Australia’s sophisticated market

While Australia has a laidback reputation, its wine drinkers have high levels of both knowledge and disposable income. Jeni Port reports.

Alcohol retail dollars by store type
Alcohol retail dollars by store type

Famed Australian wine retailer Dan Murphy was big on predictions. Some, like his 1966 attempt at a national classification of Australian wines similar to that used in Bordeaux, never took off.

Others, like embracing discounting in 1981 – which sparked a price war in his home state of Victoria before exploding nationwide – were an enduring success. Today, it is the Murphy name that blazes the strongest in Australia’s off-premise (takeaway) liquor trade, with the chain of 215 Dan Murphy’s ‘big box’ stores accounting for 29.9% of the total dollars spent by Australians (off-premise) on alcohol in 2016.

Dan Murphy, who died in 2001, didn’t live to see the extent of his vision, now fully amplified by the chain’s supermarket owner, Woolworths. Its main competition is Coles Supermarkets (which owns Liquorland, Vintage Cellars, and First Choice stores) and international retail giant Aldi. Together, these supermarket-owned wine chains now represent 72.3% of the A$14.5bn ($11.5bn) off-premise alcohol retail market.
 

Australian hotels – the local name for pubs, many of which historically had short-term rooms for rent on the premises, and which may also retail alcohol – were once the most powerful voice in beer and wine sales in the country. Today they play a minor role (A$1.8bn), just ahead of ever-decreasing independent wine shops (A$1.5bn).

“Dan Murphy’s is such a category killer for the alcohol retail market,” states Norman Morris, industry communications director at Roy Morgan Research, in the company’s most recent Alcohol Retail Currency Report. “It is unlikely to face any challenges from its smaller rivals in the future.”

Dan Murphy would have been pleased.

A complex market

On the one hand, the Australian market is parochial and loyal to its home-grown wine industry of 2,500 producers, yet its tastes run a long way beyond national boundaries. Last year, it was the 15th-largest wine importer in the world, and imports account for 15.2% of domestic wine sales.

New Zealand wines are in first place by a considerable margin (around 53m L), thanks to Sauvignon Blanc having doubled imports since 2008. The Kiwis are followed by France, Italy, Spain, Chile, and South Africa.

The surge in imports occurred, not surprisingly, around the turn of the century, at the same time as Australian wines took off in the international market, forcing many producers into a difficult decision. Should they supply a hungry overseas market or loyal locals? Many chose the former. They placed a number of popular wines on allocation for Australian drinkers and, well, drinkers started looking elsewhere. Not only that, but the Australian dollar was rocketing upwards while the euro was weakening, making it historically cheap to import wines, particularly from Europe.

Restaurant and bar wine lists bulged with international wines – some exclusively so – and the trend has continued through to today. The result is a fairly sophisticated drinking culture that is international in scope. Of all the wines embraced, one appears to be integral to the Australian palate: Champagne. The country has been in the top ten Champagne importers for decades. It is now rated seventh (fifth largest by head of population) with 7.4m bottles imported in 2016, down from sixth spot and all-time record 8.1m bottles in 2015.

Australia – the world’s sixth-largest country covering 7,692m square kilometres – floats about in splendid isolation in the Southern Hemisphere, rich in natural resources which in turn has brought a high level of comfort to its people. Average disposable household income has increased markedly over the last decade and now sits at A$998.00 a week (high income households enjoy A$2,037.00 a week). The average household spends around A$32.30 a week on alcohol or more than A$14bn a year.

What do Australians drink?

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To go by plantings of grapes in Australian vineyards, it’s mostly the usual French suspects: Chardonnay, Sauvignon Blanc, Semillon, and Pinot Gris/Grigio in whites and Shiraz, Cabernet Sauvignon, Merlot, and Pinot Noir in reds.

