Australian wine category facing up to a brave new retail world
The Australian wine category will nosedive in a brave new retail world obsessed with everyday low pricing if it does not adapt and improve its average price point, according to Hardys supplier Accolade Wines.
Australia has enjoyed strong growth in recent years and is up 3.4% in value to £1.18 billion (Nielsen, year to November 2015), but the average price point has fallen and now sits at £5.20, below the average price of £5.38 for a bottle of still wine.
Grocers are streamlining ranges and abandoning price promotion strategies in favour of everyday low prices to fight the emergence of Aldi and Lidl, and Australia now risks being overwhelmed by countries that have a better “clarity of offer” and can trade shoppers up to premium tiers, according to Accolade.
Rob Harrison, who has taken over as UK boss at Accolade after Paul Schaafsma became global chief executive, wants Australia to take a leaf out of Chile’s book. He told OLN: “It’s a really aggressive market at the moment. A couple of ambitious discounters are aggressively trying to get in and Australia is right up there on footfall drivers and has been hit hard by that.
“There are seismic changes in the retail market. What we have seen is unprecedented. There has been a huge change in pricing and promotions, and range rationalisation is going on right now.”
He added: “We have moved away from deep discounting quite heavily in the past six months. Deep discounting was where Australia was really growing. Brands did a good job on that, consumers trusted them and it worked. But now £3-off, save a third, half-prices are largely gone. Australian wines are dropping into a concertinaed segment that is cluttered.
“Chile is doing better in this new landscape. Over Christmas it enjoyed growth at £5, £6 and £7. It is more fit for purpose in this new environment.
“Up to a third of some of the supermarkets’ ranges are coming out. They take out products with the lowest sales. Unfortunately for Australia, that’s a problem. You go to the safe Old World classics – the Rhônes and Bordeaux.
“One or two countries, such as Chile with its clarity of offering, are doing it better in this new landscape.
“We need to up our game on premium, fight against consolidation, and communicate the value of our wines through packaging, liquid and making sure customers understand the regionality. Consumers understand Marlborough and Mendoza better than Barossa.
“We need to get a message out to consumers that there is a trade-up and Australia offers different styles. We should learn from products from Chile, New Zealand and Argentina, see what they’re doing well then go above that.
“Chile has caught up with Australia on packaging and communication. We have decent competition now and that has made us need to sharpen up a little bit.
“Brands have to exist without price cuts. This is the new retail landscape. There will be everyday low prices and some shallow discounts of around £1. Brands have to work on a headline price rather than a promotional price.”
The £3-£4 segment of Australian wine is up 32.2% in volume and the £4-£5 category is up 10.5% in volume, but £5-£6 is down 1.1%, £6-£8 is down 2.2% and £8-plus is down 2.2% (Nielsen, year to November 2015).
Harrington said: “We need to give consumers the confidence to step up. We need to work harder on the education piece. As an industry we have focused on the volume prize too much and we need now to build the structure for the £6-£8 wines.
“We have an amazing stable of premium brands in Australia. They are really good brands with great winemakers, great history and great heritage, but the day job has probably got in the way in the past couple of years. You end up focusing on the wines that move the most boxes.
“It was only a few months ago that the retail landscape really started to shift and we saw some very different results over Christmas. We are still in the learning phase – learning how our brands work with customers in a different landscape. Hardys is still a really strong proposition and we will find the right sweet spots. We are confident brands such as Hardys will start to really stand out in an environment where there are fewer products.
“We welcome the opportunity for our brands to be given the breathing space on shelves to perform, because we believe they will perform. From our point of view, getting that right in terms of the tiers and structure is crucial, but if you get it right brands such as Hardys should really kick on.”
OLN caught up with Andreas Clark, chief executive at Wine Australia, at the generic’s recent tasting in London, and he said success in Asia has given him confidence in the country’s ability to sell premium wine to UK shoppers.
He said: “Australia is very strong in the off-trade at the price points around £5. Our export numbers show some growth at some of the upper segments, albeit from a low base. In the £11-£13 range we are up 30%.
“It’s a matter of constant education around what we have to offer and the quality of what’s in the bottle and what sits behind it. Australia is not just a homogenous whole. We can present lots of styles from different regions. It’s just convincing UK shoppers to back that Australia story like others are doing globally, as we are seeing in places such as China and South Korea.”
Clark believes it is key for Australia to promote regionality, and he hopes quirky varieties will help counter negative preconceptions.
