Markets for Tropical Fruit Wine Products

RIRDC Publication No. 09/033

RIRDCInnovation for rural Australia

Markets for Tropical Fruit Wine Products

By Judy Noller and Brian Wilson

November 2009

RIRDC Publication No 09/033 RIRDC Project No. PRJ-000608 (DAQ-331A)

© 2009 Rural Industries Research and Development Corporation All rights reserved.

ISBN 1 74151 837 7 ISSN 1440-6845

Markets for Tropical Fruit Wine Products Publication No.09/033 Project No. PRJ-000608 (DAQ-331A)

The information contained in this publication is intended for general use to assist public knowledge and discussion and to help improve the development of sustainable regions. You must not rely on any information contained in this publication without taking specialist advice relevant to your particular circumstances.

While reasonable care has been taken in preparing this publication to ensure that information is true and correct, the Commonwealth of Australia gives no assurance as to the accuracy of any information in this publication.

The Commonwealth of Australia, the Rural Industries Research and Development Corporation (RIRDC), the authors or contributors expressly disclaim, to the maximum extent permitted by law, all responsibility and liability to any person, arising directly or indirectly from any act or omission, or for any consequences of any such act or omission, made in reliance on the contents of this publication, whether or not caused by any negligence on the part of the Commonwealth of Australia, RIRDC, the authors or contributors.

The Commonwealth of Australia does not necessarily endorse the views in this publication.

This publication is copyright. Apart from any use as permitted under the Copyright Act 1968, all other rights are reserved. However, wide dissemination is encouraged. Requests and inquiries concerning reproduction and rights should be addressed to the RIRDC Publications Manager on phone 02 6271 4165.

Researcher Contact Details Ms Judy Noller Mr Brian Wilson Trade and Business Officer Wine Solutions Consultancy Pty Ltd Department of Primary Industries and Fisheries 60 Greenvale Drive 21 Redden Street GISBORNE VIC 3437 PORTSMITH QLD 4870

Phone: 07 4044 1617 Phone: 03 5428 8808 Fax: 07 4035 5474 Fax: 03 5428 8426 Email: [email protected] Email: [email protected] In submitting this report, the researchers have agreed to RIRDC publishing this material in its edited form.

RIRDC Contact Details Rural Industries Research and Development Corporation Level 2, 15 National Circuit BARTON ACT 2600 PO Box 4776 KINGSTON ACT 2604

Phone: 02 6271 4100 Fax: 02 6271 4199 Email: [email protected]. Web: http://www.rirdc.gov.au

Electronically published by RIRDC in November 2009 Print-on-demand by Union Offset Printing, Canberra at www.rirdc.gov.au or phone 1300 634 313

ii

Foreword

A small fruit wine industry is emerging in major tropical fruit-growing regions of northern Australia, using a wide range of tropical, exotic and Australian native fruits. The industry has potential to emulate Australia’s very large and successful grape wine industry in tropical regions. This report seeks to identify and describe potential markets and marketing strategies to guide producers on market development. As fruit wine is consumed widely in many countries, popular with international visitors to Australia, and readily exportable, the research has focussed on both domestic and international markets. This report finds that that there are small, under-developed Australian markets of domestic and international tourists visiting tropical fruit wine-producing regions and people buying from local wineries, favourable demand trends and identifiable potential segments in the Australian mass market, potential segments in the Japanese market, and minor opportunities in a number of other countries. These markets are highly competitive and increasingly quality and price-conscious, so the tropical fruit wine industry will need strategies to develop and maintain quality standards and to position its products as quality and value for money. RIRDC urges anyone looking to make use of the information within this report to encourage a responsible approach to the marketing and consumption of alcohol. This project was funded from RIRDC Core Funds which are provided by the Australian Government through the New Plant Products R&D Program, and by the Queensland Government and members of the Association of Tropical North Queensland Wineries. This report, an addition to RIRDC’s diverse range of over 1900 research publications, forms part of our New Plant Products R&D program, which aims to facilitate the development of new industries based on plants or plant products that have commercial potential for Australia.

Most of RIRDC’s publications are available for viewing, free downloading or purchasing online at www.rirdc.gov.au. Purchases can also be made by phoning 1300 634 313.

Peter O’Brien Managing Director Rural Industries Research and Development Corporation

iii Acknowledgments

Ms Yumi Ozaki, Queensland Government Trade and Investment Office, Japan. Ms Alexandra Rochetau-Hasan, Queensland Government Trade and Investment Office, United Kingdom.

Abbreviations

FOB: Free on board – the value of the wine when it placed on the international carrier at the port of departure. It includes production and other costs, but not insurance or freight CIF: Cost, insurance and freight VAT: Valued added tax on the value contributed at each stage of the production of a product. EU: European Union WTO: World Trade Organisation – an agreement where countries seek to trade with each other on a most-favoured nation basis

Measurements and terms commonly used for wine (these are not necessarily used in this report, but often used in tariff databases and elsewhere) Cl: Centilitre —100th of a litre, or 10ml Hl: Hectolitre – 100 litres v Alc % /v: Percentage alcohol by volume, also expressed as per cent vol w Alc % /w: Percentage alcohol by weight Vpl: Value per litre LPA: Litre of pure alcohol Case: Nine litres of wine, equating to a carton of one dozen 750 ml bottles of wine, weight approximately 15 kg 1 tonne of packaged wine: 66.6 cases or 600 litres. Bottle size: Assume to be 750 ml unless otherwise states

Assumptions

It was not possible to measure the size of most national fruit wine markets due to the lack of specific and consistent statistics for fruit wine. To enable comparison, the country profiles provide a rough estimate of market size, assuming up to 10 million litres a year for a small market, 10 to 50 million litres for a medium market and 50 million litres and over for a large market. International research relies on international harmonised tariff codes to identify imports and exports (see Appendix D for list). Unfortunately, the relevant Harmonised System (HS) Code HS 2206, groups fruit wine with all other fermented drinks other than wine from grapes only. Some countries have their own domestic code extension for major drinks categories, such as cider, perry, mead and sake but rarely for fruit wine or wine from specific fruits. However, these extended codes vary between countries, and between imports and exports. Therefore, HS 2206 data is likely to include substantial quantities of products other than fruit wine, such as rice wine and flavoured grape wine and, at best, provides an indication of the whole category of fermented drinks from bases other than grapes.

iv A few media and industry reports provide estimates of fruit wine consumption and/or production but statistical databases combine fruit wine and drinks such as grape wine, sake or flavoured spirits.

Currency conversion

The exchange rates for Japanese wine prices obtained during the market visit to Japan in July 2007 were converted at the average daily rate for the week of the visit (A$0.00953 to ¥1). Elsewhere prices have been converted to Australian dollars at the average exchange rate for the relevant year.

Guide to references

Most references are compiled at the end of the country profile, but references that are common to a number of countries are provided in the general References section at the end of the report.

v

Contents Foreword...... iii Acknowledgments...... iv Abbreviations ...... iv Assumptions...... iv Currency conversion...... v Guide to references...... v Contents...... vi Tables...... viii Figures...... ix Executive summary ...... x 1. Introduction ...... 1 1.1 Description of fruit wine...... 1 2. Evaluation of the Australian domestic market ...... 2 2.1 Methodology...... 2 2.2. Key findings...... 3 3. Profiles of overseas fruit wine markets and selection of an overseas market for further research ...... 28 3.1 Methods ...... 28 3.2 Country profile summaries – Asia ...... 28 3.3 Country profile summaries – North America ...... 33 3.4 Country profile summaries – Europe...... 34 3.5 Regional profile summary - Pacific region ...... 42 3.5 Regional profile summary – Central and South America ...... 42 3.6 Regional profile summary – Africa ...... 42 3.7 Regional profile summaries – Middle East...... 43 4. Selection of international market for detailed research...... 44 4.1 Method of selection...... 44 4.2 Assessment factors for market attractiveness and competitive strength...... 44 5. Market profile – Japan...... 47 6. Strengths, weaknesses, opportunities and threats analysis (SWOT) ...... 65 7. Discussion of Results ...... 67 7.1 Australian market...... 67 7.2 International markets ...... 68 References ...... 70

vi Appendices ...... 87 Appendix A: Global trends in wine and related drinks ...... 87 Appendix B: Wine quality...... 91 Appendix C: Case studies...... 92 Appendix D: Harmonised system (HS) codes for wine ...... 98 Appendix E: Country profiles ...... 100 E.1 Country profiles – Asia...... 100 E.2 Country profiles – North America ...... 133 E.3 Country profiles – Europe...... 143 E.4. Pacific region ...... 184 E.5 Regional profile – Central and South America...... 188 E.6 Regional profiles – Africa...... 193 E.7 Regional profile – Middle East ...... 195 Appendix F: Questionnaire for distributor survey...... 197 Appendix G: Questionnaire for consumer survey ...... 199 Glossary...... 201

vii

Tables Table 2.2.1: Australian producer and trade interviews...... 2 Table 2.2.2: Consumer survey – age, gender and place of residence of respondents...... 3 Table 2.2.3: Consumer survey − likelihood of future purchase of fruit wines...... 6 Table 2.2.4: Consumer survey - usual drink by occasion...... 6 Table 2.2.5: Australia’s exports of fruit wine products, by leading markets, 2002−06...... 8 Table 2.2.6: Examples of Australian fruit wine producers and their products, 2007 ...... 9 Table 2.2.7: Australia’s imports of fruit wine drinks by leading countries of supply, 2002−06...... 10 Table 2.2.8: Australian retail audit – examples of fruit wines and flavoured wines ...... 12 Table 2.2.9: Consumer survey – unprompted selection of wines for tasting...... 13 Table 2.2.10: Consumer survey - importance of the type of fruit used...... 13 Table 2.2.11: Consumer survey – preferred degree of sweetness in alcoholic drinks...... 14 Table 2.2.12: Consumer survey – information needs regarding tropical fruit wines ...... 14 Table 2.2.13: Distributor survey – quality rating for alcoholic fruit drinks ...... 14 Table 2.2.14: Consumer survey – price expectation for tropical fruit wine products ...... 18 Table 2.2.15: Consumer survey – experience of tropical fruit wines...... 22 Table 4.1: Market attractiveness and competitive strength factors ...... 44 Table 4.2: Weighted scores by country...... 45 Table 5.1: Interviews with Japanese distributors, 2007 ...... 47 Table 5.2: Japan: fruit wine supply – August 2007, and annualised (‘000 litres) ...... 50 Table 5.3: Japan: imports of fruit wine products from selected countries, 2002–06...... 50 Table 5.4: Japan - product audit for domestic fruit wines...... 51 Table 5.5: Japan - product audit for imported fruit wines...... 52 Table 5.6: Japan - import duties and taxes for wine...... 63 Table 6.1: Strengths, weaknesses, opportunities and threats for the tropical fruit wine industry...... 65 Table D.1: Harmonised system codes for fruit wine products, grape wine and related products ...... 98 Table E.1: China: trade in fermented drinks HS2206, # 2002−6...... 102 Table E.2: China - import regulations and requirements...... 109 Table E.3: Hong Kong: trade in fermented drinks HS2206#, 2002−06...... 110 Table E.4: India: trade in fermented drinks HS2206#, 2002–06 ...... 113 Table E.5: India: examples of fruit wines...... 113 Table E.6: Indonesia: trade in fermented drinks HS2206, # 2002−06...... 115 Table E.7: Republic of Korea: trade in fermented drinks HS2206, # 2002−06...... 117 Table E.8: Republic of Korea: import duties and taxes on fruit wine products...... 119 Table E.9: Malaysia: trade in fermented drinks HS2206, # 2002−06...... 120 Table E.10: Malaysia: import tariffs and taxes on fruit and grape wine...... 122 Table E.11: Singapore: trade in fermented drinks HS2206, # 2002−06 ...... 123 Table E.12: Singapore: wine taxes ...... 125 Table E.13: Taiwan: trade in fermented drinks HS2206, # 2002−06 ...... 126 Table E.14: Taiwan: import taxes and tariffs on wine...... 128 Table E.15: Thailand: trade in fermented drinks HS2206, # 2002−06 ...... 129 Table E.16: Vietnam: trade in fermented drinks HS2206, # 2002−06...... 132 Table E.17: Canada: trade in fermented drinks HS2206, # 2002–06...... 134 Table E.18: Canada: product audit for fruit wines...... 135 Table E.19: Canada: import taxes and tariffs on wine...... 136 Table E.20: Mexico: trade in fermented drinks HS2206, # 2002−-6...... 137 Table E.21: United States: trade in fermented drinks HS2206, # 2002–06 ...... 139 Table E.22: United States: examples of fruit wines...... 140 Table E.23: United States: import duties and taxes on wine ...... 142 Table E.24: Import tariffs on bottled wine – European Union ...... 145 Table E.25: European Union: Excise and VAT on imported fruit and grape wine, 2007 ...... 145 Table E.26: Belgium - trade in fermented drinks, 2002−06 ...... 148 Table E.27: Denmark - trade in fermented drinks HS2206, # 2002−06 ...... 150 Table E.28: Estonia - trade in fermented drinks HS2206, # 2002−05 ...... 152 Table E.29: Finland - trade in fermented drinks, 2002−06...... 153 Table E.30: France - trade in fermented drinks HS2206, # 2002−06 ...... 155

viii Table E.31: Germany - trade in fermented drinks HS2206, # 2002−06 ...... 158 Table E.32: Ireland – trade in fermented drinks HS2206, # 2002−06 ...... 161 Table E.33: Italy - trade in fermented drinks HS2206, # 2002−06...... 162 Table E.34: Netherlands - trade in fermented drinks HS2206, # 2002−06...... 165 Table E.35: Norway - trade in fermented drinks HS2206, # 2002−05 ...... 167 Table E.36: Poland - trade in fermented drinks HS2206, # 2002−06...... 169 Table E.37: Russia - trade in fermented drinks HS2206, # 2002−06 ...... 171 Table E.38: Spain - trade in fermented drinks HS2206, # 2002−-6...... 173 Table E.39: Sweden - trade in fermented drinks HS2206, # 2002−06 ...... 174 Table E.40: Switzerland - trade in fermented drinks HS2206, # 2002−05 ...... 176 Table E.41: United Kingdom - production, imports and exports of fruit wines, cider, mead, fortified wines, vermouth and herbal grape wine *...... 180 Table E.42: United Kingdom - trade in fermented drinks HS2206, # 2001-05 ...... 180 Table E.43: United Kingdom - examples of fruit wine producers and products ...... 181 Table E.44: United Kingdom - duties and taxes on fruit wine products...... 183 Table E.45: New Zealand - production of non-grape wine, 2002−06 ...... 184 Table E.46: New Zealand - trade in fermented drinks HS2206, # 2002−06...... 185 Table E.47: New Zealand - examples of fruit wine producers and products...... 185 Table E.48: Pacific countries - leading imports of fermented drinks HS2206, # 2002−06 ...... 187 Table E.49: South America - leading imports of fermented drinks HS2206, # 2002−06...... 189 Table E.50: Central America - leading imports of fermented drinks HS2206, # 2002−06...... 192 Table E.51: Africa - leading imports of fermented drinks HS2206, # 2002−06...... 194 Table E.52: Middle East - leading imports of fermented drinks HS2206, # 2002−06...... 196

Figures Fig. 2.2.1: Australia’s exports of fruit wine products and annual average price per litre, 2002−06...... 8 Fig. 2.2.2: Australian distribution channels for wine ...... 19 Fig. 2.2.3: Australian tropical fruit wines...... 27 Fig. 2.2.4: Fresita fruit flavoured wine and Dr Demuth strawberry wine...... 27 Fig. 2.2.5: Grape wine labels...... 27 Fig. 2.2.6: Sparkling fruit flavoured grape wines...... 27 Fig. 2.2.7: Promotion of grape wine...... 27 Fig. 4.1: Market attractiveness: competitive strength grid ...... 46 Fig. 5.1: Japan: total wine consumption and expenditure, 1994–2003...... 48 Fig. 5.2: Japan: typical distribution channels for fruit and grape wine...... 58 Fig. 5.3: Japanese fruit wines ...... 64 Fig. 5.4: Display of Japanese fruit wine ...... 64 Fig. 5.5: Dr Demuth sparkling fruit wines...... 64 Fig. 5.6: Chu-hi – canned cocktails ...... 64 Fig. 5.7: Japanese health fruit wines...... 64 Fig. 5.8: Fruit wine tasting, Fujikyu Highland Tourism centre and Theme park ...... 64 Fig. 5.9. Restaurant wine-tasting...... 64

ix Executive summary

What the report is about

This report describes the current and potential markets for fruit wines in Australia and Japan, and provides information on fruit wine markets in 37 other countries and several regions. It discusses the competitive situation for Australian wines produced from tropical, exotic and Australian native fruits and the strategies needed to develop existing and new markets.

Who the report is targeted at

The report is primarily for Australian tropical fruit wine producers seeking to expand their existing markets and develop new markets. It is also for distributors, retailers and food service operators seeking to handle tropical fruit wine. It will be useful for potential new producers of tropical fruit wine, other Australian fruit wine producers, and government and other agencies that assist producers with market development.

Background

A small emerging industry exists in northern Australia producing wine from various fruits. This industry seeks to expand sales as production volumes increase and more producers enter the industry. The Australian fruit wine market has remained small and under-developed compared with the grape wine market. In contrast, many overseas countries have large fruit wine markets and strong traditions of wines produced from fruit other than grapes.

Aims and objectives

The principal aim of this report is to assist producers of tropical fruit wines to develop their businesses through identifying those markets with strongest demand and prospects for growth on which to concentrate their marketing resources, potential distribution channels and trading partners. Additionally, the report identifies opportunities for alliances with the wine industry and other organisations to aid industry development. The report will support the introduction of these wines to retail outlets, restaurants and other relevant enterprises.

Methods used

The domestic market evaluation was informed by: producer interviews; a literature review; distributor and consumer surveys; and interviews with retailers, restaurants, clubs, and tourist agencies. The international evaluation was based on: a literature review, to identify and profile significant fruit wine markets from around the world; the development of selection criteria to choose the most attractive market where Australian tropical fruit wines could compete; selection of the overseas market with most potential, Japan; and a market visit to Japan to interview potential distributors.

Results/Key findings

• Residents of the tropical fruit wine producing regions and visitors to these regions from elsewhere in Australia and Japan, North America, the United Kingdom and Germany are major domestic markets and offer the best prospects for further development in the short to medium term.

x • Development of the national market should begin with niches of sweet wine and cocktail drinkers who prefer fruitier drinks and seek variety. Significant impediments to market development will be: a negative market image of fruit wines as being of low quality and overly sweet; and lack of an appropriate retail category. 1 • Japan has small growing markets of novice wine drinkers and health conscious people buying tropical and other fruit wines. These markets offer a strong potential for Australian tropical fruit wines, promoted as premium fruit wines through specialist distributors. Marketing strategies should be developed to suit the Japanese culture and marketplace. • There are potential markets in several other countries, such as the United States, Canada and Singapore, warranting in-market research in these countries. • Fruit wine is popular worldwide, with some very large markets, particularly in Europe. • Emerging tropical fruit wine industries in many tropical countries, usually developing economies, indicate a growing category for wines from tropical, exotic and indigenous fruits of variable quality.

Implications for relevant stakeholders

• The findings of this report have implications for industry members, communities, policy makers and other interested individuals and agencies. • As there are no large producers, development of the domestic market will have to gradually expand from regional niches. • Market development should focus on local residents and visitors to the wine-producing regions in the short term as a platform for expansion into the national market. • Communities can support their local fruit wine industries by developing interest in the various wines, trying them, and promoting them to visitors. • Development of the international visitor market should focus on visitors from countries that offer potential export markets, with both Australian and the visitors’ markets developed together. This should begin with the Japanese market. • Development of the Australian wine market will require high and consistent product quality to compete with alternative drinks. The confidence of distributors and consumers needs to be fostered. • Research and development facilities and wine-making education will be needed to support new product development and product quality. • As other countries develop tropical fruit wine industries, markets and retail categories, opportunities will be created for Australian produced products. At the same time competition will develop in overseas and domestic markets.

Recommendations

In terms of the Australian market, the following recommendations are promoted for producers: • Develop key market segments through promotion of product quality and value for money including promotion of individual and regional brands.

1 The authors advocate that for all sectors of the community it is expected that, when drinking alcohol, consumers are of an appropriate (legal) age and they drink responsibly and in moderation.

xi • Develop pro-active supply chains to appropriate sales outlets, with pricing strategies to expand usage beyond special occasions and gifts. • Promote tropical fruit wines in key markets as products with high and consistent quality, supported by industry-wide quality standards. • Develop an appropriate retail category in collaboration with retailers and possibly temperate fruit wine producers. • Stage development of the national market, focusing initially on the most promising market segments starting locally and expanding region by region and niche by niche. • Build awareness and interest for tropical fruit wine in new markets through generic industry activities, including food and wine events with tastings, wine trails, wine maps and brochures, and media publicity, as well as individual winery promotions. • Position the wines through usage occasions to introduce them to new markets while avoiding competing directly with major grape wine brands. • Jointly promote the category of tropical fruit wine in new markets to build demand through activities such as tastings, wine education and media publicity. • Establish an industry-wide financial base for activities of mutual benefit, such as joint marketing and product research and development. In international markets, producers are advised to: • Develop identified niches in the Japanese market in the short to medium term through specialist distributors to key fruit wine markets, using marketing strategies focused on the specific requirements of the market. • Further investigate other promising markets, starting with the United States, Canada and Singapore, for potential niche segments to develop. Recommendations for government are to: • Assist the industry, through tourism development organisations and agencies, to develop regional branding in order to raise awareness in domestic and international visitors to wine producing regions. • Assist the industry to develop a wider Australian market through activities such as wine maps and trails, industry brochures and food and wine events. • Assist producers to develop export markets by identifying, qualifying and developing market opportunities and including the industry in government-assisted wine promotions in these markets. • Assist the industry to develop common product standards that comply with Australian food and wine standards and develop a process to regulate these standards. • Support the provision of education and training in fruit wine making. • Assist producers to access product research and development facilities and services to maximise product quality and innovation.

xii 1. Introduction

There is an emerging tropical fruit wine industry in northern Queensland, the Northern Territory and Western Australia, consisting of small wineries using locally grown tropical, exotic and Australian native fruits. As production grows, producers are seeking new markets to develop. Strategies are also required to expand existing markets.

1.1 Description of fruit wine

Around the world the making of ‘country’ wine from fruit, flowers and sometimes vegetables in the home is a popular hobby with a long tradition. Some cooler climate countries have large commercial fruit wine industries using mainly apples, pears, stone fruit and berries and applying similar fermentation techniques to grape wine production. Tropical fruit wines are now being produced in tropical regions globally, and also by some temperate climate manufacturers, using a wide range of tropical fruits and the same wine-making processes. Despite the similarity to grape wine production, most tropical fruits have a more intense flavour, lower sugar content and usually more pulp than grapes. Sugar and water are added to obtain similar alcohol content and drinking quality to grape wine. Fruit wines are produced as single fruit wines and blends with up to 12 per cent alcohol; and distilled spirit is added to produce fortified wines with 15-20 per cent alcohol. Some fruit wines are distilled into spirits such as fruit brandy. Cider and perry are fermented from apples and pears respectively, but less sugar is added so that final alcohol content is only around five to seven per cent. (Cider and perry are also brewed using similar processes to beer). Wine is also fermented from sources such as sugarcane, various tree saps such as sugar palm and coconut, cacti, ginger, honey (mead) and milk (see Appendix A; The Gale Groupe 2003). Problems with fruit wine quality are usually due to inadequate hygiene and clarification (FAO Corporate Document Repository 2007).

1 2. Evaluation of the Australian domestic market

2.1 Methodology

The domestic market research began with a literature search including, predominantly, producer websites and articles about fruit wine producers. No reports were identified describing the market situation for fruit wine. Producers of tropical and other fruit wines from around Australia were interviewed by telephone and face-to-face. Information was provided about current markets, market development activities and problems experienced. A questionnaire was mailed to Australian wine wholesalers and distributors listed in the Australian and New Zealand Wine Directory. Wholesalers and distributors were also telephoned to increase the response rate from this sector. Fifteen responses were received. These distributors predominantly handle grape wines; one distributes fruit wine, four distribute cider, and two distribute fruit liqueurs and some ready to drink beverages (RTDs), beer and spirits. Personal interviews were carried out with representatives of liquor retail chains, hotels, resorts, restaurants, clubs and nightclubs, including a sommelier, a cocktail consultant, and representatives of the Queensland Department of Tourism, Fair Trading and Wine Industry Development and Tourism Tropical North Queensland (Table 2.2.1). Table 2.2.1: Australian producer and trade interviews Company Producers Bob Hardy, Thornlea Wines and Liqueurs, Sorell, Tasmania, and President, Fruit Winemakers (Tas.) Inc. Cheryl Parry, Parwill Swill, Bendigo, Victoria Joanne Petrillo, Sunny Ridge Winery, Mornington Peninsula, Victoria Kakadu Winery, Kakadu, Northern Territory Lorraine Hunter and Fred Swainston, Giverny Kiwi Fruit Winery, Yarra Valley, Victoria Michael Skivinis, The Berry Farm, Margaret River, Western Australia Geoff Weguelin, Kanagae Estate, Broome, Western Australia Retailers Ben Preston, Fine Wines Manager, Dan Murphy, Queen Vic Building, Melbourne Chris Brittain, Proprietor, Crown Hotel and Shields Street Cellars, Cairns Jeremy Stockman, Senior Business Manager, Fine Wines & Imports, Coles, Melbourne Nick Kinsman, Manager, 1st Choice, Toowong, Brisbane Rick Lovett, Business Manager, and Michael Bynan, Assistant Business Manager, Supermarket Liquor, Woolworths, Sydney Hotels, restaurants, bars and clubs Brett Daniells, Manager, Cairns Cruising Yacht Squadron, Cairns Chris Crawford, Wine Manager and Sommelier, Prince of Wales and Stoke Group, St Kilda, Melbourne Damian Lyth, Food and Beverage Manager, Cairns Colonial Club, Cairns Daniel Zeuelden, Manager, Zenith Café Bar, St Kilda, Melbourne Duty Manager, Onyx Restaurant, Milton, Brisbane Ingram Yung, Cocktail Consultant, Cairns Jarred Roberts, Store Manager, Gilligans Backpackers, Hotel & Resort, Cairns Renee Reddrop, Food and Beverage Manager, Salsa Bar and Grill, Port Douglas Shaun Turnbull, Proprietor, Mad Cow Nightclub, Cairns Stewart Kentish, General Manager, Silky Oaks Resort Tina Wort, Director, Dundees Restaurant, Cairns Wendy Baker, Gaming Administrator, Cazaly’s Social Club, Cairns Ross Bearkley, Principal Business Development Officer Tourism and Wine Industry, Queensland Department of Tourism, Fair Trading and Wine Industry Development, Brisbane Rob Giason, Chief Executive Officer, Tourism Tropical North Queensland, Cairns

2 A consumer survey was conducted at a large Cairns shopping centre frequented by local people and tourists. The survey was undertaken on consecutive Thursday, Friday and Saturday afternoons (these being the most popular shopping days). A range of eighteen wines and fortified wines as well as two liqueurs from mainstream and exotic tropical fruits and Australian native fruits were offered for sampling. This was followed by a face-to-face questionnaire. While effort was made to include all adult age groups as part of the sample, all young shoppers approached to participate declined to do so. For this reason the survey was extended to a Cairns workplace with a large number of young employees. This improved the proportion of participants aged 35 year and under in the sample. The combined sample totalled 51. Some respondents did not answer all questions. Of the respondents, 73 per cent classified themselves as the main wine buyer for their household, 17 per cent usually bought wine with a partner, 68 per cent usually decided individually which wine to buy while 12 per cent deciding with a partner. One quarter of respondents visiting northern Queensland. The age group, gender and place of residence are shown in Table 2.2.2. Table 2.2.2: Consumer survey – age, gender and place of residence of respondents Number of Percentage Place of Percentage Characteristic respondents of total Characteristic residence of total Sex Place of residence Female 34 68% Australian 40 78% Male 17 32% British 4 8% Age European 4 8% Under 25 2 4% New Zealand 2 4% 25–35 5 10% American 1 2% 35–55 32 63% 55+ 12 24% Source: Consumer survey – 51 respondents

2.2. Key findings

Market profile

Australia’s first popular wine was a strong pear cider. Grape wine did not develop at this time due to problems establishing grape production in the early colony (Walsh 1979). Fruit wine produced in the home continues to be somewhat popular. However, growth in consumption of commercial fruit wine has failed to match that of grape wine. There are no production statistics for production of fruit wine and, in the absence of these statistics, it is assumed to be less than two million litres are produced in Australia a year.

Market segments Interviews with producers identified these key market segments for tropical fruit wines: People living near wineries - These people usually buy fruit wine when bringing visitors to the wineries and typically drink it with meals and when socialising. International visitors - These are mostly Japanese, German, British, American and Canadian tourists who buy from wineries and their associated Internet and mail order services; airport, duty free and tourist stores; and local liquor stores in the wine-producing regions. They buy the wines as souvenirs and gifts and sometimes to drink with meals. Those who visit wineries are usually independent travellers seeking local activities and are attracted by winery signage. Some have consumed fruit wines previously, but rarely from tropical fruit. A Cairns independent liquor store located near several restaurants reports that local mango wine is sold only to international and domestic tourists wanting local wine as a souvenir, rather than to drink with dinner. Domestic tourists - From across Australia, these tourists are either travelling independently, usually as couples. They are buying from wineries and occasionally regional liquor stores for gifts, souvenirs and

3 to drink while travelling, often with meals. They seek local experiences, drink grape wine, are often inexperienced in wine-tasting, and some have consumed fruit wine previously. The markets are similar for temperate fruit wines around Australia. Demand for tropical fruit is growing steadily, and Victorian wineries have noticed more visitors seeking out fruit wines after experiencing it in northern Queensland. However, distributors have not observed demand trends favouring fruit wine.

Barriers to demand for fruit wine The fruit wine market is under-developed with low consumer and trade awareness and experience of fruit wine products, lack of demand from consumers to retailers, restaurants and bars, and resistance from grape wine devotees to non-grape wines. Barriers to market development will be: • A market perception of sweet, poor quality wines • Strong potential competition from low-priced flavoured grape wines and other drinks • Resistance from grape wine producers afraid of losing market share.

Niche market segments Trade interview respondents identified the following niche segments of the Australian market as having strongest potential for development2: Young people - Trade interview respondents identified young people, mostly women aged 18–26 years of age, but also inclusive of men 18−20 years, often with middle incomes, and often living outside large cities. They currently drink: cask wine and sweet wine, usually by the glass; ready to drink flavoured spirits (RTDs); premixes; various spirits; non-boutique cider; and premium and standard beer. According to trade interview responses, young women in particular buy Sauvignon Blanc and house wines, partly to avoid appearing lacking in wine knowledge to their peers. However, a Melbourne bay side café with a significant clientele of young women has had some requests for fruit wines, such as ‘sparkling wine with peach’, and its manager would consider adding fruit wines to its wine menu in response to these requests. Retailers regard fruit wines as a potential ‘entry level’ to grape wine for this market. However, as more quality tropical fruit wines enter the market, consumers might move up to premium quality fruit wines rather than migrate to grape wines as their palates mature. While the under 25 years of age group is the most adventurous, this market sector is viewed as having numerous alternative options, such as RTDs. They are also viewed as highly ‘price sensitive’. As women are believed to be most likely to prefer sweeter drinks, manufacturers have been focussing on young women and positioning RTDs as an introductory, easy to drink alcoholic beverage. The alcohol content is similar to that of beer. Young women, according to trade responses, usually prefer light fruity styles while young men drink more dark RTDs such as coke–flavoured rum. Grape wine drinkers in Queensland - This growing market prefers white wines, mainly Sauvignon Blanc, and is more likely to accept fruit wines than drinkers of other wines. It includes mainly women and novice drinkers buying a growing range of domestic and imported fruit-flavoured wines in retail chain bottle shops. Demand is influenced by Queensland’s range of climates that suits a variety of drinks. Coles are gradually introducing imported sparkling fruit wine to its 1st Choice outlets in Queensland for this market.

2 Note that these findings are drawn from interview responses. The authors advocate that for all sectors of the community it is expected that, when drinking alcohol, consumers are of an appropriate age and they drink responsibly and in moderation.

4 Older people who have tried a lot of wines - Trade responses indicate that these people are often viewed as open to new experiences. Tourists -This sector is viewed by those in the wine trade as having potential for development within the following contexts: • Grape wine drinkers, mainly from Australia and New Zealand, drinking boutique and standard beer, upmarket spirits, liqueurs, and RTDs, in resort bars, duty free outlets and restaurants • Tourists buying Australian produce from airport shops as a regional or Australian souvenir • An emerging market of people who holiday at smaller coastal towns, seeking organic and natural products. This sector perceives these wines as healthy and more ‘natural’ than grape wines • People on long trips, typically retired and aged 50 years of age and over, who have time to relax, drink wine, develop an awareness of a region’s wines by visiting wineries. These people will promote wines through word of mouth to fellow ‘grey nomads’ Australia has a large wine tourism market of domestic and international visitors to wineries. In 2002, around 126 000 domestic travellers visited a winery at least once during a trip. In 1999 about 425 000 international visitors, or 11 per cent, visited a winery at least once. Typical wine tourists are older couples, often retired, tertiary educated, higher and income earners. They are concerned with quality, they are knowledgeable about wine, and are seeking new experiences. These people drive themselves, often stay in bed and breakfasts, seek information, and are heavy users of newspapers, magazines and the Internet. A survey found these travellers visit a winery mainly to experience the region’s character, food, lifestyle and cultural attractions; to visit friends and relatives; to unwind, relax, have fun, and build relationships; and for a change of scene. They seek to learn about the wine, the winery and the region, to taste and perhaps buy the wine, and to be entertained. However, hoteliers observed that visitors do not expect to find wineries in northern Queensland, which is associated with tropical, sunshine and seafood, not wine. Cocktail drinkers - This growing market includes ‘mixologists’: those who drink and mix cocktails for cocktail bars, competitions and for their own consumption. These people like to experiment; want to utilise all flavour options; and will use Australian ingredients. Within this sector, there is also demonstrated demand for tropical fruit liqueurs including mango and lychee, and cream cocktails such as Baileys. Other potential cocktail drinkers, according to trade respondents, are blue collar drinkers and experimental drinkers who buy grape wine from independent bottle shops and restaurants. For an emerging category such as these wines, retailers recommend producers start by developing one potential market in their region and doing it well before marketing state-wide and expanding further once that is achieved. This is viewed as an appropriate approach because there is an entry and exit cost to market development. As market development for wine requires a large budget, retailers recommend that producers market together. Survey respondents also indicate that wholesalers, retail chain buyers and restaurant operators have little, if any, awareness or experience of the northern Queensland fruit wine industry. The consumer survey asked if respondents had bought, tried or even seen specific sample wines previously. In response, 19 of the 41 local people stated that they had bought or tried local fruit wines, seven had seen but not tasted them, eight had not seen any local products, and four had tasted local fruit liqueurs but not fruit wines. Six people had bought or tried fruit wine in southern states or overseas. Survey respondents were then invited to select and taste three wines and asked to provide comment on the taste. Two-thirds rated their samples as good to excellent overall. This suggests that grape wine drinkers are likely to like tropical fruit wines if they experience them.

