by James Halliday
"Our message has been all about value and I think we've now squarely got to say that there's a premium to be paid for Australia,' said Paul Henry of the Australian Wine and Brandy Corporation (AWBC) as he unveiled Wine Australia: Directions to 2025, which
aims to produce higher profits by encouraging wine consumers to trade up to higher price points, thus enhancing Australia's status.
Before one dismisses Directions 2025 as a piece of wishful thinking, an attempt to turn a negative into a positive, it is worth very briefly summarising the four market strategy and target documents which preceded it, the first in the second half of the 1980s, and the fourth - and boldest - Strategy 2025, released in 1996. In each case, the targets set were regarded by analysts, or the few who paid any attention to them, as hopelessly optimistic. Each in fact exceeded its goals by increasing margins, none more so than Strategy 2025. Its vision of $A4.5 billion in sales by 2025 was reached - indeed exceeded - 20 years earlier in 2005-06.
Put in this context, the keynote aim of Directions 2025 is an intermediate phase from now through to 2011 during which an extra $A4 billion of wine will be sold, resulting in cumulative sales of $A30 billion, rather than the $26 billion based on current production levels and consumer trends. If history repeats itself, it will succeed handsomely.
An instinctive - if uninformed - reaction to Directions is that it is akin to a magician pulling the rabbit from his hat, a piece of illusion, a trick, without any substance. But a sober reading of the names of the 22 members of the task force who spent 18 months coming up with the detailed phrasing of the Directions should cause pause for thought. Even more should the clinical summary of the problems Australia faces in today’s domestic and international markets cause the cynics to think again.
Cutting to the chase, Directions 2025 analyses the 11 major markets for Australian wine which account for over 90% of its sales. It is under-represented in the basic level (where it has never wished to be, and where drought and climate change make it impossible except to clear wine in bulk from the short-lived surplus), and it underperforms in the super premium and specialty markets (£7.50 to £9.99, and £10-plus respectively). Its sales are highly concentrated (over 50%) in the mid-range popular premium segment, an area which is bitterly contested. So far Australia has outperformed its competitors from France, Italy, Spain, Chile and the United States. But increasing market share in this segment seems unlikely: Australia will do well if it can hold its share in those markets - which leaves the top end the obvious target.
Before moving on, one needs to factor in appalling growing season conditions leading up to the savagely reduced harvest of 1.34 million tonnes compared to 1.9 million for each of ’06, ’05 and ’04, and assume (logically) that harvest ’08 will be around 1.4 million tonnes, perhaps much less.
Climate change hangs like a dark cloud over the whole winemaking world. It will affect the Southern Hemisphere New World countries in a different way to the Northern Hemisphere Old World countries. There is a special impact on Australia: even though the drought and concomitant frosts were El Nino’s legacies, the public sentiment about water usage, recognised as a limiting factor for Australia’s viticulture for many years now, has changed forever.
In an election year, both political parties have announced a new order of priority: first, diverting large volumes to urban and city storage dams to keep up with population growth; second, for more environmental flow in the Murray Darling system, southern Australia’s water pump; third, for cattle, sheep and livestock. Under present conditions, the Prime Minister has announced there will be no water allocation for horticulture.
A little over 100 years ago the areas which up to now have produced over 50% of Australia’s wine - most of it at premium level, it is true - were red, sandy desert. It is highly unlikely they will return to that, but what will their function be if water allocations are permanently severely reduced?
In other words, there are outside forces which of themselves may impel Australia to look to the coastal regions of Western Australia and South East Australia, including, of course, Tasmania, and to higher altitude regions. This will, in turn, necessitate a great focus on marketing the ultra premium and specialty and icon wines which are made in these regions.
Even these small slices of Australia are large by world standards, and can and do produce wines which are varietally, regionally and stylistically of great diversity but of common quality - quality which can compete with and outperform other ultra premium wines. Directions 2025 details how and why this will be achieved.
Note from the editor: A more detailed report on Direction 2025 will appear in the next issue of Wine Business International.
