Reading the news in the last couple of years, you might think that all is lost for Australian wineries. That is despite the lifting of the China tariffs.
There is a massive over-supply of red grapes to deal with and the world is drinking less wine.
However, Finlaysons, an Adelaide-based a law firm with a national wine law specialty, considers there are opportunities for Australian wineries who are the best.
“Look what the Italians have done,” said Will Taylor, Finlaysons Wine Partner.
“They were in a mess and then in one decade they built their on-premise representation in Australia by 283%, according to research conducted by Wine Business Solutions.”
There are numerous examples of small and medium sized wineries around the world, including Australian wineries, succeeding in recent years. Joe Kennedy was right when he said “when the going gets tough, the tough get going”.
For 32 years now, Finlaysons has run a seminar series for small and medium sized wineries in 10 leading viticultural regions of Australia.
This year the topic will be, “who will be the next consumer of Australian wine and how do we go about attracting them?”
Finlaysons will be joined on the road by senior representatives of Wine Business Solutions, Wine Australia and Australian Grape & Wine.
Wine Australia will present their research into what the next consumer of Australian wine will look like. Wine Business Solutions, in particular, will outline why certain wineries have been succeeding, despite the impediments.
For context, the Australian wine sector is still in a lot of trouble. Industry leaders estimate that over 2 billion litres of wine remain in storage in this country – the equivalent of 2 years’ supply.
That is despite two short vintages in a row. Wine Australia’s National Vintage Report 2024 noted that, while this year’s crush of an estimated 1.43 million tonnes was 9% more than last year’s, it was still 18% below the 10-year average.
Climate played a part, however, the report said “a significant amount” of the reduction in crush size was due to decisions made by wineries and growers, including the imposition of yield caps, resting of vineyards and pulling out vines.
“You either need to get out of the industry or give it a real crack. We see some smaller players who are winning, even in these very challenging times,” Taylor said.
“Understanding who will be the future consumers of Australian wine – what are their characteristics and what they are looking for – is crucial to finding the opportunities in wine markets around the world.
“That is what we will be talking about at the seminars – how to win.”
The extent of the opportunity is demonstrated by the fact that there are over 160 million wine drinkers in key Australian export markets, who do not currently drink Australian wine.
“That is what we have to tap into,” he said.
There is a global wellness trend affecting wine and other alcohol consumption.
Taylor said that he had not seen any compelling evidence that drinking wine in moderation is bad for you. He is supportive of the wellness trend, though, which is related to the premiumisation trend that is seen in food generally and also other goods.
“There is generally a flight to quality,” he said.
“Coffee is a good example, with more people seeking out a really good cup of coffee now, rather than just having a caffeine hit.”
With wine, people have been drinking less but drinking better.
Cost of living pressures globally have also played into the declining global consumption of wine. It has tempered the premiumisation trend in the short term, but Taylor feels the medium to long-term trend is still intact.
The China tariffs obviously hit the Australian wine sector hard. But the decline in consumption of wine in China has also affected other countries, even France, which has seen a significant fall in its exports to that country.
“The return of China is obviously a great thing for our industry,” he said.
“However, it is certainly not a panacea for our problems and will never be the market that it once was, despite some naive political commentary to that effect.”
In fact, consumption of Australian and other wine was already falling in China before the tariffs were imposed.
There are other significant opportunities in Asia, though. Thailand, South Korea and Japan are on the industry’s radar. India is a medium to long term opportunity, but it is very hard for small wineries to crack. The distribution channels are possibly even more complex than in China.
“It is fine for major players like Pernod Ricard, which has established distribution channels through its spirits business and has sold a considerable amount of wine there,” Taylor said.
Pernod Ricard has just announced the sale of its wine business though.
“For small players, it is much easier to let the big companies develop the market in a complicated place like India and then ride on their coat tails in due course.
“The USA is a land of enormous opportunity for Australian winemakers, but it is really tough at the moment.”
The principal problems are the regulatory environment – with the three-tier system that must be navigated – but primarily the fact that there has been such huge consolidation at the wholesale level, with four major wholesalers dominating the market.
“It is very hard for small and medium sized wineries, even local US wineries, to find a slot,” Taylor said.
“Then, if you are picked up by a serious distribution partner, somehow you need to gain your distributor’s attention amongst their massive portfolio of principals.”
There are some advantages in being a small player though, rather than one of the majors.
“Generally speaking, it’s easier for a small company without a bureaucracy to be agile, making quick decisions to take advantage of opportunities.
“Having said that, the way Treasury Wine Estates pivoted when the China tariffs were imposed was extraordinarily successful in the circumstances.”
Taylor does not believe that small players merging to gain economies for scale is the solution to making it through these tough times.
“I think an authentic, small family business that presents itself in the market place as such and has great products and a good story, is far more powerful than trying to market a conglomerate.
“The big issue for the industry is well understood – with the collapse on the demand side of the equation, there are far too many grape vines in the ground on the supply side, with many varieties planted in places where they do not have a future.
“Ultimately, the market will resolve this problem, but sadly that will come at great human cost. It is going to take some time.”
Taylor said the Roadshow will present research of consumer trends that wineries need to factor into their viticulture, winemaking, packaging and promotion. It will explain why certain small and medium sized players in the global wine industry are succeeding at present.
“There is definitely cause for optimism, if you are prepared to do the hard work and make the hard decisions to ensure you are one of the best at everything you do in your business.”
Finlaysons Wine Roadshow 32 begins next week across the following SA regions:
- Limestone Coast, Thursday, 8 August
- Riverland, Monday, 12 August
- Barossa, Tuesday, 13 August
- McLaren Vale, Thursday, 15 August.
Will Taylor leads Finlaysons’ Wine Group. His practice has, for over 30 years now, been focused virtually solely on the wine sector. He has extensive experience acting for large and small participants in the wine industry, in relation to mergers and acquisitions, business structures, joint ventures, capital raising, succession planning and their general commercial activities such as entering into supply, processing and distribution contracts and competition and consumer law. Will acts for wineries all over Australia, large and small, as well as for a number of international wine businesses. He sits on a number of boards and is Chair of Partners of Finlaysons.