He said: “We offer exceptional quality at very reasonable prices. Barossa and McLaren Vale continue to be strong. There is an exciting story out of Tasmania, which is producing some fantastic Riesling, Chardonnay and Pinot Noir. Margaret River is making great Cabernet and Chardonnay. Places such as the Riverland are doing great. We have only just scratched the surface there. We need to break down preconceptions.
“Riverland is a major production centre, but it makes small volumes of things like Fiano and Montepulciano and there are really interesting wines coming from that part of the world.
“Shiraz, Chardonnay and Cabernet are leading the charge, but there is amazing growth in Tempranillo. There were 187,000 litres exported from Australia to the UK in 2014, and 440,000 litres in 2015. Nero d’Avola sold 30 litres in 2014 and 112,000 litres in 2015.
“These disrupt the preconceptions. There is a new breed of young winemaker coming through prepared to do really interesting things. The challenge is to explain it to the consumer.”
Laura Jewell MW, who heads up Wine Australia in the UK, is equally bullish. She told OLN: “Big retailers control 70% of the market and they are driving the growth of Australia. It has been driven by big, half-price offers and by the brands themselves, great brands such as McGuigan, Yellow Tail, Wolf Blass and Hardys.
“We still have some pain to go through. That’s not just Australia, that’s all countries, but Australia is disadvantaged because it was driven quite heavily by half-price, as was New Zealand.
“There are always challenges but this year there has been a real buzz around Australia, a lot of positive press. I am seeing quite a number of wineries coming back to the UK or looking at the UK for the first time.
“Ninety per cent of the wines at the annual London tasting are above £5 and very few will make it on to a supermarket shelf. It is about showcasing what’s out there for independents, specialists and so on.
“We have a clear focus on trade education. If we can get the trade enthused, they will tell people about it.
“Export numbers are very positive in quite a few other markets. The UK is a mature market but for Australia to still be growing is great.”
Jewell has received mixed reports from independent wine merchants, with some saying Australia is storming and others saying it’s really hard to push.
Andrew Bewes, managing director at Hallgarten Druitt, believes independents will be crucial in convincing shoppers to discover premium Australian wines as they require a hand-sell.
He told OLN: “They have the basic wines that people come in and ask for every day, but there is a lot more opportunity to go down the route of ‘if you like that, try this’.
“They don’t have the limitations of the on-trade. They don’t have to produce a wine list and they can sell a couple of cases and move on to the next interesting thing.
“It is the independent and the internet mail order section that can really show the diversity of Australia.”
AUSTRALIAN WINE BY NUMBERS
The amount of the UK off-trade market accounted for by Australian wine. It has grown significantly since the 1980s. In 1984 it accounted for just 0.4% of the market.
The current value of the off-trade Australian wine category after growing 4.5% in volume and 3.4% in value in the past year. The overall off-trade wine category dropped 1.9% in volume and 1.6% in value to £5.37 billion.
The average price of a bottle of Australian wine in 2015. Volume is growing ahead of value and the average off-trade price dropped from £5.26 in 2014. This compares to an average price of £5.38 for a bottle of still wine in the off-trade.
The value growth of Chilean wine, one of four top 10 countries in growth in the UK off-trade. It is in seventh place, ahead of eighth-placed New Zealand (up 11.2% in value) and ninth-placed Argentina (up 24.1%), although Australia is bigger than those three put together. Italy, France, the US, Spain, South Africa and Germany are all in decline.
The proportion of Australian wine sold in the on-trade, down from 12.5% a year ago, illustrating that the off-trade is driving growth in Australia.
The value that brands have added to the category in the past year. Hardys is the bestselling brand, followed by McGuigan, Jacob’s Creek, Yellow Tail, Wolf Blass, Lindemans, Banrock Station, Oxford Landing and Andrew Peace. Brands sell for an average of £5.39.
The amount of value added by retailer exclusives, which sell for an average of £4.56. Own-label has grown by £8.8 million and bottles sell for an average of £4.27.
The £3-£4 category is up 32.2% in volume and the £4-£5 category is up 10.5% in volume, but £5-£6 is down 1.1%, £6-£8 is down 2.2% and £8+ is down 2.2%, showing growth is coming from lower price points, where retailer exclusives and private labels are strong.
Tesco is up 16.6% in value on Australian wine, Morrisons is up 11.2%, but Waitrose is down 0.4%, Sainsbury’s is down 3.2% and the Co-operative is down 4.3%
Source: Nielsen, year to November 2015