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Australia Grows Up: A More Mature Australian Wine Industry Finds Sustainable Growth

Posted on  | October 1, 2012   Bookmark and Share
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Chapel Hill, seen here from above, specializes in Grenache and Shiraz, but from a decidedly more terroir-based approach.

Chuck Hayward’s Australian wine sales have remained steady—robust, even—over the last half-decade. At California’s Jug Shop and then at JJ Buckley Fine Wines (where he is now the wine educator and Australian buyer), he reports, “We never saw a decline in sales because we had a diverse selection, we knew the category and we never stopped promoting Australian wines.”

Hayward’s experience could not be more different from the vast majority of American retailers. Australian wine sales have been clobbered coast to coast, hit harder than almost any other country’s wines. “The past few years have been extremely rough across all price categories,” says Lara Zahaba, director of marketing and communications for Epicurean Wines, an importer of boutique Australian wines. “The $10 to $15 segment has really struggled and hardly anything over $30 would move at all—it has been incredibly difficult for us and our suppliers.”

Australia was already facing the perfect storm, she describes: “oversupply, which created the race to the bottom and spawned countless critter labels, the 2008 global financial crisis—and then the market turned against us, ascribing a one-dimensional character to all Australian wines.”

VICTIM OF ITS OWN SUCCESS

“It’s a fact that the wines sent to our shores were dominated by large corporations jumping on a bandwagon to crank out mass-produced, inexpensive wines with catchy labels,” says Jim Chanteloup, Australian wine buyer for K&L Wine Merchants, the California-based retail and online wine seller. “Then came the battle cry ‘those wines all taste the same,’ and you know what…they did! But those wines were not an accurate vision of the real wines of Australia.”

It wasn’t just low-end wines that doomed the category. According to Nick Spencer, winemaker at Eden Road Wines, it was also the “high-octane Australian wines that received high scores from influential wine critics” which led to stratospheric prices and the predominance of “the blockbuster style which Australia very quickly became associated with at the premium end.” The significant drought which plagued vineyards from 2004 through 2009 exacerbated this style, leading to even bigger, higher-alcohol wines.

Palates were maturing, however, and Australian importers weren’t focusing on many grown-up (read: balanced, cool-climate) options, believes Jean Reilly, MW, consulting wine buyer for New York’s Morrell & Company: “Australian wines were the introduction to wine for a whole generation of consumers just getting into wine. But tastes evolve and that generation started eschewing Aussie wine, similar to the backlash against Chardonnay.”

SUCCESS WAS A DOUBLE-EDGED SWORD

“Some of the Australian wines and marketing behind them that brought the category’s rapid success are also the reason Australia has suffered in recent years,” says Renae Hirsch, winemaker for Henry’s Drive in Padthaway. “Those fruity, over-ripe and approachable wines originally held a lot of appeal, but they didn’t have the substance to be long stayers in the marketplace.” In other words, people got tired of jammy Shiraz and moved on.

THE NEXT CHAPTER

Today, the dark cloud hovering over Australian wine appears to be lifting and a growing number of retailers are reporting renewed Hayward-like enthusiasm for the category. Australia’s bottled U.S. imports halted decline in 2011, posting 18% growth in the $20 to $30 category. Sales were up 33% in the $16 to $20 range in the first quarter of 2012. The press has come around, too—articles have appeared in The Wall Street Journal and The Wine Advocate indicating a positive outlook for Aussie wines (a welcome shift, says Hayward, since Aussie wines had become the “punching bag” of critics).

With a new crop of boutique brands entering the market, back-stocked inventory finally sold off, and sales of premium wines growing much faster than cheaper wines, it seems the country’s wine industry is hitting its sustainable stride.
 
“We see Australia entering its third stage of development,” says Angela Slade, regional director, North America for Wine Australia. “When these wines entered the market, they over-delivered for the price and they excited people. Stage two was the introduction of many wines with icon pricing; intense reds sought after for high scores and cult status.” In the aftermath of the recession and trade backfire which eroded the category, Slade now sees the beginning of stage three: a settling down in the market and growth from a smaller, more permanent base. “Regionally-labeled wines are showing the greatest lift and this is the area we are working to develop,” she says. “We are taking a back-to-basics approach that involves education and hand-selling. It’s time to roll up our sleeves.”