5 When subsequently asked if they would buy such wines, 80 per cent stated that they definitely or probably would, including all but one male (Table 2.2.3). This and the previous response support the trade view that tastings of these wines are likely to lead to sales. Table 2.2.3: Consumer survey − likelihood of future purchase of fruit wines Maybe Definitely Total Characteristic Definitely Probably Maybe Undecided not not respondents Age Under 25 1 1 2 25−35 1 1 2 35−55 8 6 8 1 4 27 55 plus 5 4 1 1 11 Sex Female 9 3 9 1 5 2 29 Male 5 3 4 1 13 Where from Local 12 5 9 1 5 2 34 Non-local 2 1 4 1 8 Total respondents 14 6 13 1 6 2 42 Consumer survey (42 respondents) When asked to name their usual alcoholic drink, 75 per cent of these consumers said wine, 32 per cent said beer, 24 per cent said spirits and 14 per cent said liqueurs. Few drank RTDs or cocktails regularly. A few did not drink wine because they disliked it, found it too acidic or anticipated an allergic reaction. These respondents were further asked what they mostly drank at parties, restaurants and at home. Wine was the preferred drink for each occasion, with beer and spirits also widely consumed at parties. Beer, spirits and liqueurs were consumed at home. Respondents aged under 35 consumed mainly wine and beer, and most spirit drinkers were aged over 35 years. Women mainly preferred wine at restaurants, while most men preferred beer. This indicates that younger people are drinking lower alcohol drinks, and wine is used as a versatile drink for all occasions (Table 2.2.4). Table 2.2.4: Consumer survey - usual drink by occasion Occasion Main Age Sex Total drink Under 25 25-35 35-55 55 plus Female Male Responses At restaurants Wine 1 2 15 10 21 7 28 Beer 1 0 12 4 6 11 17 Spirits 0 0 1 1 2 0 2 Liqueurs 0 0 1 0 0 0 1 At home Wine 1 2 18 8 21 8 29 Beer 1 1 12 1 7 8 15 Spirits 0 0 0 5 8 3 11 Liqueurs 0 0 3 5 11 4 15 At parties Wine 1 2 15 10 21 7 28 Beer 1 0 12 4 11 6 17 Spirits 0 0 9 3 9 3 12 RTDs 0 0 1 0 1 0 1 Liqueurs 0 0 1 0 1 0 1 Cocktails 1 0 0 0 1 0 1 Total respondents 2 2 31 12 34 17 51 Source: Consumer survey – 51 respondents. Notes: These respondents participated in the tasting survey because they were already interested in wine. Restaurant and party drink choices would be influenced by drink- driving laws. The literature search and trade interviews indicate these demand trends for similar drinks: Grape wine - Australians consumed 449 million litres of grape wine in 2006/07, and an average of 22.5 litres per person in 2005 (Winefacts 2007). The grape wine market is maturing, with numerous domestic and international products and brands and strong price competition. There is slow growth in consumption largely due to older consumers reducing their wine intake when reaching about the age

6 of 64 years. This is combined with poor uptake by young consumers who are faced with a wide choice of drinks such as fruit-flavoured RTDs. This sector appears to not move to wine as a preferred alcohol beverage (Levine 2004). To renew market growth, wine retailers are offering fruity wine-style drinks to introduce younger people to grape wine (as indicated in responses from trade interviews). Fruit-infused grape wines - Large retailers sell a growing range of sweeter and mostly sparkling grape wines. These are flavoured with pineapple, mango, passionfruit, strawberry juice and pulp, and citrus juice, sourced from Australia or overseas. These have been developed in response to consumer and retailer demand. Retailers have had mixed success with these drinks. Sparkling drinks such as Fraise, Omni citrus, and Soul flavoured wines from Chile have sold well. These are more likely to provide a closer bridge to grape wine than carbonated RTDs, with new products, such as Killawarra Dusk, which styles its advertisements for the appeal of young women (see Killawarra website). This indicates potential demand for tropical fruit wines for the same uses. This category has advanced from the low quality, low priced wine coolers and blends such as Golden Gate’s Passion Pop and peach flavoured wine, which were at their most popular in the 1980s. Wine coolers are perceived as a low quality, watered-down and sweetened version of grape wine. Cider - This market is currently very small as most consumers have switched to sweet premixed fruit- flavoured and other drinks. Organic and sparkling ciders (méthode champenoise) have sold well. Cider drinkers are a minor potential market for tropical fruit wines, particularly sparkling. Japanese plum wine or ‘umeshu’ - This imported Japanese liqueur with about 15 per cent alcohol content is made from a traditional Asian stone fruit. It retails at $15.00−25.00 a bottle in some bottle shops near Japanese and Chinese restaurant precincts. It is also sold in Japanese restaurants throughout Australia. Manufacturer promotions and tastings in southern states have had ready acceptance. This has been predominantly from Australians in general and Chinese women more specifically. It is often consumed with Japanese meals in restaurants, with some sales through retail chains to consumers and Japanese bars. A Melbourne city retailer sells umeshu to Chinese people seeking plum wine. This indicates a potential demand from Japanese and Chinese people for fruit based wine-style drinks, such as tropical fruit wines. Fruit liqueurs - Some metropolitan liquor stores display a large range of brands and products with flavours such as banana, mango, melon and strawberry, mainly for bars offering cocktails with fresh fruit and fruit liqueurs, such as daiquiris. Tropical fruit wines are seen as versatile and potential substitutes in cocktails and ‘mocktails’. There is also potential demand for cream wine liqueurs, although these would need to be marketed as liqueurs rather than wine. Fruit-flavoured spirits - A wide range of sweeter RTDs are made from spirits, mainly vodka, flavoured with tropical fruits such as passionfruit, pineapple and lime, and numerous temperate fruits. These have an alcohol content of about five per cent. It is retailed in small bottles or cans of 150−250 mls with colourful and fluoro labels, often in party packs, for about $2.50−3.50 a bottle. The primary market is young, drinking-age women. This market has significant potential for fruit wine.3 Sangria - This traditional Spanish punch-style drink is mainly purchased by Europeans and others wanting an easy to drink summer beverage. A Melbourne store sells a fruit wine-style sangria base for punch, to which customers add their own ingredients. The store provides recipes on request. This market may potentially be a tropical fruit wine market. Australia has developed some overseas markets for fermented drinks other than wine and beer, although exports of HS 220600 appear to have been mostly fruit wine, fruit flavoured wine and coolers in 2006. Total volumes fell continuously from 9.6 to 0.63 million litres from 2002−06 as annual average prices rose from $2.50 to $4.90 a litre (Fig. 2.2.1), reflecting declining demand in key markets, the strengthening Australian market, and possibly growing competition.

3 The authors urge industry participants to carefully consider marketing strategies and to encourage a responsible approach to consumption of alcohol

7 12,000,000 6.00

10,000,000 5.00

8,000,000 4.00 Exports 6,000,000 3.00

Litres $/litre 4,000,000 2.00 Avg priceper litre 2,000,000 1.00

0 0.00 2002 2003 2004 2005 2006

Fig. 2.2.1: Australia’s exports of fruit wine products and annual average price per litre, 2002−06 Note: HS 220600: fermented beverages not specified elsewhere such as cider and mead. Source: Australian Bureau of Statistics From 2002−06 Australian fruit wine products were exported to 26 countries. The largest 2006 markets were Singapore, New Zealand, Japan, Hong Kong and Vietnam (Table 2.2.5). Table 2.2.5: Australia’s exports of fruit wine products, by leading markets, 2002−06 Country 2002 2003 2004 2005 2006 Japan Litres 7 930 221 5 937 316 3 644 518 5 957 278 836 $ per litre 2.42 2.54 2.63 14.28 2.11 Singapore Litres 248 930 253 550 155 432 182 508 184 935 $ per litre 3.24 2.80 2.65 2.66 2.69 New Zealand Litres 10 190 188 841 184 068 239 246 86 476 $ per litre 8.22 3.15 2.92 2.99 8.59 Hong Kong Litres 156 964 91 595 50 123 48 527 43 613 $ per litre 2.09 2.37 2.20 2.01 1.94 Vietnam Litres 0 0 0 2 18 903 $ per litre – – – 144.00 53.44 India Litres 0 0 0 293 8550 $ per litre – – – 40.06 4.44 China Litres 2 705 0 0 2 435 5400 $ per litre 2.18 – – 14.65 10.25 Taiwan Litres 27 085 110 030 77 508 1 640 2646 $ per litre 2.65 2.48 2.12 – 2.33 South Korea Litres 199 450 161 903 8 316 0 162 $ per litre 1.87 1.83 2.12 – 15.00 Malaysia Litres 42 283 13 001 14 654 298 161 $ per litre 2.41 3.91 2.79 5.53 5.02 Canada Litres 18 729 55 821 17 136 9 036 0 $ per litre 3.79 4.02 3.57 3.73 – Finland Litres 60 566 0 43 686 64 909 0 $ per litre 2.15 – 1.75 1.81 – Note: Harmonised Code HS 2206.00 (fermented beverages not specified elsewhere such as cider and mead). Prices FOB. Source: ABS In addition, very small quantities (in descending order by volume) also went to Christmas Island, Antarctica, Romania, East Timor, Vanuatu, Norfolk Island and the Solomon Islands in 2006. Meanwhile, Australia’s grape wine industry is increasingly focussed on developing existing and new export markets. In 2006 it supplied 761 million litres of wine valued at $2760 million to 162 countries, led by the United Kingdom, United States, Canada, New Zealand, the Netherlands and Germany, with growing exports to most countries (ABS).

8 Exports are expected to grow as awareness of Australian wine is raised in overseas markets through generic promotions by the Australian Wine Export Council (AWEC) and other agencies. These growing markets indicate strong demand for Australian branded wine and potential distribution channels for Australian fruit wine.

Supply

As fruit wine and grape wine production statistics are intermingled, tropical fruit wine production has been conservatively estimated at 300 000 litres a year for this report. Australia has approximately 40 commercial fruit wineries using mostly local fruits – tropical, exotic and native Australian fruits in northern Queensland; mainly mango in the Northern Territory and northern Western Australia; and stone fruit, berries and apples in southern states (Table 2.2.6). Table 2.2.6: Examples of Australian fruit wine producers and their products, 2007 Winery and brand Products Price (wines only)* Tropical fruit wines De Brueys Boutique Wines, Jaboticaba, lychee, mango, passionfruit and Bush cherry $20.00 Mareeba, Queensland wines, ports and cream liqueurs Murdering Point Winery, Black sapote, Davidson plum, Lemon aspen, lychee, $20.00 Silkwood, Queensland mango, passionfruit and pineapple wines, mulberry and Black sapote port Pacific Blue Winery, Ingham, Jaboticaba, Davidson plum, Black sapote, lychee, lime, $15.00–20.00 Queensland lime and chilli, citrus, mango, passionfruit Paradise Estate Wines, Mission Banana, Davidson plum, dragonfruit, lime, lychee, $22.00–28.00 Beach, Queensland mangosteen and passionfruit wines and blends, ports Shannonvale Winery, Jaboticaba, mulberry, Purple star apple, Water cherry, $20.00 Mossman, Queensland Black sapote, mulberry, lychee, lime, mango, passionfruit, grapefruit, orange and ginger wines, liqueurs Wild Mountain Spirit, Acai, Black sapote, dragonfruit, pineapple, Bush Honey, $20.00 Yungaburra, Queensland persimmon and lychee wines, liqueurs and ports Cairns Tropical Wines, Cairns, Red ‘bush’ fruits, Davidson plum, mango, lychee, $25.00 Queensland passionfruit, pineapple, banana, plum and coconut wine, ports Golden Pride Winery, Mareeba, Golden Drop mango wine − still, sparkling and fortified; $22.00–24.00 Queensland fruit liqueurs Hirsh Wines, Endeavour Valley Mango and passionfruit wines Winery, Cooktown, Queensland Kakadu Mango Winery, Kakadu, Mango wine, mango wine with juice $13.60–16.50 Northern Territory Kanagae Estate, Broome, Mango wine, dessert wine and port $20.00 Kimberley, Western Australia Temperate fruit wines Ashbolts Farm, Tasmania Elderflower and elderberry wine Birdwood Park Fruit Winery, Apricot, peach, plum, pear and strawberry wines; Wines $15.00 Balingup, Western Australia strawberry, apple plum and orange ports Bloobs Winery, Shepparton, Blueberry, apple, pear, cherry, plum, blended fruit ports $15.00–25.00 Victoria Bramble Patch, Stanthorpe, Fortified blackberry, strawberry and boysenberry wines $15.00–33.00 Queensland and strawberry honey mead (375 mls) Giverny Estate, Toolangi, Sparkling, still dry and sweet kiwi fruit wine, kiwi fruit $15.00–25.00 Victoria – Toolgangi Gold brand liqueur and schnapps Hartzview Winery, Gardners Blackcurrant, blackberry, blueberry and cherry fortified Bay, Tasmania wines Hillwood Strawberry Farm, Strawberry, raspberry, blackcurrant, apple Hillwood, South Australia Kate’s Berry Farm, Tasmania Strawberry wine, strawberry-grape wine blend Parwill Swill, Heathcote, Victoria Feijoa, prickly pear fruit, plum, apricot, nectarine and $16.00 cherry wine Petcheys Bay Vineyard, Organic blueberry and blackcurrant wine Petcheys Bay, Tasmania

9 Winery and brand Products Price (wines only)* Sorell Fruit Farm, Sorell, Strawberry, raspberry, tayberry, loganberry, silvanberry, $19.50 for 375 mls Tasmania, Thornlea brand blackberry, blackcurrant, jostaberry and cherry liqueurs Sunny Ridge, Mornington Strawberry wines and ports Peninsula, Victoria Tathra Winery, Nanup, Western Plum wine and port $18.20 Australia The Berry Farm, Margaret Berry, kiwifruit, mango, nashi, pear and plum wines, $16.00–22.00 River, Western Australia sparkling and fortified wines Wilmot Wines Vineyard, Wilmot, Blackcurrant, raspberry and elderberry wines, apple cider Tasmania and grape wine Note: Prices of 750 ml bottles of wine, unless otherwise specified, mostly obtained from winery websites. Sources: Cairns Wine Show Awards, winery websites, retail audit, ‘Fruit wine adds a Gourmet Touch’ 2004 Northern producers have ample supply of a variety of mainstream, exotic and native fruits; capacity to expand production using existing facilities through year-round production; and flexibility to adjust their product ranges with variable harvests, crop losses and demand variation for the fresh fruit. Australian fruit wine producers are represented by two regional associations: the Association of Tropical North Queensland Wineries for commercial producers; and the Fruit Winemakers (Tas.) Inc. for professional and amateur winemakers. The Queensland Wine Industry Association is open to manufacturers of wine other than from grapes and promotes northern Queensland as a wine-producing region but is predominantly grape wine oriented. The fruit wine industry is not eligible for direct support from the Australian grape wine industry for activities such as product development, quality monitoring and market development. This is understandable as the grape industry is largely self funded. However, Queensland producers have the benefit of a Queensland Government Ministry for Wine Industry Development, which has accepted the tropical fruit wines as equal members with the Queensland grape wine industry. While acceptance at the political level does not translate to co- operation with the grape industry on the ground, it advances co-operation between the two industries. A growing market for fruit wine-style drinks is indicated by the doubling of imports of non-grape fermented drinks from 2002–06 to 541 000 litres with a market value of $2.03 million in 2006 (Table 2.2.7). Stable average import prices of around $3.50 a litre indicate these are mostly low-priced drinks such as coolers from Europe and the United States and rice wines from Asian countries. Table 2.2.7: Australia’s imports of fruit wine drinks by leading countries of supply, 2002−06 Description 2002 2003 2004 2005 2006 Japan – litres 92 201 89 969 119 591 148 874 138 422 – $ per litre 5.87 6.58 5.24 4.41 5.86 Ireland – litres 0 0 72 100 50 636 126 048 – $ per litre – – 3.30 3.20 3.48 Germany– litres 96 753 122 945 118 839 137 627 116 523 – $ per litre 2.43 2.57 2.37 2.27 2.43 China – litres 41 692 33 177 53 601 42 566 65 205 – $ per litre 2.57 2.15 2.57 1.91 2.32 United Kingdom – litres 8 945 10 377 20 724 41 117 42 415 – $ per litre 2.76 3.50 2.61 1.75 1.98 Korea – litres 8 882 8 550 8 517 3 600 32 518 – $ per litre 4.63 6.16 5.42 7.64 6.28 United States – litres 1 269 1 362 1 023 2 648 8 163 – $ per litre 5.98 4.74 4.19 3.06 3.47 France – litres 1 989 4 058 6 846 3 438 3 004 – $ per litre 2.76 4.22 4.39 3.61 3.97 Total volumes 272 616 300 013 414 014 460 087 541 229 Total value 1 009 474 1 156 847 1 462 410 1 405 427 2 033 154 Average $ per litre 3.70 3.86 3.53 3.05 3.76 Notes: HS2206003020: grape wine (blends), cider, perry, mead, sake, fruit and vegetable wine. Prices CIF. Source: ABS Australia’s large grape wine industry produced 1400 million litres of wine in 2007, supplying the large domestic market and exporting 785 million litres, more than half of its production. The industry is

10 continuously improving its exports and competitiveness through better quality, price, consistency and reliability. This is reflected in its 2007 exports, where export value grew by six per cent, ahead of volume growth of three per cent (AWBC Wine Export Approval Report 2007). See Appendix C for a case study on the grape wine industry.

Product profile

The tropical fruit wine industry produces still and sparkling wines, fortified wines and wine-based liqueurs from exotic tropical and subtropical fruits including lychee, dragon fruit, mangosteen, black sapote, jaboticaba, jackfruit and kaffir lime; the Australian native fruits Davidson plum, lemon aspen and bush cherry; and major tropical and subtropical fruits such as mango, passionfruit, banana, pineapple, persimmon, orange, lime and grapefruit. In cooler southern regions fruit wines are produced mainly from stonefruit, berries, apples and pears (Table 2.2.6). Fruit wine production and imports are required to comply with Food Standard 2.7.3: ‘Fruit wine and vegetable wine’ of the Food Standards Code administered by Food Standards Australia New Zealand (FSANZ), which provides these definitions for fruit wine products: • Fruit wine and/or vegetable wine - the product prepared from the complete or partial fermentation of fruit, vegetable, grains and/or cereals or preparations of those foods, other than that produced solely from grapes. • Fruit wine and/or vegetable wine product - A food containing no less than 700 ml per litre of fruit wine and/or vegetable wine, which has been formulated, processed, modified or mixed with other foods such that it is not a fruit wine and/or vegetable wine. • Wine product - fruits other than grapes added to a minimum of 70 per cent grape wine. • Cider - the fruit wine prepared from the juice or must of apples and no more than 25 per cent of the juice or must of pears. • Perry - the fruit wine prepared from the juice or must of pears and no more than 25 per cent of the juice or must of apples. • Mead - The product prepared from the complete or partial fermentation of honey. The Standard also permits fruit wine and vegetable wines to contain fruit juice and fruit juice products, vegetable juice and vegetable juice products, sugars, honey, spices, alcohol and water. Any combination of grape wine with other fruit wine, juice or flavours must be named ‘sufficient to indicate the true nature of the food’, such as ‘Peach Flavoured Chardonnay’. In contrast, FSANZ Standard 2.7.4 for Wine and Wine Product limits ‘wine’ to grape wine only: • Wine - the product of the complete or partial fermentation of fresh grapes, or a mixture of that product and products derived solely from grapes. • Wine product - a food containing no less than 700 mls per litre of wine as defined in this standard, which has been formulated, processed, modified or mixed with other foods such that it is not wine. The only foods that may be added during production are grape juice, grape juice products, sugars, brandy or other spirit, and water where needed to incorporate any permitted food additive or processing aid. Grape wine production and marketing are also regulated by the Australian Wine and Brandy Corporation Act 1980 and Regulations. The Act and Regulations provide blending rules and compositional and other requirements for wines imported from countries with which Australia has a formal wine trading agreement (see definition of The Mutual Acceptance Agreement on Oenological Practices). Australian wine exports are categorised as ‘still’ (red and white), ‘sparkling’, ‘fortified’, ‘carbonated’, ‘sherry’ and ‘other’ (Winefacts 2007). Despite the wide range of fruit wines available, Australian liquor retailers do not offer a fruit wine category and major retailers are unsure of where to position fruit wines. Visits to several liquor stores

11 found only one fruit wine, an imported sparkling strawberry wine, displayed with a growing assortment of fruit-flavoured sparkling wines (Table 2.2.8). Table 2.2.8: Australian retail audit – examples of fruit wines and flavoured wines Brand Product (750 mls unless otherwise stated) Pricing Domestic Omni Citrus Grape wine flavoured with lemon, lime and $8.00 for 750 mls; $3.95 for orange, 9% alcohol in single 750ml and 200ml 200 mls bottles and three-packs of 200 mls Killawarra Dusk Sparkling strawberry-flavoured grape wine $7.20–12.00 for 750 mls Golden Gate Passion Pop Flavoured grape wine, 9.4% alcohol $5.00 and Crack Peach Berri peach passion wine xx $5.79 for 750 mls Beerworld coolers xx $4.00 Imported Katlenburger sparkling fruit Sparkling strawberry and peach wines, 8.3% $17.00 wine, Germany alcohol (Fig. 2.2.4) Lindauer Fraise, New Zealand Strawberry flavoured grape wine (Fig. 2.2.6) $11.00–13.90 Raspberry sparkletini, Peach Flavoured grape wine, ‘natural flavours’, $8.00 sparkletini, Italy ‘Italian spumante by Verdi’, 4.8% alcohol Fresita with strawberry from Sparkling wine 97% with strawberry pulp 3%, $14.00 for 750 mls VCG S.A., Santiago, Chile ‘with natural strawberries’, 8% alcohol (Fig. 4 pack x 175 ml @ $14.00, 2.2.4) single $4.00. Distributors expect fruit wines to appeal to consumers due to their exotic flavours, flavour profiles, tropical aspect and the wide range of fruits used. Suggestions for differentiating the wines at the point of sale were by the specific fruit used; a list of the fruits; description of a more definite flavour than grape wines; or a new universal logo such as ‘100 per cent single fruit’, ‘50 per cent grape and 50 per cent fruit’ and ‘under 10 per cent fruit’. When asked what effect fruit type might have on quality image, distributors suggested apple, pear, mango, plum, lychee and raspberry wines would give a higher quality image, and apple, cherries, guava, mango, oranges, mandarin, pineapple, watermelons and ‘tropical’ would convey a lower quality image. One distributor suggested that using cheaper fruits could undermine positioning of the category. They suggested full flavoured fruit wines from fruits such as mangosteen and mango in a range of dry to sweet; dry lychee, mango and lime wines; strawberry; sparkling apple wine and pear dessert wines bottled like ‘the pear in the bottle brandy in France’, and a medium-sweet grape wine blend in a standard wine bottle. One recommended being guided by customer demand. A large retailer saw mango wine as having a tropical image, lychee as a fruit ‘people love or hate’, jaboticaba wine with potential as a differentiated product with a story, and wines from Australian native fruits likely to appeal if customers were sufficiently informed. A small Cairns retailer expects that as Europeans drink plum wine they would accept Davidson plum wine. When respondents to the consumer survey were asked to choose three wines to try, they usually started with a mainstream tropical fruit wine but quickly moved to lesser known fruits. While the most popular wines were lychee and mango, there was strong interest in exotic and Australian native fruit wines, fortified wines from exotic fruits, and liqueurs (Table 2.2.9). The specific fruit had at least some importance to three-quarters of respondents, and some respondents commented that they would probably only try fruits they knew and liked (Table 2.2.10). This suggests fruit type should be indicated on the label, at least in the description. Some grape wine labels have recently included fruit images. For example, Jacob’s Creek’s ‘Three Vines’ labels feature images of the grape variety used (Fig 2.2.7); while Coles’ home brand ‘Vino Gusto’ labels depict the fruits that the flavour of the wines emulate (Fig 2.2.5).

12 Table 2.2.9: Consumer survey – unprompted selection of wines for tasting Wine 1 and number of Wine 2 and number of Wine 3 and number Most popular choices responses responses of responses Mango wine 8 Lychee wine 5 Lychee wine 5 Lychee 17 Lychee 7 Davidson plum 5 Cream liqueur 4 Mango 13 Lime 5 Mango 4 Coffee liqueur 4 Cream liqueur 9 Black sapote port 3 Cream liqueur 3 Bush cherry 3 Black sapote port 9 Passionfruit 3 Jaboticaba 3 Passionfruit 3 Passionfruit 8 Dragonfruit port 3 Lime 3 Jaboticaba 3 Lime 8 Bush cherry 2 Dragonfruit port 2 Davidson plum 1 Dragonfruit port 8 Coffee liqueur 2 Passionfruit 2 Dragonfruit port 2 Jaboticaba 7 Cream liqueur 2 Mango port 2 Pineapple 3 Coffee liqueur 7 Tropical fruit blend 2 Decadence 2 Black sapote port 1 Davidson plum 6 Jaboticaba 1 Black sapote port 2 Feijoa 1 Bush cherry 6 Lime & chilli 1 Bush cherry 1 Lime & chilli 1 Pineapple 5 Pineapple 1 Coffee liqueur 1 Mango 1 Feijoa 1 Lime and chilli 1 Pineapple 1 Note: shading indicates around 50 per cent of responses. Source: Consumer survey (51 respondents) Table 2.2.10: Consumer survey - importance of the type of fruit used Somewhat Neither important Total Characteristic Important important nor unimportant Unimportant respondents Age Under 25 2 0 0 0 2 25-35 1 2 0 1 4 35-55 14 4 2 6 26 55 plus 6 1 0 3 10 Sex Female 18 2 2 8 30 Male 5 5 0 2 12 From where Local 17 6 2 10 35 Non-local 6 1 0 0 7 Total respondents 23 7 2 10 42 Source: Consumer survey (42 responses) Trade interview responses identified strong demand for sweet fruity drinks, as demonstrated by the success of Two Dogs alcoholic lemonade and RTDs, and the preference of younger wine drinkers, particularly young women, for sweeter fruitier styles such as Sauvignon Blanc, Crouchen Riesling, Traminer Riesling and Muscato. Sauvignon Blanc sells particularly well because it has a dry style that suggests ripe fruit, pungent aromatics and lack of complexity, and because it can be consumed without food due to its low acidity compared with wines such as Riesling. As the palate matures, drier and more bitter drinks are requested. Fruit wines will need to respond to this if wishing to make inroads into this market by reduce their sweetness if they are to appeal to consumers and overcome the prevailing misconception that fruit wines are always sweet. It was also revealed by trade interviewees that restaurants require lighter, drier wines that will not overpower the food. However, wines with some sweetness were expected to appeal to the key potential market of novice drinkers more than very dry fruit wines. In the consumer survey, 43 per cent of respondents preferred very or somewhat fruity wine, mostly women (70 per cent) and locals (83 per cent), but less so the 25−35 year old age group (20 per cent). Respondents often tried to choose wines that met their preferred level of sweetness. When asked to indicate the degree of sweetness they preferred in wines on a scale from sweet to dry, a quarter chose

13 sweet, and a third somewhat sweet. This applied more so in men and the 35−55 age group (Table 2.2.11). Table 2.2.11: Consumer survey – preferred degree of sweetness in alcoholic drinks

Sweetness Dryness Characteristic Neither Very Sweet Somewhat Somewhat Dry Very Total Age Under 25 0 0 0 0 2 0 0 2 25-35 1 0 0 0 1 1 1 4 35-55 7 1 5 5 6 6 1 31 55 plus 2 0 0 1 4 0 2 9 Sex Female 6 0 3 5 9 6 4 33 Male 4 1 2 1 4 1 0 13 Total 10 1 5 6 13 7 4 46 Source: Consumer survey (46 responses) Respondents commented that: ‘the wines are good, once you get over the stigma of too sweet, although I know the wines are not sweet’, and ‘many fruits are sweet, which suggests sweet wine’. When asked what information they would need if buying the sample wines, most respondents specified taste, fruit type, and sweetness (Table 2.2.12). Table 2.2.12: Consumer survey – information needs regarding tropical fruit wines Age Sex Information Under 25 25-35 35-55 55 plus Female Male Responses A tasting 0 1 13 3 10 2 17 Sweetness 0 0 5 2 5 0 7 Fruit base 2 0 3 0 1 1 5 Taste description 1 0 3 0 2 0 4 Place of origin 1 1 2 0 1 0 4 Price 0 0 3 0 2 0 3 Alcohol 0 1 2 0 0 1 3 Preservatives 0 0 1 0 1 0 1 Source: Consumer survey (40 respondents) Distributors were asked to rate key fruit wine products on perceived quality from 1 to 7. The number of responses was multiplied by those ratings in order to rank the products. This indicated that they viewed tropical and other fruit wines as medium quality compared with other drinks (Table 2.2.13). Table 2.2.13: Distributor survey – quality rating for alcoholic fruit drinks Rating Total score Drink category Low Medium High (score X rating) ‘1’ ‘2’ ‘3’ ‘4’ ‘5’ ‘6’ ‘7’ Ciders 0 0 2 0 3 2 0 33 Fruit wine liqueurs 1 1 0 2 1 0 2 30 Tropical fruit wines 1 1 2 3 1 0 0 26 Fruit wines 2 1 1 2 2 0 0 25 Fruit flavoured wines 3 1 2 1 1 0 0 20 Fruit ports 2 1 1 0 1 0 1 19 Coolers 1 1 1 1 0 1 0 16 Fruit flavoured RTDs 4 0 1 0 0 0 1 14 Total 14 6 10 9 9 3 4 Av 22.88 Source: Distributor survey Distributors suggested using gold medals to promote fruit wine’s positive attributes. In the consumer survey a third of respondents, mostly men aged 35−55 years, saw medals as an ‘important’ guide when buying wine, and a fifth as ‘extremely important’. Men also commented that: ‘I would consider the wines if buying a premium product for gift’, ‘medals provide the only orientation for a new wine type

14 like this’, ‘medals can give false importance’; and ‘medals are no use unless one understands the (judging) system’. Two women said they do not look for or at medals. Another consumer survey found that 42 per cent of respondents were more likely to choose a medal-winning grape wine (Levine 2004). Northern Queensland hotel and restaurant operators interviewed had little if any experience of fruit wines, but declined to taste samples offered at meetings, doubting that the wines would appeal to their clientele. Some said they evaluated all grape wine samples at staff tastings, often as a training session, and it was suggested that producers have their salesperson give a presentation to the decision-maker such as the food and beverage manager, then leave the wines for a staff tasting. A large hotel receives up to 30 samples a week from sales representatives. Decision-makers have extensive experience in grape wines and producers will need to develop a favourable image of fruit wines in this sector through tastings and education to overcome existing biases and negative experiences before these buyers will consider these wines for their customers, and to provide samples and training for service staff. Trade interview responses identified strong consumer demand for healthier drinks, with low alcohol, low kilojoules, a source of nutrition, and claims of health benefits. Fruit wines could be differentiated at the point of sale by describing them as ‘pure’ or ‘natural’ (but not mentioning ‘juice’), as ‘organic’ if from organic fruit, and on ingredients such as herbs, but need to be distinguished from non-alcoholic health drinks. In the consumer survey the 56 per cent of respondents who considered healthy ingredients in wine to be important were mostly women aged 35−55 years. A retailer and a sommelier have observed some demand in organic, biodynamic and preservative-free wines (which have a short shelf life) from consumers who have had physical reactions to chemicals in wine. It was suggested that such reactions are more likely where large corporate producers use excess sulphur dioxide, particularly at the lower quality end, to protect grapes being transported long distances from vineyard to winery, compared with producers of premium wines who hand-pick and immediately process the grapes. Distributors also foresaw potential for organic fruit wines and fruit wines without added sugar or preservatives, provided they were distributed beyond organic stores. In the consumer survey eight people aged 35 years and over expressed concern about additives and preservatives, and two would prefer organic wine. These findings indicate the promotion of production processes that minimise the use of preservatives. Most tropical fruit wine is still, with some sparkling mango wine. All imported fruit wines and most fruit-flavoured bottled products observed were sparkling. Sparkling wines have held a nine per cent market share of the Australian grape wine market since the mid−1990s. Tropical fruit wines range widely in colour, depending on the fruit used and distributors expected good colour to appeal to consumers. Red wine outsold white wine in Australia in the ten years to 2005−06, although health claims for the polyphenol in red wine may have contributed to this growth. Kosher wine has limited markets with demand only at times such as before Jewish Passover (trade interviews). Trade interview responses predicted a major barrier for fruit wines to be that potential consumers and distributors will not take them seriously due to a prevailing image of low quality and flavour from current and past poor quality fruit wines, and may price them lower than for grape wines. Distributors commented on ‘low quality wine at $15.00−$30.00 a bottle, which wine drinkers are not really interested in’; ‘country craft, sweet, daggy, for tourists’ and ‘a gimmick’. One retailer observed that selling fruit wines in local markets gave them an image of ‘kitsch and touristy’. Some distributors and a sommelier commented that fruit wines are misunderstood and that quality is often very good. It was recommended that this perception could be overcome by focussing on a specific market, developing and designing suitable products for it, winning medals at shows, and providing consumer education, especially tastings. Wineries succeed through their local communities supporting and promoting local products, which requires local people to have faith and pride in the product as a reflection of their community, so quality must be maintained.

15 There are no industry quality standards for tropical or other fruit wines, and Australia’s food and wine standards include fruit wine with all flavoured grape wines. Developing trade and consumer confidence will require a combined industry effort to establish and maintain quality standards across the tropical fruit wine category, and ideally for all fruit wines. This could start with devising a quality certificate for any wine that is free of the basic faults that would make it undrinkable, which could be modified as the industry develops, in accordance with the quality levels outlined in Appendix B. Wine competitions will raise the quality benchmark by establishing quality parameters, rewarding quality focussed producers, and providing trophies and medals as a guide to quality for early purchasers. The fruit wine industry should also continue to draw on the grape wine industry’s extensive body of technical knowledge and keep up with the latest technology through wine-making courses and quality winemaker consultants. Using an established fruit winemaker to teach others can lead to stagnation; producers will need to continue to advance to compete in the ever-evolving drinks industry. Trade interviews emphasised that good packaging and labelling will be essential for the wines, and labelling will need to communicate that it is fruit wine. Use of traditional wine bottles and labelling signifies that tropical fruit wines are quality table wines, so the wines will need to attract interest from people who are already knowledgeable about and interested in wine, such as chardonnay-drinkers. Most tropical fruit wineries offer gift boxes or bags. Retailers expected gift boxes to appeal mainly to the tourist market. Respondents to the consumer survey saw tropical fruit wines as a suitable gift for birthdays, special occasions and visitors, indicating wider potential for gift-packaging. One retailer commented on the need for table wine drinkers to want the wines, maybe for an occasion such as a party, indicating the use of dramatically different packaging to differentiate fruit wines at the point of sale. Packaging can be used to attract specific sectors. For example, RTD drinkers drink from bottles rather than glasses, including in hotels and nightclubs, so to consider fruit wines they would need a more appealing pack size than a 750 ml bottle. A further example is that of Yellowglen, which has positioned its sparkling strawberry flavoured Dusk wine both as a wine in 750 ml bottles and as an RTD in 250 ml bottles, sold in the RTD section of liquor stores. People aged under 40 years are most influenced by packaging and labelling (Levine 2004). Large wine manufacturers are focussing on young drinkers with bright packaging, messages about having fun, and product names to position wine in young lifestyles such as Simeon McGuigan's Crocodile Rock (Canaider 2004). The consumer survey showed that most people liked the traditional wine bottles, ‘just like normal wine bottles’. However, one respondent said these bottles did not indicate ‘fruit wine’, one called them boring, and a third suggested that they would not attract tourists. Opinions on the fortified wine bottles (traditional squat shapes for ports and tall and narrow for liqueurs) were more divided but generally favoured a classic, straight liqueur bottle. Almost all were satisfied with the 750 ml size for wine. While clear bottles would show the wine colour, their use is contra, indicated by the industry experience that darker bottles such as antique green convey a higher quality image, while wines in clear bottles have traditionally had a low priced image. Most grape wine sales are of one or two bottles at a time, except where stores promote discounts for a dozen bottles. Older, retired people often buy cask wine. Large retailers prefer six bottle cartons rather than 12, to meet workplace, health and safety requirements. A retail audit observed a growing range of containers for wine, with novel bottle shapes, cans, metal bottles, small softpacks, and pouches in various sizes. Most tropical fruit wineries use screw-caps, which wine-drinkers have widely accepted, and have proven to create fewer problems than corks. It was suggested that novel closures would attract attention and differentiate the wines. A Cairns liquor retailer recommends that labels clearly indicate what the fruit is, ideally as a symbol rather than the fruit itself. Tourist customers rarely read labels, and Japanese customers, the main buyers of fruit wine, need to be able to understand what the wine is from the label. Labels should also promote the positive attributes of the fruit wines.

