Tuesday, May 09, 2006

Global wine bust and boom

A recent 2005 Deloitte Wine Industry Benchmarking Survey shows Australian wine export prices are down by a massive 33% since 2002 and 40% of Australian wineries are making losses. "The Australian Bureau of Statistics reports the average selling price of Australian wine exported in January 2006 was just $3.78 per litre. The Australian Business Weekly (subscription required) summarises the problems in their May 4th article “Wine: The grape squeeze”:

  • Production of wine exceeding demand.
  • Panic selling by inexperienced growers.
  • Strong $AUD making exports less competitive.
  • Retail consolidation hurting boutique wineries.
  • Slow growth of 2-3% a year in domestic demand due to high tax on alcohol.
  • Poor understanding of demand trends.
  • The number of wine companies growing from 892 to 2000 in the past decade.
But wait…it’s not all gloom and doom. Union Tribune Staff Writer Frank Green reports that in a recent Gallup Poll, “39 percent of Americans said they drink wine more often than any other alcoholic beverage – the first time wine has outpaced beer, at 36 percent, in consumer preference”. U.S. wine sales have boomed in the past 10 years, and they rose 8.3 percent last year to an estimated $26 billion. Part of the continued growth, and sales spikes in the US market is attributed to “increased quality of imports from Chile, New Zealand and other countries.”

Thoughts: This boom and bust is very tough on the rapidly growing number of small wineries which lack cost scale, and very challenging for the volume producers of average wine. The strength and growth of the US market will eventually pull the Australasian industry out of trouble…there will be a whole lot less boutique players in the game by then. For consumers operating on the ‘24 hour cellar’ this wine bust will be great news for the next few years. Pass the bottle!
KEY WORDS: Wine; Globalisation; Lifestyle

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