A HEALTHY CULLING OUT
 
If there is any silver lining to the U.S. dollar tanking—at times going lower than the Australian dollar—it’s that many Aussie wines that may have been hurting the category’s image simply disappeared. “It became nearly impossible to make wine for $4.99, which helped drive the critter category out of existence,” says Zahaba.

Oversupply—a glut that also fueled the creation of many cheap brands—has at last been worked through the system. Australian wine production has fallen from a high of 1.42 billion liters in 2005 to 1.07 billion liters in 2011. “The oversupply slowed us down for several years, but it was a great learning experience,” says Slade. “Today, importers are bringing to market scaled-down, well-vetted portfolios of stylish wines.” While there will always be room in the market for value-priced, easy-drinking wines, the trade organization is putting its emphasis on the middle tier—“the $15 to $24 range, the core of the industry,” Slade says.

Only strong, terroir-driven brands could withstand the glut evaporation and the exchange rate-squeeze, says George Galey, president of American Estates Wines, an importer of Australian wines since 1986 which just added the Grenache- and Shiraz-specialist Chapel Hill Winery from McLaren Vale in anticipation of the Aussie wine comeback. “What happened wasn’t necessarily that the Australian category collapsed, but that the Australian exporter market collapsed,” he says. (Grateful Palate going out of business in 2010 was among the most high-profile.) “We are talking about brands invented by marketing companies, not family vineyards—brands so fanciful they were ludicrous—and they have a limited lifespan,” says Galey. “If you take out Yellow Tail, there wasn’t a whole lot in the under $10 segment that was functional.”

“What we found at Morrell is that the $10-and-under Australian market is a complete commodity market—it’s entirely about price and there is no brand loyalty,” says Reilly. “Well-known producers with stellar reputations have a following that never really left. We’ve always done extremely well with names like d’Arenberg, Henschke, Leeuwin and Peter Lehmann.”

Interestingly, even Yellow Tail—which has outperformed the category every year and still accounts for 65% of Australian imports volume—is making accommodations. Brand owner Casella Wines has announced plans to launch a $10 wine in 2013, $3-$4 above Yellow Tail’s price point. “The strong Aussie dollar has tightened margins for us and our partner and so far we have absorbed those costs together,” says Tom Steffanci, president of Yellow Tail’s U.S. importer, Deutsch Family Wine & Spirits, adding that price increases on the base brand could happen in the future.

Steffanci chalks up the category decline partly to a loss of “some of that discovery element” as well as the emergence of new categories that have captured consumer attention—Moscato and sweet reds among them (Yellow Tail has nicely cashed in on these two trends with the launch of Yellow Tail Moscato and Sweet Red Roo which are off to strong starts). While wine drinkers are aware that Yellow Tail is from Australia, it’s viewed primarily as “a great value—a wine that is consistent and can be relied on, independent of its country of origin.” But consumers haven’t abandoned Australia, he believes, “they have just broadened their consideration set.”

RE-ENGAGING THE TRADE,  VIA COOL-CLIMATE WINES

The path forward is in many ways a return to what many Australian producers have been doing for decades (after all, Australia has a 200-year-old winemaking history). “Premium, regionally-labeled wines have been in existence for years and we are starting to tell their story,” says Slade.

Between the blockbuster, un-food-friendly style of many wines and the fact that volume-focused Aussie winemakers largely ignored restaurants, the category never developed the on-premise channel, Epicurean’s Zahaba believes. Many importers are working to change that (Epicurean introduced Thomas Goss, a wine made by Ben Riggs of the Galvanized Wine Group collective, specifically targeting the on-premise). And Australia’s best asset for winning over sommeliers—cool-climate wines.

“We are seeing an increase in wines from cool-climate regions in Australia,” says Eden Road’s Spencer, “places like Canberra, Gundagai, Tumbarumba, Orange, Yarra Valley, Mornington Peninsula, and the Macedon Ranges.” It helps that more of them are being made: “Australia’s strong dollar and the growing access to European wines has helped shift the Australian palate towards lower-alcohol, food-friendly, more elegant wines from Australia’s cooler zones, which fits in perfectly with this model,” says Spencer. “In the Australian winemaking community, there is a move away from super ripe styles towards terroir-driven, single-vineyard wines.” Other established wineries are venturing into high-altitude regions, and many southern Australian vintners are starting to source from cooler zones.

