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s sales continue to surge and profits climb, the prospect that the New World may already have reached its peak would have been given short shrift a year ago. But according to research from the organisers of the London International Wine & Spirits Fair, the tables may have turned on Australia and its allies. Chris Brook-Carter reports

The year 2001 was a dark one for the global market. After the boom years of the 1990s, the World Trade Organisation announced that international trade will register a progression of barely 2% in 2001. The wine market, despite some protestations to the contrary, has not escaped this downturn. The world wine trade has risen 36% over the last five years. Estimates for the next five years, however, stand closer to 8%.

And yet within these figures lies a more complex picture of the wine market, with erratic performances across the market. For while the wine producing countries of Western Europe have registered only a 21.4% growth between 1994 and 2000, the New World (the US, Chile, Argentina, Australia, New Zealand and South Africa) recorded a 169% rise. Forecasts meanwhile, see Western Europe growing only 2% by 2005. The New World, it is estimated, will still jump 32%, despite the tough conditions.

It is because of this backdrop, then, that receiving an invite to attend a seminar entitled The Future of New World Wines, Is the Golden Age Over? was, on initial examination, a surprise.

After all, Australia, Chile and South Africa saw their exports increase in volume by 585%, 511% and 1500% respectively in the last ten years. This compares to the much slower progress of the old bastions France, Spain and Italy, who only managed 22.66%, 100% and 54% respectively.

And the New World has never been better placed to take advantage of the modern economy, which is fast enveloping the drinks world as consolidation sweeps through the industry. Figures by the accountancy company Ernst&Young reveal that New Zealand's top four producers now control a massive 85% of the country's wine production, while KWV in South Africa controls 80%. Australia's four giants, meanwhile, (Southcorp, BRL Hardy, Orlando Wyndham and Beringer Blass) control over 55% of the country's output.

Again the producers of Western Europe fair badly. Spain's top five producers can only manage 15% of the country's output. France fairs little better with the top four controlling 15%. Italy, meanwhile, can only boast a meagre 3% for its top eight.

"Their (New World wine companies') ability as vertically integrated businesses has been to control costs and to produce fruit driven styles of wine that have appealed to the developing wine drinking public," said Allan Cheeseman, the head wine buyer of UK supermarket Sainsbury's in the report.

"The Old World didn't really know how to react and with the disparate nature of their industries, which were founded on producer led attitudes"
"The Old World didn't really know how to react and with the disparate nature of their industries, which were founded on producer led attitudes rather than being consumer led, they have seen an erosion in their share."

And yet, looking back, the title of this report is not the first rumbling of disquiet from the New World. The issue of oversupply has been dogging Australia for months now. And this week saw the first public demonstrations by winegrowers over the emerging problem. Grape growers from vineyards along the river Murray in South Australia gathered outside the National Wine Centre in the state capital, Adelaide, to give away boxes of grapes they said would either rot on the vine or be harvested and left to rot.

Organiser of the protest by independent growers Tom Economou said: "Our whole livelihoods are being threatened by the huge corporate plantings being encouraged by the federal government's tax incentives."

The crisis in Latin America, meanwhile, has seriously brought into question the region's ability to offer return on investment to international wine companies. And wine companies in the mid to small-sized category, the globe over, have struggled to cope with the increasing pressures of the global economy, where big is always better.

But interestingly, the report - commissioned by Brintex (organisers of the London Wine & Spirits Fair) and complied by the Wine & Spirits Intelligence Services (WISE) - sights what many New World insiders believe to be one of their biggest successes as a potential weakness.

Speak to any of Australia's "Big Four", for example, about their achievements and they will speak proudly about their ability to continue to deliver what consumers see as value for money while consistently raising the average price of their wines.

"The first marketing strategy implemented by the New World was to enter the international arena by focussing on the lower end of the wine price range," says the report. By October 2001 a survey of all the major British wine retail shops and supermarkets by WISE revealed that Australia and South Africa are now concentrating more than 25% of their offerings on wines ranging in price from £7.00-£9.99. Such a proportion of the offering within this price range is higher than the French or Italian portfolios.

