Australian wine industry bids to continue UK market dominance

20 September, 2016

Australia is in the doldrums after slumping to its worst Olympics performance in decades and finishing 10th in the medals table.

It followed a whitewash at the hands of Sri Lanka in the cricket and has sparked fury among the press Down Under, particularly as Great Britain did so well.

“The poms are tearing us to Brits and pieces,” roared Fox Sports in an angry editorial, while the tabloids were incandescent with rage.

But one league table has seen Australia tear the rest of the world to bits and pieces: the UK retail trade’s top 10 wine countries of origin chart.

It is number one by a clear distance, with annual sales of £1.2 billion leaving it almost twice the size of second-placed Italy (IRI). What’s more, it is the only one of the top five in growth, with volume up 3.7% and value up 2.1%.

There are plenty of reasons to be cheerful, but some see the recent changes in the retail landscape as a threat to Australia. Rob Harrison, UK general manager at Hardys supplier Accolade Wines, has warned that the category has work to do to ensure it is fit for a brave new world focused on range rationalisation and everyday low prices rather than discounting among the grocers.

The latest table of the top 10 wine brands in the UK shows he was right to be fearful as Hardys, while still the leader and well ahead of second placed Blossom Hill, is down 3% in value (IRI, year to July 2016). Harrison believes Australia has focused too heavily on volume rather than value and warns Australia must earn the right to sell bottles of wine in the £6-£8 and £8-plus segments to safeguard its future.

Volume is outstripping value in the category and Australia does not perform as well in the higher price brackets as it does in the sub-£6 arena.

“Australia is still doing well in that area above £7 but it is about third or fourth,” says Daniel Hart, agency manager at McWiliam’s supplier Sogrape. “Above £10 it’s fourth or fifth. It’s down to the strength of other countries like France at premium price points.”

To stretch the Olympics analogy to breaking point, Australia has an outrageous amount of bronze medals, a fair few silvers, and the odd gold, so it needs more golds and silvers to ensure it keeps its place at the top by the next Games.

But rival suppliers do not see any problem whatsoever. “There was something said by one of our competitors, saying that Australia has work to do and it’s not fit for the future, and that frustrates me a little,” says Dan Townsend, chief executive at Treasury Wine Estates, which probably supplies more golds and silvers than anyone through its Penfolds, Wolf Blass and Lindemans brands. “It’s in good shape. It’s down to individual brand owners and when I look at our portfolio I absolutely think Australian wine is fit for the future. We have brands in the commercial sector, masstige and luxury, and if you look at it from our perspective, there are some very strong brands that don’t operate in the bargain basement.

“My perception is that Australia has been and is still in an incredibly strong position in the market. One in five bottles of wine sold in the UK is from Australia, despite all the new trends, countries of origin and varietals that have emerged over the last 10 years or so. Australian winemakers consistently continue to win big awards at the IWC and IWSC, not just Treasury but our competitors as well. Australia is still in a really strong place and has some of the strongest wine brands that exist in a very fragmented category. Wolf Blass, Lindemans and Penfolds are all well above the average price point and are all in great growth.”

Chris Ellis, commercial director at Jacobs Creek supplier Pernod Ricard, says: “The key characteristic of Australian wine is it’s the most branded of all of the wine categories. In retailers with range reduction the net result is the brands that are high equity and high rate of sale off promotion are benefitting and doing very well, and in reality Australia contains some of the strongest brands in the market. It’s almost the perfect combination of strong brands and range reduction benefitting everyone. We see the dynamics in the market as positive for Australia.”

Jacobs Creek, the UK’s ninth biggest wine brand, is down 5% but this should soon change if Ellis’ predictions are correct, and it also has the second highest price point of any top 10 brand, showing it is driving value into the market.

The other Australian brands in the top 10 are faring very well. Number five brand McGuigan, the second largest Aussie brand, is up nearly 10% year-on-year, while tenth placed Yellow Tail is up 33%.

“Our premium wines have never been better,” says Neil McGuigan, chief executive at McGuigan supplier Australian Vintage. “Our wines are of a very high quality at every price point. It’s the quality that has allowed us to get to the position we have reached.”

The brand has recently teamed up with celebrity chef John Torode for several partnership launches, and has just released its Black Label Malbec, which is designed to be paired with meat dishes, in a bid to drive more value into the market.

Paul Braydon, buying controller at Kingsland, says: “The Australian wine market is performing well, having secured its position as the UK’s largest category, largely due to consumers’ perception of Australian wines as excellent quality, reliable and engaging.

“Despite the strong growth in Australian wine, penetration of Australian wine has declined 4.5% (Kantar, year to June 2016) as shoppers switch their spend to propositions from New Zealand and Argentina.

“More premium and less mass-market Australian brands, such as Wolf Blass, Yellow Tail, and McGuigan, are all experiencing value growth through penetration. This is contrasted with the decline of the brand leader, Hardys, which has seen a 9.2% decline in shopper penetration over the last year and a further 2.3% reduction in average price. Overall, this could be interpreted as mainstream brands not fulfilling shopper needs.

“Brands remain the solution, but they need to be less generic, more authentic, and become more relevant to consumer lifestyles. Too many wine brands continue to rely on functional characteristics – vineyard, history, wine knowledge, taste, et cetera – when what consumers actually want is for brands to make them look and feel a certain way.

“Australia is a key focus for Kingsland Drinks and we are proud to represent several outstanding Australian producers, covering key areas of the country.