16 Retailers and distributors advised that labels should be classy and exude quality, and look like wine labels rather than rural ‘country craft’, particularly for the key potential market of young women of eligible drinking age. Examples of quality labels include a South Australian fruit wine that conveys a premium image at $14.00−$45.00 a bottle, and some New Zealand fruit wines. Tourist oriented labels appeal to Japanese tourists but are unlikely to attract Australians. ‘Critter’ labels (with animal images) do well overseas but not with domestic customers. Modern labels on tropical fruit wines do not suggest traditional wines but their positioning is uncertain. There is a risk that consumers will not recognise products with traditional labels as fruit wines, so labels will need to inform customers that the product sitting on a wine shelf is fruit wine. There are no leading brands in fruit wine in Australia or elsewhere, and trade and consumer interviews in northern Queensland found almost no recall of brands, even when the person interviewed had visited the winery or seen its recent television advertising. Young, appropriately aged, novice drinkers are highly influenced by brands as a guide to quality (ABC News Online 2001). On the potential for a regional brand, distributors and large retailers observed that northern Queensland’s fruit wine industry has little if any profile outside the region. Regionality gives heritage to wines over $10.00 to give customers a reason to pay more; otherwise the wines will compete directly with imported wines and other drinks. Also, a regional brand would provide a common identity and representation for all fruit wine producers, which would enable a more comprehensive market focus. A regional brand is very important for grape wines as it indicates quality of fruit source and so reflects certain qualities common to all wines from that area. For example, ‘Marlborough’ is synonymous with Sauvignon Blanc, and ‘Coonawarra’ with fine reds. Fruit wines should reflect the quality of the best fruit-growing regions, and be made from the best fruit suited to that region such as mangoes from Australia’s ‘Top End’. However, one distributor saw geographical indicators as confusing consumers, and only of concern to serious drinkers. In the consumer survey only a third of respondents saw place of origin as important for these products, mainly men aged 35 years and over. Additional comments were: ‘prefer local wines’, ‘prefer Australian and New Zealand wines’, ‘would buy Australian if the price is the same’, ‘place of origin is important if for a gift’; ‘visitors like to try the local products and industries’, and ‘origin is not important yet as the products are unique, but will be later on’. The Australian grape wine industry has developed and maintained strong brands recognised by consumers in domestic and export markets largely by establishing quality standards, geographical indicators, product ranges, distinctive labels, promotion of brands and product attributes through point of sale material, advertising, wine media and sommeliers.

Pricing

Australian tropical and other fruit wines generally retail at $18.00−25.00 a bottle, while an imported strawberry wine retails at around $17.00. Domestic and imported flavoured grape wines from large manufacturers with economies of scale range in price from approximately $5.00−14.00. Fortified domestic tropical fruit wines are typically $25.00−35.00. A retailer observed that current fruit wine prices indicate a focus on tourists rather than regular drinkers. One large retailer predicts sales will stay small at $20.00 a bottle, regardless of high quality, due to strong competition from flavoured wines at around $10.00. Another doubted its stores could sell any fruit wine at $20.00, as its customers are unlikely to try a wine priced at $16.00 or over. The retailer advised that 92 per cent of its wine sales are under $16.00 (average dollar sales across the category), much of which is $21.00−22.00 wines on special. Its best-selling fruit-flavoured wine is Fresita Sparkling, which retails at $8.00. Distributors suggested recommended retail prices of $10.00−15.00 for wine, $10.00−20.00 for fortified wines and $15.00−20.00 for liqueurs. However, they felt the market would decide the optimum price, which can be tested through consumer research, and advised that strategic pricing will be needed to achieve sales.

17 When the consumer survey asked respondents what they usually pay for a bottle of wine, most said at least $15.00, and more than half pay $20.00 and higher. Most expected to pay the same or more for fruit wines, with willingness to pay more than $15.00 (Table 2.2.14). Table 2.2.14: Consumer survey – price expectation for tropical fruit wine products $10 & Can’t say/ Total Age group under $10–$15 $15 $15–$20 $15–25 $20 $20−$25 $20–$30 don't know Under 25 1 0 1 0 1 0 0 0 0 3 25-35 0 0 0 0 0 1 0 0 0 1 35-55 3 5 2 1 2 3 0 4 3 23 55 plus 1 1 0 0 3 2 0 0 2 9 Total 5 6 3 1 6 6 0 4 5 36 Source: Consumer survey Sample prices for a glass of wine in Cairns are $5.00 in a nightclub (against $6.00 for basic spirits and $7.00−9.00 for RTDs) and leisure clubs, and $6.00 and higher in restaurants. These wines are only expected to sell by the glass. Cairns restaurant mark-ups vary, with examples being between 200 and 400 per cent (at 400 per cent an $8.00 bottle would sell for $32.00). A Cairns nightclub expects a gross profit of 75 per cent on drinks, and more on RTDs. A retail store puts a ten per cent mark-up on wines in promotions and up to 35 per cent for premium wines. Several distributors used discounting when introducing new products and this strategy was suggested for fruit wines to penetrate existing markets and gain market share. Various studies show that pricing, such as discounts and specials, is particularly influential when targeting the under 40 years of age purchaser (Levine 2004). Pricing incentives such as ‘buy five get six’ are effective for motivating and increasing sales. To position tropical fruit wines in a similar retail price bracket to premium grape wines will require demonstrating higher value, such as highly regarded fruits, the quantity of real fruit in a wine (such as the number of mangoes), to compare with low priced flavoured wines, trophies, medals, consistent quality, a regional brand linked to quality fruit production, and a new standard for fruit wine with parameters that ensure quality. Increased production and sales will enable more efficient production and freight systems to reduce costs and improve price-competitiveness. Most consumers are only familiar with the mainstream fruits used, which are in much greater supply than exotic and native fruits. This indicates an opportunity to anchor a product range with high volume products from mainstream fruits at lower prices. This is to encourage everyday, moderate drinking and a premium for low volume exotic and native fruit wines for variety, novelty and special occasions.

18 Distribution

The main distribution channels for wine in Australia are summarised in Fig 2.2.2.

Vineyard Fruit farm

Grape winery Fruit winery

Distributor Manufacturer’s agent, auction Wholesale house, commission r agent, broker

Retail chains, Restaurants, Hotels, Mail Satellite Winery duty free clubs, pubs, clubs, order, stores cellar Airlines, stores, airport winebars resorts website door cruises stores

Party plan

Consumer

Fig. 2.2.2: Australian distribution channels for wine Sources: Distributor survey, trade interviews, producer interviews Most tropical fruit wine is sold by the wineries and through their Internet and mail order services and outside retail outlets, with some sales in a few tourist and airport shops, restaurants (usually mango wine), bars, festivals, and farmers’ markets. Temperate fruit wines are mostly sold through similar outlets, the more sophisticated farmers’ markets, local liquor stores, and convenience stores where state laws permit. Woolworths sell a local mango wine in selected Northern Territory stores. Direct sales are more profitable for smaller wineries that are exempt from the wine equalisation tax. These smaller wineries can sell most products through their own outlets but expanding outside local markets require distributors. The 15 respondents to the distributor survey were involved in a number of distribution channels. All supplied restaurants and wine bars; most supplied state and regional retail chains and independent stores; hotels, clubs and conferences; and half handled national chains liquor barns and department stores. One was a manufacturer’s sales branch, one was involved in a hotel, another in a liquor store, five supplied other wholesalers and distributors, and one supplied retail buying groups, while two exported. Eight belonged to a marketing group or co-operative, such as IBA-Bottlemart and Liquormart; and one had shared a customer service account centre with other distributors. Some had temperature controlled warehouses; some had transport vehicles ranging from prime movers with trailers and trucks to air- conditioned vans and purpose built vehicles. Others contracted out warehousing, transport and delivery to freight companies. Their percentage margins ranged from 10−35 per cent; with the majority being 30 per cent. Most were prepared to handle volumes of less than a pallet. One commented the consignment would need to be presold; another that this suits slow-moving expensive products such as premium, rare or museum fortified Tokay or Muscat. One handled a minimum of a pallet due to freight charges.

19 The distributors were only aware of fruit wines in their local region (northern Queensland, Northern Territory and Tasmania), with most not knowing of any fruit wines. They were divided on whether they would handle fruit wines in the future. Seven of the 15 were interested in receiving more information on fruit wines. On reviewing a list of possible outlets for tropical fruit wines, they recommended (in descending order by number of recommendations) - 1. Retail sector: national retail chains, specialist liquor stores, small bottle shops, liquor barns, duty free outlets with strong tourist sales, airports, niche international hotels and tourist areas. 2. Food service sector: restaurants, cafes, hotels, wine bars and cocktail bars. 3. Entertainment sector: sports venues, sporting clubs, leisure clubs and RSL clubs. 4. Tourism sector: harbour cruises (including Sydney Harbour), guest houses, bed and breakfasts, backpacker hostels, resort hotels, tourist hotel restaurants, tourist bars and ocean liners. They suggested using: liquor distribution channels; alternative niche-focussed boutique wholesalers serving a more adventurous market and client base; specialised agent; and using specified alternative hotels, health conscious cafes, organic shops and the Internet to reach young drinkers aged 18–25 and blue collar workers. One warned of resistance from wary retailers. Coles and Woolworths sell an increasing number of domestic and imported fruit flavoured wines in order to offer a wide range. Coles sells imported fruit wine from Germany, with potential to introduce tropical fruit wines gradually, starting in northern Queensland and Brisbane, and moving from the tourist market to Australian consumers. They have three national retail divisions for alcohol beverages: • 1st Choice: These large format stores focus on all demographics with best quality drinks. Stores are mostly in Queensland, and increasing through the conversion of former Liquor Barns. If a new product sells well in a 1st Choice store, it is extended to other stores. An example is a German fruit wine now sold in Queensland. • Vintage Cellars: Stores cater to a very specialist metropolitan market with edgy, different and differentiated high quality products that offer value for money. The division continues to introduce numerous new products to the Australian market, but not mainstream products from major brands. • Liquorland: These stores stock a limited range of popular brands and extensions of known products. Fruit wines would only suit Liquorland if store-specific. Stores require volume turnover so new products need to succeed quickly. Woolworths operates several Dan Murphy’s and BWS outlets in Queensland; Dan Murphy’s, Federal Hotels and Woolworths outlets in other states; and some independent stores. Their outlets are primarily convenience stores. Stores carry major grape wine brands; regional brands, such as Western Australian wines sold in that state; and some stores carry local wines which would not sell outside that area, such as mango wine in the Northern Territory. Customers generally select quickly, wine being a low involvement purchase, so the challenges for fruit wine producers will be to communicate that these are new products to the customer and to provide tasting in a self-selection environment. A large retailer observed that the Queensland wine industry is in its infancy compared with other states and that the chains have made wines affordable and provide displays. One large retailer noted that with the constraints of a bottle shop a supplier needs to know when to enter a new product which must perform for 12 months to justify the space. The question is when will be the right time for these wines? An independent liquor store in Cairns specialises in wines outside the main lines stocked by retail chains, including trophy winners, recommended wines, and wines sought by regular customers. Products need to sell well to be retained. This store stocks local mango wine and fortified wine, which sell well to tourists but not to serious wine drinkers. They have tried to sell other local fruit wines. It has discontinued tastings for fruit wines due to mixed reactions from shoppers. The store also has

20 good sales of mango liqueurs such as Mango Ricco and imported lychee liqueurs. The owner expects passionfruit wine to appeal to overseas tourists given that the very popular Sauvignon Blanc has passionfruit characteristics. The consumer survey found almost all male respondents and two-thirds of the female respondents purchased wine from bottle shops, some women also used liquor barns, only three used mail order or wine clubs. None bought via the Internet. A few occasionally purchased wine at markets and wineries. Most expected to find tropical fruit wines at bottle shops, markets, or wineries. Only five respondents, of various ages, suggested selling through a website. One respondent suggested selling through airport shops and another respondent suggested wine magazines. Restaurants are major outlets for wine, introducing customers to new wines, and promoting wines through introductory tastings, wine lists, specials boards, display material and staff recommendations. However, a distributor warned that restaurant buyers’ attitudes may be too established in favour of grape wines to consider fruit wines. Interviews with Cairns hotel and restaurant wine buyers found little interest in, or prospects for, tropical fruit wine. Most were only vaguely aware of local fruit wines, and had not tasted them although some had tasted fruit wines elsewhere. A few tourist hotels and restaurants stock local mango and passionfruit wine, but rarely have it on the wine list. One restaurant was interested in trialling fruit wines for its tourist and local customers and one was seeking a distinctively labelled local wine for its large Japanese clientele, but most saw no potential as their customers were not asking for fruit wine or local wine, did not expect to find local wine in northern Queensland, and were unlikely to risk buying a wine that might not suit their meals, even by the glass. A resort food and beverage manager doubted its mostly international clientele would buy these wines for quaffing, or buy them from a wine list, so staff would need to push the wines, which would probably require offering them sales incentives. However, he saw potential as aperitifs and in dishes such as desserts, particularly as the hotel’s executive chef prefers local ingredients. One Cairns leisure club doubted fruit wine would appeal to its regular clientele of beer drinkers or its function market which usually orders sparkling wine, while another sells tropical fruit wine in its bottle shop but has experienced little demand for bar sales. The manager and sommelier for a group of restaurants, cafes and retail outlets in inner Melbourne has a favourable perception of fruit wines, having judged very good quality Victorian wines at wine shows. He has not sold fruit wine but sees potential for fruit wines such as lychee in the group’s Thai restaurant. The business buys Australian and imported wines through distributors, imports directly from Europe, buys directly from small businesses such as boutique and new wineries, and has its own centralised warehouse. The sommelier assesses new products for these start-up producers, seeing 100 wine samples a week. The group usually buys wine by the pallet, but will handle small quantities of wines that are difficult to obtain. The manager of a small Melbourne beachside restaurant and bar saw potential for fruit wines for its local and visiting international customers, who do occasionally ask for fruit wines. The manager of a trendy Brisbane restaurant in an inner suburb dining precinct saw no potential for fruit wines, believing its customers seek a safe predictable European-style dining experience with comfort food, mostly Italian and modern Australian, and would not experiment with new drinks such as these. To access the restaurant sector, tropical fruit wine producers will need to demystify the wines to restaurant managers and staff so that they in turn will be confident to demystify them to the consumer. Producers can provide food matching advice on labels and through staff training, wine samples to test on staff and consumers, promotional material to attract attention, and products from well known fruits. As awareness and demand grows for fruit wines, restaurants and bars are likely to introduce them, starting with wines from well-known fruits, staff training, tasting samples and strong sales support. There is more potential initially to introduce wines through chefs, who seek opportunities to offer dishes with a point of difference. While trade interviews suggested focussing on young people through entertainment venues, Cairns nightclub operators have experienced little demand for fruit wine but strong competition for RTDs, so accessing these venues would require strong and ongoing promotion, tastings, and price incentives.

21 Distributors recommended using Internet mail order retailing, particularly to reach 18σ25 year olds, and one uses direct marketing for new product introductions.

Promotion

Tropical fruit wines are mainly promoted through tastings at the wineries and their external retail outlets, local consumer shows and events, winery brochures, winery websites and word of mouth. Fruit wines sold well to departing Japanese tourists at a large Cairns duty free store, provided tastings were given. Winery visitors had often enjoyed fruit wine tastings elsewhere. Awareness of northern Queensland tropical fruit wines is very low across the national marketplace. Distributors observed that fruit wine was not represented or visible in their region, and a national retail buyer had only become aware of tropical fruit wines when holidaying in northern Queensland. Hotel, restaurant and nightclub representatives interviewed in the Cairns region were aware of local fruit wines, and some had noticed television advertisements for the wines, but few had tasted local wines or knew any brands. However, three quarters of consumer survey respondents were aware of local fruit wines, 40 per cent had tasted them, and some had purchased wine (Table 2.2.15). Table 2.2.15: Consumer survey – experience of tropical fruit wines Experience Local Non-local Total Have bought 3 3 Have bought or tried at a winery 4 4 8 Have bought for gifts 2 2 Have tried 11 11 Have seen, e.g. local markets and shops 9 9 Have seen advertising and signage 1 1 Have only heard of them 1 1 Occasionally over the years, such as Bundaberg fruit wines 1 1 Often, in Tasmania, but have not heard of wine in northern Queensland, despite frequent visits 1 1 Have tried local fruit local liqueurs 4 4 No experience 6 2 8 Responses 42 7 49 Source: Consumer survey Low awareness outside northern Queensland indicates a need to promote the area as a wine producing region. Most major wine producing regions have built regional brands for food and wine, usually based on geographical indicators, such as Margaret River, the Yarra Valley and, recently, the Strange Bird trail in the Stanthorpe region, which local and state tourist organisations promote to attract coach tour and self-drive visitors. The peak tourism organisation in northern Queensland promotes its members and members of smaller regional associations under its umbrella. There is potential to include regional food and wine tourism, centred on the Atherton Tablelands as a food-producing hub, in its program of media, chef and other promotions. Key activities can include food and wine experiences, packaged as coach tours, and regional wine trails on maps promoted at the wineries, in visitor centres, on tourism organisation websites and through vehicle hire and coach tour companies. Group displays and industry posters with generic storylines about the local industry and essential information such as opening times could be posted at visitor centres. Group tastings at public locations would build an image of the industry and enable trial of the wines, potentially broadening the market (Giason pers. comm. 2007). Trade interviews identified low consumer awareness and unknown quality, indicating a need for education on shelf life, styles available, alcohol content and food matching. It was recommended that tastings are essential initially to get these products into customers’ minds, such as through sales promotions. Large retailers observed that introducing these wines to new markets would require advertising, media and tastings, handselling, and recommendation by informed and trained staff to entice customers to switch to fruit wines when they came to the store to buy grape wine.

22 Distributors recommended promotions need to involve all levels of the distribution channel, including producers, the industry association, distributors, wine wholesalers and a retail chain. They could be funded and managed by producers as a collective; individual producers; a combined representative group such as an industry association; producers together with a distributor; or producers with government contributions. Wineries seeking to expand will need significant commitment to marketing. According to a large retailer, a tasting across four stores will typically sell 24−36 bottles. Tastings should be held mid-week for people seeking wines to drink at home; Fridays when they buy for parties and events, and Saturdays for wines for parties. These tastings would ideally offer mainstream wines such as mango, lychee or passionfruit, with an exotic fruit wine such as jaboticaba or black sapote, as consumers are likely to move from traditional to more obscure drinks. Fruit wines could also be promoted effectively through party plans, which are used for some grape wine promotions. Hotels and restaurants have tastings as an essential part of business. One Cairns restaurant uses customer tastings and feedback to introduce new wines, and expects this would lead to sales for fruit wines. A Victorian producer commented that tastings are needed to convince consumers to buy because of the variable quality of fruit wines, and that attempts to develop local markets, including through liquor stores, have had little success because of lack of opportunity to provide tastings. A food and beverage manager advised that it is critical that tastings present the wines in the best possible state and context. For example, wines being promoted as an aperitif would need to be served cool and ideally displayed attractively with appropriate foods such as smoked salmon. Producers could increase the impact with giveaways such as a free tour of the winery. It was suggested that producers, ideally as an association, offer group tastings to mass audiences at large local shopping centres, high-traffic tourist areas, and large liquor barns during the peak buying time of 12.00−4.00 pm on Saturdays. Restaurants mainly promote wines on their winelist, with blackboards and table cards for special promotions such as ‘wine of the month’. Tropical fruit wine producers have had little success in accessing winelists as large grape wine manufacturers and distributors often design and produce them for hotels and other restaurants, to favour their products. However, larger businesses such as hotels design their own wine lists to offer a wide choice. Tropical fruit wines could be promoted through information such as table cards until sufficiently established to be on the menu. ‘Wine of the month’ promotions are widely used to introduce new wines and develop demand, and the manufacturer price incentives either passed on to the customer through discounting or retained to maximise profit. A Cairns leisure club uses these promotions to trial and select new wines. A Cairns tourist restaurant saw potential for fruit wines as wine of the month if producers supply high quality point of sale material such as table cards, staff briefings and wine for tastings. If the wines sold slowly initially, some restaurants have equipment to re-gas wine bottles to prevent oxidisation. A large tourist hotel supports wine of the month promotions with tastings and staff sales incentives, and suppliers usually provide a discount of around 15 per cent on pouring wines, but not for wines on the wine list. However, most businesses will only run these promotions for grape wines with strong sales prospects. When asked what information they would need to buy these wines, respondents to the consumer survey mostly wanted to know what taste and sweetness to expect, and occasionally fruit type, place of origin and alcohol content. They suggested providing tastings, or at least a description of taste, food suggestions, advertising, other media promotion, and informed sales staff. Only a quarter said they would or might consider buying a fruit wine without knowing the taste, while 14 per cent were undecided. Knowing the taste would lower the purchase risk, particularly if expensive or for gifts. Most distributors used trade shows and consumer wine shows to introduce new wines and recommended trade shows for fruit wines. Not all shows permit selling. Distributors recommend wine competitions with tastings to create awareness and interest in new consumers. Wine show awards are particularly influential for the under 40s age group (Levine 2004). Australia’s fruit wine industry runs two wine shows most years. The Cairns Fruit Wine Competition, currently in development, uses a panel of professional wine judges and attracts entries from commercial fruit wines across Australia. A Victorian producer commented on the valuable feedback of this commercial focus to commercial producers. Hobart’s longer established Australian Fruit Wine

23 Show organised by Fruit Winemakers (Tasmania) Inc. is open to commercial and amateur fruit wines, with a competition followed by a well-advertised wine tasting attracting approximately 3500 people. The distributors surveyed were usually small businesses with up to 13 staff, mainly in sales. Retail chains also have fine wine managers and staff trained in selling fine wines. A hotel food and beverage manager observed that women often ask advice from their partner or bar staff on what to drink, unlike men. Most respondents to the consumer survey had low confidence in their knowledge about wine, regardless of sex or age. Two thirds sought information from others when buying wine, mainly from sales staff, family, friends, or colleagues, and three took note of media publicity and advertising. Various studies show that wine buyers aged under 40 years, are most influenced by recommendations from retail staff, wine waiters and friends and family (Levine 2004). This indicates a need to educate sales and serving staff when introducing wines. Trade interviews recommended promoting and emphasising the positive attributes of the wines through point of sale material attractive to young, appropriately aged people. This includes brochures attached to the product in bright colours linked to the wine product concept and tropical origins. Information should be focussed, story-driven and quality-oriented, with images and background on the fruits used and their provenance and quality, details of any organic production, and a story to attract people who drink and mix cocktails. A health-oriented display could suit fruit wines. Retail store displays often feature introductory wine displays with signs and other point of sale promotion (Fig. 2.2.7 demonstrates an integrated store promotion in Brisbane). The wines could also be promoted in master cooking classes for use in cooking. Media publicity of fruit wines has been sporadic, mostly local newspaper articles on winery and product launches and tourism awards, with some profiling in Liquor Trade magazine. Most distributors recommended advertising and publicity campaigns to support the introduction of fruit wines to new markets. A national retail buyer’s experience is that publicity for new products through media such as magazines and newspaper lifestyle sections leads immediately to consumer enquiries, and a Cairns liquor store has had enquiries for fruit from local shoppers following media articles. Activities could include media tastings and endorsement by experts in relevant fields such as health write-ups by credible media to reach aimed mainly at young men and women aged 18−25 years, through magazines such as Cleo, Gourmet Wine and Wine Business Magazine. An advertising campaign can be used for the under 40s age group and for experimental consumers buying regular grape wines in independent bottle shops and some restaurants. Distributors suggested developing a ‘champion’ for the fruit wine industry, maybe from the media, such as a popular food critic who is impressed with the whole category; a well-known wine writer or media-savvy chef; fruit winemakers. The ‘champion’ could effectively translate the products’ virtues and put a ‘face’ to the industry. Wine reviews are influential across all markets (Levine 2004). The distributors surveyed read and look out for new products mainly in a wide range of trade magazines, led by Wine Business Magazine and Winestate, with some readership of Divine, Gourmet Traveller, Gourmet Wine, Daily Wine News, Hospitality, Liquor Guide, Liquor Watch, James Halliday and Jeremy Oliver annuals, Thompson’s Wine Industry Directory, Winestate, Australian & New Zealand Wine Industry Journal and Australia’s Wine Business Magazine, and some refer to daily newspapers and newspaper lifestyle sections. However, a large retailer observed that trade readership of liquor trade magazines is low. Public education about the wines’ point of difference was suggested to create customer demand. The Australian wine industry has successfully used education to develop initial demand in new markets through classes, wine clubs and media articles. Northern Queenslanders’ awareness of their local fruit wines is growing through winery visits and word of mouth. Around a third of respondents to the consumer survey visit wineries at least once a year. A Western Australia company has successfully developed dedicated winery tours aimed at the ‘generation X’ consumers aged 27−46 (Martin 2005). Tourism enables producers to promote the attributes of their products and raise awareness and interest in fruit wines through winery tours,

24 signage, and promotion of the region and its wine, food and other attractions. Northern Queensland is featured as a wine producing region on the Tourism Fair Trading and Wine Industry Development wine map for Queensland and on the Queensland Wine Industry Association website. The Queensland Wine Industry Development Strategy acknowledges the potential for the State’s combined wine industry to build the industry and regional brand for Queensland wine so as to support the development of wine tourism. This will require collaboration between producers, producer associations and regional tourism organisations as well as with government agencies (Hynes 2007). Asked about potential model industries that have successfully introduced similar products, distributors and retailers suggested: 2 Dogs Sparkling lemonade; boutique beers; RTDs in a can; the grape wine industry; family wine companies such as Brown Brothers, de Bortoli and Taylors, which are growing faster than large corporate producers; and high quality Australian produce (see Appendix C).

Product positioning

Trade interviews and the consumer survey indicate a number of positioning options for tropical fruit wines, on likely use by consumers and a suitable retail category. The following summarises responses.

By final usage by the consumer

As matched with appropriate foods: This was strongly recommended in trade interviews, particularly for 18–25 year olds who are learning about wine, and considered useful by respondents to the consumer survey. It was suggested tourist restaurants could use wines from quality fruits used by chefs to pair with dishes from those fruits; and that restaurants could serve a 75 ml glass of fruit wine with fruit or with a cheese plate as vintage cheeses are complemented by fortified wines, full-bodied reds, and botrytis wines. Max Allen, wine writer for the Weekend Australian, recommends apple cider with full-flavoured foods such as strong cheeses and roast pork (Allen 2008). As an aperitif: Fruit-based aperitifs are particularly popular with 30−40 year olds, mainly women, who choose drinks such as fruit cups, fruit cocktails, vodka and orange or gin, to avoid becoming bloated before their meal (men usually choose beer). Wines such as passionfruit may be suitable, maybe with ice, but consumers are likely to think of better known drinks when ordering. In restaurant meals: Wines from quality fruits used by chefs, such as Australian native fruits, could be paired with appropriate dishes in tourist oriented restaurants. Liqueurs such as Mango Rico are already used this way. The wines are likely to suit desserts, sauces, salad dressings and poaching. A chef could pair the fruit on a pavlova with the same fruits in the fruit wine, or use an exotic fruit wine as the base for a sauce in a signature dish. As a drink at nightclubs and hotels: Trade interviews suggested this to reach those aged under 25, such as a hotel drink or as a ‘fun female low calorie Friday night drink instead of cheap bubbles’. However, Cairns nightclub operators have had very little demand for wine or response to wine promotions from this market, and fruit wine would compete with spirits, beer and RTDs, which manufacturers promote heavily. One large nightclub restricts its range to a few strong selling lines of wines, premium beers, RTDs, cocktails and basic spirits. To introduce a new product, owners expect an exclusive contract, distributor price rebates, a large promotional budget, point of sale material, and extra discounted stock for a month of tastings to build word of mouth. Owners of a city pub with a trendy bar sell fruit wine in the bottle shop but doubt they would sell from the bar.

As a dessert wine or after dinner drink

In fruit cocktails: Tropical fruit wines could be used as ingredients in cocktails mixed with fruit and juice, starting with popular wines with flavours that consumers know and like. Ingredients need to blend well, and the wines would compete with low priced spirit bases. Usage would depend on the concentration and flavour of individual wines and a subtle wine could be used in large amounts. Cocktails usually contain 60−70 mls of total alcohol volume of 30−40 per cent, which wines cannot provide. However, wine-based cocktails could be made with up to 60 mls of wine (two standard

25 drinks). Mocktails (non-alcoholic cocktails) are very popular, so there is likely to be demand for lower alcohol cocktails. Hotels, restaurants and bars could offer them to comply with Responsible Service of Alcohol laws, and consumers could buy more cocktails while abiding drink driving limits. Fruit wines can be promoted in recipes on point of sale material and websites, and as ingredients in national cocktail competitions. If winners go on to compete internationally the fruit wine ingredients would be promoted more widely. Cocktails are trend-driven, with current trends favouring classics such as sours, and use of high-end liqueurs and culinary herbs such as mint and basil (Crawford per. comm. 2007; Yung per. comm. 2007; Wright 2007; trade interviews). Using fruit wines as a major cocktail ingredient would solve many inherent problems where inexperienced cocktail-makers use too much base spirit, overwhelming the drink. Liqueurs used in cocktails are essentially a mixture of alcohol, sugar, water and a simple strong flavour. Substituting fruit wines for liqueurs can add complexity through attributes such as tannin, fruit acid, glycerol and complex flavours. Using fruit wines will help balance many other ingredients in the final drink if the cocktail-maker understands how to balance them. It can also be used to develop many new recipes. Fruit wines could be customised to cocktail-making with characteristics such as higher flavour, single fruits, more sweetness than current table wines, and higher glycerol production through yeast selection. Also, as fruit wines do not attract liqueur tax, which is currently $57.00 per litre of alcohol, lower cocktail prices can be used to appeal to new markets. As a transition from RTDs to grape wines: Retailers are seeking such a product, hence the growing stocks of sparkling flavoured fruit wines in liquor stores. As a novelty: This was suggested by some distributors and two consumer survey respondents. As a gift: Asked if the wines were suitable for gifts, distributors agreed provided quality was good. 84 per cent of consumer respondents also agreed, particularly the under 35 years of age group. Three had already given them as gifts. Most saw the wines as gifts for special occasions, for friends and relatives, for guests and dinner parties, for overseas visitors and when travelling overseas.

By store category

Retailers felt the wines would be lost amidst the traditional wines section so would need a separate location. Distributors, retailers and consumers were uncertain of the appropriate category and store location for these wines, making several suggestions: As tropical fruit wines: One retail chain buyer saw ‘tropical fruit wine’ as the ideal description, but another felt it would confuse customers. A restaurant wine buyer disliked the term as it suggesting mainstream tropical fruits, and sweetness. When asked if ‘tropical fruit wine’ was the best description for the sample wines, 70 per cent of consumer survey respondents agreed, 19 per cent disagreed and 11 per cent were undecided. Support was across all demographics, but strongest from 25−35 year olds, over 55s, women and non-locals. There were positive comments about the appeal of tropical fruit countered by concerns that wine from tropical fruits implies alcoholic fruit juice rather than wine, or implies sweetness. Tropical is a key point of difference for promotion (Giason pers. comm. 2007). By the specific fruit: Large retailers suggested individual fruit categories, similar to grape wines which are usually sold by grape variety to create and maintain consumer confidence and avoid confusion with grape wines. One suggested separate sections similar to bins in a fruit shop. As fruit wines and liqueurs: A third of the consumers suggested a specific fruit wine section. There is no dedicated fruit wine category in retail stores. With grape wine of similar style: Most of the consumers (all local) suggested displaying with similar styles of grape wines, sweet fruit wines with dessert wines, such as sparkling wines together, and ports with ports. This would raise awareness in shoppers’ buying for specific purposes. With RTDs. The wines could be sold in small bottles as a substitute for RTDs, similar to some sparkling wines. A large retailer strongly recommended this, believing the fruit wines will not sell on their labels on a wine shelf. However, nightclub operators pointed out that there are hundreds of RTD

26 products which sell largely because of quality packaging, and that packaging as RTDs has not succeeded for small bottles of champagnes, despite good promotion, or for Mudslides cream cocktails. Demand is stronger for RTDs with higher alcohol content, such as seven per cent. Other suggestions were: with cider or mead (distributor); on colour or price (retailers); as a gourmet line; in a tropical drinks section, local drinks section, exotic wines section, with liqueurs, gifts and novelties, or at the front of the store (consumers).

Taxes and import regulations and requirements

All fruit and grape wine sold in Australia is liable for Wine Equalisation Tax (WET) of 29 per cent. Australian wineries pay this on domestic sales if their total annual sales exceed $1 million, but exports are WET and GST exempt. WET is also payable on imported wine unless the wine is covered by an exemption such as diplomatic, duty free allowance, or consular allowance.

Fig. 2.2.3: Australian tropical fruit wines Fig. 2.2.4: Fresita fruit flavoured Fig. 2.2.5: Grape wine and Dr Demuth strawberry wine labels wine

Fig. 2.2.6: Sparkling fruit flavoured grape wines Fig. 2.2.7: Promotion of grape wine

27

3. Profiles of overseas fruit wine markets and selection of an overseas market for further research

3.1 Methods

An initial Internet and database search identified numerous countries where fruit wine markets were indicated by fruit wine production and imports of fruit wine products. Country profiles were prepared for countries with larger markets, and brief regional profiles for those regions where substantial trade flows suggest fruit wine markets. This chapter presents brief summaries of the overseas fruit wine market profiles. For detailed profiles see Appendix E. To enable comparison of the markets and selection of the market with most potential for Australian tropical fruit wines, these larger country markets were then rated on market attractiveness and the likely competitive strength of Australian suppliers (Table 4.1). Market attractiveness was assessed on market size; growth; demand and demand trends for fruit wines and similar drinks; the existence of current and potential market segments reachable with distribution and promotion; consumer purchasing capacity; intensity of competition from fruit wines and substitute drinks; access to distribution channels with the infrastructure to maintain product quality; trade barriers; and the effect of import tariffs and various taxes on final price. The likely competitive strength of Australian suppliers was assessed on expected demand for their products and ability to supply, differentiate, meet domestic quality standards and make profitable sales. These market, competitive, financial, economic and technology scores were then weighted using a scale developed by the researchers to prioritise factors considered critical to export success. Table 4.2 shows the total scores for market attractiveness and competitive strength for each of the larger country markets. The scores of the 12 most promising countries on both aspects were plotted on a ‘Market Attractiveness: Competitive Strength’ grid to enable comparison, using circle size to indicate estimated annual sales and market size (Fig. 4.1). This process indicates Japan as having the most potential, due mainly to its consumption, production and imports of tropical and other fruit wines, favourable demand trends, distribution channels for fruit wine, and attractive pricing. A market visit to Japan in July 2007 used product demonstrations and interviews with a cross-section of potential distributors and a store audit to assess the market potential of Australian tropical fruit wines. A complete analysis of the Japanese market is located in Section 4.

