Despite the difficult environment at both domestic and global levels, the Australian wine industry continues to expand. The challenge, according to a recently released report from the world’s leading food and agribusiness bank, is how to grow value as well as volume.

According to the Rabobank report, the Australian wine industry needs to break away from its image as a supplier of inexpensive wines and begin to improve the average price per bottle in order to secure a sustainable future.

Report author and Rabobank analyst Vera Zelenay said that, although Australia has a long history of domestic wine production, it only began to focus on export opportunities for branded premium wines in the 1990s. Since then, the Australian wine industry has been very successful in delivering to the global market large volumes of good quality and easily approachable wines.

Since around 2000 domestic oversupply, primarily driven by three successive high-yielding seasons in 2004, 2005 and 2006, cornered Australian exports in the relatively low-priced segment of the global market, the report says.

Although Australia markets its wine in a number of different countries, the United States (US) has emerged as a market with significant potential for higher value Australian wine, Ms Zelenay advised. “Over the last twenty years, the US has been increasing its wine consumption at a faster rate than any other major market, and in recent times most of that growth has been at the high-end of the market,” she said.

From 1991 to 2007 the market grew by 83 per cent (141 million cases) to 313 million cases. “If this trend continues, the US is expected to become the largest overall wine market in the world, surpassing Italy in 2008 and France around 2015, the report advises.

In the same period, sales revenues grew much faster than unit volumes, showing that US consumers moved up market in their buying patterns. “The high average wealth in the US, combined with the relatively low per capita consumption of 9.4 litres suggests a significant market expansion opportunity for suppliers who can identify where and how to compete in this huge market and leverage brand, quality and distribution strength to best advantage,” the report states.

Although the Australian wine industry’s production has been fluctuating in response to seasonal conditions, exports have been continuously increasing. “However, up to the end of 2007 this growth has been based on volume rather than value,” Ms Zelenay added.

While the export market is expected to remain fiercely competitive, the winners will be those players who have a deep understanding of their markets and pursue consistent strategies according to their competitive and comparative advantages. “For the Australian wine industry this means improving its global perception in order to grow in value, encouraging consumers to trade up and to choose Australian when moving to a higher price point,” Ms Zelenay suggested. “A more premium focused, value-oriented business will be less vulnerable to the type of production peaks and lows which have characterised the industry over the past five years.”

At the moment there appears to be a gap in the offer of domestic wines in the USD9 to USD12 price point, “which is a clear opportunity for Australian wine,” the report claims. “This represents an attractive price segment and provides a foothold for a segmentation strategy, offering a wide range of new experiences and encouraging consumers to trade up,” the report continues.

Market research will play an important role in getting to know the attributes that particular markets value, according to Ms Zelenay, who says this will improve the effectiveness of marketing campaigns aimed at different consumers and will contribute to achieving consumer satisfaction and loyalty.

However, Ms Zelenay cautioned that, while the US market undoubtedly presents opportunities, there are also numerous challenges for Australian wine exporters. Its complex distribution system, elevated shipping costs from Australia, a weak US dollar and the looming recession are some examples that will ensure the market remains challenging. “Dealing with the three-tier distribution system will in many cases act as an entry barrier, being the main challenge to effectively penetrating the higher end of the US market,” Ms Zelenay warned.

The Australian wine sector has significantly expanded, achieving record levels of production and an efficient alignment with consumer trends.

“In order to continue its prosperous development, the industry’s challenge is now to move to a superior proposition. Wine grape growers and wine makers need to make considerable improvements in their levels of profitability to ensure a healthy and sustainable Australian wine sector,” Ms Zelenay concluded.

Rabobank’s newly appointed senior wine analyst, Adam Morris, agreed that the opportunity for quality Australian wine producers to reposition themselves in faster growing, higher value segments will be critical to the continued viability of the industry. “Australia is in fact in a much stronger position to launch this strategy than other exporting nations in the US market due to its hard-fought reputation for innovation and over-delivery on quality at a given price,” Mr Morris said.

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