Wine industry faces “unpalatable truths”
The Sydney (Australia) Morning Herald reported on New Year’s Day on the “unpalatable truths” confronting the Australian wine industry, in this article entitled Wine industry grapples for new hook that has important implications for California’s own wine industry.
The “boom time party” is now over, the Australian Wine and Brandy Commission (AWBC) declares, and wineries must solve an “ever growing plethora of challenges…if they are to survive.”
Wow. We’re not just talking profits and losses, we’re talking survival.
The challenges, according to the AWBC, include:
- production without profit
- diminishing bargaining power in the face of attritional retail dynamics caused by the global financial crisis
A large part of Australia’s problem is over-production. A drop in exports coupled with lower domestic sales have led to a surplus of wine that can only be addressed by moving “towards a quality vision that celebrates sustainable value above unprofitable volume growth,” the AWBC says. That may mandate “the removal of several vineyards…if the industry is to remain on a sustainable footing.” Wine consumers are going to be “unforgivingly Darwinian” in 2009 and beyond, “showing little or no interest in any attribute other than volume at low cost.”
Sounds like the Australian wine industry’s neck is on the chopping block, but what does it imply for California?
Well, the party’s over here, too. You have to believe that, of the 4,000 wine brands in the state (my guesstimate), many are holding on for dear lives, watching their costs rise, their savings fall, and their profit margins (if any) shrivel. They, too, will face “diminishing bargaining power” with everyone they do business with. Distributors won’t take them on except at terms favorable to the middleman and not the producer. Consumers in America are just as unfailingly Darwinian as they are in Australia; $10 is the new $20. There’s already an over-supply of overly-expensive wines that simply aren’t worth the price being asked, and there’s absolutely no reason to think that people will continue to buy them, if in fact anyone was buying them in the first place. And all this is happening before the inevitable rises in alcohol taxes being considered in California, New York and most likely in other states.
At the AWBC’s webpage, looking forward to (or, more properly, dreading) 2009, they say “forecasts are difficult, even potentially misleading, and the emphasis of this year’s assessment is on the issues rather than providing definitive forecasts.” Meaning they don’t have a clue as to what’s happening, except that whatever it is, it’s not good.
Just as Australia needs a new wine hook — and France, and Italy, and everyplace else — so too California’s wine industry is going to have to reinvent itself. Here’s what I would tell wineries:
- Lower your prices to the minimum you can, unless you really, really think you can get away with not doing so. But make sure you’re not fooling yourself through hubris.
- Save your cash.
- Boost quality. A lot of wineries have been selling a lot of bad wine for a long time, but the handwriting’s on the wall. You won’t be able to get away with it much longer.
- Figure out alternatives to the three-tiered system and how to market and sell direct, and not just through the old tasting room, but through the Internet. You may not understand cyberspace, but your kids or grandkids do.
- Be bold. Do something different. The future doesn’t need more Cabernet Sauvignon.