3.2 Country profile summaries – Asia

China

China has a very long tradition of fruit wines, and a growing market as domestic supply increases with the development of large commercial factories. A wide range of fruit wines is made from temperate and sub-tropical fruits, ranging from very low in quality and price to high quality higher priced wines. In comparison grape wines were only introduced in the 1970s through a Chinese Government project to shift consumers from grain based local spirits and imported brandy to lower alcohol drinks so as to conserve grain for food. While consumption is growing, mainly by people with higher income and education, many Chinese do not drink alcoholic beverages. Retail prices for fruit wine range from below CNY15 (A$2.35) a bottle for low quality local product to CNY31−50 (A$4.90−7.90) for good quality wines, and more than CNY50 (A$7.90) for high quality local and imported wines. Restaurants sell fruit wines at more than CNY50 ($7.85) a bottle. Import

28 tariffs, value added tax and consumption tax add from A$4.80 a bottle to an Australian wine with a landed cost of A$10.00. Large fruit wine manufacturers typically have distribution centres around China. Specialist import companies handle most imported wine, on behalf of wine distributors, and most private importers and distributors operate under a sub-license from the China National Cereals, Oils & Foodstuffs Import and Export Corporation (CEROILS), the state monopoly wholesaler and distributor of alcoholic beverages. Fruit wines are widely sold in supermarkets and restaurants, and in karaoke bars which are widely used for business entertainment. Most grape wine is sold through restaurants, hotels, bars and clubs, and the rest through a growing supermarket sector, boutique stores, specialist wine stores, discount stores, and wine and cheese shops. Fruit wines are mostly promoted on manufacturer and distributor websites and restaurant winelists, and have access to a number of trade shows. In conclusion, there is a very large fruit wine market with some potential for Australian tropical fruit wines.

Hong Kong

A very small market for fruit wines is indicated by some imports of fruit wines. Grape wine consumption is growing, mainly by expatriates, overseas visitors, Hong Kong citizens returning from living overseas, and middle and Chinese with high incomes. Import tax, VAT and consumption tax would add A$8.00 to a bottle of Australian fruit wine with a landed price of A$10.00. Fruit wines can be exhibited at the annual HOFEX trade show, while grape wines are typically promoted through retailer wine tastings and promotions, wine exhibitions, winemaker dinners, incentive programs and direct marketing. Hong Kong is an important market for Australian grape wine, and a major port for reshipment into China, although trade is shifting to ports in mainland China. Australian grape wine has a sound reputation for consistent quality and value for money. All wine is imported, mainly by import agents who usually supply the retail and food service sectors. In conclusion, Hong Kong has a very small fruit wine market that may offer minor opportunities for Australian fruit wine.

India

India has small emerging domestic and export markets for fruit wines and large tropical fruit industries. A small emerging industry produces fruit wines from tropical and temperate fruits, as well as grape wines and blends with fruit wine and juice. Imports of grape wine from Australia have grown in recent years. India has a legal drinking age of 25 and a Constitution that prohibits intoxicating drinks so does not have a tradition of alcoholic drinks. Grape wine consumption was only five million litres in 2005, but expected to grow with favourable demand trends, the removal of import restrictions and the lowering of import duties (formerly 265 per cent). However, state excises, restricted distribution and poor domestic wine quality will constrain market growth. Sample retail prices are around R150 (A$4.35) a bottle for domestic fruit wine and R799 (A$23.10) for an Italian fruit wine, while grape wine is usually below R500 (A$14.50). Basic customs duty, additional customs duties and VAT can add up to A$37.00 to the cost of a bottle of Australian fruit wine with a landed cost of A$10.00, and State and Federal taxes can also apply. Fruit wineries mostly sell directly or via their websites or mail order. Grape wine is usually distributed by a dozen importers to restaurants and bars, and low priced wines are also sold through government and independent retail stores. Complex regulations over distribution and sale are used to inhibit liquor consumption and protect the domestic wine industry.

29 Fruit wine appears to be promoted mainly on winery websites. Advertising of wine is prohibited, so grape wines are usually promoted through wine clubs, media articles, importer promotions, wine dinners and wine shows. In conclusion, there is a moderately attractive market with potential for Australian branded fruit wines if import and distribution barriers are further reduced.

Indonesia

Indonesia’s fruit and herbal wine market of around nine million litres a year is located mainly in Bali. A small local industry produces fruit and grape wines. Tourists and expatriates in Bali buy most grape wine imported into Indonesia, and most Indonesians abstain from alcohol in accordance with the Muslim religion, so wine consumption is unlikely to grow significantly. Distribution of grape wine is restricted, with most sold through the food service and retail sectors, while promotion is limited to non-public outlets such as duty free stores and restaurants. Imported wines incur import tariffs, excise tax, sales tax, VAT, and regional government and labelling levies. In conclusion, Indonesia has a small regional fruit wine market with minor potential for Australian tropical fruit wines.

Japan

While it does not have a long tradition of fruit wines, Japan has a small emerging fruit wine market which has stabilised after growing consumption in recent years. Annual production of fruit and grape wine is estimated at 215 million litres of wine and 68 million litres of fortified wine, although statistics are likely to include other fruity alcoholic drinks. Key markets for fruit wine included young women and health conscious people. Domestic producers range from small wineries to large breweries diversifying into wine, using temperate and tropical fruits. Small quantities of tropical and temperate fruit wines are imported from a number of countries. Grape wine consumption was 410 million litres in 2005, and has averaged around 3.2 litres per person annually, while growth has been stabilising. Wine drinking has become increasingly popular, although beer and sake remain the most popular alcoholic drinks. Sample retail and internet prices range from A$8.30−19.00 a bottle for fruit wines and A$4.60−17.00 for fruit flavoured grape wines, the higher prices being for imported wines. Fruit wine distribution includes wineries, internet sales, restaurants, bars, a wide range of retail outlets, and catalogues. Wines are promoted via winery and store tastings and producer and distributor websites. Import tariffs, taxes and other fees would add A$2.18 to a bottle of Australian fruit wine with a landed price of A$10.00. In conclusion there is an attractive Japanese market with significant potential for Australian tropical fruit wines.

Malaysia

Malaysia has a very small fruit wine market, largely mainly by a small industry producing wines from mostly tropical fruits for domestic consumption and exports to countries such as Singapore and Japan. While there is a small steadily growing grape wine market, most Malaysian people drink brandy, whisky or beer or abstain in accordance with the Muslim religion. Australia is the leading supplier of imported grape wines, in growing quantities. No retail prices were identified for fruit wines. In 2004, 33 per cent of grape wine sales were under RM30 (A$10.80) a bottle and 46 per cent at RM30−50 (A$10.70−28.00). Import tariffs and taxes would add A$6.50 a bottle to an Australian fruit wine with a landed price of A$10.00.

30 Fruit wines are sold through wholesalers, retailers, winery and distributor websites, and entertainment venues, and promoted mainly on manufacturer websites. Several major importers supply imported grape wine to distributors to liquor stores, restaurants, hotels and entertainment venues, and to large retailers, and trade mark-ups are substantial. Wine is increasingly retailed by mail order. Grape wines are publicised through trade shows, print media and food and wine matching events. In conclusion, there is a small moderately attractive fruit wine market with minor potential for Australian tropical fruit wines.

Republic of Korea

A small fruit wine market appears to be growing, supplied mostly by a small expanding industry producing temperate fruit wines. Grape wine consumption was only 16 million litres in 2004, but is expected to continue growing. Wine is mostly drunk at home or in restaurants, or used for gifts. Korean liquor consumption is amongst the world's highest, averaging 78.1 litres a person in 2005. A local grape wine industry has been shrinking, largely because of strong competition from around 6000 imported wine brands. The most stable and profitable price segments are mid-priced wines in liquor stores, supermarkets and discount stores. Some fruit wine manufacturers retail and promote through their websites. A few licensed liquor importers handle most grape wine imports, usually using their own warehousing and transport, but full vertical integration is prohibited so distribution is generally regional and fragmented. Most grape wine is sold through retail chains, speciality and convenience stores, restaurants, bars and the Internet, and promoted through trade shows and other tasting events and organisations providing wine education. Import tariffs, liquor tax and education tax add around A$7.70 to bottle of Australian fruit wine with a landed cost of A$10.00. High distribution costs and mark-ups can cause the final price to double and more in retail outlets and restaurants. In conclusion, there is a very small fruit wine market with limited opportunities at best for Australian tropical fruit wines.

Singapore

Singapore has a small fruit wine market, and no wine industry, so all wine is imported, including tropical fruit wines from the Philippines, and temperate fruit wines from Canada. A small maturing grape wine market of around 10 million litres a year is maturing and intensely competitive, supplied mainly with red wine from France and Australia. Tropical fruit wines from the Philippines have been retailing in Singapore at A$22.10 a bottle. In 2000 half of grape wine sales were over S$18.00 (A$18.50). Imported grape wine is handled by specialist and general importers, merchants, trading companies, and retailers, and usually sold through retail chains, grocery stores, specialist shops, restaurants, clubs; airline caterers and ship chandlers servicing cruise liners. Promotion is mostly by trade events, tastings and education events, media advertising and direct mail. In conclusion, Singapore has a small moderately attractive market with some opportunities for Australian tropical fruit wines.

Taiwan

Small fruit and grape wine markets have emerged following a Government-sponsored project to develop wine production and wine tourism, and also partial deregulation of wine production. Small quantities of fruit wines are imported, such as berry wine from Canada.

31 Wine is a popular gift, particularly for major events such as Chinese New Year. The grape wine market has been shrinking as Taiwanese businesses relocate to China to reduce costs. Imports have also been shifting from Old to New World suppliers, and increasingly Australia. The wine market is price-sensitive, and competition between large retailers is bringing down prices. Most Australian grape wine retails from A$12.00−30.00 in supermarkets, department and convenience stores, restaurants and nightclubs. Import duty and various taxes add from A$5.00 to a bottle of Australian fruit wine with a landed price of A$10.00. Most fruit wine is sold through producer and distributor websites. Imported grape wines are generally distributed by import agents to large retail chains, restaurants, pubs, hotels, liquor stores, independent food stores and duty free shops. Fruit wines are mostly promoted to domestic tourists at the wineries. Grape wines are promoted through tasting events and media publicity. In conclusion, Taiwan has a small emerging market for fruit wines, with some potential for Australian tropical fruit wines.

Thailand

Thailand’s developing fruit wine market consumed 1.4 million litres of mostly local fruit wine in 2007. An emerging fruit wine industry produces wines from tropical and subtropical fruits and herbs, and has exported these and blends of fruit and grape wine to Japan, Norway, Sweden, Laos and Myanmar, for outlets such as Thai restaurants. A small grape wine market has stabilised at around eight million litres a year, constrained by low consumer incomes and poor wine knowledge. Supply is from local wineries and declining imports, usually from France and increasingly Australia. An example of fruit wine pricing is 320 baht (A$11.90) a bottle advertised on the leading fruit wine producer’s website. Grape wines retail from A$15.00−30.00 a bottle for table wines, and from A$50.00 for premium wines. Import tariffs, excise tax, municipal tax and VAT (reimbursed by the importer) would add around A$9.15 to a bottle of Australian fruit wine with a landed price of A$10.00. Import tariffs will be progressively reduced until 2015. Fruit wine is usually retailed at the wineries or through their websites or mail order services; and by local restaurants and shops. Most grape wine is sold in hypermarkets, international hotels, and higher quality Thai hotels and restaurants. Fruit wines are promoted by the wineries, a government website, and fruit wine competitions and tasting events. In conclusion, Thailand’s emerging and price-sensitive fruit wine market offers little opportunity for Australian tropical fruit wines.

Vietnam

Fruit wines represent around three quarters of Vietnam’s wine market, although there is some shift to grape wine and beer. An emerging wine industry, of small and commercial producers, uses fruits such as lychee, citrus and apricot as well as grapes. Grape wine consumption, mainly by expatriates and tourists, reached 22 million litres in 2005 and continues to grow, although constrained by rising fuel costs, high import tariffs, the introduction of value added tax, and competition from illicit low-priced spirits. Beer provided 97 per cent of liquor sales by volume in 2005. Most wine is imported, mainly from France but increasingly from Australia which supplied 537 000 litres in 2006. Import tariffs, excise tax, VAT and Special Consumption Tax add around A$25.00 to a bottle of Australian fruit wine with a landed price of A$10.00.

32 Producers sell most fruit wine at the winery or through their websites or mail order. Grape wine is handled by import, trading and distribution companies and sold through large retail chains, small shops, hotels and restaurants. Promotion of domestic fruit wines includes producer and distributor websites and an international wine competition. Fruit and grape wines are often promoted as having health benefits. In conclusion Vietnam has a significant but price-sensitive and heavily protected fruit wine market with little opportunity for Australian tropical fruit wines.

3.3 Country profile summaries – North America

Canada

Canada has a moderately sized fruit wine market, mostly of tourists visiting wineries. A growing fruit wine industry consists of both small wineries and large grape wine manufacturers diversifying into new drinks. Most fruit wines are made from apples, berries, kiwifruit and stonefruit to national product and quality standards. Provincial liquor boards usually control wine distribution, pricing and production quotas. Where state laws permit, many small producers sell through their wineries, websites and mail order services. Sample retail prices range from A$11.00−25.00 a bottle. Imported wines are subject to import tariffs, excise tax, GST, levies and provincial taxes. Promotion is mainly through producers’ websites and fruit wine competitions. Grape wine consumption was 358 million litres in 2005, with low individual consumption. Most grape wine is imported, including growing quantities from Australia. In conclusion Canada has a moderately attractive fruit wine market with some potential for Australian tropical fruit wines.

Mexico

Mexico has a price-sensitive market of undetermined size for domestic wines from fruit and other plants such as cacti and palms. Imported fruit wines incur import tariffs, Special Products and Services Tax, VAT and other taxes. While grape wine consumption is growing, imports of Australian grape wine have been falling, indicating strong competition. In conclusion, Mexico’s fruit wine market offers an uncertain opportunity for Australian tropical fruit wines.

United States

The United States has a substantial market for fruit wines, as well as large markets for cider, perry, and blends of fruit and grape wine, and growing demand for fruity alcoholic drinks. Around 200 small producers and a few large manufacturers produce fruit wine, cider and fruit flavoured grape wines. While most fruit wines are from berries and apples, wineries in Hawaii and Florida use similar tropical fruits to the Australian industry. There is also a large and growing grape wine market which reached 2660 million litres in 2005, supplied by a domestic industry and imports, with strong demand for Australian wine, and the Australian brand Yellow tail the market leader. Most fruit wine is retailed directly at the wineries or through their websites and mail order, and some is sold through liquor stores, restaurants and distributor websites. Grape wine is distributed by wholesalers, wine brokers and distributor websites, and sold mainly by supermarkets, liquor stores,

33 bars and restaurants. Deregulation of wine distribution across state borders has improved market access in recent years. Fruit wine prices are typically from A$16.00−25.00 on winery websites. Import tariffs and excise add around $1.10 to a bottle of Australian fruit wine with a landed cost of A$10.00. Fruit wines are promoted mainly through winery and other websites, retail store promotions and fruit wine competitions. In conclusion, the United States offers an attractive market with good potential for Australian tropical fruit wines.

3.4 Country profile summaries – Europe

European profile

Europe has a long tradition of fruit wines, cider and perry which, like grape wines, have been made in the home for centuries, particularly in northern countries too cold for grape-growing. The Association of the Cider and Fruit Wine Industry of the European Union (EU) in Brussels represents the fruit wine industries and industry organisations of a number of European countries, and provides production standards and technical support. The largest markets for European and imported fruit wine, cider and perry are in Belgium, Denmark, Finland, Germany, Ireland, the Netherlands, Russia, Sweden and the United Kingdom. Much of the fruit wine is low priced low quality product from several countries in eastern Europe. Around one million litres of fruit wine were exported from the EU in 2002. Within the EU fruit wines are usually drunk in the home, while cider and perry are mostly sold through the food service and retail sectors. Fruit wines attract similar import tariffs to grape wine, but excise and other taxes vary.

Austria

Austria has a market of undetermined size for local cider, perry, and wines from temperate fruits such as apple, pear and berries. The grape wine market is in decline as Austrians reduce their liquor consumption. Growing conditions suit mainly white wine production so most red wine is imported from New World countries, led by Australia. Fruit wines are mostly sold by wineries and wine taverns. Grape wine is also sold in shops and restaurants, and promoted through tasting events and word of mouth. Import duty and VAT would add from $2.30 a bottle to an Australian fruit wine with a landed cost of A$10.00, depending on alcohol content. In conclusion, Austria’s small moderately attractive fruit wine market may offer a minor opportunity for Australian tropical fruit wines.

Belarus

Wines from berries and other temperate fruits are among the leading alcoholic drinks in Belarus, particularly for people on lower incomes. A large fruit wine industry produced 18 million litres in 2005, and includes some large wine and spirit manufacturers of berry and grape wines, often fortified. Consumption is expected to grow as the Belarus Government plans to increase the production and imports of natural fruit and berry wine. From 2002−05 imports of fruit wine related products doubled to 28 million litres. While the government is trying to persuade consumers to switch from fortified fruit wines and vodka to lower alcohol beer to counter high levels of alcoholism, consumption of local and imported grape wine is growing. A domestic grape wine industry produces mostly ‘special fruit wine’ made from dry

34 and fermented grape concentrate imported mainly from other eastern European countries due a lack of local grapes. In 2006 imports of grape wine included 18 100 litres from Australia. In 2007 retail price ranges ranged from BYR4000− 8000 (A$2.24−4.48) a bottle for local berry and fruit fortified wines and BYR11 000−32 000 (A$6.16−17.92) for imported grape wines. Restaurants usually sell a few wines from BYR22 000−111 000 (A$12.32−62.15) a bottle. Liquor distribution is confined to state-controlled kiosks, state food shops, and universal shops in outlying villages, giving little access to illegal and counterfeit products, unlike in neighbouring Russia. However, modern retailing is emerging. In conclusion, Belarus has a substantial but price-sensitive fruit wine market offering limited opportunities for Australian tropical fruit wines.

Belgium

Belgium has moderate sized fruit wine and cider markets consuming mostly local product. Combined tariffs, excise and VAT would add from A$3.00 to a bottle of Australian fruit wine with a landed price of A$10.00, depending on alcohol content. A substantial and growing grape wine market consumes mainly imported wine including growing quantities from Australia of mostly red and bulk wine. Most grape wine is sold by large retail chains. Beer remains the most popular alcoholic drink, including fruit beers made from wheat, malt and fruits. In conclusion, Belgium has a moderately attractive fruit wine market with uncertain potential for Australian tropical fruit wines.

Bulgaria

Bulgaria has substantial markets for low-priced fruit and grape wine supplied by a domestic industry. Product quality has been poor but is improving. Most people cannot afford to buy imported wines, although demand is growing for quality wines following media and retail promotions and expanding distribution, and imports in recent years have included small intermittent quantities of fruit wine products from Australia. However, the leading alcoholic drinks remain beer and spirits. In conclusion, Bulgaria has a price-sensitive fruit wine market offering little opportunity for Australian tropical fruit wines.

Denmark

Denmark has one of Europe’s largest markets for fruit wine and cider and a domestic industry producing mostly berry and cherry wines and cider. Grape wine consumption was 180 million litres in 2004 and growing as consumers shift from beer. All grape wine is imported, mainly from Europe but some from Australia. An example of pricing is a cherry wine advertised on a distributor’s mail order website at US$12.99 (A$17.25) a bottle. Import tariffs, excise, VAT and bottle tax add from $4.40 to a bottle of Australian fruit wine with a landed price of A$10.00, depending on alcohol content. Wholesaler and retailer mark-up is around 20 per cent, but restaurant mark-ups can reach 300 per cent. The grape wine market is very price sensitive. Most importers handle Australian grape wine. Most wine is sold in retail chains and speciality stores, and some in hotels, pubs and restaurants. Advertising and other promotion of liquor is restricted, and wine trade shows are often used for promotion. In conclusion, Denmark has a moderately attractive fruit wine market offering a minor opportunity for Australian tropical fruit wines.

35 Estonia

Estonia has a long fruit wine tradition, a substantial fruit wine market and a growing cider market. Large industries produce fruit wine and cider from temperate fruits such as berries, apples and pears. Import tariffs, excise and VAT would add at least A$3.00 to a bottle of Australian fruit wine with a landed price of A$10.00, depending on alcohol content. Imports of grape wine have included growing quantities of Australian grape wine, with 168 000 litres in 2006. In conclusion, Estonia has a moderately attractive fruit wine market where further research may identify opportunities for Australian tropical fruit wines.

Finland

Finland has one of Europe’s largest markets for fruit wine and cider, at around 10.4 million litres a year, and significant export markets, including Japan. In the 1990s fruit wine and cider represented half of all wine consumed. A small and declining fruit wine industry produces mostly berry wines, often fortified. There is also a large and growing grape wine market. All grape wine is imported, including growing quantities of Australian grape wines which reached 3.6 million litres in 2006. Leading retailer Alko’s website lists fruit wines from €2.96−13.86 (A$4.84−22.67) a bottle. The wine market is highly price-sensitive, with 85 per cent of table grape wines retailing at under €10.00 (A$16.30) in 2005. Taxes are prohibitively high to discourage drinking of alcohol, and import tariffs, excise, VAT, alcohol beverage tax and a surcharge on retail containers that cannot be refilled or recycled add from A$5.60 to a bottle of Australian fruit wine with a landed price of A$10.00, depending on alcohol content. Ten importers handle 90 per cent of all wine imports. Former State business Alko has a monopoly on the retail of drinks with more than 4.7 per cent alcohol, although wine producers can sell wine below 13 per cent direct to the consumer. Distribution is through around 300 Alko stores and associated outlets as well as grocery stores, restaurants and cafes. Advertising of wine is restricted so promotion is mainly through media publicity, Alko’s generic promotional campaigns, product price lists, trade shows and tasting tours. In conclusion, Finland has a moderately attractive fruit wine market with some potential for Australian tropical fruit wines.

France

France has a small fruit wine market, and a stable cider and perry market which is the fourth largest in Europe. Fruit wines are made from fruits such as berries and plum. Grape wine consumption was 2730 million litres in 2004, and is declining despite wine-drinking being a traditional part of French life. France is the world’s leading wine producer and has amongst the largest exports, but is increasingly affected by overproduction amid growing global competition and rising demand for imported wines. Imports of mainly bulk wine from Australia reached 8.8 million litres in 2006. Examples of pricing on distributor websites are sparkling fruit wines at €3.80 ($6.20) a bottle and fruit flavoured grape wine at €15.00 (A$24.50), while mid-priced grape wines retail at around A$10.00. Import tariffs, excise and VAT add from A$2.40 to a bottle of Australian fruit wine with a landed price of A$10.00, depending on alcohol content. About 25 importers handle Australian grape wine, mainly bulk wine for bottling in France for buyers’ own brands sold in United Kingdom supermarkets. Distribution is increasingly dominated by large retail chains, as well as specialist stores, bars, restaurants and cafes.

36 Television advertising of alcohol is banned and French law limits other media promotion and also sponsorships, particularly to young audiences. In conclusion, France has a small fruit wine market with no apparent opportunities for Australian tropical fruit wines.

Germany

Germany has a long tradition of fruit wines, and one of Europe’s biggest fruit wine and cider markets. A large fruit wine industry produces fruit wines, ciders, cocktails, mulled drinks and blended drinks from temperate and tropical fruits for domestic consumption and export markets that include Australia and Japan. Germany is also a major producer and has the world’s leading import market for grape wine at around 1560 million litres a year. Large volumes of imported bulk wine have included growing quantities from Australia. The market is mature with strong competition between numerous brands and distributors, and price-sensitive consumers, and most grape wines retail at under A$10.00 a bottle. Promotion is often through large food and wine trade shows. Distribution of fruit wines includes sales through wineries and producers’ websites. Import tariffs, excise and VAT would add from A$4.00 to a bottle of Australian fruit wine with a landed price of A$10.00, depending on alcohol content. In conclusion, Germany has an attractive market for fruit wines and related drinks, indicating some opportunity for Australian tropical fruit wines.

Ireland

Ireland has one of Europe’s largest fruit wine markets, its leading cider market, a substantial perry market, and a tradition of home-made fruit wines. Some very large cider and perry manufacturers are based there. Grape wine consumption was 31.5 million litres in 2000 and growing as consumers shift from beer and spirits to grape wine. Almost all grape wine is imported other than ‘made wine’ from imported concentrate, and increasingly from Australia. Most grape wine is sold by large Irish retail chains, pubs, hotels and restaurants. Ireland is a price-sensitive market, with 76 per cent of retail sales of grape wine under €10 (A$16.70) a bottle in 2006. Import tariffs, excise and VAT would add from A$6.35 to a bottle of Australian fruit wine with a landed cost of A$10.00, depending on alcohol content. In conclusion, Ireland has a moderately attractive market for fruit wines and related drinks that may offer an opportunity for Australian tropical fruit wines.

Italy

Italy does not have significant fruit or cider markets, although imports of around 21 million litres a year of fruit wine related products fermented drinks other than grape wine and beer indicate demand for such drinks. A domestic industry produces and exports fruit wines and blends with grape wine, including some based on tropical fruits. Italy has one of the world’s largest grape wine markets, at 2.6 billion litres in 2005, with wine the leading alcoholic drink and considered an important part of the daily diet, particularly with meals at home. However, consumption is falling, and shifting to wines with higher quality and lower alcohol. Italy’s large wine industry is also slowly shrinking, with growing imports of mostly bulk grape wine (including from Australia), champagne, port and sherry. Grape wine is mostly sold by retail chains, specialist shops and restaurants, or direct to the consumer. This is a price sensitive market, with quality grape wine typically retailing at around A$6.55 a bottle.

37 Import duty, VAT and a strip stamp levy would add from A$2.80 to the cost of a bottle of Australian fruit wine landed at A$10.00, depending on alcohol content. Italy appears to have a small moderately attractive fruit wine market with uncertain opportunity for Australian tropical fruit wines.

Lithuania

Lithuania has large fruit wine and cider markets, some large producers of fruit wines and fruit flavoured grape wine, and imports of around 16 million litres a year of related drinks, almost all from within the EU. Imports of Australian grape wine have been insignificant. EU import tariffs, excise and VAT would add A$2.60 to a bottle of Australian fruit wine with a landed price of A$10.00, depending on alcohol content. In conclusion, Lithuania has a moderately attractive fruit wine market with uncertain potential for Australian tropical fruit wines.

Luxembourg

Luxembourg does not have significant markets for fruit wine or cider, but has amongst the world’s highest grape wine consumption averaging around 55 litres per person a year. Most grape wine is imported, including a small quantity from Australia in 2002. Import tariffs and VAT would add from A$2.00 to a bottle of Australian fruit wine with a landed price of A$10.00, depending on alcohol content. In conclusion this market appears offers opportunity for Australian tropical fruit wines.

Republic of Moldova

Moldova has a very large fruit wine market and one of the world’s largest fruit wine industries, producing wine from berries and other temperate fruits. Large volumes of low-priced fruit wines are exported to Russia each year, as well as grape wine to mostly eastern European countries. There have been no imports of Australian grape wine in recent years. In conclusion Moldova has a very large but price-sensitive market offering little opportunity for Australian tropical fruit wines.

Netherlands

The Netherlands has a long tradition of fruit wines from temperate fruits such as berries, and one of Europe’s largest markets for fruit wine and cider. Import tariffs, excise tax and VAT would add from A$3.00 a bottle to an Australian fruit wine landed at A$10.00, depending on alcohol content. A large and growing grape wine market consumed 325 million litres in 2004. All grape wine is imported, with growing quantities from Australia reaching 25 million litres in 2006. Around 30 wine importers distribute a wide range of Australian wine. Most wine is sold through large retail chains and liquor stores, and intense competition has led to 99 per cent of wine retailing at under A$4.50 a bottle. In conclusion, the Netherlands has a moderately attractive fruit wine market but with limited opportunities for Australian tropical fruit wines.

Norway

Norway does not have a significant fruit wine market, but minor imports have included tropical fruit wine from Thailand.

38 There is growing consumption of grape wine as consumers become more knowledgeable about wine, and increasing demand for quality wine. Almost all grape wine is imported, including bulk wine for bottling locally, and growing imports of Australian wine reached 3.9 million litres in 2006. Wine is imported by numerous specialist importers and wholesalers, but Government policy to moderate alcohol consumption restricts consumer sales to licensed restaurants and the 200 retail stores of Vinmonopolet, which has long held a monopoly on liquor distribution. There are high levels of illicit production and importing of grape wine. The wine market is very price-sensitive. Australian grape wines retail mostly in the mid-price range of NOK80−130 (A$16.33−26.55). While not an EU member, Norway applies EU wine legislation and tariffs, and import tariffs, excise, VAT and recycling tax on containers adds from A$1.20 to a bottle of Australian fruit wine with a landed price of A$10.00, depending on alcohol content. Promotion is also heavily restricted, and usually through retail, hotel and restaurant tastings, trade shows, media publicity and point of sale information. In conclusion, Norway’s small fruit wine market offers little opportunity for Australian tropical fruit wines.

Poland

Poland has a long fruit wine tradition, and a very large fruit wine market, mainly for low priced sweet products, but with some shift to imported fruit wine and grape wine. In 2000 the wine industry produced 300 million litres of fruit wine, mulled fruit wine, and blends with grape wine, mainly from berries, stonefruit and apples. Fruit wine producers include not only wineries but businesses such as large juice processors. Imports of fermented drinks in 2005 appear to have included fruit wines from Australia and the United States. Grape wine consumption is around 700 million litres a year and growing. Almost all wine is imported, including bulk wine which is bottled locally. Growing imports of Australian grape wine reached 680 000 litres in 2006. Retail prices for grape wine range from 8−100 zlotys (A$3.46− $43.32) in supermarkets and 20−1200 zlotys (A$8.66−520.00) in wine shops. Most sales are in the low price range, reflecting low consumer incomes. Import tariffs, excise and VAT add from A$2.90 to a bottle of Australian fruit wine with a landed price of A$10.00, depending on alcohol content. Most wine is handled by large importers who supply independent wholesalers, retail chains, and grocery and wine stores. Promotion is usually through wine store recommendations and tastings, competitions, tasting events, television advertising and word of mouth. In conclusion Poland has a very large and somewhat attractive fruit wine market with some potential for Australian tropical fruit wines.

Russian Federation

Russia has a long-established fruit wine market and one of Europe’s largest cider markets. Fruit and grape wine represented around seven per cent of Russian liquor consumption in 2003. There is a large but shrinking fruit wine industry, using fruits such as stonefruit, berries and mango. Large quantities of fruit wine are imported from Moldova and other neighbouring countries, and 160 million litres of fruit wine related products were imported in 2005. A very large and strongly growing grape wine market reached 316 million litres in 2004. Most wine is made in Russia from imported ingredients, but demand is shifting to imported products with higher quality, and from eastern European to New World suppliers. Imports of Australian grape wine reached 650 000 litres in 2006.

39 Retail prices were not identified for fruit wine. Grape wines retail at around A$5.30 a bottle. Import tariffs, excise and VAT would add from A$6.30 to the cost of a bottle of Australian fruit wine landed at A$10.00, depending on alcohol content. Wine is imported by wine traders and sold through specialty stores, supermarkets, hotels and restaurants. Much is promoted through tastings, trade shows such as the annual DRINKS St. Petersburg trade show which has a fruit wine category, and media advertising. In conclusion, Russia has a large and moderately attractive market with some potential for Australian tropical fruit wines.

Spain

Spain has large domestic markets for cider and sangria, a traditional grape wine and fruit juice blend, and large industries producing these drinks for domestic and export sales. A large grape wine market is supplied by a domestic industry that produced 3300 million litres of grape wine in the 2005−06 year, and growing imports. Imports of Australian wine reached 505 000 litres in 2006. Most grape wine is supplied by specialist importers, wholesalers and distributors to retail chains, specialist shops, department and convenience stores, and restaurants. Australian wine often enters Spain via the United Kingdom as an English language point. Import tariffs and VAT would add from A$1.80 a bottle to an Australian fruit wine with a landed cost of A$10.00, depending on alcohol content. In conclusion, further investigation may reveal a small market for fruit wine with minor potential for Australian tropical fruit wines.

Sweden

Sweden has large fruit wine and cider markets which consumed a total of 60 million litres in 2003. Fruit wine is the minor category, and includes domestic berry wines, some tropical fruit wines imported from Thailand for Thai restaurants, and some imports from Australia of fruit wine related products. Grape wine consumption was around 161 million litres in 2003, and growing. Domestic grape wine is usually produced from imported grape must, and demand is shifting to imported quality wines. Imports of Australian wine, mostly bulk wine, reached 9.4 million litres in 2006. Sample prices for domestic fruit wines are SEK 93 (A$16.45) for 750 mls for still wines and SEK 129 (A$22.80) for sparkling. Import tariffs, excise, VAT and glass bottle duty would add from A$4.30 to a bottle of Australian fruit wine with a landed cost of A$10.00, depending on alcohol content. Traditional Government controls on distribution and promotion have been relaxed somewhat with Swedish’s accession to the EU but while hundreds of licensed companies now import and wholesale wine, retailing of all domestic and imported wine remains restricted to the Swedish Government’s own retail company, Nya Systembolaget. Wine is usually promoted through media articles, wine and food shows and wine clubs. In conclusion, there is a small moderately attractive fruit wine market with some potential for Australian tropical fruit wines.

Switzerland

Switzerland has no significant fruit wine consumption, although growing imports of related drinks (which are likely to include wine coolers) reached 4.8 million litres in 2005, including 21 600 litres from Australia.

40 Switzerland has one of the world’s wealthiest and highest-consuming grape wine markets, with consumption of 291.6 million litres representing an average of 40 litres per person in 2004. Imports of Australian grape wine have declined in recent years. A monopoly tax and VAT would add from A3.10 to a bottle of Australian fruit wine with a landed cost of A$10.00, depending on alcohol content. In conclusion, Switzerland appears to have a small fruit wine market with uncertain opportunities for Australian tropical fruit wines.

