Australians Fight to "Turn this Ship Around"

FILED OCTOBER 1, 2009

Dear Client:

James Gosper, the director of Wine Australia North America, is determined to change the image of Australian wine in the minds of US consumers and the wine trade. In speaking with us earlier this month, James noted that consumers mainly equate Australia with just two varietals, shiraz and chardonnay, and move to other imports or domestics to experiment with other varieties. He’s hoping to put an end to that and draw American consumers back to Australian imports. There’s been a lot of negative press about the Australian wine industry lately but James says: “They’re still growing and their strategic outlook has been very smart in the past few months...we’re a tenacious bunch.” So sit back and relax, dear reader, as you are a fly on the wall.

WINE & SPIRITS DAILY: Tell me about Wine Australia and how you got involved.

JAMES GOSPER: The Australian Wine and Brandy Corporation (AWBC), is the industry funded government body. Basically, the Australian government levies a compulsory tax across all grape growers in Australia. That levy goes into the Australian Wine and Brandy Corporation who manages that money three ways. It goes towards compliance, research, and the market development arm, which is Wine Australia. We are responsible for the development of the Australian category in all our export markets. At the beginning of the year Wine Australia and the AWBC decided that they needed to change things around a bit. They were looking at amending their strategy and addressing the issues that were confronting the industry, such as image issues and negative press. In North America they combined the Canadian market and the US and hired me as the director. I came over from Moet Hennessy. There is also a new ceo back in Australia, Andrew Cheeman, who came over from Lion Nathan, and a new chairman of the board, James Dominguez.

What we're doing here in the US is having a really close look at the path the Australian category took during a period of very fast growth in the last 10 years, and why it ended up where it did. The bottom line is that we grew at an exponential rate like no other country has ever grown in terms of exports. Obviously, when you're growing at such a pace, there is a certain amount of producers and people looking out to the long-term, and a certain amount who are looking at the short-term gains, and there are a lot in between. In times of such rapid growth, there tends to be a blurring of agreed industry and individual long term objectives. We lost clear long term vision, guidance and direction as a unified industry. We also believe that during the rapid growth, the industry followed a path of least resistance. As a certain style of Australian wine was being loved by reviewers and getting high points, it then meant that the importers, the distributors, the retailers, and the consumers took that stream of wine and really ran with it. It became the path of least resistance meaning that these wines were an easy sell. That means that after a certain amount of time, the Australian shelf at retail was very heavily weighted towards one style of wine, warm climate robust Shiraz. Australia has, and has had for many, many years, an amazing diversity across its regions in wine styles and varieties. Unfortunately, they were all sort of left in the wake of the wines that followed the path of least resistance.

WSD: Would critter brands fall into that path of least resistance?

JAMES: Well, I think critter brands are different but they created part of the situation that we're in at the moment. Certainly, the overwhelming success of “popular premium” wines has also had an impact on the image of the category. Australian wines and a couple of pioneer brands in particular have been instrumental in bringing new wine consumers into the market, resulting in these massive consumers. We've still got a huge consumer franchise in this country. There's still a ton of people who are drinking Australian wine at the $7-10 price point, no doubt.
However, two things happened. Firstly, as this end of the market grew, so too did “copy cat” brands. Now we see all sorts of “aussie” images on labels, and many of these wines have not been as quality conscience as the pioneers, and have tarnished the extreme quality/value perception.

Secondly, the Australian wine selection failed to excite and entice the consumers when they traded up in price. They moved into a rather bland and monotonous category, which was just warmer climate Shiraz, instead of moving into some exciting and interesting Australian regional wines. Therefore, once consumers got a bit bored with their warmer climate Shiraz, they moved somewhere else. Other new countries were coming into the US as well and offering changes and excitement and diversity. We sort of failed to execute that next step.

WSD: Numbers are down overall for imports. Australian, along with French and Italian wines, seems to be losing the most momentum. Why do you think US consumers are losing interest?

JAMES: Our position is two-fold. Number one, I think it was boredom in what we offered. When Australia failed to provide a diverse shelf, the natural tendency of the average consumers is to go back to domestic labels or easily understood wine labels. It was also very skewed towards less than $10, and then above $10 for warm climate Shiraz.

