The end of the affair?
Published:  09 August, 2007

This year's Australian vintage is well down and oversupply is no longer an issue. Christine Boggis talks to industry experts about what this means for the big brands' relationships with the UK market

Bulk and own-label wines are facing a squeeze after drought left Australia's 2007 vintage a quarter down on last year - but top brands from Down Under say meeting demand won't be a problem.

Australia's total crush for 2007 was 1.42 million tonnes - 25 per cent lower than the year before, according to the Winemakers' Federation of Australia. Red grapes - 48 per cent of the crush - were down 35 per cent, while whites were down 14 per cent. And state agencies expect water allocations for next year

to remain low, which could mean another short harvest in 2008.

Peter Spencer, senior vice president of UK sales at Constellation Europe, which owns the UK off-trade's biggest wine brand Hardys, says that, while volumes are down, the overall quality of the harvest is "fantastic".

"We will have enough volumes for our brands, but without doubt there will be a tightening of the market, probably at the entry-point level," he says. "Across the whole market I strongly suspect there will be some movement up in the price the consumer pays for Australian wine, probably because of less promotion ."

Pernod Ricard UK's wine development director, Adrian Atkinson, says: "There is evidence that the drying up of the bulk market has driven up spot prices and the industry predictions point to 2008 being just as small. This is when the real impact of the 07 vintage will take effect. We

will have a better idea of the situation later in the year. But for Jacob's Creek, our strategy is about premiumisation and adding value. Irrespective of the vintage situation we are focusing on higher price points."

"Our crush was 33 per cent down - we crushed 158,000 tonnes - and that is quite a large decline for us," says Paul Schaafsma, UK & Europe regional director for McGuigan Simeon. " Reds were well over 40 per cent down on last year, while whites were little higher."

McGuigan will be concentrating on its brands and the own-label wines it makes for some of the UK's biggest supermarkets. This year brands such as Calloway Crossing and Rawnsley Estate make up a third of McGuigan's business, but in 2008 Schaafsma expects that to be more like half. He promises the company "will make sure our strategic partners are looked after".

Schaafsma adds: "We are not going to have a knee-jerk reaction to this situation. I think

a lot of smaller and medium-sized producers

are going to panic, but you can't just ramp up prices straight away - you need to look at what the market expects, and you need to look at prices for 05 and 06 for buyers, supermarkets and independent customers .

"It probably will rain again and we want to make sure we hold our position with the people we have worked with for a long time."

Martin Strachan, former managing director of Negociants in the UK, moved to Australia six weeks ago to be general manager of Oxford Landing, owned by family-run Yalumba Wines. "Costs have risen overall, as we knew they would from the shortage of supply and demand for equipment, but overall our supply base will be fine this year," he says. "There is pressure on prices, but there has been pressure on prices for a number of years.

"We moved the recommended retail price on some of the Oxford Landing range about a year ago. We have yet to make a decision, but certainly the pressure is on and we would expect a duty increase as well. With the grape price increase and other increased costs there is pressure and we are looking at it."

Own-label shortage

Supply shortages are most likely to hit speculative bulk, which could send prices up throughout the market. Strachan says: "The spot price for bulk wine has increased dramatically. This year one would expect a shortage of own-label material, and people buying for own-label will see price increases. One would expect that to follow right through the whole market."

"Clearly there is going to be some impact," says Graham Threader, sales director of own-label supplier Darlington Wines. "Talking to the growers, their view is that the impact could be over two years - it might not just be this vintage, it might be 08 as well. At that level it is a question of pricing - if there is an impact on supply there is often an impact with pricing."

He says off-trade consumers, who are

price-point oriented, may turn to Chile and South Africa for cheaper wines if Australian prices are pushed up.

But he is not worried about his own business. "We are still able to supply Australian wine competitively, but there have been some price moves," he says. "We are in line with the marketplace. Unless there is major switch out of Australia as a category, I think it is business as usual. Australian growers have been looking forward to seeing prices go up for some time."

But supermarket buyers are confident they will be able to get the Australian wine they need, and don't envisage major changes on shelves. Morrisons trading manager Stuart Purdie contacted OLN from Australia. "Being here first hand I see no indication that their 2007 harvest will affect our own-label supply of Australian wine," he says.

"Just because those surplus stocks are gone it doesn't mean there isn't going to be any more wine," says a spokeswoman for Wine Australia UK. "Ultimately the consumers are going to benefit, because wines which are characteristic of particular regions, which may not have had as much of a look-in, will start to come to the forefront of people's portfolios because the huge amounts of surplus stock aren't around anymore."

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