Turkey

Turkey has a small market for local fruit wines, mainly from berries, apples and stone fruit. While 99.8 per cent of its population follow the Moslem religion, Turkey is not governed by Sharia law so alcohol consumption is permitted, and there is a long tradition of fruit wine production and consumption by non-Moslems. A small but growing grape wine market, mainly of younger Turks and tourists, is supplied by a small local industry and imports, which include occasional small quantities of Australian wine. No prices were found for fruit wines. Medium quality grape wines retail from around A$9.30−$13.30 a bottle, and better quality wines at around A$19.50−22.40. Turkey is not an EU member, and its import duty, VAT, special consumption tax and customs clearance fees would add A$11.28 to a bottle of Australian fruit wine landed at A$10.00. Wines are also subject to high trade mark-ups and fees. Wine is distributed mainly through importers, agents and distributors supplying retail chains, specialty stores, restaurants and hotels. Promotion is mostly through tasting events, media articles and distributor websites. In conclusion, there is a small moderately attractive but heavily protected fruit wine market with little opportunity for Australian tropical fruit wines.

United Kingdom

The United Kingdom has a long tradition of fruit and other non-grape wines, one of Europe’s largest markets for fruit wine at around 40−50 million litres a year, and annual cider and perry consumption of more than 700 million litres. Consumption in all categories has grown in recent years due to the expansion of commercial production, with numerous small wineries and some large drinks manufacturers making a wide range of wines from stonefruit, berries, apples, pears and citrus, as well as honey, ginger and herbs. Grape wine consumption was 1259 million litres in 2004 and growing steadily, but the market may be maturing. A small domestic industry produces wine from local grapes or imported grape concentrate. However, most wine is imported, led by Australian wines, with 261 million litres of Australian wine in 2006 and six of the ten leading wine brands by value. Sample prices for domestic fruit wines on producer and distributor websites range from £1.50−£10.00 (A$3.60−23.90) a bottle. In comparison most grape wine retailed at below £5.00 (A$11.95) in 2005. Import tariffs, excise and VAT add from A$5.80 to a bottle of Australian fruit wine with a landed price of A$10.00, depending on alcohol content. Fruit wines are mostly sold by producers through their wineries, websites and mail order services, and some large national and regional retail chains, National Heritage Trust stores, gift catalogues and farmers markets. Some producers supply bulk wine to other manufacturers for blending with grape juice. Grape wine is mostly sold by major retail chains, as well as thousands of specialist liquor and grocery stores, pubs, clubs, bars and licensed restaurants. Fruit wines are usually promoted through producer and distributor websites, fruit wine competitions, and major promotional campaigns by large fruit wine and cider manufacturers. Several very large trade shows cater for grape wine.

41 In conclusion, the United Kingdom offers a moderately attractive market with some potential for Australian tropical fruit wines.

3.5 Regional profile summary - Pacific region

New Zealand

New Zealand had a fruit wine market of 3.8 million litres in 2005, but consumption has been declining along with domestic production. Export markets include Japan, the United States and Australia. Growing consumption of grape wine reached 111 million litres in 2006, averaging 20.8 litres per person. Production of grape wine and fruit flavoured wines has been growing and imports falling. Australia wines lead grape wine imports, particularly in red wines. Sample fruit wine prices from winery and distributor websites range from NZ $13.00 (A$11.40) to NZ $32 (A$28.06) a bottle. Excise tax, an Alcohol Advisory Council levy and GST would add A$6.60 a bottle to an Australian fruit wine with a landed price of A$10.00. Key outlets for fruit wines are wineries and their Internet and mail order services, retail chains, and flights to Japan. Most grape wine is sold through retail chains, specialist stores, online and direct mail retailers, restaurants and hotels. Fruit wines are promoted on company, distributor and retailer websites, an annual Fruit Wine and Cider Competition, and the fruit wine industry association website. Grape wines are also promoted through retail promotions, distributors, and media advertising and publicity. In conclusion, New Zealand has a small but attractive fruit wine market with minor potential for Australian tropical fruit wines.

Pacific (Oceania)

These countries have small populations and minor wine imports. However, growing tourism, substantial expatriate communities, high consumer awareness of tropical fruits, and trade and cultural links with Australia indicate minor potential markets for Australian tropical fruit wines.

3.5 Regional profile summary – Central and South America

Trade statistics indicate that a number of countries have markets for imported fruit wine related products, which are likely to include fruit wine and cider, led by Chile, Columbia, Paraguay, Peru, Uruguay and Venezuela. These countries are familiar with most fruits used in Australian tropical fruit wines, and have traditional colonial links with wine producing countries, a wine culture, and industries producing grape wine, including fruit-flavoured wine, some of which is exported to Australia. Some have imports of Australian grape wine. Several countries have small markets for local produced tropical fruit wines, as well as tourist markets, expatriates and immigrants from countries with a fruit wine tradition, and high awareness of tropical and exotic fruits. Minor exports of fruit wine products indicate some domestic production. Bahamas, Barbados, Bermuda, Cayman Islands, Costa Rica, Jamaica, Panama, Trinidad and Tobago (Port of Spain) all have imports of fruit wine related products and some have tropical fruit wine industries.

3.6 Regional profile summary – Africa

While most African countries are unlikely markets for Australian fruit wines, these countries are mentioned because they have production of fruit wine and tropical fruit wine, or significant imports or exports of fruit wine related products. Producers range from cottage production to tourist wineries, with commercial trials and wine training programs indicating further growth, examples being:

42 Egypt, which has the largest market for cider and perry in the African and Middle East region, valued at $13.9 million in 2004. Malawi, where aid programs have introduced wine-making from tropical fruit. Namibia and Nigeria, which have fruit wine development projects. Kenya, Tanzania and Uganda, which have small emerging markets for local tropical fruit wines South Africa, which has growing imports of fruit wine related drinks

3.7 Regional profile summaries – Middle East

Liquor consumption is very low in Middle Eastern countries, where Sharia law prohibits consumption by Moslem people and restricts distribution and retailing of alcoholic drinks to others, although most permit expatriate residents to buy and consume alcohol drinks. However, Lebanon, Oman, Qatar and the United Arab Emirates have minor imports of imported fruit wine related products, and some have imports of Australian grape wine. Israel has a small fruit wine market, supplied by a small emerging industry focussed on domestic and export markets. Fruit wines are accepted as kosher by religious Jews, unlike grape wine where production has to be supervised by a rabbi.

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4. Selection of international market for detailed research

4.1 Method of selection

This process involved ‘scoring’ each country profile on factors that are considered to determine the attractiveness of a market and the potential competitive position of that market. These scores were weighted to emphasise more critical factors (Table 4.1).

4.2 Assessment factors for market attractiveness and competitive strength

Table 4.1: Market attractiveness and competitive strength factors Market attractiveness Score Weighting Competitive strength Score Weighting 1-5 1-5 Market 37 Market 31 Size, growth, favourable demand Demand for product category trends Existence of reachable market Willingness to meet cultural segments (promotion, distribution) requirements Culture – lifestyle, westernisation, wine Ability to supply usage and events, likelihood of repeat sales Market access, opportunities for Australian product Competition 31 Competition 26 Type, concentration, substitutes Ability to differentiate product Opportunity to differentiate, such as Competitive pricing quality and food safety Attractive pricing Bargaining power, vertical and horizontal integration Buying power, vertical and horizontal integration Low loyalty to domestic brands Brand strength Domestic industry will not constrain imports Financial and economic 23 Financial and economic 27 Discretionary buying capacity, ability to Profitable margins (production, purchase transport and marketing costs) Profitable margins Experience Experience Economies of scale Economies of scale Barriers to entry, e.g. laws, tariffs Access to finance Risk assessment Technological 9 Technological 15 Maturity Innovation Intellectual property Flexibility Intellectual property, exclusive patents and processes Expertise, manufacturing capacity and capability Total 100 Total 100 Score = 1 to 5, 5 being highest This process produced the following weighted results (Table 4.2).

44 Table 4.2: Weighted scores by country Country Factors AT BE BG BY CA CH CN DE DK EE ES FI FR Market attractiveness Market 92 101 74 101 175 55 101 148 148 148 74 148 101 Competition 62 93 62 77 93 77 33 93 93 62 62 108 62 Financial and economic 92 102 31 46 98 69 69 92 92 69 85 80 69 Technological 27 36 18 27 36 27 9 27 36 27 27 36 36 Total 273 332 185 251 402 229 212 360 369 306 248 373 268 Competitive strength Market 93 62 16 101 119 77 93 108 124 124 88 124 62 Competition 78 78 78 78 104 78 78 78 91 78 78 104 52 Financial and economic 81 81 13 54 81 81 54 94 81 81 52 108 54 Technological 60 60 60 45 60 45 60 45 60 60 60 60 30 Total 312 210 161 278 364 281 285 326 356 343 278 396 178

Country Factors GB HK HU ID IE IN IT JP KR LT LU MD MX Market attractiveness Market 124 64 74 74 74 101 62 180 64 111 77 148 101 Competition 104 124 91 93 62 124 62 155 62 62 55 62 62 Financial and economic 115 92 69 69 69 46 92 115 92 46 92 46 46 Technological 45 36 18 27 27 9 36 40 27 27 27 27 28 Total 388 316 252 263 232 280 252 490 245 246 251 283 237 Competitive strength Market 93 76 62 93 62 124 62 155 62 124 31 93 93 Competition 69 65 78 52 52 104 78 104 52 52 52 52 26 Financial and economic 81 67 81 81 81 81 81 135 81 54 81 40 40 Technological 60 60 60 60 60 60 60 60 60 60 45 45 60 Total 313 268 281 286 255 369 281 454 255 290 209 230 219

Country Factors MY NL NO NZ PO RU SE SG TH TR TW US VN Market attractiveness Market 111 111 74 74 148 148 74 148 111 55 91 185 107 Competition 124 62 62 124 84 93 93 124 62 93 62 108 62 Financial and economic 46 46 115 115 69 69 92 92 46 69 92 103 46 Technological 18 27 27 45 27 18 27 36 27 22 27 36 27 Total 299 246 278 358 328 328 286 400 246 239 277 433 252 Competitive strength Market 91 93 62 108 93 108 62 124 93 62 62 155 93 Competition 52 78 52 104 78 78 78 104 39 65 52 117 39 Financial and economic 54 40 54 108 67 81 71 108 26 67 108 135 40 Technological 60 45 60 60 60 60 60 60 40 60 60 60 60 Total 257 236 228 380 298 327 271 396 198 254 282 467 232 Note: Scores rounded to nearest whole number Country codes (World Intellectual Property Organisation two-letter codes) AT Austria BE = Belgium BG = Bulgaria BY = Belarus CA = Canada CH = Switzerland CN = China DE = Germany DK = Denmark EE = Estonia ES = Spain FI = Finland FR = France GB = Great Britain HK = Hong Kong HU = Hungary ID = Indonesia IE = Ireland IN = India IT = Italy JP = Japan KR = Republic of Korea LT = Lithuania LU = Luxembourg MD = Moldova MX = Mexico MY = Malaysia NL = Netherlands NO = Norway NZ = New Zealand PL = Poland RU = Russian Federation SE = Sweden SG = Singapore TH = Thailand TR = Turkey TW = Taiwan US = United States VN = Vietnam The highest scoring countries on both market attractiveness and competitive strength were plotted on this Market attractiveness: competitive strength grid which is based on a strategic business planning grid designed by General Electric (Kotler & Armstrong, 1996).

45 500 Japan

United States Canada

400 Singapore United Market attractiveness Kingdom Finland Germany Denmark New Zealand Russia Estonia 300 India

200

100

Competitive position 0

Fig. 4.1: Market attractiveness: competitive strength grid Note: 500 = high, 0 = low. Circle size indicates market size by approximate value The grid indicates that Japan is the market with the strongest prospects for Australian tropical fruit wine. This is due to its existing markets for tropical and other fruit wines, both domestic and imported; demand for high quality and safe food products; and attractive pricing. The grid also suggests that the United States, Canada, Singapore, several northern European countries and New Zealand are significant market prospects warranting further market research.

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5. Market profile – Japan

This profile was initially developed in the international literature review, and expanded by a market visit to Japan in July 2007, when importers, wholesalers, retailers and restaurateurs in Tokyo and Osaka were given tastings of wines and blends from mango, passionfruit, pineapple, lychee, Davidson plum, Bush cherry, banana, dragonfruit, lime and persimmon, as well as fortified Black sapote, orange and mulberry wines, and questioned about their potential in Japan (Table 5.1). Table 5.1: Interviews with Japanese distributors, 2007 Business Products handled Mr Y Yoneme, Mr K Fukuda, General Manager and Mr T A leading manufacturer of fruit wine, wine Yoneme, Executive Producer Corporate Development, Asahi and other alcoholic beverages Brewery Ms M Kondo, Executive Director, Kawachi Wine Co., Ltd, Osaka Manufacturer of Kawachi Wine, Osaka’s leading brand, and importer of Australian wines Mr H Ishida, President and Mr M. Hosomura, General Manager Specialist Australian wine importer and – Wine Business Department Farmstone Co., Ltd. wholesaler for 18 Australian and other chain of retail stores and supermarkets for wine and food Mr Masumoto, Mr K. Suzue, General Manager merchandising Inflight goods (mail order for Japanese department and Mr M. Numata, Manager Overseas Section, travellers) Bond Co. Ltd. Mr J Kinoshita, Managing Director, Old Vine Restaurant & Bar Owner of three wine bars, totalling 500 seats Mr O Hayashi, Managing Director, Grande Sam Corporation Importer and wholesaler

Market profile

While it does not have a long tradition of fruit wines, Japan has a small emerging fruit wine market which has stabilised after growing consumption in recent years (distributor survey; Suntory 2001a; Tejima, 2005). Annual consumption statistics were not located for fruit wine. Statistics for liquor tax paid on wine sales in August 2007 recorded 17.91 million litres of fruit wine and 5.66 million litres of fortified fruit wine (fruit wine includes fruit wine, grape wine and fruit flavoured grape wine) for the month. These statistics indicate a total annual fruit and grape wine market of around 215 million litres of wine from all fruit and 68 million litres of fortified wines (see Appendix E). There are some small markets for fruit wine. Large manufacturers have concentrated their marketing on young women in their 20s and 30s, positioning fruit wine as easy to drink with low alcohol and reasonably priced. A small stable market of health conscious people buys fruit wine in anticipation of health benefits. People buy imported fruit wine through airline catalogues as a souvenir, both when travelling and afterwards, but buy grape wine to drink themselves (JETRO 2001).There are no obvious occasions where Japanese people would drink tropical fruit wines (trade interviews). Distributors saw several potential markets for the sample wines: • Working and non-working women not used to drinks with alcohol content as high as 12 per cent

47 • Drinkers of chu hi, a ready-to-drink carbonated flavoured spirit with around five per cent alcohol • Men as a health product to improve their blood and body and provide vitamins • Non-professionals who drink wine but dislike traditional red grape wines as being too tannic, chemically complex, and confusing. They would readily buy these wines so that they can drink a red fruit wine and appear professional • People living in west coast cities, who drink sweeter wines than on the east coast • Traditional wine drinkers • Drinkers of fruit liqueurs. Demand trends for similar drinks indicate further growth in fruit wine consumption: • Young people increasingly drinking sweet flavoured alcoholic drinks • More fruit flavoured shochu (a popular Japanese spirit) drunk by women and younger men • Growing consumption of grape wine, due to recent publicity • A small market for liqueurs, such as umeshu (Japanese ‘plum wine’ liqueur), particularly women and young men attracted by their sweet taste, relatively low alcohol and appealing image (Aoki 2006). However, the Japanese market is renowned for short product cycles as consumers move on to the next fad. Exports of fruit wine related products grew from 985 000 to 1 347 000 litres from 2002–05 (FAO 2007). In 2005 grape wine consumption was 409.9 million litres, averaging around 3.2 litres per person. Beer represented 70 per cent of total alcohol consumption, sake 15 per cent and wine two per cent in 2007. Although the wine market is immature, demand has been stabilising in recent years, after strong growth for several decades, as Fig. 5.1 demonstrates. This is due largely to publicity of the health benefits of polyphenols in red wine, deregulation of liquor retailing, and growing interest in wine education (AWBC Japan 2006; Japanese trade interviews).

500 450 400 350 Volume (million litres) 300 250 200 Expenditure 150 (billion yen) 100 50 0 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

Fig. 5.1: Japan: total wine consumption and expenditure, 1994–2003 Source: Aoki 2006 However, grape wine consumption is forecast to reach 514 million litres by 2011, and to outperform overall consumption of alcoholic beverages in the long term, due to: • Young people switching from other drinks to wine • Consumers experiencing wine when travelling overseas

48 • Low priced high quality New World wines being positioned as everyday wines to lower and middle-class Japanese • Consumer education through wine schools, articles, programs and books • An increasingly westernised lifestyle • Expanding retail distribution with the progressive deregulation of retail liquor licensing • The strengthening economy (Kizan Wine n.d.; JETRO n.d.; Aoki 2007; Ho 2006). The leading grape wine market is 30−39 year olds (30 per cent of the population) who drink wine in and outside the home. A growing market of younger women aged in their late 20s and early 30s increasingly perceives wine as a sophisticated drink with moderate alcohol (JETRO 2001; Aoki 2007). Grape wine is becoming an everyday drink, due to lower priced domestic and imported wines, easier to drink wines, greater appreciation of wine, assumed health benefits from wine, wider distribution and choice, and more wine drunk at home. More people drink wine due to growth in casual wine- drinking restaurants and western-style restaurants, and more restaurants offering wine by the glass. Wine is sold widely, including in casual bars, trendy Japanese restaurants, and Chinese and other restaurants. Restaurant diners usually eat quickly, but increasingly enjoy leisurely meals of food and wine, although beer remains the preferred drink (JETRO 2001; Yanagawa 2005 pers. comm.). Most Japanese are light drinkers—around 40 per cent drink wine only two to three times a month at home and many drink little or no wine—so heavier drinkers are likely to have similar consumption to Australia, France and Italy, and to know about wine and choose on quality (Kizan Wine n.d.). Demand for grape wine is seasonal, falling away sometimes dramatically after Valentines Day, and shifting to beer in summer. Special presentation gift packs of prestige wines sell well at Ochugen (midsummer) and Oseibo (end of year). Japanese consumers like seasonal food products, and seasonal wines such as Beaujolais Nouveau which is released each November (JETRO 2001; Aoki 2007). Grape wine consumption is heaviest in major urban areas. Premium wines are mostly bought by the more educated drinker in large cities, with more than 60 per cent of sales in Tokyo, while rural people have traditionally drunk low-priced domestic wine in large bottles. The prefectures (states) where wine- drinking is highest are Yamanishi averaging 10.26 litres a year, Tokyo 7.78 litres, Miyagi 5.53 litres, Hokkaido 4.3 litres, Nagano 3.7 litres and Osaka 3.5 litres (JETRO 2001; Aoki 2007). Japanese people drink alcohol on some occasions which differ culturally from in Australia and can be difficult to understand. For example, the businessman's overtime work drinking is a formal negotiation technique, where business people take clients to a bar such as a karaoke bar and engage in social drinking to build a good business relationship (Kizan Report n.d.). Drinks are usually beer for normal business and social drinking and whisky and brandy at high class and hostess bars.

Supply

Production statistics do not distinguish between fruit and grape wine. The term fruit wine or kajitushu is used for fermented wine, champagne and cider. Japan’s Liquor Tax law has a Liquors and Fruit Wines category where ‘fruit wine’ includes wine from grapes and other fruits, and ‘sweetened fruit wine’ if fortified. The category includes alcoholic drinks such as shochu (the leading Japanese white spirit) mixed with fruit juice (Mainichi Daily News 2006; Aoki 2007). Total production of fruit wine, grape wine and chu-hi fluctuated between 111 and 975 million litres a year from 2002–05. Chu-hi is a carbonated fruit-flavoured ready-to-drink cocktail based on vodka or schochu (Aoki 2007). Domestic production of fruit wine, including grape wine was estimated at around 68.5 million litres of wine and 6.6 million litres of fortified wine for 2007, by annualising available production data for the month of August (Table 5.2).

49 Table 5.2: Japan: fruit wine supply – August 2007, and annualised (‘000 litres) August 2006 Annualised Category Domestic Imported Total supply Domestic Imported Total supply Fruit wine 5 713 12 193 17 906 68 556 146 316 214 872 Sweet fruit wine 551 515 1 066 6 612 6 180 12 792 Total – wine 6 264 12 708 18 972 75 168 152 496 227 664 Total – all liquor 31 010 803 114 834 124 372 120 9 637 368 10 009 488 Note: Fruit wine’ includes grape wine. Source: Customs Statistics on Imported Wines and Spirits, 2004 Wine production (this is assumed to be fruit and grape wine) was 100.4 million litres in 2005, and fluctuated between 86 and 125 million litres from 1999–2005 (Aoki 2007). Three large manufacturers dominate Japan’s 230 licensed wine producers, with 75 per cent of total production, and major wine and brewing companies such as Asahi, Mercian, Kikkoman, Sapporo and Suntory also lead the production of fruit wine. Large manufacturers introduced a category of ‘health-conscious fruit wine’ to stimulate sales during the depressed economy and the boom in red wine as a health drink in the late 1990s. By diversifying into fruit wine they could differentiate their domestic product from imported grape wine (JETRO 2001; JETRO n.d.; Kizan Report n.d.; Aoki 2007). Geographically, Japan extends from the northern glacial zone nearly to the tropics, and its fruit wines also range from temperate fruit wines in cooler northern regions to mango and pineapple wines in Okinawa. Yamanashi Prefecture near Tokyo leads the production of fruit wine, grapes and grape wine, and grape-growing and wine-making appear to have started there, probably because conditions do not suit rice-growing (Kizan Report n.d.). From 2002−05 imports of fruit wine products from several countries were led by China (assumed to be mostly rice wine) with small quantities of tropical fruit wine from countries that include Thailand, Germany and Malaysia (Table 5.3: Trade interviews). Table 5.3: Japan: imports of fruit wine products from selected countries, 2002–06 Description 2002 2003 2004 2005 2006 HS 2206.00.229: fermented beverages including cider, perry and mead (excludes sake and coolers) China – litres 8 089 800 7 553 400 8 003 700 7 862 700 7 602 300 – $ per litre 3.79 3.24 2.80 2.75 2.72 Republic of Korea – litres 399 700 400 00 502 300 602 700 579 600 – $ per litre 4.18 3.93 3.70 3.16 3.02 Taiwan – litres 541 300 521 800 345 400 319 100 244 700 – $ per litre 5.08 4.04 3.90 3.77 4.23 France – litres 273 400 245 400 370 100 232 100 220 700 – $ per litre 3.67 4.21 2.97 3.31 3.59 United Kingdom – litres 212 000 118 600 59 600 77 700 87 700 – $ per litre 1.97 1.81 3.14 3.04 3.30 United States – litres 108 600 48 900 113 700 71 600 79 500 – $ per litre 6.39 6.30 5.79 5.91 5.71 New Zealand – litres 87 100 59 400 7 900 47 400 42 400 – $ per litre 6.88 5.64 5.30 6.14 5.90 Thailand – litres 9 900 0 14 400 10 900 13 500 – $ per litre 2.83 1 3.68 3.39 2.52 Germany – litres 3 200 36 400 9 000 50 000 13 300 – $ per litre .10 6.51 3.22 3.98 4.14 Australia – litres 7 137 300 5 169 800 3 169 700 399 400 8 400 – $ per litre 2.68 2.74 2.77 2.94 17.98 Canada – litres 2 998 4 722 35 700 538 650 4 325 – $ per litre 21.86 20.94 1.22 1.45 44.89 Malaysia – litres 1 800 400 1 100 1 400 2 700 – $ per litre 6.11 12.50 5.45 4.29 5.19 Note: * includes cider, perry, mead and mixtures of fermented beverages and mixtures of fermented beverages and non-alcoholic beverages not elsewhere specified or included. Source: Trade Statistics, Japan Customs, 2007 Over the same period annual imports from Australia dropped from 7 137 000 litres to only 8400 litres. An average import price of A$17.98 for 2006 indicates a shift from low value to higher value drinks, which would include Australian sake.

50 Most grape growing regions are constrained by a monsoonal climate with high rainfall and humidity during fruit development, and typhoons; unsuitable soils; limited land availability due to the mountainous terrain; small vineyards; and aging producers. In response to declining sales of domestic wines, and to defend their markets against imports, manufacturers produce not only fermented wines but blends of domestic wine with imported bulk wine or wine from imported grape must, and some invest in overseas wineries (Aoki 2007; Kizan report n.d.; JETRO 2004). Imports of grape wines of 174 million litres in 2004 represented 72 per cent of supply, led by France (39 per cent), Italy (17 per cent, United States (15 per cent), Chile (10 per cent) and Australia (4.9 per cent) (AWBC Japan, 2004). From 2002−06 Australia’s exports of wine (mainly red) to Japan grew from 6.4 to 10.4 million litres, averaging A$5.30 a litre FOB in 2006 (ABS). Large quantities of flavoured grape wines are also imported. In 2006 these were led by France with 3.05 million litres), followed by the United States (1.05 million litres), Germany (422 000 litres), Spain (357 000 litres, presumably sangria) and Belgium (36 800 litres), with none from Australia since 2003 (Japan trade statistics 2007; USDA trade statistics).

Product profile

Store visits and an Internet search identified domestic fruit wines from tropical, temperate and Japanese indigenous fruits (Table 5.4). Table 5.4: Japan - product audit for domestic fruit wines Manufacturer and brand Description Retail price * Domestic fruit wines Suntory Fruit Wine Selection Blends of pineapple and lychee, grapefruit ¥580 (A$9.30) for 500 mls (Suntory 2003) and guava, raspberry and banana, peach and mango, orange and passionfruit, from fruit puree Pompa d’or, Suntory Strawberry and grapefruit wine ¥1260 (A$12.00) for 750 mls Okinawa Itoman Wine Passionfruit wine ¥1575(A$16.60) for 720 mls ¥1155(A$12.15) for 500 mls ¥840(A$8.85) for 360 mls Ste Neige, Asahi Ume wine from (Japanese apricot), a ¥996 (A$10.50) for 720 mls traditional Japanese stonefruit ¥272 (A$2.90) for 180 mls ¥1289 (A$13.60) for 1.8 L plastic pack ¥736 (A$7.75) for 1 L plastic pack Choya Ume wine A$7.00 for 360 mls Ste Neige brand, Asahi Yuzu wine from yuzu, a traditional Japanese ¥694 (A$7.30) for 500 mls citrus ¥272 (A$2.90) for 180 mls Kirin Café de Paris Fruit Wine Sparkling lychee, grapefruit, pear, green ¥618(A$6.50) for 200 mls apple and peach flavoured wines, from imported French sparkling wine Kiuchi Brewing Company Yuzu wine US$14.99 for 500 mls Sapporo Beverage Co., Cranberry, chokeberry, raspberry and Power Fruits Wine blackberry blend Soleo, United States Raspberry wine ¥680 (A$6.50) for 750 mls Takahata Winery Mo mo wine Mo Mo peach wine from Japanese peach ¥1278(A$13.50) for 720 mls Sakuranbo cherry wine ¥1383(A$14.55) for 720 mls Source: Retail audit; company websites; Wine 2000; Suntory 2003 Fruit wines, including wines from tropical fruit, were also identified through store visits and on distributor websites (Table 5.5).

51 Table 5.5: Japan - product audit for imported fruit wines Imported wine Dr Demuth, Germany Orange, pineapple, apple, lemon, ¥785 (A$8.30) for 750 mls – Kinoshita website passionfruit, banana, apricot, kiwifruit, ¥254 (A$2.70) for 750 mls mango and guava wines Mango sparkling wine ¥1600 (A$15.25) for 750 mls – Osaka department Visage sparkling blueberry wine ¥1000 (A$9.50) for 750 mls Store Blueberry fizz; Lemon fizz ¥780 (A$7.40) for 750 mls Hawaiian fruit wines Blends of pineapple, papaya and other ¥4935(A$52) for set of three 750 ml (Netyokocho 2007) tropical fruit wine with white grape wine bottles Perl Wine, Italy (Mercian Italian lemon and Blood orange wine ¥580 (A$6.10) for 500 mls 2007) Preston Wines, New Zealand Kiwifruit wine A$19 for 750 mls Fort Wine, Canada Blackberry, blackcurrant, blueberry and ¥2520 (A$30) for 375 mls raspberry wines ¥743(A$7.80 bottles for 360 mls Blossom Winery, Canada Blossom Blueberry and Raspberry wines ¥3129 (A$16.50) for two 500 ml bottles Boone’s, United States Green apple wine (flavoured grape wine) ¥480 (A$4.60) for 750 mls Fresita, Chile Sparkling strawberry wine (strawberry ¥1980 (A$18.90) for 750 mls flavoured grape wine) Source: Retail audit; company websites; International Trade Canada 2005 Domestic wine labels frequently promote light and sweet taste, such as Ste Neige Yuzu Wine’s ‘balanced light taste, light body type, relatively sweet’. Sweetness is a critical attribute to wine buyers. All the distributors preferred the dry wine samples over sweet. Comments were that the drier styles were ‘interesting’; that the wines presented were not dry or sweet, but a good neutral; that a sample passionfruit wine did not taste sweet despite considerable sugar content; and that the wines were drier than German fruit wines. They recommended tropical fruit wines be dry to have any credibility (note: buyers who taste grape wine often prefer dry wines); that wineries not dictate to consumers on sugar levels but listen to what they want; and that the market for fruit wines wants to drink them with a meal, so wines should be dry like Japanese plum wine. As catalogues provide no opportunity to let the customer taste, sugar level in these wines is less critical and can vary from wines sold in department stores. Fruit wines have an image of a dessert wine in Japan as past fruit wines have been sweeter than the fruit, causing consumers to assume the flavour is unnatural and diminishing the perceived value. Japanese people are conservative and it is very difficult to change their minds. First impression lasts a very long time, so if the first fruit wine tasted is sweet, consumers will believe all fruit wines are sweet. These tropical fruit wines will have an uphill battle as this negative consumer preconception of fruit wines as sweet and low-priced is likely to be applied to them. Japanese people prefer mild flavours in foods and drinks as their food styles are lighter than in most Asian countries, so lower quality, low-priced sweeter lighter wines can be used to introduce new Japanese consumers to fruit wine, as grape wine suppliers have been doing (Yanagawa 2005). For new wine companies this is probably an easier route to market penetration as buyers of sweet wines are usually less brand-loyal. Japanese consumers preferred sweet fruit white wines until the shift to red wine in the 1990s, and demand is again growing for white and sweet wines, and special health wines (JETRO 2001; Aoki 2007). Distributors compared the drier fruit wine samples to Semillon and Chenin Blanc, a dry mango wine to Chardonnay, and a Black sapote fortified wine to brown sugar shochu, a traditional spirit. They suggested a champagne style would have more appeal than still fruit wines. Sparkling Merlot and Shiraz are the best selling Australian wines for a catalogue retailer, and sparkling wine and champagne sales are up, probably due to celebrations of improvement in the business economy. A retailer suggested that wineries should limit their range to two tastes per variety, say sweet and dry, across perhaps three varieties. Distributors commented that colour is very important when selling wine, with grape wine sales around 70 per cent red, 25 per cent white, and 5 per cent rosé. As rosé has been difficult to sell, they recommended darkening the colour, even if the natural fruit has a pinkish colour; but only using

52 natural colours. A consumer survey by manufacturer Mercian indicates demand in wine is shifting from white to red, still to sparkling, and sweeter to drier (Kizan report n.d.). Alcohol content is generally lower than Australian wine standards require, and some fruit wines contain only five per cent alcohol according to their labels. Domestic wine quality has improved in recent years due to larger manufacturers striving to improve their product quality in defence against imported wine since grape wine consumption began to grow in the 1980s, and due to recent legal changes allowing corporations to own agricultural enterprises, which have enabled wineries to grow their own grapes and improve control over the whole wine process (Wine in Japan 2007). Winemakers often add sugar to compensate for low sugar content in the grapes at the optimum harvest time due to unfavourable climatic conditions (Kizan report n.d.). Non-grape fruit wines are often positioned as healthy wines, with labels promoting ‘health-conscious fruit wines’, ‘healthy wines’, ‘for health for every day’ and ‘for a happy body’. Health wines tend to be very light bodied, sweet and fragrant, and include wines from fruits such as plum and berry; grape wines flavoured with fruits such as aloe, apple, blueberry, cranberry, orange and peach; and wines with added polyphenol (JETRO 2001). Suntory’s ‘healthy wine’ product Saishokukenbi Fruitia White wine contains added organic acid to aid digestion and promote physical healing (Suntory 2001b), and Sapporo’s Power Fruits wine contains 120 mg polyphenol per 100 ml. Liquor production, importation and distribution must comply with the various laws, regulations and standards for alcohol and foods. The Food Sanitation Law prohibits toxic or harmful substances, and requires importers and retailers to ensure preservatives and colorants added to domestic and imported wines, whether for retail, samples or gifts; comply with Food Sanitation Law standards; and provide an import notification and Japanese Certificate of Analysis from an authorised laboratory. The Liquor Tax Law regulates the addition of preservatives. Packaging and labelling need to comply with standards under the Food Sanitation Law which requires this mandatory information in Japanese language: • Product name – ‘Fruit wine’ or ‘Sweet fruit wine’ • Content volume, in litres or millilitres • Alcohol content at 15°C as a percentage of total volume rounded to the nearest percentage point (for example ‘11 per cent’, or ‘over 13 per cent and less than 15 per cent’) • A list of food additives used, including antioxidants and preservatives • Presence of carbon dioxide in sparkling wine, as ‘Contains carbonation’ or ‘Carbon dioxide gas mixture’ • Country of origin, and any Geographic Indicators • Name and address of importer, and destination or address of distributor or rebottling plant after removal from the bonded area, unless the same as the importer • A warning to minors worded as ‘Consumption of alcohol by minors is prohibited’ or ‘Alcohol may only be consumed by those age 20 or over’. The Measurement Law requires labelling to indicate net content, while the Act against Unjustifiable Premiums and Misleading Representation prohibits labelling that misleads the consumer regarding the product and country of origin. Two laws apply to packaging. The Law for Promotion of Effective Utilisation Resources requires identifying marks on metal cans and labelling on paper and plastic containers to support recycling. The Containers and Packaging Recycling Law requires recycling of all glass bottles, steel and aluminium cans, PET (polyethylene terephthalate) bottles, other plastic and paper containers and all paper and plastic packaging, and a recycling identification mark on steel and aluminium containers and PET bottles. Manufacturers, distributors and retailers who use these materials are responsible for recycling

53 costs, and importers are responsible for the costs for imported wines. In 2007 recycling charges, paid to the Japan Containers and Packaging Recycling Association, were ¥5200 (A$150.33) a metric tonne for brown bottles, ¥5800 (A$167.68) for other colours, and ¥3800 (A$109.85) for colourless glass. Demand is low for recycled green bottles so Japanese winemakers have switched to clear bottles to reduce recycling costs, but foreign manufacturers have resisted this out of concern with protecting wine quality (Aoki 2007; JETRO 2004; Promer Japan, 2003). More information on recycling laws is available at the Association’s website. More information on production, packaging and labelling standards can be obtained from the Ministry of Agriculture, Forestry and Fisheries of Japan and the Ministry of Health and Welfare. Large grape wine manufacturers often use imported grape concentrate or blend domestic wine with imported bulk wine, supported by a loophole in the labelling laws. ‘Domestic wine’ is defined as wine bottled in Japan, being kokunaisan – wine made from only domestic materials; kokusan – wine fermented in Japan from imported materials; or yunyu –imported wine bottled in Japan. If these two or three entities are blended the exact proportions of each have to be shown on the label. Therefore ‘domestic’ grape wines fermented in Japan from grapes or imported grape must be made from more than 50 per cent domestic grapes or a blend of domestic and imported wine. While these labelling laws tend to confuse consumers, most are ignorant of the distinction. The industry has a voluntary code of practice to use the description ‘domestic wine’ only for wine from domestic materials with a Certificate of Origin and to list blends of domestic and imported wine in order of quantity, for example ‘made from domestic and imported wine’. However, this is mainly adhered to by smaller producers (Kizan Report n.d.; US Foreign Agricultural Service 2006). As falling retail prices for imported wines have led to wine-drinking shifting from special occasions to everyday, consumers are becoming increasingly conscious of the relationship between price and quality, more educated about wine, and more conscious of medals and awards (Austrade Japan 2007). Wine show medals are extremely effective in developing new markets in Japan (distributor survey). The product audit indicates bottle sizes for fruit wines are mainly 720−750 ml, but various other sizes are used including 180 ml, 200 ml, 250 ml, 300 ml, 500 ml and 600 ml. Cardboard containers in a wide variety of shapes and sizes such as 1000 ml and 1800 ml are also used (Table 5.4; retail audit, distributor websites). Distributors offered several recommendations: • Bottle height needs to allow the bottle to be laid down on retail and restaurant shelves • Clear bottles show the wines but imply sweeter and lower priced wine than antique green bottles • A frosted bottle could give sweet wines a positive image • A ‘mysterious’ darker bottle or can, with no fruit on the label, would prevent consumer preconceptions by requiring them to buy on taste alone • The 750 ml Bordeaux shape bottle (tall with straight sides) does not indicate fruit wines • Two-packs or three-packs with a story could appeal as most Japanese buy wine on appearance and prestige • Use 750 ml bottles for dry wine such as mango, and for bars and restaurants • Smaller bottles such as 500 ml for sweet wines would give a premium image and suit the average couple buying wine to drink with a meal. Large importers increasingly prefer screw caps and other synthetic closures in response to consumer resistance to decorking and Bouchonne (cork odour) (Aoki 2007). Distributors recommended screw caps over corks and Zorks (plastic closures) as well accepted and popular in Japan, being easier to open, better quality, and more convenient because consumers can open and reseal the bottle as wine drunk at home is usually not consumed in one sitting. However, one recommended a cork if retailing at more than ¥2500 (A$23.80).

