The Impact of the Global Financial Crisis on the Australian Wine Industry

The question must be asked whether wine sold on promotion is over-priced in the first place or whether competition on the global market is just too tough?

Let’s look at the domestic market and discounting activities. A quick glance at retail outlets confirms that a significant amount of wine is sold on promotion, especially between the $15.00 - $22.00 price point. If a $20.00 wine is offered on promotion at $17.00, what does that say about the wine? Is it over-priced in the first place or just a great bargain at $17.00?

Jeni Port recently commented in The Age (Epicure, 20th January 2009) on this topic and highlighted the emergence of new brands at competitive price point ($15 - $20). Surely a winemaker would be happier to sell all of their production at $17.00 rather than half at $20.00 and struggle to sell the rest.

If we acknowledge the fact that 94% of wine sold domestically is under $10.00 per bottle and only 5% sold is between $10.00 and $20.00, then wineries have a clear price point to focus on with their volume of production. In addition two facts are very clear: wine consumers are far more savvy than they were five years ago, and the financial crisis is real and will have an impact on the industry.

With this in mind there is only one solution to offer (restaurants and retailers alike) and that is to over deliver on quality and price wine realistically. My personal view is that all discounting should be removed from the market. If a bottle of wine offers quality and is well priced at $18.00 then sell it at $18.00.

What would you do as a consumer if you walked into a retail store and did not see a single bottle of wine on discount? Would you walk out again or search for a bottle of wine that you felt was value for money and in your price range? I would guess the latter. If every retail outlet in Melbourne were to remove discounting, then imagine the transition in the industry and the confidence wineries would gain in producing wine that was value for money.

The Australian wine industry has a history of discounting wine to move volume (both domestically and export). For wineries to survive this must change. For distributors and retailers this must change. So let everyone involved in the industry seriously evaluate where wine brands should be positioned and then work on getting these products to the market at the correct retail price, thus eliminating the need to discount. From there it’s over to the consumer to identify and enjoy value for money wine. The wine industry will then have the opportunity to sustain itself in the future.