Friday, June 24, 2005

Wither Australia?

Australia exported over 18 million cases into the US last year, but the vast majority of those cases were made up by yellow tail, Little Penguin, Black Swan, Alice White, and Lindemann’s. In fact, the average retail price of a bottle of Aussie wine has dropped sharply over the last 24 months according to figures released by the Australian Wine & Brandy Corporation (the Australian Government authority responsible for the promotion and regulation of Australian wine and brandy).

Australia once looked like a wine region with tremendous potential for quality from Penfold’s Grange on down, but it is starting to look more and more like a producer of cheap bulk wine, whether the wine is ultimately for the US, Canada or the UK doesn’t really matter. Basically, Australia is becoming a producer of a commodity product – bulk wine – rather than a leading producer of fine wines.

How has this happened? In a number of ways – first the continued oversupply in Australia has pushed bulk prices down, allowing brands like those listed above to be created quickly (as with Black Swan, Little Penguin and yellowtail) and the decline of Southcorp has forced a company that was once the largest in Australia to slash prices to move inventory and ultimately, to be bought out by Foster’s/Beringer. Currently, the export market is dominated by only 20 or so producers. Couple those problems with a strong Aussie dollar (relative to its two largest wine markets, the US and the UK) and you have a situation on your hands.

Hopefully, the Aussies will be able to turn this ship around. I’ve noticed, however, that the selections in some wine shops have changed from a broad spectrum of price offerings (admittedly mostly Shiraz-based) to only a few wines produced by the larger players, and no doubt Beringer's recent purchase of Southcorp will only exacerbate this problem. This seems to confirm that many of the smaller players are having to look beyond the US market and that’s a shame.


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