54 Fruit wines are usually labelled as ‘fruit wine’ or ‘tropical fruit wine’, with descriptions such as ‘100 per cent fruit not from grapes’, and images of the fruits used (retail audit). Asked if the fruit base should be depicted on the label distributors commented: • Provide an image of the fruit. This is extremely important as the sample fruit wines would be new to the Japanese market and consumers may assume mango is a grape variety. The image should be simple and subtle rather than bright • Use simple classical writing, and make the fruit name prominent • Only show the fruits in the wine, rather than a collection of fruits, to avoid confusing customers • Promote fruit wines as being different to grape wines as they convey an image of the fruits used while grape wine does not have an image of grape • No, to avoid a cheaper image and lower price. The distributors advised wine producers to recognise the consumer has a perception and image of the total package so presentation is extremely important for final price—if it looks expensive wineries can set their own price. Some suggested a traditional wine label would encourage shoppers to pick up and try the wines while others felt the wines needed less formal labels that balance quality with fun, such as those of George Duboeuf wines, and in particular the 2005 George Duboeuf Beaujolais Nouveau shown on the company’s website (George Duboeuf 2007a; 2007b). A Japan Wine Australia study found shoppers are often confused by wine bottles and shelves full of wine, indicating the need for simple relevant information, ideally in a style that appeals to young people, with a fun funky image (AWBC Japan 2006). Distributors recommended against using animals on labels, as ‘childish’ and ‘too cute’, and to use souvenir ‘holiday’ labels only for retail in a tourist area, outside which such labels lose their meaning and confuse the consumer. Australian icons are not necessary to tell the customer a wine is Australian. They suggested the front and back labels should be in the original language of the producing country, to avoid lessening the ‘imported story’. An easy to remove Japanese language sticker or swing-tag would allow the purchaser to present the wine as a gift brought home from Australia. The back label should carry a story about the wine, producer and place, maybe in Japanese language. Voluntary industry standards apply to warnings to pregnant women and nursing mothers. Trade samples valued at more than ¥100 000 (A$1143) attract normal duty and taxes, and must be labelled as for commercial shipments. Distributors said German fruit wines dominate the market, led by Katlenburger’s Dr Demuth wines, due to their attributes, not their German origin. Some labels carry terms such as ‘100 per cent domestic fruit’ to appeal to consumer loyalty to local products and health concerns about imported foods. New World wines became popular in Japan in the late 1990s when prices rose for the traditionally imported French and Italian wines due to a supply shortage, and continue to take market share from domestic and European suppliers (JETRO 2001; Aoki 2007). While wines such as Yellow tail have succeeded as Australian wines, most Japanese wine consumers do not yet appreciate country of origin for wine (Yanagawa, 2005). Distributor opinions varied on whether Australian tropical fruit wines should be marketed under Australia’s ‘clean and green’ banner, although recognising that growing concerns about the safety of Chinese foodstuffs offer a timing opportunity. Due to growing consumer concern about food safety there is growing interest in organic wines but a lack of supply. For organic certification in Japan all organic wines need to meet the requirements of the Japan Agricultural Standards (JAS) (Aoki 2007). Consumer surveys indicate wine buyers are influenced mainly by price, taste, county of origin, colour, brand, label design, and recommendation from friends and wine store staff. Barriers to buying wine to drink at home include resistance to full-sized bottles, high price, removing corks, difficulty in identifying quality from the label, and not knowing how to store leftover wine (JETRO 2001).

55 Pricing

The product audit indicates a price range of A$8.30−19.00 a bottle for fruit wines and A$4.60−17.00 for fruit flavoured grape wines, the higher prices being for imported wines (Table 5.4). Distributors identified these price categories for fruit wine and potentially the Australian fruit wines demonstrated (at the average currency exchange rate during the market visit): Under ¥1000 (A$9.50): • The usual Recommended Retail Price (RRP) for fruit wine is around ¥900 (A$8.60) for 500 mls • Some German fruit wines retail at around ¥700 (A$6.70) • Wines at these prices are usually sweet and flavoured • Less than ¥1000 (A$9.50) would imply artificial colours and flavours. ¥1000−2000 (A$9.50−19.00): • These wines could retail at ¥800−1200 (A$7.60− 11.40), and around ¥1000 (A$9.50) in supermarkets • Domestic pineapple wine and cider retail at around ¥1000 (A$9.50) • Pineapple wine is likely to retail at ¥1000 (A$9.50) and mango wine ¥1500 (A$14.30) • An imported blackberry wine retails at ¥1260 (A$12.00) • Domestic wines from temperate fruits are around A$13.00−15.00 a bottle • The wines would sell easily at ¥1500 (A$14.30) to younger people buying as a fun and casual drink regardless of quality (provided not offensive to the palate). This is the price ceiling for fruit wines, because of low consumption and difficulty in persuading trial • Wines of this high quality could sell at up to ¥1500 (A$14.30) for 500 mls • A restaurant could sell these wines as dessert wines at ¥1500 (A$14.30) for 750 mls • A New Zealand kiwifruit wine sells at ¥1500−2000 (A$14.30−19.00) in catalogues • Dr Demuth Mango Sparkling Wine from Germany was priced at ¥1680 (A$17.10) in an Osaka department store • Domestic passionfruit wine retails at around A$17.00 • The sample fortified Black Sapote wine could retail at ¥2000 (A$19.00) and the other sample wines at ¥1500 ($14.30) • A department store sold Gorde Shu si (‘finger’) strawberry wine at ¥2000 (A$19.00) for 500 mls • Thai fruit wines incur 200 per cent import tax, so would retail at ¥2000 (A$19.00) • These wines are likely to retail at under ¥2000 (A$19.00) • The wines could sell at an RRP of A$19.00, but not with a Zork closure or fruit on the label. More than ¥2000 (A$19.00): • The market for wines over ¥2000 is consumers who understand quality • Consumers are likely to pay ¥2500 (A$23.80) for own use and ¥3000 (A$28.60) if for a gift • Focusing on consumers prepared to pay ¥3000 (A$28.60) would create a quality image • A fortified orange wine could pass as a liqueur at ¥4000−5000 (A$38.00−47.00), ideally in a tall bottle with understated packaging such as a classy black and gold label.

56 In summary there appears to be a ready market at around ¥1500−2000 (A$14.30−19.00) for personal consumption and around ¥3000 (A$28.60) for gifts. There is an opportunity to develop a premium position for premium quality Australian tropical fruit wines. The distributors recommended against discounting as lowering price would cheapen the wines, reinforce the low price image already in consumers’ minds, and appear ‘desperate’ to sell. As bottle costs are similar for a standard wine bottle at around ¥40 (A$0.38) and a fancy bottle at ¥70 (A$0.67), distributors felt suppliers could easily present fruit wines as attractive and high quality products in appealing bottles. Supermarket liquor departments work on a 35 per cent margin, and a prominent department store on 30 per cent mark up. Retail price displays are required to include five per cent consumption tax (Aoki 2007). Examples of final price are an Australian grape wine at A$2.50 FOB for 750 mls, retailing in Japan at A$7.60 (FOB price being 31 per cent of Recommended Retail Price), and a fruit wine with a landed cost of ¥1400 (A$13.35) for 750 mls retailing at ¥2000 (A$19.00). For grape wine the main price categories in descending order of demand are (for 750 ml bottles) − • ¥1000−1500 (A$11.40−17.10): includes everyday grape wines that retail steadily at around ¥1500, mid-range wines at ¥1000−2000 (A$11.40−22.80), Australian wines at ¥1000−1500, and premium domestic wines at up to ¥1500. Major domestic producers have been shifting from mid-priced to premium priced wines at under ¥1500 to compete against New World imports. A growing segment of consumers educated about wines is prepared to pay these prices for high quality wines. Price resistance tends to occur at this range. • ¥500−1000 (A$5.70−11.40): includes the optimum price of ¥800 (A$7.60), average-priced imported wines at A$7.00−14.00, most Australian wines at A$5.00−7.50, and domestic wines struggling against low priced New World wines • ¥1500−2000 (A$11.40−22.80): the higher end of mid-range wines, mainly from France, Italy and Chile, and the lower end of premium priced wines • ¥2000−3000 (A$22.80−34.30): includes premium price wines and the lower end of gift wines • Below ¥500 (A$5.70): includes most domestic wine. Two-thirds of imported wine retail at over ¥2000, and sales are growing strongly. The preferred price range for gifts is ¥3000−3999 (A$34.30−45.00). Prices have fallen in recent years for several reasons including the deflated economy, growing sales of more moderately priced New World wines, shorter distribution channels due to direct imports, and direct retailing and growing sales through supermarkets and convenience stores following the deregulation of liquor retailing. Around 55 per cent of wine sales are under ¥1000 (A$11.40) including price-fighters and discount wines at ¥380−880 (A$4.30−10.00 in 2006) which large supermarket and convenience chains buy by the container. New World wines are particularly strong in this segment, replacing domestic brands made from imported concentrates and bulk wine, so domestic manufacturers have begun focussing on moderate and premium price brackets. (Pricing sources: AWBC Japan, 2006; Austrade Japan 2007; JETRO 2001; US Foreign Agricultural Service 2002; distributor websites, retail audit).

Distribution

There are numerous distribution channels for fruit and grape wine (Fig 5.6).

57 Overseas manufacturer Overseas manufacturer of bottled wine of bulk wine Domestic manufacturer

Importer

Trading Primary companies wholesalers

Secondary wholesalers

Retail Mail order Liquor Discount Department Convenience Internet Hotels, Restaurants chains catalogues stores stores stores stores mail order bars

Consumers

Fig. 5.2: Japan: typical distribution channels for fruit and grape wine Sources: Wine 2000; distributor survey Fruit wines are sold mostly through the wineries; in metropolitan department, liquor and convenience stores; and from mail order websites. For imported wines, distribution channels are shortening to: • Direct imports by large wine manufacturers such as Suntory and Mercian who are often the authorised import agent for leading brands • Direct imports by large wholesalers and retailers with their own distribution channels, such as department store alliances and large discount stores • Specialist wine importers retailing direct to consumers through mail order and the Internet • Specialist trading companies (Aoki 2007). As an example a small retail chain buys Australian wines through distributors and also imports bottled wine and bulk wine to bottle under its own label. Distribution of fruit and grape wine is controlled primarily by the four largest alcoholic beverage manufacturers, Asahi, Kirin, Suntory and Sapporo (Wine Australia, Japan Market Overview, 2005- 06). Anyone may import wine but to retail it requires a liquor vendor's license (Aoki 2007). Domestic fruit wines are sold at the wineries and local stores with tasting outlets such as Katsunomo Cave near Tokyo. Major brands such as Choya and Asahi are widely sold in specialist liquor stores, supermarkets and convenience stores, often displayed with wine-style products such as umeshu but sometimes in a dedicated fruit wine section or display. Around two-thirds of grape wine is sold in retail stores including wine and liquor stores, discount liquor stores, supermarkets, department stores and convenience stores. While liquor retailers are required to hold a liquor licence, deregulation of liquor retailing, which began in 2003, has reduced restrictions on licence numbers except where retained in a few areas to protect small retailers. As numerous retail outlets including supermarket and convenience store chains began to distribute wines,

58 competition intensified, which led to substantial growth of the wine market and the exit of many liquor wholesalers and specialist retailers. Retail of low priced wines, including Australian wines, continues to shift from specialist liquor stores to retail and convenience store chains (Aoki 2007; AWBC, 2006; JETRO 2001). However, as European style grape wines are new to Japan, retailers need to be convinced to stock wine, and fruit wines face even more resistance because of their ‘poor cousin’ image (distributor survey). The remaining one-third of grape wine is mostly sold in bars, restaurants and other food service outlets. Premium wines with ratings, awards and an image of special occasion drinks are sold in specialised wine outlets, upper-tier hotels and restaurants (JETRO 2001). Distributors recommended introducing tropical fruit wines through the food service sector as most consumers trust restaurants, restaurants are open most of the day so could provide a major window for fruit wines, and sommeliers and restaurant waiters could push fruit wines to their customers to create demand. They also suggested approaching an importer with a strong restaurant connection; outlets such as casual restaurants, bars, pizza home delivery services and railway stations to give the mass market access to the wines; and also hotels on resort islands, as tropical wines would be considered appropriate as a seasonal wine with a beach image to drink chilled, and such hotels are very interested in summer promotions. Restaurants could match the wines with meals, or use them in sauces. Tokyo has around 20 restaurants specialising in Australian wine, including a Japanese owned company with restaurants called ‘Uluru’ and ‘the Rocks’, whose owner has a long association with Australian wines and the Australian Wine Club in Japan. Domestic and imported fruit wines are also sold on mail order websites. Internet retail companies have been expanding due to small lot shipments and reduced logistical costs (Aoki 2007). Wines are also sold through catalogues, which are very popular for gifts, particular for end of year celebrations when department stores and supermarkets devote whole sections to catalogue displays. Japan has four major catalogue companies, including omiyage (souvenir) specialists. Japanese people buy numerous souvenirs as gifts for managers, co-workers, family and friends when travelling. One reason suggested for this practice is that it maintains harmony in the office environment by demonstrating that vacationing workers were thinking of their co-workers working hard back in the office. Souvenir stands are major outlets in Japanese tourist spots, and railway stations stands sell gifts from distant places to returning travellers who forget to buy a gift or choose not to carry it around while travelling. In recent years omiyage services have developed to deliver souvenirs from regional Japan and souvenirs or gifts from foreign countries. Japanese travel agencies now sell omiyage to their traveller customers before they depart, to relieve them of having to wonder what to buy and to carry the items while travelling, and have it delivered to the customer’s home on the day they arrive home. An omiyage distribution company interviewed handles imports, but not product selection, for the catalogues of a large Japanese tourist organisation, and also imports wine for its own direct catalogue business which services other tour operators. It provides catalogues for domestic travel, domestic duty free shopping on cruise ships, and airlines, and is always looking out for new labels for these markets. For Japanese visitors to Australia it produces three different catalogues which are mailed to travellers before departure and also provided with their airline ticket, at the airport, during the flight, and from tour guides in Australia (Japanese travellers prefer to buy overseas flights through travel companies rather than the Internet). Its mark-up for a high turnover product is 30 per cent or more, from which it pays commission to travel agents, tour guides and airlines, and printing costs for brochures which are published twice a year, with a 60 day lead time. The company can consolidate shipments. Fruit wine suppliers are advised to provide an exporter with tasting wines to assess on taste, value in the price range and likely purchase, and to store for up to two years, and to provide technical detail and the winemaker's philosophy. Importers would continue evaluations for five years, while the supplier would need to maintain the cool chain in liaison with them. As a good distributor is critical, Austrade advise exporters to consider a potential company’s client base and track record for organising retail promotions.

59 Promotion

Fruit wines are largely promoted at wineries and consumer tasting centres such as Katsunuma Wine Cave which represents around 150 local wineries near Mount Fuji (Tokyo Food Page 2007). As fruit wines are a new category, and consumption of fruit and grape wine is low, promotion will be needed to create awareness and interest. Distributors advised that a wine is unlikely to sell without tastings to educate new consumers about a new wine and staff to recommend wines for purchase, particularly in department stores and supermarkets, giving examples of some successful promotions: • A major department store with four permanent tasting corners in its wine section for up to 600 tasters a day. A third of tasters subsequently buy, providing 60 per cent of wine sales. A typical tasting serves 10 people for five minutes at a time over 10 hours, and is financed by the importer • Government–supported importer tastings for buyers at a department store. Tropical fruit wine producers could participate in such tastings as these buyers would appreciate the wines’ unusual attributes. One store holds its tastings three times a year, mainly in spring and autumn, and buyers will ask the store to stock wines that consumers like • A promotion for a major Australian grape wine brand where the manufacturer and an importer/trading company each pay half of the one million yen promotional budget • A chain of stores which function like cellar doors with wine tastings for potential buyers • Demonstrations by manufacturers Baileys and Kahlua on making liqueur cocktails • Catered events such as art show openings, which are very effective at promoting trial of a new wine into an attractive market. Even if they taste out of curiosity, once consumers try and like the wines they can be given information directing them to regular retail outlets. Involving the caterer in the distribution would provide a financial incentive to make the promotion succeed • Enlisting restaurants, such as a Tokyo restaurant which caters for wine lovers with regular food and wine parties with changing cooking themes such as cheese, spice, and meals cooked with wine, for example chicken steamed sauce, and follows up with a questionnaire asking diners to recommend wines for it to stock. Japanese people want to be taught about western wines and to understand unusual tastes, so suppliers provide education and the restaurant builds loyalty. Wine importers rely heavily on point of sale material for sales. Some stores have dedicated fruit wine displays, although most only display price cards. A Japanese distributor has successfully introduced taste categories for wines in stores, such as ‘light and sweet’, and ‘fresh and dry’ (Holt 2005). Wineries need to attach and promote a story which should have three elements: a wine story, a people story and a place story. To list in a catalogue, they should supply photographs to tell the reader the story of the wine as these are the only sales tool as shoppers flick through and choose their purchases. Distributors strongly recommended publicity, as Japanese consumers would follow a media story, particularly one about a respected wine authority discovering how fantastic these tropical fruit wines are. This would create publicity and demand money cannot buy, and provide rapid penetration of a market where development can be slow. Potential endorsers could be: • A Wine Master or Champion saying how great the tropical fruit wines are • A pioneer of the fruit wine industry promoting the whole industry • Sommeliers who can promote high quality (although grape wine sommeliers might be concerned about losing public image and credibility) • A flight attendant, which has increased wine sales in the First Class section of airlines. The distributors also suggested ‘selling’ the winemaker to gain publicity, associating Australian tropical fruit wines with other quality imports, and developing a great catch phrase to build a positive brand image to replace the current poor image established by poor quality fruit wines in the past.

60 Grape wine consumption doubled in the 1990s due mainly to mass media and other promotions that excited customer interest, such as: • Media reports of studies that demonstrated health benefits from drinking red wine • The influence of a Japanese sommelier, wine writer and wine authority, Mr Tasaki • Daily reports about wine in television, radio, magazines and newspapers • Strong enrolment in wine school courses • More than 30 new wine books published every month (Kizan Report n.d.). Manufacturers who export grape wine to Japan and distributors, industry organisations and Australian government departments use various promotions to develop new markets, such as: • Advertising through television, magazines, newspapers and other media • Educational activities such as tastings in stores, restaurants and wine clubs; advice by sales staff; newsletters; and wine tasting parties • Generic published information to promote the category of Australian wine • Promotions to retailers, including trade tastings, sommelier contests, and trade shows such as the annual Foodex Japan (a trade show for the Pacific Rim), the biannual Osaka International Trade Fair, the biannual International Foods Fair in Kitakyushu, and Hotels & Foodex Kansai. • The Japan Wine Challenge, which has a category for ‘fruit wine, wine made from natural fruit other than grape’ (see website). Japan does not have international wine shows but fruit and grape wines can be promoted at general trade shows such as Foodex Japan and the Supermarket Trade Show (Takehiro, 2006).

Market positioning

Distributors and other research indicated several positioning options for these tropical fruit wines: As suited to specific foods • These wines could be matched with or used in sauces of dishes such as duck a l’orange; the Japanese version of Chinese chicken; Thai, Malaysian and Vietnamese food; and cheese following a meal • The wines should be matched with Japanese food, as traditional wines do not really complement its flavours and textures and the market has been looking for its own more suitable wine • Tempura restaurants match wines and foods to differentiate their offer (Yanagawa, 2005) • Berry wines are promoted in Japan as cocktail drinks and for drinking with cheese (International Trade Canada 2005). Home prepared meals are usually traditional Japanese food, typically beef, port, chicken, grilled fish, sashimi, cooked vegetables and tofu, accompanied by the standard white rice, miso soup and pickles. As differentiated from grape wine • Marketing will need to avoid confusing fruit and grape wines • Consumers will not accept tropical fruit wines being sold with high priced grape wine. On taste: Positioning the wines as sweet wines would appeal more widely, such as to older people who like sweet drinks. As a whole new category: These high quality wines will need differentiating from previous lower quality fruit wines.

61 As tropical versus not tropical: Only one distributor favoured ‘tropical’ as having a positive consumer image. The others expressed concern that ‘tropical’ gives a negative hot and steamy image; indicates different flavour but not quality; suggests Asian countries or Hawaii, rather than Australia; signifies lower income Asian countries such as Philippines, Malaysia and Indonesia, and cheapens the image of the wines; and that the benefit offered by the wines is not tropical. As Australian fruit wines: Some distributors saw ‘Australian’ as positive and humble compared with some countries’ images, and expected ‘Australian fruit wines’ to convey a better image to consumers than ‘tropical fruit wines’. As ‘fruit wine’: Distributor opinions varied on this, with suggestions of ‘fruit wine’, ‘tropical fruit wines’, ‘aromatic fruit wine’ or ‘luxurious fruit wine’. One felt the market would use the term ‘tropical fruit wines’ regardless, and one recommended against any reference to ‘fruit’. As from a specific fruit: One distributor felt mango wine should have its own separate brand. By drinking occasion • As aperitifs • As after dinner drinks and nightcaps (fortified fruit wines) • As drinks for all year round. As a liqueur: Fortified tropical fruit wines might fit into a liqueur category. As a holiday drink • Tropical fruit wines have a resort image, suited to seaside outlets • As the wines are tropical, promote as ‘seasonal wine’ served chilled, with images of the beach in summer, and beach or summer labels • As ‘outdoor wines’ suited to barbeques, beach and sporting situations, with a promotional campaign around a beach resort. On hedonistic benefits • As ‘luxurious’, ‘relaxing’, ‘healing’ • As ‘comfort’ wine • As an indulgence, for one’s self or a thoughtful gift • As good for both inner and outer beauty, beauty being very important to Japanese woman. The current fruit vinegar trend has succeeded largely through such a focus on women. As a health drink • On demonstrated medicinal and health benefits • As a health product for men, to improve blood and the body and provide vitamins • As a healthy drink to a market with growing concern about rising metabolic syndrome • As a health-promoting drink, as with fruit vinegars. Japanese fruit wines are often positioned as health wines, particularly if not blended with grape wine. As a souvenir: Tropical fruit wines are highly suited to this purpose. As trendy, a novelty • As a limited version or seasonal label to make the wines fashionable and trendy, such as a promotion of a winter label from late September to February • As a fashion that is a fad, but chic, maybe with a chilled glass

62 • With an exclusive tag such as ‘Only here’ or ‘Limited edition’. For example, English tea liquor has made a significant impact in Japan through being unusual and exclusive. As a range of products • A good variety of wines will sell more than single products by providing choice • The wines could be promoted as ‘Choose your own three pack’ (the same wines or a mix) with attractive packaging.

Import regulations and requirements

While there are no quotas or general restrictions, imported fruit and grape wines incur several tariffs, taxes and other fees which add $2.18 to the landed cost of a $10.00 bottle of Australian wine (Table 5.6). Table 5.6: Japan - import duties and taxes for wine Description Tax $ (WTO rates) HS 2206: – Other fermented beverages (for example, cider, Import tariff ¥42.40 (A$0.43) a litre perry, mead); mixtures of fermented beverages and mixtures (WTO1 rate) of fermented beverages and non-alcoholic beverages not elsewhere specified or included, more than 1% alcohol Fruit wines, produced from fermenting fruit or fruit plus Liquor tax ¥80 (A$0.81) a litre water, with sugar, brandy and other substances added up to specific limits Sweetened fruit wine produced by adding brandy or other ¥103.722 (A1.05) a litre alcoholic beverages or sugar to fruit wines above a specified quantity, less than 13% alcohol HS 2204: grape wine – Wine of fresh grapes, including fortified wines Import tariff ¥182 (A$1.85) a litre (WTO1 rate) – Sparkling wine Liquor tax Varies All wines Consumption tax (CIF + Customs duty + Liquor tax) x 5% Bottle tax ¥70.4 (A$0.71) for 750ml Recycling fees Sources: APEC tariff database; AWBC Japan 2006 More information on importing wine can be obtained from the Japan Wine and Spirits Importers’ Association and the Wine Importers’ Association of Japan.

Summary

Japan has a small but growing market for tropical and other fruit wines with emerging markets of young women and the health conscious, increasing fruit wine imports, attractive pricing, potential distributors and no significant import barriers or costs. Australian producers could develop a significant share of imports by positioning their wines in higher priced outlets as gifts and in lower priced outlets for personal consumption as high quality, healthy and safe Australian products, differentiated by exotic and Australian native fruits, premium quality, appealing taste and classy presentation.

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Fig. 5.3: Japanese fruit wines

Fig. 5.4: Display of Fig. 5.5: Dr Demuth sparkling fruit wines Fig. 5.6: Chu-hi – canned Japanese fruit wine cocktails

Fig. 5.7: Japanese health fruit Fig. 5.8: Fruit wine tasting, Fujikyu Fig. 5.9. Restaurant wine-tasting wines Highland Tourism centre and Theme park

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6. Strengths, weaknesses, opportunities and threats analysis (SWOT)

This research indicated these major internal and external factors that will determine the industry’s ability to develop future markets. Table 6.1: Strengths, weaknesses, opportunities and threats for the tropical fruit wine industry Industry strengths Production concentrated in high profile tourist region actively marketed to large domestic and international markets A large Japanese visitor market that buys wine for souvenirs and gifts Located in Australia’s most renowned tropical and exotic fruit growing regions Ability to use a diverse range of the world’s most popular fruits with excellent flavour and other characteristics suited to wine-making Access to large volumes of high quality processing grade mainstream tropical fruits and commercial supply of unusual and exotic fruits Ability to produce wine year-round to maximise use of facilities and equipment Low need for specialist machinery Flexibility to use a range of fruits minimises risk from crop losses Low risk to fruit supply from hail and frost Usually lower production costs than for grape wine Ability to produce very high quality trophy winning wines Products new to the Australian market Most producers using world best practices in winemaking Most producers focussed on producing high quality wine Innovation in growing, processing and marketing Access to highly qualified and experienced wine-maker assistance Ability to reach substantial tourist and local markets with cellar door and mail order sales to establish a financial base and research market requirements Wineries permitted to operate external sales outlets Growing experience in wine promotion and publicity Industry association in northern Queensland Government assistance to research and develop the industry, businesses and markets Northern Territory producers able to use direct shipping services to Asia Industry weaknesses Small industry with no large producers to lead market development Outside far northern Queensland, the industry spread thinly across northern Australia No local grape wine industry to learn from No support from grape wine industry because of market research and market development being limited to activities funded by industry levies No promotion of northern Queensland as a wine producing region to tourist markets Suppliers of wine-making equipment and inputs located in southern Australia’s major wine producing regions, adding freight to production costs Risk from cyclones to fruit and wine supply Fruits producers growing primarily for fresh fruit market Fluctuating yields for some fruits Limited supply of organic fruit available for organic wines Lack of chemical analysis of the fruits used and availability of suitable analytical services Small businesses with limited funds for market development Hostile objections from the grape wine industry to be treated as equals New producers with varying levels of wine-making knowledge and experience, and lacking in tertiary wine-making education and experience in wine marketing Lack of training facilities and courses in wine-making for fruit wine Lack of local container shipping facilities and services to large wine markets

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Opportunities Large undeveloped tourist, local and national markets International tourists often already familiar with fruit wines Numerous overseas markets for fruit wine Growing retail sales of imported fruit wine and fruit-flavoured wine Geographic proximity to large emerging overseas markets for fruit wine Retailers seeking drinks as a bridge to introduce young people to wine and ultimately grape wine Australia’s international reputation for quality wines that represent value for money Growing awareness of tropical fruit wine in some attractive country markets No stigma in overseas markets with a fruit wine tradition A large domestic wine market with niches seeking fruity styles Tropical fruit wines accepted as a local souvenir and novel drink for gifts and celebrations Promotion of benefits from fruit consumption by fruit industries and governments To reach a wide target market through the Internet To use of fruit wine competitions to establish quality benchmarks, with awards to reward and promote quality To develop, monitor and promote industry quality standards To monitor markets to identify for favourable trends and trade opportunities To learn from successes of Australian grape wine industry To collaborate as an industry to promote and build a favourable market image for Australia tropical fruit wines Threats Fluctuating currencies affect cost-competitiveness and demand in export markets and from international visitors No place developed for fruit wine in the Australian culture Trade perception that fruit wine is low quality, oversweet and a high risk Oversupply of grape wine Proliferation of wine products and brands and fruit-flavoured spirits Retail increasingly concentrated in a few very large retailers Growing price-sensitivity as grape wine prices fall More wine retailers selling their own private labels Lack of agreed quality parameters across the fruit wine industry, with the risk that producers not concerned with quality will lower its reputation Industry almost entirely reliant on tourism Reduced prices and profits from increased competition within industry if new markets not developed

66 7. Discussion of Results

The project has identified and evaluated the current and most likely potential markets for Australian tropical fruit wines in Australia and internationally. It has also identified appropriate marketing strategies that the industry can use to develop these markets.

7.1 Australian market

A small emerging market of northern Queensland residents buys local tropical fruit wines for gifts, special occasions, self-indulgence and some regular consumption. They are familiar with tropical fruits, increasingly aware of tropical fruit wines, occasionally buying them from local wineries but purchasing grape wine for everyday drinking. This is the most important market to develop in order to build regular consumption and ‘champions’ for the local industry, test promotional strategies, and provide an income base and platform for expansion beyond the region. There is an increasing market of Australian visitors to the wine-producing regions, usually comprising inexperienced grape wine drinkers who may have some experience of fruit wine and tropical fruits, who buy the wines for souvenirs, gifts and consumption while travelling. They sometimes continue to buy through mail order, and sometimes visit fruit wineries elsewhere. This is an important market for expansion, to widen awareness of and interest in fruit wines through word of mouth and recommendations but will be more difficult to reach with promotion and distribution. There is a growing market of international tourists, mainly from Japan, the United States, Canada, Germany and the United Kingdom, who buy small quantities of tropical fruit wines from wineries and other local outlets. They are often familiar with wine from temperate fruits but do not expect to find wine in these regions, or wine from tropical fruits, and do not seek local wines in restaurants or bars in the wine-producing regions. While these consumers can promote the wines through word of mouth in their home markets, they are unlikely to continue buying the wines without distribution close to home. Therefore, development of these market segments should be integrated with market development in their home countries where these have been identified as having strong export prospects, in particular Japan, the United States and Canada. While the mass Australian market is undeveloped, tropical fruit wine producers should concentrate their limited resources on niches with demand for similar drinks. The most likely market appears to be people new to drinking wine and RTDs, mainly young women, who prefer fruity alcohol drinks. Grape wine producers and large retailers are offering a number of sparkling fruit flavoured grape wines, imported fruit wine and small bottles and cans, and RTD manufacturers are also focussing on this market with low alcohol fruity drinks. There is also a potential national market of adventurous wine drinkers looking for new wine styles, who buy from wineries and specialist stores offering a wide product range. Entrenched grape wine drinkers for whom wine is a high involvement purchase are generally resistant to trying fruit wine and they are unlikely to become buyers. Market development activities should include: • Use of quality indicators to overcome negative perceptions and build the confidence of consumers and trade, including medals, awards and quality standards. • Customising packaging, labelling and promotional items and messages to appeal to each market. • Repeated tastings and education to build awareness, interest, trial and demand for the wines through wine and food events, winery visits, and educational events such as wine dinners, wine classes and wine-maker talks.

67 • Promotion of both individual brands and regional industries through media advertising and publicity, endorsement by product champions, wine maps, wine trails, brochures, and industry events. • A regional brand for wine or food and wine can be used to build a reputation for key fruit wine producing regions through promotion by tourism development organisations and agencies in key tourist markets. • Development of efficient distribution channels to ensure availability of the wines in key markets, through supply chains that will promote the wines to consumers and provide market feedback to guide producers in their marketing strategies. • Pricing that will position the wines for regular drinking as well as for gifts and special occasions, satisfy shoppers’ expectations of value for money, and motivate trialling and larger purchases. • Positioning of the wines to fit into the lifestyles of key markets, and promoting several potential uses so as to encourage trialling and increase usage. Market expansion will depend on developing distribution, particularly through retail outlets and the food service and entertainment sectors. However, this will require the building of consumer awareness and demand, educating service staff about the wines, and competing against large manufacturer’s brands with substantial economies of scale and promotional resources. It may be necessary to introduce the wines to the food service sector through chefs using them in dishes and matching them with foods, and as cocktail ingredients. A major barrier to market development will be the prevailing image of fruit wine, particularly in the wine distribution and food service sectors. To develop trade and consumer confidence will require a combined industry effort to establish and maintain quality standards across the category of tropical fruit wines, and influence all fruit wine producers. Another barrier will be the lack of an appropriate retail category that promotes the wines effectively to key markets. The various category options will need trialling and developing jointly by the industry and the national retail and food service sectors. The industry will need access to research and development facilities and services to enable product innovation and quality improvement to ensure competitiveness in the mature and sophisticated wine marketplace. There is potential for a tropical fruit wine industry across Australia’s ‘Top End’ to compliment the established southern grape wine industry. However, as the industry expands in producer numbers and production volumes, producers will need to develop new markets to avoid intensifying competition and eventual price-cutting in existing markets. Efficient production and distribution will be necessary to compete on price in mature and highly competitive beverage markets, such as Australia. The fruit wine industry is not eligible for marketing support from the internal levy funded grape wine industry. However, it can mirror that industry’s successful industry and market development strategies by establishing strong industry associations to share resources, access support from various agencies that support industry development, and agree on common quality standards (see Appendix C for a case study on the Australian grape wine industry). This could be done by collaboration between existing industry organisations, establishment of a national fruit wine industry organisation, and information- sharing, such as through a limited-access Internet discussion group.