“I’ve heard the sommelier crowd here in San Francisco acknowledge that they really never explored the category and it was time to take a more detailed look at these wines,” says Chuck Hayward. “Restaurant sommeliers are the gatekeepers who have been most resistant to Australian wines.” But bringing cool-climate wines to the forefront, and working the market the old-fashioned way—“winemakers coming to the U.S. and getting their wines with real character and sense of place in front of buyers and sommeliers who use their palates rather than simply scores to evaluate the wines,” says Chanteloup—is giving them the opportunity.

THE MANY FACES OF SHIRAZ

Shiraz isn’t going away—it represents nearly half the red wine made in the country—but it is evolving. Leading the charge are wineries like Eden Road in Canberra with expressions from cool subregions that are more savory, earthy and spicy—and reminiscent of the Rhône—than their predecessors. “Our vineyards are located high altitude sites which means we can pick our fruit with excellent flavor intensity at lower alcohols,” says Spencer.

Even within warmer South Australia there is a large diversity of styles and regional characteristics to be seen. There are the earthy, dark fruit-dominated Barossa versions; the less dense, minty, more structured examples from Padthaway; and the crisper, spicy, peppery wines of Adelaide Hills. “An important regional attribute of Padthaway is the limestone underlying our well-drained soils providing depth, freshness and minerality to the wines,” says Hirsch of the family-owned Henry’s Drive. (The winery’s other labels are Pillar Box, Morse Code, Dead Letter Office and Parson’s Flat.)

GRAPES TO WATCH

The one-grape, one-style image of Australia is changing thanks to a host of other varieties coming into their own (the country is home to over 150 grapes). “There is a history of Tempranillo in Australia that most people aren’t aware of,” Slade points out. “We have 15-year-old vines in Barossa where it thrives.” Pinot Noir from Yarra and Tasmania are creating lots of excitement and Grenache, too, has a promising future. “It tends to be more Pinot Noir-esque and in the New World, Australia is the only country that takes Grenache seriously,” says American Estates’ Galey. Dry Rieslings have long been an Aussie specialty, with cool regions like Clare, Eden and Tasmania leading the way, and Vermentino and Viognier are also on the rise. Pinot Gris continued its rapid growth—up 40% last year.

Galey sees Australia’s future in blends—both red and white. The country has a very long history of blending—cross-appellation and cross-varietal—and the popularity of red blends in the U.S. has created a real market for these wines.

FILLING THE CALIFORNIA GAP

It’s no secret that California has suffered through some terrible, low-yielding harvests (though 2012 is on track to be very good). “It’s a tremendous opportunity for Australia,” says Galey. “Where else besides Australia can supply Cabernet with this taste profile? Certainly not Europe. Particularly with the frenzy over Malbec slowing down, people are turning to $12.99-$13.99 Cabernets and Australia is hands-down the best source.”

Australia happens to be coming out of “one of its best harvests in years,” adds Steffanci. “Consumers will continue to look for great values regardless of origin, and Australia is one of the best-positioned countries in the world to deliver against that consumer need at all price points.”

Another opportunity Australian vintners are taking advantage of is the ability to ship in bulk, then bottle in the U.S., which helps keep prices lower (a necessity with the still-strong Australian dollar). Bulk exports of Australian wine to the U.S. rose 52% to 74 million liters for the 12 months through June 30, according to Wine Australia. While The Wine Group’s purchase of a large Australian facility is a big reason for this (the company is seeking to augment sourcing for its popular 3L bag-in-box Fish Eye brand, among others), it is a trend among higher-priced Australian wines as well.

With the industry buzzing that 2012 will be recognized as the vintage of the century, Australia appears to have the wind at its back. “This is very distinctly the beginning of a real shift in market,” says Slade. “It might take several years to fully realize, but we are coming back, and it will unfold as a great comeback story in the industry.”  


Comments

  1. Online Wine Australia
    October 5th, 2012 @ 3:50 am

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