The other point is that Australia did not react fast enough to change. There was diversity found elsewhere as Argentina and Chile and some of the older world countries were reinventing themselves with vibrancy and easily understood wines. So I think we didn't respond to competition as quickly as we should have, and we didn't push the diversity story in those price points early enough, which is now what we're trying to do.

WSD: It sounds like you have your work cut out for you but I’m sure that’s exciting too.

JAMES: Oh it is. I mean, I love it. Back in Adelaide we set ourselves at least a three-year project to turn this big ship around and get Australia back into the favor of the trade and to just re-ignite that huge consumer base that we still have here in the U.S. We still have millions of people that are faithful and love Australian wines. We need to open the minds of all stakeholders, wine producers, importers, wholesalers and retailers to what Australia has to offer.

WSD: Right. Well, what are your plans to get pricing back on track for the Australian wine business?

JAMES: Pricing is complicated, and a little out of our hands in the market. We are at the mercy of many forces, exchange rates, corporate guidelines, and most importantly, supply. Supply is a very interesting question and one that I can't answer straight off the bat because it’s the main focus of industry bodies who are addressing that issue as we speak. There are a lot of people who have a ton of ideas. For example, some want to pull out grapes and limit production. The way forward has not yet been determined, but I can tell you that it is definitely one of the top priorities of discussions going on at the moment. And if you ever know Australians, they're incredibly tenacious. We have a convict background, so we don't take no for an answer [laughs].

WSD: What are some of the campaigns you’re running for Wine Australia?

JAMES: We’re trying to re-engage with the consumer franchise through a summer program called Open Up to Wines From Australia and through a few other programs that we're running. Basically it’s a campaign aimed at getting that person who buys Australian wine in that certain price point to realize that there’s more to Australian wine than just one or two brands, and a Shiraz or a chardonnay. Over the summer period we did 14 different events and mainly targeted millennials. During the summer, we sold over 15,000 glasses of wine, across 30 different wines and varietals, to many consumers during these festivals. We opened their minds. We just need the trade to embrace this approach. We also really need to engage with the trade, and get them to start to find these different diverse styles that Australia has to offer, and put them on the shelf, and put them on their lists. That is going to be a lot slower process than just executing a summer program.

We've got Mark Davidson of the west coast, and Susie Barros from the east coast. Both these guys are tackling four markets each, and they're running a really, really nice program where they're hosting six tasting seminars in each market from August this year through to March next year. I would say that one of the other reasons that we've fallen away is that we really haven't focused on that really crucial part of the wine industry, which is getting down back to basics and engaging and educating the key opinion leaders in the US wine trade. In the past, we were involved in more broad and larger scale trade engagements, with traditional trade tastings and food and wine festivals where we would invite 500 people to come along, and walk around the room and taste 600 wines. I don't think you get focused or key messaging across in this situation. It has to be back to basics, a group of 15 guys that you engage with six times in eight months in a small classroom environment where they can ask questions and get feedback.

WSD: Thanks for your time James.

CASELLA CONSIDERS BOTTLING YELLOW TAIL IN THE US

The Australian dollar is getting stronger much to the detriment of Australian wine producers such as Casella Wines who export their labels to the US. According to an article in Bloomberg, Casella, who produces Yellow Tail, is considering shipping its wine in bulk and bottling it in the US.

“Casella Wines, maker of the top-selling Australian wine in the U.S., is considering building a U.S. bottling plant and shipping its Yellow Tail across the Pacific in bulk as the Aussie approaches 95 cents,” said the article.

They also quote managing direct John Casella as saying: “That is about 30 percent higher than the average and there isn’t a 30 percent net margin in what you sell.”
Other Australian producers are either halting shipments to the US or pulling up vines “because they can’t compete on price.” Earlier this week the Australian dollar reached a 14-month high of 93.29 U.S. cents and traded at 89.86 cents as of 5:07 p.m. in Sydney.

WSD BRIEF:

SONOMA CUTRER WINEMAKER RETIRES. After spending 30 years with the company, Terry Adams said he is plans to retire sometime late next spring or early next summer. He’s been director of winemaking for the past 10 years. "I've decided to retire because I'm looking to do some exciting new things in the next chapter of my life, to seek new adventures," said Terry in a statement.


Until Monday, Megan

“The coldest winter I ever spent was a summer in San Francisco.”
Mark Twain

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