7.2 International markets

The export market with the most potential for Australian tropical wines appears to be Japan. It has an emerging market for tropical and other fruit wines, reachable consumer segments of novice drinkers and the health conscious buying domestic and imported tropical fruit wines, attractive pricing, various

68 distribution channels, and potential to position Australian tropical fruit wines as premium products. Developing this market will require commitment to developing sound relationships with Japanese distributors, appropriate products, product presentation, promotional strategies for market development, and on-going monitoring of the market. The United States and Singapore have good prospects because of their substantial fruit wine markets, consumption of fruit wine from tropical and exotic fruits, attractive pricing, strong demand and distribution channels for Australian grape wine, opportunities for promotion, and low import charges. In-market research will be needed to identify specific markets to focus on and appropriate market development strategies. There are other potential markets with favourable demand trends for fruit wine, mostly in Canada and Europe, which warrant in-market research. World demand trends indicate a number of expanding country markets for grape wine; large markets for fruit wine, cider, perry and fruit-flavoured grape wine; governments encouraging consumers to shift to lower alcohol fruit-based drinks; manufacturers using similar drinks to direct novice drinkers to grape wine; and growing economies where consumers are beginning to drink wine, often instead of similar traditional drinks from non-fruit bases (see Appendix A for detailed market trends). Australian tropical fruit wines are more likely to be competitive in countries that have identifiable and growing market segments for tropical fruit wine or similar drinks, and for quality wine; access to suitable distribution channels for fruit wines and Australian wine; and opportunities to promote and differentiate from competing drinks. Wine producers can enlist assistance from government trade development agencies located in most countries or regions to identify and develop overseas markets and participate in promotional activities such as wine trade shows and market visits. The emergence of tropical fruit wine and export-focussed industries around the world are raising awareness of tropical fruit wines in local and visitor markets. However, variable quality and a common perception of tropical fruits as low value and not wine-making fruits are likely to result in an image of fruit wines as inferior to the ever-improving grape wines. There is potential for the Australian industry to take the lead in tropical fruit wines by establishing strong industry branding and quality standards and promoting these in high profile quality conscious markets.

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86

Appendices

Appendix A: Global trends in wine and related drinks

The research has identified a number of trends in the world markets for grape wine, cider, perry and flavoured drink markets with implications for the development of markets for tropical fruit wine.

Grape wine

• Grape wine is the world’s leading wine, with a world market of 23 987 million litres in 2005 and growing at around 0.9 per cent a year (The Wine Institute 2007) • World wine production of 28 700 million litres has led to a 4670 million litre (19 per cent) global surplus over consumption in a maturing global market (The Wine Institute 2007) • The largest wine markets are in wine producing countries suited to grape−growing • Many large country markets are maturing, with high individual consumption, intense price competition, and aging consumers drinking less wine • Health conscious consumers are shifting to smaller quantities of grape wine of higher quality, red wine and organic wine • Many countries have emerging grape wine markets, usually starting with international tourists and expatriates followed by middle class higher income earners influenced by them, and by promotions by overseas producers, industries and governments • In many countries wine consumption remains limited to market niches such as expatriates and to religious, cultural and other uses and occasions • Premium quality wine is popular for gifts, and sparkling wine for celebrations • Wine is used to signify social status, sophistication and European culture • More wine is being drunk at home as countries implement drink driving restrictions • In developed markets wine is used to complement food, celebrate, use as a gift, relax, socialise and for assumed health benefits, particularly the avoidance of cardiovascular disease • Wineries are often clustered in regions, enabling regional wine tourism and promotion, particularly where appellation or Geographic Indicators are in place • Wine faces growing competition from beer, premium beer and RTDs in young consumer markets • Many countries are expanding their grape wine industries and improving quality to compete with imported wine • Old World Europe’s wine industries, mainly in France and Italy, have traditionally led world supply but are losing ground to industries in New World countries, led by Australia, Brazil, Chile and the United States, which have large quantities of lower priced wine of ever-improving quality from increasingly efficient production systems and distributed through shorter more efficient and economic distribution channels • The Australian industry supplied 126 overseas markets in 2006, and leads in several • World wine quality is continually improving through product research and development for grapes and wine and the development and implementation of quality standards

87 • The International Organisation of Vine and Wine (OIV) has adopted an International Code of Oenological Practices (see definitions) which defines standards for grape and wine production • Wine quality is conveyed to consumers through trophies and medals, appellation, terms such as ‘premium’ and ‘reserve’, quality marks and logos, and price • French wines are perceived as the word’s highest quality and achieve the highest prices worldwide, due to popular belief that France’s appellation controls produce the best quality wine (explained in detail in Appendix E) • Countries with limited or no wine grape production often import bulk wine to bottle or produce wine from imported ingredients • As consumers’ personal incomes and wine experience grow they buy higher priced and better quality wine in bottles from countries with a reputation for quality • The main wine categories are red, white, rosé, sparkling and dessert, and the fortified wines sherry, port and vermouth • Wine is increasingly sold by grape variety • Red wine is in strong demand due to promotion of health claims for its polyphenol content • Wine consumers typically progress from sweeter to drier wines as their palates develop • Producers are increasingly using wine-making techniques to reduce preservatives and allergens, and also organic wines, to allay consumer concern about chemical additives • Wine manufacturers use bottle shape, glass colour and texture to differentiate their products • Convenience packaging such as bag−in−box, cans and single serve bottles are used to introduce new consumers to wine and to widen consumption at outside events such as picnics • Consumers have accepted screwcaps, introduced to reduce taint from contamination from corks, as convenient, easy to use, and suited to occasional drinking • Many thousands of wines and brands are retailed worldwide • Producers are consolidating into major global brands with wide product ranges • Loyalty to wine brands is strongest in new wine drinkers. As their knowledge and experience of wine grow, people are more likely to experiment with new brands and products • New wine drinkers generally prefer simple modern labels with product information • Australian wines are gradually making inroads into the world’s premium quality markets • Established wine markets are becoming increasingly price-sensitive due to price competition from New World suppliers and large retail chains, the availability of bulk packaging such as bag−in−box, and in some countries high tariffs, taxes, distribution costs and mark-ups • As personal incomes rise demand is growing for mid-priced, premium wines at more than A$15.00 a bottle and super premium wines at more than A$25.00 in Australia and many western markets (The marketing decade 2000−10) • Wine distribution channels are increasingly specialised and competitive • Most wine is sold by retail stores • Wine sales are growing in the expanding hotel, restaurant and bar sectors of many countries • Large retail chains increasingly dominate wine sales and are using direct purchasing, discounting, and centralised warehousing and distribution to be the price leaders for wine • Young consumers often buy wine in bars when socialising

88 • Small wineries usually sell directly from the winery and through mail order, and are often clustered in branded wine tourism regions • Direct retailing is growing through producer, wholesaler and retailer websites with mail order, and through catalogues • The 126 countries importing Australian grape wine have potential distribution channels for Australian tropical fruit wine • Wine manufacturers and industry organisations, often with government support, use generic and brand promotion to develop awareness and trial in new markets through tastings in shops and restaurants, media articles and advertising, wine courses and wine clubs. To maintain developed markets they are increasingly using brand promotion such as advertising, store signage, tastings, incentives such as prizes and price discounts, and wine reviews • Retailers, restaurants and entertainment venues rely on manufacturers to organise and fund promotion for new products, and often require rebates and other financial incentives • Endorsements by magazine and newspaper wine reviewers, prominent winemakers and wine judges are often used to promote wine • Wine is often matched with food on wine labels, and by sommeliers and wine reviewers • Many governments restrict promotion of alcohol to reduce over-consumption • Some governments are positioning wine as a healthier low alcohol alternative to spirits • Australian wines are accepted in numerous countries as reasonably priced and value for money, although industry efforts to reposition them as premium quality are starting to show results • Most countries impose import tariffs and various taxes on wine to reduce over-consumption, protect local industries and raise government revenue • Members of trading blocs such as the ever-expanding European Union can trade without the substantial taxes imposed on non-members • Access to emerging wine markets is improving as countries negotiate bilateral Free Trade agreements and the expanding World Trade Organisation negotiates to reduce quotas and import tariffs.

Cider and perry

• Cider and perry are low alcohol drinks produced from apples and pears respectively by similar fermentation techniques to wine-making, and also by a similar brewing process to beer • Apple cider is a major drink in many northern hemisphere countries, and widely traded • Still and sparkling perry are used similarly to wine, including meals, celebrations, and quaffing • Both are often produced by large drinks manufacturers • Cider manufacturers are extending their product ranges with flavoured and mulled ciders and premium grades to add value and expand into new markets.

Flavoured grape wine

• This is a large and growing drink category, particularly sparkling wine • Producers blend grape wine with fruit wine, fruit juice, fruit pulp, artificial flavourings, herbs, spices and sometimes bark, to expand into new markets • The fruits used for blending include tropical fruits such as mango and passionfruit

89 • Producers are often large wine manufacturers seeking to add value to low priced grape wine as mulled wines and health drinks • Manufacturers and retailers are offering these drinks to introduce young people to grape wine • Markets include health conscious people seeking low alcohol drinks and novice drinkers who prefer a fruity taste • These wines are being packaged in both wine bottles and small RTD bottles • ‘Coolers’ are low alcohol and diluted flavoured grape wines, usually in casks or small bottles • Retail prices are usually lower than for fruit wine.

Non-fruit wines

• Many traditional wines are fermented from bases other than fruit, often with sugar added to achieve the desired alcohol content. Although they rarely have commercial status these drinks provide competition for fruit and grape wines • Mead is often produced in the same regions as fruit and grape wine, but remains a minor drink • Ginger wine has minor production and markets, mainly in the United Kingdom • Wine is produced from maple sap in Canada • In eastern Asia most wine is fermented from grains, such as rice wine, and often distilled into high alcohol spirits • In many developing countries where personal incomes are very low, wine-style drinks are often fermented from low-priced sources of starch into high alcohol drinks for faster inebriation, such as sugar (producing cacacha – a Brazilian drink), palm, coconut and cactus. As individual incomes and aspirations increase consumers are shifting to imported grape wine • Vegetable and flower wines are usually home-made, but sometimes sold by fruit wineries.

90

Appendix B: Wine quality

Quality, where simple mechanical things are concerned, is measurable by how well or how long a device functions properly, or if it functions properly at all. With wine, pinning down the concept of quality is not so easy. Winemakers tend to agree that the quality of a wine is connected to its level of technical flaws. Consumers generally have no understanding about technical flaws and tend to relate quality to taste; however, what tastes good to one person may taste terrible to another. The following set of criteria aims to define wine quality by defining the parameters of a quality wine from a technological viewpoint, starting with basic wine quality and progressing towards increasing quality. Each point depends on the previous criteria being satisfied before advancing to the next level of quality. As fruit wines have an uphill battle in being accepted as a quality product, it is imperative they at least meet the first four parameters: • Level one: The first responsibility is that a wine is stable when it goes into the bottle, and remains stable for its projected lifespan. Unless it can meet this basic definition of quality, the wine is a failure. The wine does not need to be sterile but should contain no active spoilage microbes that will modify its sensory and chemical properties once bottled. Sulphur dioxide level should be sufficient to minimize oxidative degradation of the wine over its projected lifespan, and care taken with the bottling process, materials and procedures to minimise contamination en route to bottling. • Level two: If a wine meets the first criteria, the second step up in quality is that the wine should be well made and without obvious flaws, faults, off aromas or off flavours. This means it should have no perceptible volatile acidity, ethyl acetate, sulphide problems, contamination by moulds or bacteria, non-wine chemicals, or other non-wine aromas or contamination. • Level three: The third step up in quality is that the wine reflects the variety and / or style which it is labelled to represent. This refers both to basic chemical attributes, which should remain within acceptable sugar, acid, pH and alcohol ranges, and to aromatic signature and phenolic composition. These first three levels are the basic quality levels that a winemaker should achieve before putting any bottle out for sale or consumption. • Level four: The fourth level of quality is that the wine should be a delicious and pleasant example of the style which has been chosen consciously by the winemaker. The components in the wine should be balanced and in harmony with each other. Until this level of the quality hierarchy, the wine could have met all the previous goals and still be horrible to drink. This is the first point at which the consumer idea of the wine being ‘nice to drink’ is defined. This is the minimum level that fruit wineries should be operating in if they want the industry to thrive, grow and prosper. • Level five: To rise above a solid commercial wine and into the premium categories involves attributes such as the textures, character, complexity and personality of the wine. It is here that elegance and subtlety can be very powerful, and where strong and overpowering can be a negative. Huge wines can exist here but all components must be in harmony and give a sense of ‘oneness’. • Level six: The sixth quality level includes longevity of the wine, ability to develop interesting and complementary secondary characteristics, typicity specific to the place where the wine was made, and absolute trueness to the craft. At this level, quality attributes become more idealistic and less objective. Where previously defined levels can be applied to wine as a simple consumer product, this is where wines start to become something more lyrical and worthy of legend and tradition.

91

Appendix C: Case studies

The Australian grape wine industry

This case study was developed from several Australian wine industry reports. The Australian grape wine industry has grown to 1400 million litres a year, supplying a large domestic market and exporting more than half its production. Its success has come from not only large land areas with suitable soils and climatic conditions for wine grapes but a cohesive industry, an international focus, and strategic management of supply and marketing. The industry had a sluggish start. Although grape vines arrived with the First Fleet they were quickly affected by disease, and the first local alcoholic drink for homesick and weary settlers was a strong peach cider. Vineyards and wineries were established by the 1820s but different climatic conditions for the growing of the imported vines probably affected grape quality which would have had a hidden effect on the fermentation and eventual wine quality. Demand for domestic wines only started to grow, very slowly, late in the 19th century, due mainly to lack of an Australian wine culture, snobbish resistance to domestic wines by wine drinkers and hoteliers, and the influence of various temperance and abstinence movements. The small market was easily saturated due to lack of market development by the fragmented wine industry. Four major production booms were followed by plateauing and a fall in wine and grape production and producers exiting the industry. Also, large vine plantings were lost to the disease phylloxera. In the 1950s immigrants from post-war Europe introduced wine-drinking and European eating patterns to Australia, while higher personal incomes meant most people could afford wine. However, as fortified wine travelled better and arrived in good condition it was given a generous export subsidy, so more fortified wine was produced than table wine. In the 1960s Australians finally started to drink table wine, persuaded by an Australian Wine Bureau advertising and promotional campaign which was supported by wine books, articles and columns and food and wine societies. Producers initially offered sweet sparkling ‘pearl’ wines such as Gramps’ Barossa Pearl which appealed to women. In the 1980s demand grew as consumer tastes became increasingly European, and the new bag−in−box attracted many new wine drinkers by offering convenience and an image of value for money. From the 1990s eating out at cafes and restaurants became increasingly popular, providing more wine-drinking occasions, and the market soon expanded from wine enthusiasts to regular wine drinkers and from lower quality cask wine to quality domestic and imported bottled wine. The Australia Strategy 2025 plan launched in 1996 presented a vision of Australia capturing 6.5 per cent of the global wine market by 2025. This led to an increase in total vineyard area to 167 000 ha, more than half under Shiraz, Chardonnay, and Cabernet sauvignon grapes. In 2005, 6000 grape growers and 2000 wineries crushed two million tonnes of wine grapes, producing 1400 million litres of wine of which only 1100 million litres were sold, 40 per cent in Australia and 60 per cent overseas. By 2006/07 the industry faced another shakeout, especially for producers of red wine, following a record grape harvest in 2002, and for smaller wineries lacking the marketing clout of the leading producers with global markets. Some growers have put their vineyards into hibernation, keeping the vines alive with minimal water, until the stockpile of wine is reduced. Australia now has the world's fourth largest wine exports, after France, Italy and Spain, with about two-thirds of its wine exports going to the United Kingdom and United States. Underlying the strong industry growth has been long-term strategic and financial planning, a strong export focus, constant research in potential markets around the world for new export opportunities, and the ability to seize these opportunities and apply strategies to build and maintain new markets, all made possible by producers’ ability to band together with a unified focus and support for market development. Over the last century several organisations were formed to represent the industry:

92 • The Winemakers Federation of Australia (WFA) to give a collective voice for individual wineries. The WFA's role focuses on the development of policy in response to urgent and critical problems facing Australian wineries. These include minimising taxes and regulation, improving access to export markets, improving environmental performance, keeping research and development relevant to the industry’s needs, ensuring a socially responsible industry, managing changing workforce requirements, developing winery tourism activities, ensuring technical proficiency and flexibility in wine production, protection from and management of grape vine disease, and managing changes in packaging for wine and brandy • The Australian Wine and Brandy Corporation (AWBC), incorporated under the Australian Wine and Brandy Corporation Act to represent the interests of the wine and grape industries and to promote the generic category of Australian wine • The Wine Overseas Marketing Board, formed in 1929 by the Australian Government to co- ordinate exports and now a sub-branch of the Australian Wine Export Council • The Australian Wine Export Council (AWEC), founded to manage the AWBC’s export programs and export growth in collaboration with both exporter committees and importer committees consisting of company representatives and various levels of distributors in major markets • The Australian Wine Bureau to market Australian wine overseas • The Wine Research and Development Corporation (WRDC) to manage product research and development • The Grape and Wine Research and Development Corporation (GWRDC) and the University of Adelaide’s Australian Wine Research Institute for technical research and development. Activities with a broad industry benefit are funded by a compulsory levy on all grapes used for wine, brandy, and spirit used to fortify wine. Producers also pay voluntary levies to participate in specific promotions. The Wine Overseas Marketing Board supported development of Australia’s first wine export market, Great Britain, in the 1920s by establishing marketing firms there and promoting Australian wines at various international exhibitions and competitions. In the mid-1980s a new export focus, largely due to an oversupply of wine and a low dollar against the British pound, led to renewed market growth. The industry has responded to increasing global price competition and growing demand for premium wines with a strategy of consistent and reliable quality at affordable pricing, with most wine exports now bottled and branded table wine. To develop premium quality wines the industry has invested in extensive product research and development; state-of-the-art infrastructure and facilities; new and innovative technology; management of climatic conditions; high standards of processing, bottling and storage; and innovative inventory and logistics management systems. It has kept abreast of technical developments in the world wine industry, introducing new technology and adapting imported technologies. Ongoing support is provided through winemaking training by the University of Adelaide’s Roseworthy Agricultural College, Charles Sturt University, other tertiary institutions, and TAFE colleges; laboratory testing services; and product research and development. Supply chain development with winemakers, grape suppliers and marketers has improved the quality of grapes delivered to the winery. Quality standards for products and labelling industry-wide have been developed and maintained through the Label Integrity Program by the Australian Wine and Brandy Corporation, Australian Wine Export Council and some 80 producer organisations. This quality assurance program, which applies to domestic and imported wines and ensures exported wines meet the product standards of the importing country, is based on the Food Standards Code of Food Standards Australia and New Zealand, with standards similar to those of the EU and United States. The industry now offers a wide variety of wine styles, quality options, and packaging choices, and company consolidation has increased the diversity of product ranges. Research and development has

93 provided differentiated products and innovative packaging such as wine casks to expand the market into new consumer segments. After World War II some large firms shifted from bulk sales to bottling under their own labels, and market recognition of these brands encouraged improving wine quality. In the 1980s large corporate producers with marketing capability developed Australia’s first global wine brands: Jacob’s Creek, Lindemans and Rosemount. Australia’s leading wine companies are now Foster's, Southcorp, Constellation Wines and Orlando (with the Jacob's Creek brand). As distribution channels become increasing consolidated by wholesalers, distribution agencies and retail chains, retail shelf space has been shifting to strong brands with adequate volume. The merging of producers into large corporate producers has enabled them to ensure supply, achieve cost- efficiencies through large-scale production and establishment of overseas distribution, and offer a wide assortment of products. These corporate producers have championed the industry through product research and development and promotion by brand. In 1994 the Australian Wine and Brandy Corporation established the Geographical Indications Committee (GIC), a statutory committee to ‘make determinations of geographical indications for wine in relation to regions and localities in Australia’. This has established numerous regional boundaries for the registering of Geographical Indicators, and many local producer organisations have since invested in regional branding and marketing. The Regional Indicators have also enabled the development of regional wine tourism, which has allowed wineries to educate tourists interested in wine, and often food; communicate the attributes and brands of their own products, maximise sales profits; and build a viable business base from which to expand. The strong growth in international and domestic tourism has provided important new markets, particularly for small wineries. Also, regional branding from prestigious production regions has been shown to add value to comparable wines, enabling higher pricing. Generic promotion of ‘Wine of Australia’, the umbrella Brand Australia, by the Australian Wine Bureau and also brand promotion by individual wine manufacturers has supported the development of an image of quality, value for price, and reliability for Australian wines in many overseas markets. As awareness of wine is developed in new markets, branding becomes more significant, and well- developed markets typically have a representative range of brands and price points in all distribution channels, and often an Australian wine category. Promoting by grape variety has been also been successful. International markets have seen this Australian marketing initiative to demystify the French style labels as a breath of fresh air and quickly adopted it, initially in New World markets and recently in Europe, including France. An industry−wide strategy of attractive easy to understand labels has also provided a strong competitive edge around the world, particularly with new wine buyers daunted by complex Old World labels and appellation. Strategic alliances with global manufacturers and wine distributors in key wine markets have led to more efficient distribution systems and access to new distribution channels. Flexibility and adaptability have enabled the industry to seize new market opportunities. For example, Australian producers have met changing global consumer trends by moving to full flavoured wines and to red wine for increasingly health conscious drinkers, and have been able to develop a range of wines when Australians began to visit wineries. The United Kingdom became Australia’s largest wine market largely because producers quickly responded with large volumes of consistent quality premium grade and low-priced wine when new laws permitted supermarkets to retail wine at a time when Europe’s Common Agricultural Policy made it unprofitable for producers in European Union countries to divert wine from highly subsidised ethanol production, and there was little supply from other southern hemisphere producers. Not having appellation controls, which have slowed diversification in European industries, has also enabled Australian producers to respond more quickly to new market opportunities. The industry has developed supply and greater efficiencies by expanding production through market forecasting and tax benefits for grape producers to attract investment and tax incentives for vineyard

94 development (withdrawn in 2003); consolidation into large producers; and mechanising of pruning and harvesting. The industry continues to campaign for more favourable tax treatment, including elimination of the Wine Equalization Tax. However, producers, particularly small wineries, lack the financial buffers of corporate manufacturers and so continue to be buffeted by fluctuating supply and demand, price-discounting and changing taxes. To expand in overseas markets the industry is developing alliances with overseas wine distributors in the United States and potentially India, China and throughout Asia, and has formed strategic alliances with other southern hemisphere wine producing countries to negotiate better market access with individual countries and through the World Trade Organisation. The industry invests heavily in promotion to build consumer, distribution and media awareness of Australian wine and individual brands in new markets. The typical market entry campaign consists of tastings, promotion in wine and other media, promotional support materials such as point of sale literature, company brochures and videos, trade exhibitions; participation in third party consumer promotions and events, and the hosting of visiting overseas wine writers and distributors. Two major strategies underpin the industry’s market development. The Winemakers Federation of Australia, Strategy 2025, launched in 1996, provided a vision that by the Year 2025 the Australian wine industry will achieve $4.5 billion in annual sales by being the world's most influential and profitable supplier of branded wines, pioneering wine as a universal first choice lifestyle beverage.' Its purpose was to provide objectives and goals for the Australian wine industry for the next 30 years to address challenges and opportunities facing the Australian wine industry, and to determine a whole– of–industry vision for the future, with a specific focus on the resource requirements, market opportunities, competitiveness and government facilitation needed to fulfil the industry vision. The strategy highlights the need to develop specific strategies to address the industry’s key competitive factors such as marketing, environment, and research and development. A second strategy, The Marketing Decade, is a joint industry–funded initiative between the WFA and the AWBC. Expanding on Strategy 2025 it aims to convert the major developments in the past decade, particularly the growth in exports and wine grape production, into international competitiveness, market development and the generic branding of wine brand Australia; to communicate the next 10 years of challenges and opportunities to all wine industry participants and stakeholders; and to provide strategies for market development.

Yellow tail wine

Casella Wines introduced its Yellow tail brand to the United States at a time when retailers were seeking wines priced between inexpensive jug wines and wines at A$15.00 a bottle, and wine and spirits importer William J. Deutsch & Sons was looking for a new brand as sales declined for its lead product, a French Duboeuf Beaujolais. The importer traded distribution within the United States for a half share of the Casella brand. Encountering strong resistance to their family brand from established brands with similar pricing, Casella Wines launched a new chardonnay–shiraz blend with a stylised yellow-footed rock wallaby on the label as Yellow tail through Deutsch’s established distribution channels, supported only by point of sale promotional material. By 2005 Yellow tail was both the leading imported brand and leading brand in the United States and it has since been introduced into Europe, Canada and Asia. Key success factors were mainly the big fruity Australian-style taste, consistent quality, pricing of US$6.00 (A$7.90) a bottle compared with US$9.00−11.00 (A$11.80−14.40) for most United Figure C.1: Yellow tail wine logo

95 States wines, ‘friendly’ label, and strong distribution. Jon Fredrickson, a Californian industry consultant, described Yellow tail as ‘the perfect wine for a public grown up on soft drinks’. Casella Wines have since developed more varietals and blends and a reserve line under the Yellow tail brand in 750 ml and 1.5 litre bottles. The reserve wines produced with the best fermentation treatments added complexity and aging in oak barrels. It retails at a $2.00−3.00 premium to the original wine. Deutsch & Sons have supported product introductions a with multi million dollar promotional campaign, including billboard advertising.

Ready to drink (RTDs)

This case study was prepared using media articles and interviews with liquor retailers in Brisbane and Melbourne and operators of nightclubs, clubs and hotels in Cairns. Ready to drink (RTD) is the term given to a new category of spirits flavoured with fruit juice, fruit flavours or soft drinks, in small bottles or cans. Since Two Dogs Alcoholic Lemonade, the first Australian alcoholic brewed lemonade was launched in Australia in 1993 the RTD concept has grown rapidly into a large global category, taking market share from both beer and spirits. The industry is now highly competitive with numerous producers, including large global spirit manufacturers; a very large and diverse category of products from flavoured spirits to various types of wine and cocktails; intense competition through constant product innovation, numerous brands, pricing strategies, heavy promotion, and congested distribution channels. Manufacturers have used packaging, labelling and promotion to position the RTD category as a fun drink for young adults, particularly fruity styles for young women, using packaging with a fun image, such as party carry-packs and packaging for home entertaining to appeal to their desire for a glamorous and sophisticated image. Young adults are attracted to colourful and fluoro labels, good packaging and point of sale, and an image of ‘cool’ and well-known. Packaging is also used to signify quality, and some companies have developed a tier of products based on quality to direct more experienced consumers toward premium quality lines. RTDs offer consumer benefits that include refreshing flavours, lower prices, a trendy image, small convenient containers, bottles to impede drink-spiking, and low alcohol content. Young women often buy RTDs with similar alcohol content to the beer their male companions drink. Nightclubs and club managers attribute the popularity of these products to young people starting to drink them early, often at nightclubs; being always interested in new drinks, and wanting a quick alcohol effect from the stronger RTDs. However, there are signs that young adults, a stable but heavy drinking market, are moving on from the RTD category to more adult drinks with an image of maturity and sophistication such as wine, liqueurs, cream-based drinks and premium beers. RTDs are characterised by large manufacturer brands; alcohol content of five to seven per cent, small containers such as 275 ml and 330 ml bottles and 375 ml cans, and often retail party packs. Light spirit RTDs are typically vodka or schnapps with fruit juice or flavouring, such as Smirnoff Black, UDL, Bacardi Breezer, IceSkyy Blue, Vodka Cruiser, Archers SPRI, and Malibu Chill’s Exotic Rush with passionfruit, mango, peach and apricot. Vodka-based fruit flavoured drinks have been particularly successful, with attractive price points and strong promotional support to retailers, and Smirnoff vodka RTDs are a leading drink with young women and increasingly men in Cairns venues. Dark spirit RTDs are mostly bourbon-based drinks such as Southern Comfort with cola or lemonade, and represent around 60 per cent of total RTD sales, mainly to men. However, variable quality is affecting consumers’ perception of value for money. Manufacturers have been attempting to position other drinks as RTDs by using smaller containers. This has been more successful for some drinks than others, even with good promotional support. Examples are: • Killawarra Dusk (strawberry flavoured) and Yellowglen Pink sparkling wines in 200 ml piccolos (small bottles) and prepacks in RTD sections as well as in 750 ml bottles with the sparkling wines

96 • St Agnes brandies pre-mixed, such as St Agnes Lime and Soda packaged to appeal to younger drinkers, supported with promotions such as giveaways • Bluetongue Alcoholic Ginger Beer and Stone’s Ginger Beer’s Premium Ginger Beer • Cocktails such as Mudslides (cream liqueurs). One nightclub sells RTDs at $7.00−9.00 each. Examples of retail prices are Midori Splice (coconut, rum and pineapple) with five per cent alcohol at $3.49 for a single or $11.40 for a four-pack; ‘Vodka with a twist of exotic passionfruit’ at $8.99 for a four-pack, Vodka Cruisers at $50.00 for a 24-pack and Yellowglen sparkling wine at $3.99 a bottle or $15.99 for a four-pack. RTDs are an established category in retail stores, bars and nightclubs. However, there is such a proliferation of products and new product launches that one large nightclub has opted for distribution contracts, often exclusive, for a few lines only. Also the wide range of products has increased the need for good display and signage, and intense competition for refrigerator space in retail stores has led to some manufacturers supplying their own refrigeration. Manufacturers support their products with intensive promotion, which results in brand loyalty, word of mouth and continuing strong sales. Promotions include media publicity and advertising; tasting samples; giveaway merchandise such as bags, caps, sweat bands and fake tattoos; draws for prizes and holidays; sponsorship of sporting events; and scratch and win prizes. One new RTD product was launched with point of sale material, followed by a television and radio advertising campaign, media publicity, on premise and off premise tastings, and a promotion that provides gifts with purchases. One nightclub supports manufacturer promotions with signage, video advertisements and tastings offered by attractive young women. To introduce a new line and create word of mouth a large nightclub requires rebates and a promotional budget for a month of tastings with discounted stock for tastings, and point of sale material. Product development, store tastings and education of trade and bar staff on the RTDs and their individual brands have fallen behind across the category. RTDs without solid brand backing, and appropriate pricing, have short product cycles.

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Appendix D: Harmonised system (HS) codes for wine

International harmonised tariff codes, to six-digits, are administered by the World Customs Organisation, with fruit wines defined as ‘other fermented beverages e.g. cider, perry, mead; mixtures of fermented beverages and non-alcoholic beverages not elsewhere specific or included’ by both the four-digit code HS2206 and the six-digit code HS2206.00. However, individual countries allocate their own additional three digits to further break down import categories, so the same fruit wine product may be classified under several nine digit codes (Hiew 2007). Table D.1: Harmonised system codes for fruit wine products, grape wine and related products Harmonised Country and product system code 2206.00 Other fermented beverages e.g. cider, perry, mead; mixtures of fermented beverages and non-alcoholic beverages not elsewhere specific or included New Zealand: Fruit and vegetable wine 2206.00.1 Canada: cider Indonesia, Malaysia, Philippines, Singapore: Cider and perry Korea: Fermented beverages from fruits 2206.00.10.10: Cider; 2206.00.10.20 Perry; 2206.00.10.90 Other fermented beverages from fruits not previously specified Mexico: Wine coolers 2206.00.15 United States: Cider 2206.00.20 Canada: Prune wine Korea: Fermented beverages from cereals Indonesia, Malaysia, Philippines, Singapore: Sake 2206.00.200.004 Taiwan: Fermented fruit beverages 2206.00.2105 Japan: Sake 2206.00.21.30 Canada: Prune wine, over 7% but not 22.9% alcohol 2206.00.221 Japan: Wine with fruit juice added, wine coolers 2206.00.2212 Japan: Mixtures of fermented beverages (excluding Seishu) and products of HS2009 ‘fruit juices’ or HS2202 ‘mineral and other waters’ 2206.00.2293 Japan: Other 2206.00.30 Australia: Grape wine not with spirits; cider; perry; fruit and vegetable wine not with spirits; mead, sake – 2206.00.3020: Grape wine; cider; perry; mead; sake of an alcoholic strength by volume over 10.15%; fruit or vegetable wine of an alcoholic strength over 8% but not 22% Canada: Perry Indonesia, Philippines, Singapore: Toddy United States: Prune wine Malaysia: Mead 2206.00.30.002 Taiwan: Mead 2206.00.40 Australia: Fortified grape, fruit and vegetable wine and mead Canada: Other wine, sparkling Malaysia: Wines from fermented fruit juices such as fig, date or berry, but not grape or vegetable Indonesia, Philippines, Singapore: Shandy, over 0.5% but not 3% alcohol 2296.00.45 United States: Rice wine or sake 2206.00.50 Australia: Beverages not specified elsewhere fortified with spirits from HS2207 Indonesia, Philippines; Singapore: Shandy, over 1% but not 3% alcohol Canada: Fruit wine including, Kosher and blackberry 2206.00.60 Australia: Beverages not specified above – fortified with spirits

98 Harmonised Country and product system code Canada: sake and other wine United States: effervescent wine 2206.00.70 Australia: Beer other than HS2203 (not from malt) with hops, not more than 48 litres United States: Fermented beverages, excluding cider and sake Canada: sake and other wine exceeding 21.9% alcohol 2206.00.80 Australia: Beer other than HS2203, more than 48L Canada: Ginger beer and herbal beer 2206.00.89 Australia: other 2206.00.90 Australia: other Canada: other HS2206.00.91: Mead Indonesia, Philippines, Singapore: Mead and other fermented beverages United States: Fermented beverages other than grape wine, beer, cider, prune wine, sake, vermouth, or other effervescent wines 2206.00.90.10 Taiwan: Wine coolers; Malaysia: Toddy, bottled or canned 2206.00.99 Malaysia: Other

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Appendix E: Country profiles

E.1 Country profiles – Asia

Research indicates tropical fruit wine markets are emerging in a number of Asian countries and this section describes the larger potential markets. The Japanese market profile is located separately in Section 5 and incorporates the preliminary profile used for market selection.

E.1.1 China

A separate profile has been undertaken for Hong Kong because, although it is a Special Administrative Region of the People’s Republic of China, it has a more established wine market and different entry conditions to mainland China.

