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March (No. 494)


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America 2005 - boom or bust?

Anthony Manifold

America ’05 - boom or bust?

America has been a winemine for Australian exporters. In 2004, the USA was Australia’s most valuable market worth $874 million. Volume soared by almost 16% to 175 million litres. But 2005 could pose some serious challenges. Exporters are painfully aware of cost inflation rooted in the declining value of the US dollar. Mega distributor Gallo has struck a deal with French producers to import 500,000 cases of their wine at price points directly competitive with Australia’s best-selling brands. In another twist, laws preventing consumers from purchasing wine interstate are likely to be rescinded in 2005 thus opening up the market for many smaller domestic wineries. During the Australia Day Harvest Festival activities in the USA, Grapegrower & Winemaker American correspondent, Anthony Manifold, spoke with four veterans of the US market regarding their insights into the prospects and pitfalls for exporters to America this year.

Exchange rates feature high on everyone’s list of concerns. “It’s putting pressure on price with margins getting thinner,” says Scott Callahan, director of sales for Reynolds and Little Boomey, “but the blessing is that it’s not really the Australian currency which is getting stronger. It’s the US currency that’s weakening so our major competitors around the world are having the same problem.”

Orlando-Wyndham chief winemaker, Philip Laffer, points out that grape prices have declined recently somewhat offsetting the exchange rate factor. “In two or three years, we’ll be back with higher prices,” he opines, “but we’ll have to deal with that then.” Scott McWilliam, winemaker, McWilliams Wines, also takes a sanguine view. “We’re in a price bracket where any change in price can be soaked up. People can tolerate a small price rise. I don’t think it’s going to affect us.”

Tyrrell’s Wines regional manager for USA, Nathan Duggan, is relying on currency conversion rates remaining stable this year, although he admits in the past Tyrrells’ has been affected quite dramatically by them.
Laffer believes that an equally important threat in 2005 will be low-priced competition. While praising the success of big winners in America like Yellowtail and Black Swan, he thinks they are now having to resort to substantial discounting. “This, together with a surplus of fruit, has spawned a myriad of look-alikes, some of which are moderately good; a lot them I would call ‘dial-a- brand’.” McWilliam concurs, “there are possibilities of a lot of lower priced products being flooded on the market.” Tyrrells has already taken evasive action.

“We’ve restructured our whole portfolio,” said Duggan, “to move away from the bottom end of the market altogether.”

Competition from other sources like Gallo’s Red Bicyclette brand from the Languedoc is seen as less menacing. “I think there’s still some back pressing against the French,” comments Callahan. “If they could get their act together, they could be very dangerous to Australia but I think I’ll be dead and buried by the time that happens.” McWilliam echoes the theme of negative sentiments towards the French in America but, as a Gallo partner himself, expresses respect for its massive marketing clout. “They do some very special things when they build brands. I’d like to think they will do well with it but I don’t see any impact on business for our product.” Laffer cites Gallo’s success with Black Swan but doubts French producers’ ability to deliver the same consistent quality.

US wine distribution corporations have for years successfully fended off attempts to repeal Federal legislation harking back to Prohibition which forbids most domestic wineries from shipping interstate to consumers. Laffer views the probable abolition of these laws in 2005 with some concern. “Anything that gives one sector of the industry a competitive advantage makes it more difficult.” Duggan agrees but thinks that it would take 12-24 months for domestic producers to begin to feel the benefit. “It’s boutique wineries that are pushing for that,” Callahan observes, “and our business doesn’t fall into that category.” McWilliam is confident that the company’s distribution partner Gallo can overcome this obstacle.

“Our distribution base is working very well currently. They’re professional, they know their business, they know their customers.” Callahan emphasises the critical role distribution plays in America in achieving success. “Trade channels are like gold. Larger distribution companies know this. They’re starting to control more and more aggressively.”

Whatever hurdles may lie ahead in the coming months, everyone remains bullish about their business in the US.

“We have seen a massive swing towards the Australian product,” enthuses McWilliam. “New World flavour seems to be hitting the nail on the head for consumers here. We’ve experienced tremendous growth. Last year we hit more than 140,000 cases. This year we’re expecting more towards 240,000 cases.”

Laffer takes a more measured view. He concedes that 2004 was reasonably difficult for Jacob’s Creek because of its need to maintain prices as a longer-term strategy in spite of short-term price erosion in the place. However, their successful launch of three new products in 2004 - sparkling wine, reserve wines and Riesling - has buoyed his expectations for a 10% sales hike this year.

Callahan is pinning most of his hopes for 2005 on Little Boomey. “Six weeks after we kicked off this brand last year, we were out of stock. We brought in another 90,000 cases and it was gone. We have another 200,000 cases on board or here and we’re still having stock issues.” How successful will Little Boomey be this year? “We don’t know,” said Callahan, “but we think it will be a big deal.”

Duggan, too, exudes optimism for Tyrrell’s in 2005. “People here know Australian wine, they understand it, that is key.” He forecasts a complete reversal of their sluggish sales last year which were seriously depleted by the sale of their icon Long Flat brand to Cheviot Bridge.

“We’re expecting sales growth of about 25%. This means around 50,000 cases which would be significant for us.”

The latest market research sponsored by Vinexpo reveals that America’s thirst for wine is likely to continue to remain unquenched over the next three years rocketing to a record 308 million cases by 2008. Scott McWilliam’s response to this promising prognosis says it all. “The only way for Australian wine is up.”

Grapegrower & Winemaker

AB Mauri



WID 2017