A report commissioned by the Federal Government has urged small and medium-sized wineries to form alliances and offer a wider range of goods and services at the cellar-door, as they bid to compete with more powerful companies.

The study, prepared by ACIL Consulting and called Pathways to Profitability for Small and Medium Wineries, says niche marketing and regional wine tourism will be crucial to the future viability of small wineries. The report also warned that smaller producers could be hit hard by over-production.

"Smaller wineries with poorly established brands are likely to struggle," the study says. "Given the growing concentration at the retail sector, small winemakers need to work hard to develop non-traditional routes to market."

The study also says small and medium sized wineries should prepare five-year business and marketing plans which identify niche markets or other "points of difference" from larger producers. They should also consider forming alliances with bulk wine suppliers, joint-buying, out-sourcing of administrative functions and forming joint ventures. It adds that smaller concerns should offer a wider range of goods and services such as food, produce, tourist attractions and bed and breakfast accommodation.

The report also called for the number and effectiveness of wine industry bodies to be reviewed, suggesting that the merger of the Australian Wine and Brandy Corporation and the Grain and Wine R&D Corporation could be considered.