in the market, and one that many producers are keen to focus on in 2004. Chris Seale, head of marketing for the wines division at Pernod Ricard, is keen to concentrate less on price, more on brand. "We tend not to get involved with the big players (when it comes to discounting)," he says. "Ours is a £5.99 price-point, so most of our activity is focused on building the brand."

Creating brand-awareness, for many producers, will centre round encouraging consumers to spend a little more money than they're used to. A spokesman for Evans & Tate says: "Winemakers need to deliver quality at the right price. Then we will be free to get people to trade up."

Fleming is quick to agree. "We don't endorse discounting for our brand (Yering Station). There is a certain amount of responsibility we all need to take in the industry to make consumers trade up," he says, stressing the need for wine producers to educate customers and retailers. "The relationship between the shop-owner and the customer in the independent trade is very appealing for the Australian wine industry."

Interestingly, in spite of the huge popularity of Australian wine, there is still much to do in terms of consumer and trade education. As the spokesman at Evans & Tate points out, "consumers are not well-educated (in the area of Australian wines). Supermarkets are in the business of offering discounts and increasing the number of customers."

Discounting remains the burning issue for most exporters. The approach of UK retailers, particularly the multiples, to discounting is well-documented and, indeed, has become the norm. But, as the spokesman at Evans & Tate says:" We need to get out of the cycle of discounting. You can't deep-cut discount ad infinitum."

Astrom agrees: "We have to try to stay away from discounting. We can't afford to do deals like the big boys do. One alternative to discounting is to over-deliver for the price."

Pernod Ricard's Chris Seale offers other solutions but the theme is the same. Namely, to find ways to add value rather than simply discounting. "Ours is a conscious effort not to get involved in discounting. Instead, we offer alternatives like tastings and food and wine-matching programmes with retailers."

But, as Andrew Hardy points out, with the discounting trend so firmly established this may be a losing battle for some. "It's a highly-competitive, almost cut-throat, market," he warns.

With price pressure so intense, the unprecedented strength of the Australian dollar becomes an even more worrying issue for wine exporters. The Aussie dollar is now worth about US$0.76, compared with $0.56 in January 2003, cutting the amount of foreign earnings and making Australian wines more expensive for foreign consumers. Andrew Hardy at Knappstein feels powerless against it: "There's not much we can do about that," he says. "We'll just have to suck it and see."

Others, particularly those owned by larger international groups, seemed less perturbed. "We're owned by a big group, so we are protected from fluctuations in this area," says Seale of the Wyndham Estate and Jacob's Creek brands.

Expert Analysis

Wine Watch - Australia

This comprehensive Wine Watch country report from Canadean provides a thorough analysis of consumption trends in all wine categories. Clearly set out, it will help you to understand competitive relationships within the local market, brand dynamics and market structure and trends. It will also assist you in understanding the importance of international wine marketers in the country. Find out more here.


The situation created by the discounting problem and the strong Australian dollar would be further exacerbated if warnings of a wine glut turn out to be accurate. Since this year's harvest has kicked off, there have been almost daily reports of a wine glut in Australia, with tanks from the previous harvest not being cleared before this year's is ready.

Sam Kurtz, group red and fortified winemaker at Orlando Wyndham is cautiously optimistic about 2004's vintage: "It's too early to tell how the harvest will pan out," he says, "although the spring rains and small berry sizes are good signs. We have just had the coldest January for 30-40 years, so everything is running about two weeks late. We're hoping for a pretty sensational vintage, but we'll have to wait and see."

A report released last week by Macquarie Financial Services, however, said that Australia's oversupply might last for three more years and supply and demand might not get into balance until 2007. The report noted that the oversupply of cheap grapes might see the emergence of low-priced rivals in the wine industry, selling far cheaper wine.

However, Paul Stratford is bullish about the future: "The huge over-supply will come on board in the next 12 months," he says. "There seems to be a lot of expectation that the UK will soak up this over-supply. Producers need to look for new markets to direct this over-supply towards - particularly Europe and Asia."

Fleming offers another solution to the glut: "In the on-trade, Australia can steal a march on affordable, quality wines in restaurants where Old World wines are well-established," he says.

There can be no denying that this year is going to 'out-challenge' last year for Australia's winemakers. The companies involved are well aware of the issues facing them, but it is refreshing to see so many coming up with solutions; proof, were it needed, that the Australian word for 'problem' is 'opportunity.'

Companies: Pernod Ricard

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