A good drop: Falling Aussie dollar could provide extra juice to a struggling wine industry

The falling Australian dollar could boost the local wine industry, which has been struggling since 2007, according to a leading industry expert.

Although the Australian wine industry has seen enormous growth over the past decade, a report released last year by the Grape and Wine Research Development Corporation noted the industry is now in a contraction phase.

Winemakers’ Federation of Australia figures show local wine exports fell 2% in volume in 2011-2012 and 5% in value during the same time period.

The volume and value loss of the Australian wine export market were primarily the result of a strong local currency combined with other factors, Winemakers’ Federation of Australia chief executive Paul Evans told SmartCompany.

“We have supply of grapes and wines which are not matched to global and local demand at profitable price points and that has been a feature of our industry for some time,” Evans says.

“Particularly since we’ve lost a lot of ground in our export markets [due to the] increased dollar, around 2007-2008.”

With the Australian dollar plunging to a 33-month low, the wine export industry, like many other sectors, might have cause for optimism. However, Evans remains cautious.

“This is a recent development and we have to be very careful before we rush to judgements to see whether this is a structural shift or just a period of fluctuation,” he says.

Evans says the Australian wine industry has to do a number of things to regain the value it was enjoying in 2007, when Australia was the world’s fourth-largest wine exporter, starting with a re-engagement with its global consumer base.

“While exchange rates will help we need to examine how we reinvigorate the category beyond pricing,” he says.

According to Evans, Australian wine has fallen out of favour in one of its biggest markets, the United States.

“That is the result of pricing to a degree, but it’s also a fact that consumers, distributors and the important gatekeepers in that market have moved on. Many don’t believe that supporting an Australian portfolio is necessary and we have some ground to make up,” he says.

With the US market falling away, many Australian wine exporters have turned to China.

While only 6% of all wine consumed in China is Australian, Evans says this is a very important growth area for the industry.

“In recent times, it has offset some of the lows we have experienced in our traditional markets and the prospect of growth in that country is very exciting,” he says.

“We have enormous potential to take share and enjoy the growth in consumption levels among the Chinese people.”

Australia has a well-established reputation in the fine wine market in China and sells a significant amount of bulk wine to the country, which is used for domestic blends, but the industry is yet to crack the lucrative commercial bottled wine market.

“There’s a real challenge for the commercial bottled segment to grow in China,” Evans says.

The key to doing this, and to capitalising on the burgeoning Chinese market is understanding the complexities of the supply chain, consumer preferences and distributor networks within China, according to Evans.

For the Australian wine industry to prosper, Evean says it has to face two key challenges.

“The industry needs to grow the demand in the overseas markets, both traditional markets and begin really taking advantage of the Asian century,” he says.

“And we need continue to correct the supply base here in Australia and that’s really up to the individual companies to consider the issues, their current profitability and make informed decisions.”

Source: Smart Company, 25 June 2013