“Brands rely too heavily on heritage, history and the winemaking techniques. To interest UK consumers it is more important to find elements that properly engage with them such as interesting branding, appealing taste descriptors and emerging, exciting regions that truly offer a point of difference. This is exactly what we are doing at Kingsland with our producers and brands.”

Laura Jewell MW, who heads up Wine Australia in the UK, is equally upbeat. “Bottled imports at AUS$10 or over are up 35%,” she says. “At $50 or over they are up 9%. “Bottled imports to the UK are growing and the proportion of bottled to bulk is changing in favour of bottled. That is being driven by the independent trade.

“I am seeing more interest among independents. For instance Vindependents has taken on seven wineries in the last few months and are looking at another couple of regions to expand their portfolio there. Australia is important to these guys.”

A new wave of dynamic Australian winemakers is pushing boundaries and changing perceptions of what the country can do, and several will be in Shoreditch in London for an Artisans of Australia tasting aimed at independents and the on-trade later this month.

“The wine they are showcasing is in response to the success of Jancis Robinson’s tasting of new wave winemakers at Rootstock in Sydney. We had a great take-up and we have over 20 of these guys coming over, so we decided to do it in a completely different place. We are in a nightclub in Shoreditch with graffiti and glittery baubles. We are attracting a different audience and [aligning ourselves with] young hipsters in Shoreditch. I am loving the vibe that goes with it. They have taken over Instagram. They are all very excited about it.

“There will be 120 wines from across 40 wineries, with 22 winemakers present. These winemakers are using things like concrete eggs and extended maturation to produce wines that are interesting, relevant and challenging. This is the small guys getting to a chance to have their voices heard.

“It’s a different style of Australian wine that retailers may not have seen before or realised is quite as prevalent. It’s not just one or two guys in the Adelaide Hills doing it. It’s a big movement. There is this wave of winemakers really tapping into terroir and you really need to come along with an open mind.

“Some make less than 1,000 cases. Some make a fair bit more than that. Some have been for a whole. They are not all new kids on the block.

“It’s another story in the storybook and if it changes the perception of Australia as just Chardonnay and Shiraz in the classic style and people can understand that there are different grape varietals and styles that’s a positive thing.”

When asked if there is scope for larger producers to scale up this dynamism and benefit the Australian category in the UK on a larger basis by driving excitement among consumers, Jewell says that they are not all “new kids on the block” and some produce a sizeable amount of wines. She echoes Jancis Robinson MW in pointing to McWilliam’s as one producer making wines on a large scale operation but experimenting with different and interesting things.

Hart, who distributes the McWilliam’s brand through Sogrape, says: “McWilliam’s has been around for hundreds of years and they have been in this country for a long time, but they have gone through a strategic change and instead of chasing large volume and low prices they have changed their whole approach. They are not just selling better quality wines at higher prices, they are also getting a better identity and distinct personalities and a strategy which brings them together.

“For one of Australia’s biggest and oldest producers, there has been a lot of change and they are shaking it up on a large scale.”

The Evans & Tate Expressions range, which includes wines like Butterball and Fresh as a Daisy that are named after the way they taste, is one way the producer is using language that makes wine buying easier for consumers, according to Hart.

“In the Australian market it was the biggest NPD launch and had the number one, two and three positions,” he says. “We brought them to the UK in the autumn [of 2015] and at £8.99 [reduced] to £6.99 we thought they would be of interest to the multiples. We had no interest from the multiples, but the on-trade, regional wholesalers and independent retailers have shown great interest and are stocking them.

“It was too much of a stretch from what the multiples do now. They do own-label and brands that have been around for a number of years and it’s too radical and risky. It was a little bit frustrating but the independents are supporting it. Australia had too much of a reliance on the multiples. Independent retailers want to differentiate and Expressions allows them to do that. As much as we like to talk about selling wines at £15-plus, independents need £6.99 wines too.”

To increase its sales in higher price points, Harrison believes that Australia has to communicate its “regionality” better. Jewell says that “Australia isn’t one wine and one style in that way that France isn’t” but also admits that getting the Australian regional message out can be difficult.

Hart says: “In premium price points France is huge. People understand the regions and they have so many cues that don’t rely on individual producers, like Chablis and Chateuaneuf-du-Pape and St Emilion.

“If you think about how long people in the UK have been drinking European wines, you can’t recreate that overnight with Australia. But independents are listing different things from Australia and it can build up from there. Australia needs to keep up those boutique, left-field wines and still maintain the power of the sunshine in the bottle.”

It can be difficult to source these boutique wines given the distance between Australia and the UK, but Lanchester Wines is making it easier through a new company it has created called Vintrigue. Lanchester supplies a wide range of agency brands, such as McPherson, but it wanted to launch a standalone company focused on bringing “boutique bulk” wines over to the UK. “The concept was to have a more diverse, relevant company that sits as an extension of Lanchester, and the real purpose is to extend the quality first message,” says head of sales Mark Roberts. “It allows us to work in the boutique bulk arena. Bulk does have a certain stigma, but a tremendous amount of wines bottled in the UK are winning IWC awards. The perception and the reality are different things.

“Smaller family wineries akin to ourselves on things like unique parcels they want to move out. We are a family owned business and the size of the producer is an irrelevance to us. It’s more about the quality and the provenance. There is a big market for wines with provenance. We work on bringing boutique bulk super premium quality wines across and over-deliver on value.”

If these producers keep it up Australia will be in no danger of clinging to top spot by 2020. Now they just have to sort out their athletics programme.

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