Learning from Australia
5 September 2006
Learning from Australia: consumer focus key to wading through wine glut
The Australia and Asia Pacific head of global beverages group Foster’s has identified five areas of global opportunity for New Zealand wine producers, arguing that the industry should not be put off by the global wine glut.
Speaking as Rabobank’s guest presenter at the recent Romeo Bragato Conference in Queenstown, managing director of the Australian-based Foster’s Group Jamie Odell said building brands, aligning supply to demand and developing a premium image, new markets and on-premise relationships with customers were areas of growth potential for New Zealand wine producers.
Mr Odell, whose company produces and markets 42 million cases of wine a year, used examples from Foster’s Australian and other overseas operations to emphasise the need to be consumer-focused when working in the current climate of the wine industry.
Over the past three years, he said, Foster’s had significantly changed the structure of its wine business, moving from being largely driven by production and wine marketing, to a consumer-focused organisation.
“A large research team asks consumers in specific market segments what they want and marketers work with the wine makers to produce a new product. Branding and appearance are very important,” he told the conference.
“One example of this new approach to products is Pink, a pink-coloured sweeter sparkling wine introduced to the Yellowglen range, Australia’s number one sparkling wine brand. This product was developed using sensory research to target consumers who love the sophistication but not necessarily the taste of conventional sparkling wine. It specifically targets younger female consumers, and now accounts for 20 per cent of Yellowgen sales in Australia.” Mr Odell cited the new Secret Stone range, launched in New Zealand in March 2006, as a similar campaign that also appeals to women.
Foster’s consumer-driven marketing has also been responsible for the introduction of screw caps to Japan.
“We had been told for years that Japan was a very traditional market and we would not move consumers from corks to screw caps,” Mr Odell said. “Our market research team discovered that only five per cent of Japanese households own a corkscrew. We launched Wolf Blass with screw caps into the market and the brand accounted for about 40 per cent of the total Australian category volume growth in Japan for calendar 2005.
As part of its consumer-driven approach, Foster’s has also restructured its wine operations. In 2004 it owned 21 vineyards in Australia; this has been reduced to 11. Several large packaging facilities have been developed meaning that wine is no longer necessarily bottled where it is produced.
“It is easy to get caught up in the romance of the back end of wine industry – the grape growing, the wine-making process, vintages. However, globally it is a tough competitive industry. Currently in Australia we have wine selling for as little as $1.99 a bottle – that is less than a litre of water sells for,” Mr Odell said. “We are looking at a number of activities to keep our product competitive, including bottling closer to the consumer. We have bottling facilities in France. We are looking at PET (plastic) bottles for one market, and in another we supply premium wine in a three litre cask.”
Mr Odell also addressed the issue of oversupply, saying that Foster’s left more grapes on the vine this year than New Zealand’s total production. “We had no markets for the volumes so we didn’t pick,” he said.
The world wine market is dominated by the oversupply issue, Mr Odell said. In Australia, it has been reported, 40 per cent of wineries are making losses and off-premise wine volume growth has slowed from 4.9 per cent in 2004 to 1.3 per cent in 2006 domestically.
“I read in the latest Winegrowers annual report that there were now over 500 wineries in New Zealand. Can the industry support this many? One of the key factors impacting the global wine industry is distribution. This is about getting your product on supermarket shelves - will there be room for all of these brands?” Mr Odell asked.
However on the positive side, he said, the oversupply situation can change quickly and due to unexpected circumstances.
“Two years ago in the United States, we had a surplus of 400,000 cases of Pinot Noir. The movie Sideways was released and suddenly there was undersupply and Foster’s is planting more grapes. This interest in Pinot Noir in the United States creates great opportunities for New Zealand. I believe that outstanding New Zealand Pinot Noir is one of the few that can compete with those produced in Burgundy in France,” he said.
There is more good news for New Zealand wine producers. The demand for New Zealand Sauvignon Blanc continues to grow, Mr Odell said. In Canada, demand has grown by 51 per cent in the last year. Consumption of premium New Zealand wines in the United Kingdom has increased by 15 per cent in 2006 whilst wine consumption as a whole only increased by 1.8 per cent. New Zealand has recorded the strongest consumption growth of imported wine in the United States. Even in Australia, consumption of New Zealand Sauvignon Blanc is growing annually, while New Zealanders are drinking 30 per cent more Sauvignon Blanc than they did last year.
Demographically there are also positive trends - 30 per cent more ‘generation Xers’ (29 to 40-year-olds) are drinking wine than their baby-boomer parents, ‘generation Y’s/millenials’ (the generations up to 28 years old) are even more receptive to moving from sweet ready-mixed drinks to more sophisticated wine. Hispanics are the fastest growing ethnic group in the United States and they show a growing propensity to consume wine.
“The best situation New Zealand wine producers can keep themselves in is to have 11 months of wine production for 12 months consumption,” Mr Odell told the conference. “Keep the market short of your product and remain cautious on vineyard expansion. Make sure you have markets for the product before you plant the grapes.”
Foster’s has 16,000 hectares planted in vineyards in Australia, the United States, New Zealand, Italy and France. In New Zealand, Foster’s is represented by the Matua Valley brand and owns 400 hectares of vineyards, with an additional 350 hectares on long term lease. The company is so dominant in the Australian market that one dollar in every three spent on alcohol is on a Foster’s product.
Rabobank is the world’s leading specialist in food and agribusiness banking and a platinum sponsor of the Romeo Bragato conference.
Global opportunities for the New Zealand wine industry according to Foster’s Group Managing Director:
1. Build brands – with clear consumer-based
2. Develop a premium image – educate consumers about wine regions
3. Develop on-premise – relationships with customers through channel-specific offers, marketing programmes
4. Develop new markets – not only geographically but demographically
5. Align supply to demand – increased industry rigour and transparency on supply-demand
Rabobank New Zealand is a part of the international Rabobank Group, the world's leading specialist in food and agribusiness banking. Rabobank has more than 100 years' experience providing customised banking and finance solutions to businesses involved in all aspects of food and agribusiness. Rabobank has a AAA credit rating and is ranked one of the world’s safest banks by Global Finance magazine.
Rabobank operates in 38 countries, servicing the needs of more than nine million clients worldwide through a network of more than 1500 offices and branches.
Rabobank New Zealand is one of the leading rural lenders and a significant provider of business and corporate banking and financial services to the New Zealand food and agribusiness sector. The bank has 29 branches throughout New Zealand.