Pinot Gris/Grigio is an interesting new addition, bursting into contention only relatively recently. With Sauvignon Blanc gradually coming off the boil, there is every indication that Pinot Gris/Grigio is the replacement wine and it’s not all coming from local producers. “Pinot Grigio is certainly the mover and shaker at Dan’s volume-wise,” says Peter Nixon, national wine buyer for Dan Murphy’s. “The vast majority of Pinot Grigio sales are from Italy at around or below A$10.00.” The majority of Pinot Gris wines, on the other hand, come from Marlborough, New Zealand, at or below A$15.00. “However, Australian examples at A$15.00 to A$20.00 still sell well.”

When consumers show interest in a new wine style from overseas, it will have an effect on what is grown in Australia. An explosion of New Zealand Sauvignon Blanc, for example, caused local wineries to get in on the action, and the same has happened with Pinot Grigio, inspired by Italian imports. However, the opposite is probably true for sales of Prosecco, which is very much the flavour of the times.

Italian-Australian producers in the King Valley latched onto the Prosecco grape in the 1990s, creating what is now a strong demand. The Italians then were able to capitalise on this predilection. Notably, while Italy has changed the name of the grape from Prosecco to Glera, gaining legal recognition for the change, Australians are still using the name Prosecco. Australian plantings predate the name change and were not affected by the situation in Europe.

Traditionally, beer has been the nation’s favourite alcoholic beverage. That is changing and women and their drinking habits is the reason. According to Roy Morgan Research, 45.1% of adult Australians drank wine at least once a month in 2015 compared to 37.6% who drank beer. The swing to wine was put down to some 4.6m women aged 18-plus who drink wine monthly – far more than men (at 3.7m). White wine was by far the most popular wine style with 69% of female drinkers opting for it, but red wine (56%) wasn’t far behind.

Males are more likely to make red wine their favourite drink (78.1%) compared to white (58.4%).

In conducting research into the phenomenon, Roy Morgan found that there was often a ‘social dimension’ to Australian women’s drinking habits. “Over 45% consume it in a licensed venue, for example a bar, pub, restaurant, or festival, and nearly 41% drink it at friends’ or relatives’ homes,” stated the report. In contrast, 34.6% of Australian male wine drinkers drank wine in a licensed premise, and 32.5% drank in the homes of friends or relatives.

Where do they buy?

Uptake of online shopping in Australia is slow and trails behind most of the world. Just 12% of Australian consumers, according to Nielsen, use ecommerce to order groceries, including wine, online. The global average is 25%, rising to 37% in the Asia Pacific region. Analysts like Nielsen see a big future for the kind of click & collect services – that is, buy online and pick up in store – that retailers such as Coles and Woolworths already offer. A mere 5% of consumers choose the service, but in Nielsen’s ecommerce research 53% said they were willing to use click & collect in the future. However, in the meantime, the majority of Australians will continue to seek out ‘bricks and mortar’ retail stores for their grocery (including wine) buying. It seems as though physical stores still act as a magnet for shoppers: Almost half of Australian consumers (49%) in the Nielsen ecommerce and new retail survey reported that going to a grocery store was an enjoyable and engaging experience. Around 37% considered grocery shopping in a retail store a fun day out for the family.

While Australians may not get terribly excited about ordering wine from supermarkets, they do get in cars with their kids and drive to a family-friendly winery for a day out. Progressive liquor licensing legislation that allows young children to enter winery cellar doors, together with the attraction of children’s activities created by the wineries, are big factors in Australia being a world leader in winery tourism.
There are 1,626 winery cellar doors in Australia. Conversely, the largest wine-producing state, South Australia, has the smallest percentage of companies operating cellar doors (52.9%), while the second-smallest wine state of Queensland, with 77-odd wineries, has the biggest uptake (90.6%). At around 500, Victoria has the biggest number of cellar doors, which between them receive more than 1.5m visits annually.

Winery tourism across the country generates around A$7.5bn a year, with the Hunter Valley, Margaret River, and the Barossa Valley the most in-demand, must-visit regions. International tourists play an increasingly important role, with almost one million visitors going to at least one winery during their stay. Tourists from the UK, the US, New Zealand, and Singapore top the list.