A similar move upwards has taken place in the US, where the countries entered the market around and under $3.99.

"South Africa and Australia even seem to have almost completely deserted the 'less than $3.99 a bottle' category "
"South Africa and Australia even seem to have almost completely deserted the 'less than $3.99 a bottle' category and are now concentrating their marketing efforts at the higher end of the market, encouraged by the enormous concentration of ultra-premium American wines."

Attractive as the increased margins must be to Australian producers, the moves to these higher price points have not been made completely independently. Rising production costs and the increased pressure to maintain return on investment for fickle shareholders has, to a degree, forced their arm.

It will be a far greater challenge for the New World to compete at these price points - Chile, for example, is already finding it difficult to conserve its growth levels and has been forced to lower the average price of its wines. Furthermore, it will not have gone unnoticed among the more perceptive that the move up has left a gap underneath, which can be exploited by those with the right products.

There are genuine signs that the Old World has finally woken up the threat it is facing and is better placed to fight back against the New World than at anytime before. The French in particular have been making the right noises following a report by agriculture minister Jacques Bertomeau, which warned: "The barbarians are at the gates." Since then an enquiry into the state of the French industry has been commissioned. The Groupe Stratégique, made up of six members drawn from the French wine industry and the Ministry of Agriculture, has been consulting over 150 experts connected with the wine industry to develop a plan to combat France's declining position in the world market.
Jean-Louis Piton, one of the group's members, said that the group was about the "recreation of the wine industry in France".  He said: "

"France has been shocked by what has happened in the industry. What needs to be changed are the aristocratic ideas of the French wine sector. "
France has been shocked by what has happened in the industry. What needs to be changed are the aristocratic ideas of the French wine sector. This needs to disappear and the French wine industry needs to listen to markets."

And while the French talk, the Spanish seem to have acted - so much so indeed that they have remained surprisingly resilient to the New World onslaught. The country has doubled its exports in the last ten years. In the UK its market share has increased from 3.33% to 7.36% and in the US it has moved from 1.9% to 2.7%.

But clearly the traditional wine producers of Western Europe still have a number of issues to contend with. And while they will put up a far more credible performance against the New World in the higher price points, it is hard to see them being the ones to march into the vacuum left by the likes of Australia at the lower price points.

"In this game, the new players could very well be Eastern countries: Hungary, Bulgaria and Georgia," says the report. "Romania, Moldavia and Russia are also possible players currently restructuring their wine policy."

Certainly this region has the resources to succeed. The area under vine is huge, at about 17-18% of the world's total vineyards and the countries concerned have been the benefactors of substantial financial aid from the likes of the European Bank of Reconstruction and Development. Internally as well, wine has taken on significant political importance as governments recognise it as lucrative tool in the economic development of their infrastructures.

There are also comparative advantages over the New World in terms logistics and production, which can be harnessed to enter the lower price points. Labour costs are obviously lower, as is land. And the proximity of the Western European markets makes transport a relatively easy hurdle to overcome.

There are still problems. "

"We used to sell quite a lot of Eastern Europe wines... However, their lack of image will make it hard for them to bring real added value to the market"
We used to sell quite a lot of Eastern Europe wines as they have always been quite inexpensive," says wine buyer Barbro Ström of Sweden's System Bolaget. "However, their lack of image will make it hard for them to bring real added value to the market."

Yet the WISE report still believes the industry could be on the verge of a new segmentation, with Old World wines reigning in the super-premium categories, acquired by the older generation, the New World dominating the premium categories thanks to sales to Generation X, while wines from Eastern Europe will take the lower end of the spectrum, selling primarily to the echo boom generation (7 to 23).

For more information on the London International Wine & Spirits Fair go to .

Companies: KWV Ltd

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