Alcohol and social responsibility

Australians have long been the biggest wine consumers per head of population in the English-speaking world, reaching a record 30.48 L a head in 2009 to 2010. Consumption, while a little more modest these days at around 28.73 L a head, remains relatively stable. Perhaps fittingly for the driest continent in the world (and a mostly hot one, too), the national taste is for white table wines (14.24 L per person) as opposed to red table wines (10.08 L per person). Other wines, including sparklings and fortifieds, are not as popular (4.41 L per head).

The consumption of alcohol and combating harmful levels of drinking remain hot topics within government circles. Standard drink information on wine labels is mandatory and general guidelines (currently it is advised that healthy men and women drink no more than two standard drinks a day) are now under national review, with a draft of revised guidelines due for public consultation at the end of the year. There’s only one glitch: Alcohol makers have refused to nominate experts to join the review panel. Their decision came after it was reported that two panel members have direct associations with Christian-linked temperance organisations that campaign for “alcohol-free social interaction”.

Taxation has traditionally been one way to change attitudes – and affordability – of products such as wine. In Australia, which is already among the most heavily taxed wine-producing nations in the world, high taxes don’t seem to be working despite the best intentions of the federal government. It has been estimated by the University of Adelaide’s Wine Economics Research Centre that an Australian bottle of wine that sells at A$12.00 retail attracts a 29% ad valorem WET tax (Wine Equalisation Tax) plus a 10% Goods and Services Tax, and is taxed at around 22 cents per standard drink. “That 22 cents in Australia compares with zero in Argentina, three cents in South Africa, five cents in the US and six cents in Canada, and just one cent in France and zero in other Old World wine-exporting countries,” says the Centre’s Professor Kym Anderson, who has conducted a country-by-country comparison.

In the lead-up to this year’s federal budget, strong representation was made to government to change to a single volumetric tax rate to cover costs of alcohol abuse on the community. The government stood firm.

The status quo remained and the wine industry breathed a little easier. 

 

 

When asked to name Australia’s top wine trends in another recent interview for this magazine, Peter Nixon, the national wine buyer for Dan Murphy’s, offered these observations:

1.   Pinot Grigio (Italian and local);

2.   Rosé (southern French or dry style local – Grenache, Pinot Noir, Nebbiolo, Sangiovese);

3.   Fresh, so-called (by sommeliers) "smashable" reds – or what the French call vin de soif (thirst-quenching). Minimally oaked, fresh acidity, fruit-driven – Gamay, cool-climate Shiraz (Syrah), Grenache,            Pinot, Mencia, Austrian reds, etc.; 

4.   High-alcohol, high-oak, ripe, age-required reds are out of fashion (particularly cabernet). Fashion is fickle; and

5.   Chardonnay is making a comeback.

 

 

Victorian Pinot Noir, rosé and Grenache are all on the ascendancy in the Australian market, according to Andrew Caillard MW, Fine Wine Principal of Pinnacle Drinks, a division of Woolworths. Prosecco is “going gangbusters”, Italian Pinot Grigio is growing, and rosé is moving fast, particularly at the pale pink and innovately packaged end.  Wines are becoming lower in alcohol, as they are elsewhere, because of bistro and outdoor dining. Caillard says Australia follows international trends, although it can take several years for European trends to take hold. The natural wine movement, he says, is very much part of the on-premise domain, but is very small in mainstream retail. Champagne, on the other hand, is extremely competitive. “The entry of Aldi and Costco – not to mention the extreme rivalry between the multiples – has seen a chase to the bottom. Don’t be surprised to see Champagne selling for well below $25.00 a bottle” towards the end of the year.

Finally, Caillard advises that the selling of wine still relies on points, but that the “inflationary scores of Australian wine critics is gradually making offers more difficult to consumers, as buyers expect to buy 95+ wines for commercial and fine wine.” He says it’s tipped to become a major issue.

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