Market profile

China has a long tradition of fruit wines dating from the Xia Dynasty in the 21st century BC and, until recent years, all fruit wine was made from fruits other than grapes. Fruit wines are widely consumed and often with meals. A strongly growing market is indicated by the establishment of several large commercial fruit wineries in the last 15 years. Exports of fruit wine related products grew from 26.5−40.6 million litres from 2002−05. Annual exports from 2002−06 included approximately 7.5 million litres to Japan, the United States and Canada. Volumes to Australia fluctuated between 81 200 and 151 400 litres (Table E.1). The main markets for grape wine are: • the wealthiest elite, as a signifier of status • a large and growing middle class of higher income and professional people who can afford wine, are often conscious of health claims for red wine, and are starting to buy wine on business and social occasions • 18−45 year old middle class people who consider wine, particularly red wine, as fashionable to drink in wine bars, hotels and restaurants • high income earning Chinese and foreigners in large cities, who buy most imported wine • international visitors drinking higher quality wine in hotels and restaurants • people in Shanghai, who buy imported drinks under the influence of westerners • rural people and some minority ethnic groups (Access Asia Limited 2004; AWBC 2002, 2005; Buckalew 2005; Yantai Best Cellar Consulting Co Ltd 2005; China Wines Information 2005; Canada Agri-Food Trade Service 2002; WHO 2004). Grape wine, usually imported, is mainly used to convey high status at major occasions such as traditional holidays; celebrations such as banquet dinners, particularly in Shanghai, and Government departmental lunches, where red wine is increasingly replacing clear spirits as banquet toasts; and as gifts to convey affection and respect at special occasions such as Chinese New Year and housewarming parties. Chinese people prefer wine to have both acidity and sweetness and often drink it as a shot or mixed with lemon, ice, or lemonade, similar to brandy and whisky. However, people are gradually drinking wine western-style, particularly where influenced by foreigners (Buckalew 2005; Qu 2005). Regional consumption of grape wine is highest in northern China, (WHO 2004) and growing in the more affluent major cities and coastal regions, led by Shanghai, Beijing and Guangdong, where most

100 Australian grape wine is also sold. Consumption is highest in Shanghai, an international city fast becoming the financial centre for Asia, with a large market of people with the highest individual disposable incomes in China; strong demand for new foods and flavours; growing wine education; increasing numbers of distributors handling imported wines; and a market of middle and upper class consumers, young to middle-aged, with sophisticated tastes in food and wine, who drink wine at corporate events and buy it through luxury hotels and restaurants, western and higher quality chain restaurants, casinos, western bars, bars, wine bars, boutiques and supermarkets, home delivery services, and the Internet (AWBC China 2002; Buckalew 2005; Dean n.d.; Business Victoria n.d.). The market has become increasingly competitive as production volumes and winery numbers increase while market growth is constrained by high wine prices compared with beer and spirits (although prices are falling as the industry and market develop and taxes are reduced); poor quality domestic wines under irregular brands and mostly made from alcohol, saccharin and water with little fruit content; and the lack of a wine culture. Most Chinese people drink only domestic wine as their incomes are so low they cannot consider imported wines with import taxes (China Wines Information 2007a; China Wines Information 2006e). Grape wine was only introduced to China in the 1970s when the Chinese Government launched commercial production to provide consumers with a healthier and lower priced alternative to high priced drinks such as imported brandy and local spirits. Consumption has grown strongly to around 432 million litres in 2005, and is forecast to double by 2015, due largely to: • a rapidly growing economy and rising disposable incomes • an emerging professional class, a middle class of around 60 million people and an aspiring middle class of around 180 million beginning to explore different tastes and lifestyles and Australian wine • wine increasingly drunk at events such as Harvest Moon festival and Chinese New Year • giving wine for gifts increasingly popular as western–style behaviour • people associating wine-drinking with sophisticated western customs and high social status • buying wine becoming very fashionable as many new wine shops open in major cities • consumers accepting health claims for red wine • government promotions persuading consumers to adopt wine as a healthier lower priced western-style alternative to high alcohol grain spirits • growing wine education and wine appreciation • a growing interest in western lifestyle and tastes • a wide choice of good inexpensive wines as domestic wine quality improves • growing numbers of fine dining restaurants in the leading centres of Beijing, Guangzhou, Macau, Shanghai and Shenzhen (Access Asia Limited 2004; Buckalew 2005; Dean n.d.; China Wines Information 2006d; Business Victoria n.d.; Wright 2007). The market with most growth potential for grape wine is around 60−130 million young to middle-aged people with higher incomes who drink wine in luxury hotels, bars and casinos in coastal cities, five to ten per cent of the population (Business Victoria n.d.). However, grape wine remains a new and minor drink in China, with average individual consumption of only 0.3 litres a year. Chinese people consumed 35 billion litres of alcoholic drinks in 2005, 20 per cent of the world market. Grape wine accounts for only one per cent of total liquor production, compared with 24 000 million litres of beer and 5500 million litres of white spirit led by the popular traditional ‘baijiu’ spirit distilled from rice, ‘maotai’ from sorghum; and imported brandy and spirits. While Chinese people have traditionally drunk alcohol to become inebriated rather than for taste, beer and spirit production are slowing, and as incomes and health consciousness increase consumers are

101 moving to small quantities of better quality drinks, and likely to adopt increasingly sophisticated drinks, indicating opportunities for new healthier alternatives to current drinks (China Wine Information 2007; MacLeod 2006). China’s favourite beverage is tea. Many Chinese people do not drink any alcohol, and a 2001 World Health Organisation sponsored survey of 25 000 people across five regions found 41 per cent to be lifetime abstainers (WHO 2004). Fruit winemakers will need to acquire a sound understanding of Chinese cuisine and culture before they can make inroads into its wine market.

Supply

A very large and growing fruit wine industry is concentrated in four leading regions, which include Fujian, Guangxi, Hebel, Jiangxi, Lianing and Sichuan provinces (Eijkhoff 2000). Manufacturers are often conglomerates producing a diverse product range. Rationalisation of the industry saw manufacturer numbers fall from 246 to 54 from 1997–2002, resulting in improved financial viability of the remaining companies and value of production growing to CNY1407 million (A$255 million) by 2005. However, despite the central government’s privatisation policy, all fruit wineries remain 100 per cent state owned, most being poorly run ventures and unattractive prospects for privatisation, with little incentive for employees to strive to find new markets, so most distribution remains local. Imports of fruit wine related products halved to 564 000 litres from 2002−06, while exports almost doubled to 40.6 million litres, reflecting strongly growing production and an export focus. Total values were not available. Imports included small intermittent quantities of fruit wine products from Australia, fluctuated from the United States and ceased from South Africa (Table E.1), and included various berry wines and fortified wines from Fort Wine, Canada (Luke 2005). Table E.1: China: trade in fermented drinks HS2206, # 2002−6

Description 2002 2003 2004 2005 2006 HS 2206.00: fermented beverages e.g. cider, perry, mead; mixtures of fermented beverages and non- alcoholic beverages not elsewhere specific or included Total imports – litres ^ 1 002 440 783 600 507 400 564 000 not av. Total exports – litres 26 549 970 28 155 000 36 779 000 40 607 000 not av. Imports from Australia – litres 3 530 0 0 135 7 700 A$ ^ 7 642 – – 5 382 85 637 A$ per litre ^ 2.16 – – 39.87 11.12 2206.00.9000: Fermented beverages other than grape wine, beer, cider, prune wine, sake, vermouth, or other effervescent wines Exports to United States (excludes Mongolia) – litres 13 300 1 200 8 600 5 400 0 - $ per litre * 4.43 6.42 4.59 2.92 – Imports from United States (excludes Mongolia) – litres 0 26 100 116 100 47 500 2 000 - $ per litre ^ 1.30 0.86 1.93 1.99 1.30 Exports to Canada (A$) 28 080 16 117 33 294 14 947 23 328 Imports from South Africa (includes Hong Kong) – A$ ^ 23 969 17 216 1 911 0 0 HS 2206.00.229: fermented beverages including cider, perry and mead, but not sake or wine coolers Exports to Japan – litres 8 089 800 7 553 400 8 003 700 7 862 700 7 602 300 - A$ per litre * 3.79 3.24 2.80 2.75 2.72 HS 2206.00.3020: Grape wine, cider or perry, mead, sake, fruit or vegetable wine Exports to Australia – litres 106 980 71 337 137 575 81 246 151 386 – A$ per litre * 2.57 2.15 2.57 1.91 2.32 Notes: # Excludes grape wine and beer.* CIF at importing country; ^ FOB from exporting country. Sources: ABS; Japan Customs Trade Statistics; Department of Industry and Trade; South Africa trade statistics; USDA Trade Statistics

102 The Chinese Government introduced a commercial grape wine industry when it opened the economy in the 1970s. Production is concentrated in four main regions: Bahia region, including Hebei, Shandong, Liaoning, Tianjin and Beijing provinces; around the old Yellow River basin, Xinjiang province and Yunnan province (Yang 2005). Production of wine grapes and wine has grown rapidly, with wine production reaching 385 million litres in 2005 and forecast at 420 million litres by 2010, due mainly to various Government activities: • the current Tenth Five-Year Plan which aims to conserve grain for food and reduce alcohol consumption by restructuring the liquor industry to move from common alcoholic drinks such as grain wines to quality fruit wines in a wide product range; from high to low alcohol content; from distillation to fermentation; and to lower energy processes (Sun 2003) • defining of a single legislative framework that complies with international wine standards • development of geographical indicators for wine producing regions • improving domestic wine quality for domestic and export markets • research and education for producers • improving the grape wine industry’s capacity to innovate through new wine technology, techniques and grape cultivars • establishment of wine tourism, with western-style wine regions, hotels, restaurants and prominent wineries (Yang 2005). Poor wine quality has restrained industry growth, partly because of a lack of good quality grapes but also largely because Chinese people prefer to eat fruits when hard and under-ripe, indicating the need for a cultural shift if Chinese farmers and workers are to understand the nuances of flavour development when growing fruit for wine. However, the opening of China's economy has attracted large European wine producers in joint ventures with Chinese companies who are introducing quality grape cultivars and world class production technology and expertise (AWBC China 2002; Buckalew 2005; China Wines Information 2006b, Canada Agri-Food Trade Service 2002; Business Victoria n.d.). Of around 500 grape wineries, most are small to medium in size with the ten largest producing around 10–12 million litres a year, led by Changyu, Dynasty, Great Wall, Weilong and Dragon Seal, with around 40 per cent of production from Cabernet Sauvignon grapes. The four main categories of winery are established wineries, manufacturers converting from distilled spirit to wine production, new manufacturers, and bottling factories in coastal regions handling imported bulk wine. Domestic producers are focussed on low-priced high volume sales (AWBC China 2002; China Wines Information 2006a; Business Victoria 2002). Grape wine imports were around 53 million litres in 2005 and growing strongly, and could reach 450 million litres by 2017 as imported wine becomes more affordable due to economic growth and the rising living standards. In 2004 almost all imports were bulk wine, at an average price of A$1.60 a litre, mostly from Chile, but the growth is in bottled wine. While the strong growth could represent a 'speculative spike' similar to the bubble of 1997, current growth is likely to be more solid. In 2004 France led imports with 36 per cent of volume, followed by Australia (20 per cent), the United States (14 per cent), and Spain and Chile (six per cent each). Only Australia, Spain and Chile have been increasing their share of imports. Most Australian product is from South Australia, due to strong support from government and Chinese importers and distributors, good product quality and variety, competitive pricing and extensive promotion (AWBC 2005; Buckalew 2005; Decanter 2007; China Wines Information 2006d). Foreign brands provide a tenth of liquor sales, dominating the quality market, and competition is intense. The grape wine market perceives the Old World suppliers France and Italy as providing premium quality, particularly French wines as early promotion has resulted in myths favouring French wines being entrenched as ‘law’ or fact in the Chinese psyche and French companies are increasingly involved in local production and bottling ventures. China’s accession to the World Trade Organisation

103 has improved market access for Australian wine producers, resulting in strong growth in Australian grape wine exports. Australia is increasingly supplying premium quality wines which are regarded as attractive mid-range wines that are easy to drink and to buy. Wines from New World entrants Australia, Chile and the United States are seen as less prestigious than European wines but better value for money (AWBC China 2002; Buckalew 2005). Large scale Australian fruit wine producers could take advantage of this perception by also offering value for money.

Product profile

A wide range of fruit wines is made from fruits such as lychee, pineapple, guava, mulberry, orange, apple, apricot, bayberry, hawthorn berry, kiwifruit, pear, plum, strawberry, tangerine, wolfberry and waxberry, as well as herbs, roses, olives and other bases. Much of the wine is produced using traditional fermentation techniques and modern equipment. Manufacturer and distributor websites indicate these examples of Chinese producers and wine styles: • China Wolfberry Holding Company: Ning Xia Hong brand wolfberry wine from China’s leading wolfberry growing region of Ning Xia province • China Brewing: fruit and rice wine blends • China Changhua Pigeon Business Limited, Guangzhou: fruit wine • China Fruits Corporation (through wholly-owned subsidiary Jiangxi Taina Nanfeng Orange Co. Ltd): fruit wine and juice • Huizhou City S.H. Industry Co. Ltd, Guangdong: lychee, waxberry, and strawberry wines • Jiangxi Zhonghua Kiwi Fruit Brewery: kiwi fruit wine • Lihuang Trading Corporation: Lichee Fairy Dry Wine with added hydrolyzed collagen • Ningbo Tiangong Fazenda Fruit Juice & Fruit Wine Co., Zhejiang Province: Mulberry Red wines with 10.5 per cent and 12 per cent alcohol • Shanghai La Cigogne: La Cigogne fruit wine. • T.C.C. Ningbo Best Spirits Co. Ltd, Zhejiang Province: plum and Chinese date wine • Vinliz: lychee wine from ‘100 per cent naturally fermented litchi juice, with no artificial flavours or colours’ • Zhejiang ZITIC Import & Export Co.: lychee, mulberry and apricot wines (Alibaba 2007; Actis News 2004; company websites; Eijkhoff, 2000; Imex Goods website; ‘Trade India 2007; 21Food.com 2007; Wai Yip International 2007). Fruit wines fall under these definitions: • The National Standard of the People’s Republic of China, which provides the only standards for grape wine, refers to fruit wines as ‘Fermented wines’ in the category of ‘Fermented alcoholic drink’ (General standard of the People’s Republic of China 2005). • The term ‘wine’ is used for fermented non-distilled drinks, ‘fruit wine’ made from fruit, including grapes, with 10−20 per cent alcohol; ‘rice wine’ made from any cereal, with typically 15−16 per cent alcohol; and ‘yellow wine’ from grains, with 15−20 per cent alcohol (WHO 2004). • As in Japan ‘wine’ also refers to low alcohol liqueurs made by alcohol extraction through mixing fruit or fruit juice with sugar and distilled alcohol. For example, the Heifei Cigarette Factory website advertises a fermented plum wine and also a plum wine made as a liqueur. • Grape wine is also called ‘putao jiu’, or ‘grape alcohol’.

104 Some fruit wine labels and websites appeal to the health conscious by describing the wines as organic or natural, and made with natural fermentation and no artificial ingredients, preservatives or added sulphites. One manufacturer describes its wines as ‘contamination-free’ and from first-class European fruit and pure spring water with no minerals, while another promotes the use of 100 per cent lychee. Ning Xia Hong Wolfberry wine is positioned as a health product in supermarkets (Actis News 2004). There is a discerning market for better quality higher priced fruit wines from privately owned wineries. For example, a manufacturer sold 600 000 bottles of kiwifruit wine a year at around A$20.00 a bottle a few years ago until ceasing production for political reasons. However, most people buy low priced low quality wine lacking in fruit flavour, usually from Government wineries. Most grape wine sold is low to medium quality domestic product. Imported grape bulk wine is used mainly to ‘stretch’ the local wine, usually an artificial wine made from alcohol, water and food colour. As Chinese wine mixed with imported bulk wine can be labelled as domestic, most wines labelled as Chinese contain 30-40 per cent imported product (AWBC 2007; Buckalew 2005). Until mid-2004 a unique industrial standard permitted grape producers to make ‘half-juice wine’ from grape juice, sugar, water and essences. However, the proportion of juice used dropped off significantly, and China’s State food and Drug Administration found that many Chinese wines were only water, alcohol and colour pigment with traces of grape juice, and often had food additives over maximum allowable quantities. One such product retailed at only one or two yuan (A$0.20 or $0.40). Under industry pressure the Government has introduced the China Grape Wine Making Technological Norm. However, while the National Standard of China for Wine only permits colorants in fortified wines, and prohibits water, alcohol, flavours or pigment being added to grape wine there seems to be little policing of this in practice (China Wines Information 2005a; China Wines Information 2005; China Wines Information 2007b). Red wine, both fruit and grape wine, is popular as a gift because the colour red symbolises happiness, celebration, health and good luck, and red wine is also perceived as a health drink. While red wine represents 80 per cent of all grape wine consumed for these reasons, and is the most popular choice in winter, white wine consumption is also slowly rising, especially in south China, mainly by Chinese women who prefer lighter styles, expatriates and tourists for pairing wine with food, and people who prefer to drink chilled wine in summer. Chinese people rarely match wine with food, usually drinking red wine with all dishes. Imported wine has a positive image as high quality, healthy and the ideal gift (Access Asia Limited 2004, Buckalew 2005). The National Standard requires sparkling and semi-sparkling wines to be fermented, with carbon dioxide pressure of at least 0.35 Mpa for sparkling wines and 0.05−0.34 Mpa for semi-sparkling at 20°C. If any carbon dioxide is added the description ‘carbonated wine’ is required. However, sparking wine is known as ‘gas’ wine and is not popular or understood, and champagne and other sparkling wines are rarely drunk, and not used as toasts. While most wine is sold in bottles, Chinese manufacturers are producing various styles of bag−in−box (China Wines Information 2006d). Imported wines need a Food Hygiene Certificate, and import inspection. Labels must be registered in advance with the Chinese State Administration for Entry and Exit Inspection and Quarantine which will also provide a chemical analysis and approval for each product for around A$300.00 a label (AWBC China 2002). Labelling must comply with the National Standard of China for Wine (GB/T 15037-94) and the Wine Labelling Law (GB 10344) administered by the General Administration of Quality Supervision, Inspection and Quarantine (AQSIQ). Labels are required to contain the product name in Chinese language, and the product type according to its sugar levels: • Dry: Less than 4 g per litre sugar, or up to 9 g per litre provided total acid (expressed as per litre tartaric) is within 2 per litre of the sugar • Semi-dry: Between 4 g per litre and 12 g per litre sugar, or up to 18 g per litre if the sugar content and acid content do not differ by more than 2 g per litre • Semi-sweet: Between 12 g per litre and 45 g per litre sugar

105 • Sweet: Greater than 45 g per litre sugar (China Wines Information 2006f). Distributors of imported wines often stick small, printed adhesive labels over the back label, leaving the unique and artistic front label untouched, but China's General Administration for Quality Supervision, Inspection and Quarantine (AQSIQ) is likely to insist on permanent labels in Chinese language in the future. Domestic fruit wines are usually labelled as ‘wine’ and with the fruit used, while domestic grape wines are labelled by grape variety. A lack of wine education has been compounded by lack of regulation on appellation and grape varieties on Chinese wine labels, making them less meaningful to consumers than those on imported wines (Buckalew 2005). Labels that clearly show the grape type, alcohol and government warning have contributed to strong demand for Australian wines. Cheng Yui, Great Wall and Dynasty are the leading Chinese brands of grape wine in supermarkets and other retail outlets, with Suntime, Tonghua and Zangmi emerging as major brands. A China Food Industry Association Wine & Fruit Wine Committee was established in 2002 to develop branding strategies for domestic wines. Chinese consumers are strongly brand-loyal and suppliers can benefit from brand development (China National Food Industry Association 2005; China Wines Information 2006; Reiss n.d.). French premium wines have strong clout in China as wealthy elite Chinese consider Bordeaux the ideal wine style.

Pricing

The main price ranges for fruit wine (for 750 ml bottles) are: • Under CNY15 (A$2.35): low quality wines, inferior quality, often watered down • CNY15−30 (A$2.35−4.70): everyday wines sold in supermarkets • CNY31−50 (A$4.90−7.90): good quality wines • Over CNY50 (A$7.90): high quality wines, such as lychee at CNY80−85 (A$12.60−13.50). While prices for imported fruit wine products are generally low, Australian fruit wine was exported to China at an annual average price of A$11.12 a litre FOB in 2006 (Table E.1). Local wines retail at CNY10−25 (A$1.60−3.90) a bottle for low-end wines (mainly low-priced domestic wine and imported bulk wine blended with domestic grapes for the price-sensitive) and CNY30−55 (A$4.70−8.65) for medium-end wines. Most imported grape wines retail at CNY40−65 (A$6.20−10.20) for 750 mls of low-end wine, CNY70−200 (A$11.00−31.45) for medium-end and CNY500− 2000 (A$78.65−314.60) for premium. In Shanghai imported grape wine typically retails at around CNY55 (A$9.20), and A$10.20 in bars and restaurants in upmarket locations. Wines for formal functions are usually priced at around CNY140 (A$22.00), while new wealth customers look for quality wines at a reasonable price of around CNY$200 (A$31.45). High end wines are all imported and bought mainly by expatriates and wine buffs, with several supplying countries competing strongly on price. French premium wine producers have been actively promoting in China, and one importer cited these wines as his strongest growth category (AWBC China 2002; Blanchard 2007; Buckalew 2005; Business Victoria n.d.). Supermarkets have strong price competition and discounting, and usually price local wines at around CNY20−50 (A$3.14−7.85) and imported wines from CNY90 (A$14.15) for white and CNY120 (A$18.90) for red (Maxwell 2007). The average price of imported bulk wine fell to A$0.64 per litre by 2005, making it increasingly difficult for domestic grape wine producers to compete with manufacturers using bulk wine (China Wines Information 2006c).

106 Distribution

Large fruit wine manufacturers do not retail direct to consumers, but ship their wines to distribution centres around China. For example, Ningbo Tiangong Manor Fruit Juice & Wine Co. Ltd has offices and branches in several major cities (Ningbo Investment Fair Online 2005). Chinese distribution channels are relatively restricted. Obtaining an import licence is a complex process so most private importers and distributors import, distribute and market wine under a sub- license from China National Cereals, Oils & Foodstuffs Import and Export Corporation (CEROILS), the state monopoly wholesaler and distributor of alcoholic beverages. Wine is imported mainly by specialist import companies, sometimes on behalf of wine distributors. In 2002 most wine was imported directly into China through Shijianzhuagn, Tianjin and Shanghai as improving infrastructure and distribution, falling tariffs and increasing regulation of imports have reduced transhipments via the traditional informal channel of Hong Kong and Gangzhou (AWBC China 2002; USDA 2004). Some importers and distributors offer full marketing and sales services, from climate-controlled warehousing through to promotion, and importers usually handle all documentation and licensing. Larger importers and distributors of wine offer lists of imported labels and assist with importing and registering of product, but most distributors tend to be order-takers, not sellers, and generally do not actively market new wines, requiring sellers to maintain regular contact with buyers. However, cool storage, warehousing and distribution facilities are limited, so distributors usually make small frequent deliveries to restaurants and bars. There is potential to work with distributors to access buyers, register wine for import and bring in samples for trade shows and tastings (Buckalew 2005; Dean n.d.; USDA 2004). While larger importers like to set up exclusive deals with wine suppliers this does not suit most wine producers as the Chinese market is too large for just one distributor to cover. However, this approach could help smaller Australian fruit wineries gain a foothold in the Chinese market. Retailing of wine has expanded from the initial duty free stores controlled by China Travel Services to supermarkets, boutique stores, specialist wine stores and discount stores as consumers seek wine for gifts and lower prices. Wine and cheese stores have been opening in high-end retail shopping areas and WineMart Guangzhou, China’s first permanent wine and spirits centre, opened in 2005, with plans to expand into major population centres such as Shanghai. The supermarket sector is expanding strongly with large retailers with refrigerated storage and delivery systems, led by Chinese Governments chains such as Lianhua, Carrefours and other major European retail chains, and United States retailer Wal-Mart which is developing 400 stores with wine divisions across China. Grape wine is usually bought from retail chains for toasts or gift presentations, not home consumption. Imported products are usually disadvantaged by low consumer awareness of their brands and these stores offer limited opportunity to focus on specific market segments (AWBC China 2002; Buckalew 2005; China National Food Industry Association; USDA 2004; Maxwell 2007; Business Victoria n.d.). Fruit wines are widely sold in supermarket wine sections, with domestic wines usually in a dedicated fruit wine category or with grape wines of similar colour, and imported fruit wines usually displayed with grape wines from the same country of origin. Staff in these wine sections are often hired by large wine companies so their advice and promotion regarding other products is variable, and this, coupled with typical pricing of A$3.00 a bottle or less for both fruit and grape wines, indicates little opportunity in supermarkets for Australian fruit wines. Restaurants offer more potential for fruit wines, as they sell fruit wines for drinking with meals, at more than CNY50 ($7.85) a bottle, and wines can be promoted on the winelist and by waiters. Fruit wines are also popular in karaoke bars which are popular venues for business entertainment, often reciprocal entertaining by public servants. These bars are also an attractive potential outlet for Australia fruit wines, as the owners stock a very narrow range of wines and will promote specific product attributes and benefits to their customers. Seventy per cent of grape wine is sold through food service, mainly four and five star restaurants and hotels in southern and eastern China, often joint ventures or foreign-owned hotels, and clubs and bars. Access to the hotel market is largely limited to a few wine companies who control access and have large portfolios across a number of supplying countries and brands. Prices are typically CNY350

107 (A$55.00) and higher. Sales have been expanding from five star hotels serving expatriates to exclusive hotels, clubs, trendy restaurants, bars and boutiques. Restaurants and karaoke bars usually do not refrigerate wine but serve it at room temperature (Maxwell 2007; USDA 2004; Decanter 2007; Business Victoria n.d.). Wine, mainly red, is mostly consumed at karaoke lounges, nightclubs, discos, wine clubs, wine bars, some high-class restaurants, and banquets, with growing demand through exclusive hotels and clubs, trendy restaurants, and bars, being used mostly in public settings as toasts or gifts rather than drunk at home. Some chain restaurants also sell private label imported wines (AWBC China 2002; Buckalew 2005; Yantai Best Cellar Consulting Co 2005). A typical restaurant creates an extra income stream by charging a steep annual fee, usually calculated on the perceived turnover of the exporter’s product. Such entrance fees do not buy loyalty, or even exclusivity, and by being often excessive and demanded up front can stifle business growth. Restaurateurs tend to be less concerned with the product than the profit they make from sales and the entrance fee. In addition, wineries are often required to provide and pay for young women to hand-sell the wine. Access depends on building a sound relationship with the individual restaurant, and organising in-house promotions with gifts (Maxwell 2007). Wedding banquets serve large volumes of wine, usually in a restaurant or hotel environment. Banquets and governors' functions typically negotiate a price based on volumes for that occasion and subsequent functions, with a small commission to the buyer in the catering office (Maxwell 2007). While fruit and grape wines are widely promoted on manufacturer and distributor websites, and Internet sales are growing, most Chinese people lack internet access outside the workplace. Australian fruit wine suppliers will need to start by establishing relationships with experienced local importers and distributors.

Promotion

Fruit wines are not usually promoted with point of sale displays in retail stores, indicating little opportunity to attract customers’ attention. Restaurants typically promote fruit wines on their winelists, usually up to 12 wines in low priced, everyday (‘commercial’) and expensive categories. Numerous websites promote Chinese fruit wines, although they often lack product detail. Poor consumer knowledge of Australian wine indicates a need to increase demand through wine appreciation and information courses to educate food and beverage managers, restaurant owners and waiters, and new high earning consumers. Business dealings between the two countries have been raising awareness of Australia’s premium wines (AWBC China 2007; Reiss n.d.). A number of trade shows offer opportunities to promote Australian wines: • Beijing International Food & Wine Experience • Beverage & Beveragetec Shanghai • Chengdu International Alcoholic Drink, Soft drink processing & Packaging Technology Show • China (Zhuhai) International Wine and Spirits Trade Fair • China International Exhibition on Beverage & Brewery Processing Technology • China International Wine Expo, Shanghai, organised by China National Food Industry Association • HOFEX in Hong Kong – an Asian international exhibition that includes food and drink • International Brew & Beverage Processing Technology & Equipment Exhibition for China • Interwine China • Shanghai SIAL • Spring National Sugar & Alcoholic Commodities Fair

108 • The International Exhibition for Food & Drink – South China • Zhengzhou Sugar, Alcoholic Drink & Food Trade Show. Smaller producers of premium quality fruit wines are advised to emphasise the uniqueness, history and quality of their products to distributors in quality outlets; and to promote value for money to distributors, importers and restaurants seeking larger supplies. A good importer or distributor can assist with promotion and arranging visits to current and potential buyers or participation in trade shows and tastings, and Austrade and state government offices can also provide support. Promotions could coincide with seasonal demand for gifts, such as Chinese New Year. Table E.2: China - import regulations and requirements Product description Duties and taxes Rate Bottled wine Import tariff 14% Value added tax on landed cost + tariff 17% Consumption tax 10% Total import duty payable (cumulative) 48.2% Bulk wine, more than 2 litres Import tariff 20% Total import duty payable 45% Source: Wine China, 2007 Imports of bottled wine attract 14 per cent import duty, 17 per cent VAT (on landed cost plus tariff) and 10 per cent consumption tax (landed cost plus tariff plus VAT), adding A$4.80 to a landed price of A$10.00 for a bottle of Australian wine (Table E.1). Bulk wine (containers exceeding than two litres) incurs an Import Tax Rate for Bulk Wine of 20 per cent, with tariffs and taxes totalling 56 per cent (AWBC China 2002; Business Victoria n.d.). Samples and gifts are subject to full import duties. Having labels and products approved for import can take anywhere from three months to more than nine. Exporters have had difficulty interpreting and enforcing China’s regulations (AWBC 2005). Quotas and high tariffs protect China’s wine industry from competition from imported wine and, although falling with China’s accession to the WTO, are likely to remain constant for the near future. However, if imported wine starts to overwhelm the domestic wine market the Government may raise the consumption tax to level the playing field for its domestic industry. The Australian Wine and Brandy Corporation’s submissions to the Australia-China Free Trade Agreement seek removal of tariffs on grape wine between Australia and China; calculation of tariffs on declared value rather than minimum values; identification of any preferential agreements between China and other countries and regions; clarification of the likelihood of internal taxes being raised; more transparency in the implementation of China’s tax system; acceptance of internationally recognised winemaking and labelling practices; better enforcement of intellectual property laws; improved access for Australian companies; acceptance of Australian products and labels in China without registration, approval and acceptance of analytical results from Australian laboratories; clarification of regulations regarding wine composition, additives and residues; and faster processing by Chinese Customs (AWBC 2005).

Summary

China has a medium to large and growing fruit wine market with increasing domestic supply of very low-priced temperate fruit wines of variable quality distributed in restaurants, bars and retail stores; emerging market segments for small quantities of imported fruit wine; and growing consumption of Australian and other imported grape wines. There is a moderately strong opportunity for Australian tropical fruit wines in restaurants and bars where promotion can differentiate the wines on premium quality and the use of familiar and exotic tropical fruits. However, China is not an easy market due to low awareness of wine and a significantly different culture to Australia, so suppliers will need patience, commitment and perseverance to slowly build and maintain long-term distributor relationships.

109 E.1.2 Hong Kong

Market profile

A very small market for fruit wines is indicated by imports of 3.5 million litres of fruit wine related products in 2005, which probably include lower alcohol drinks such as ciders and coolers (Table E.2). Grape wine consumption was 5.4 million litres in 2005, and growing, the main market being around 140 000 18 to 45 year expatriates who drink in bars and hotels, more than 21 million overseas visitors a year, Hong Kong citizens returning from living overseas and middle class and higher income earners. Wine consumption is expected to grow steadily due to: • an undeveloped market of Chinese people • a rapidly growing economy and rising disposable incomes • wine representing half of total liquor consumption • wine becoming popular at events such as Harvest Moon festival and Chinese New Year • increasing wine education and wine appreciation • consumers shifting from beer and spirits to wine for its purported health benefits • wine-drinking associated with sophisticated western customs, the social elite and health (Austrade Hong Kong 2007; AWBC Hong Kong 2007; Buckalew 2005; Dean n.d; Sun 2003; Business Victoria n.d.). Hong Kong is Asia’s second largest regional market for Australian grape wine and a major port for reshipment into China, although imports for China are moving to Shanghai and Tianjin as China enforces import regulations and its infrastructure and distribution improve (USDA 2004).

Supply

Hong Kong has no wine production. Growing exports and declining imports of fruit wine related products from 2002−05 probably reflects the shift in imports to directly to mainland China. Annual average export prices fell from A$3.60−$0.75 a litre, indicating mostly very low priced products, which may include rice wine, to China (Table E.3). Table E.3: Hong Kong: trade in fermented drinks HS2206#, 2002−06

Description 2002 2003 2004 2005 2006 HS 2206.00: Fermented beverages e.g. cider, perry, mead; mixtures of fermented beverages and non- alcoholic beverages not elsewhere specific or included Total imports – litres 5 987 000 4 560 490 3 938 000 3 489 000 Not av. – A$ per litre * 3.09 3.13 3.26 3.51 Not av. Total exports – litres 891 820 590 610 1 222 480 3 705 330 Not av. – A$ per litre ^ 3.63 5.16 2.68 0.72 Not av. Imports from Australia – litres 126 946 144 859 75 800 42 570 51 402 – A$ ^ 275 487 339 507 162 906 86 420 99 950 – A$ per litre ^ 2.17 2.34 2.15 2.03 1.94 Imports from Canada – A$ 25 612 21 799 1 849 33 541 13 917 HS 2206.00.70: fermented beverages not specified elsewhere, excluding cider and sake Imports from United States – litres 85 400 36 100 20 600 6 000 11 900 – A$ ^ 3.38 5.04 1.85 2.41 2.34 Notes: # Excludes grape wine and beer. * CIF at importing country; ^ FOB from exporting country. Sources: ABS; FAO 2007; USDA trade statistics

110 From 2002−06 imports of Australian grape wine grew from 2.2−3.7 million litres with an average export price of A$6.50 a litre in 2006 (ABS). Australia has been Hong Kong’s second largest supplier of grape wine for a decade, and continues to take market share from the leader France as distributors and consumers increasingly recognise Australia’s wine quality and reputation as consistent and value for money (Austrade Hong Kong 2007).

Product profile

Imported fruit wines include cider, berry wines and fortified wines from Canada (Luke 2005). There is a wide range of wines from many countries, but major importers are shifting from numerous suppliers to building up a few well-performing brands, and are increasingly hesitant to introduce new– to–market products. Around 80 per cent of grape wine sales are of red wine, because wine is a popular gift and often served at banquets and weddings; the colour red symbolises happiness, celebration, health and good luck; and because there has been heavy media promotion of red wine’s health benefits. Demand is also strong for premium wines (Austrade Hong Kong 2007; AWBC Hong Kong 2007; Buckalew 2005; Business Victoria n.d.). Labelling can be in either English or English and Chinese, although important information should be in both languages. Labels are required to include an ingredient list and, in recent years, Hong Kong’s Food and Environmental Hygiene Department has begun enforcing labelling requirements for allergens and additives for prepackaged food. Under the Food and Drugs (Composition and Labelling) Regulations, wine is exempt from having to be labelled with a list of ingredients, including potentially allergenic substances such as egg, milk and nut products and added sulphites. However, if an exempt pre-packaged food such as wine is labelled with such a list, this list must detail these substances. Unlike most countries, Australian domestic wine labels usually carry allergen and sulphites statements, which are mandatory under the Australian New Zealand Food Standards Code, so if the Department regards these as an ingredient list it may require the label to detail all the ingredients.

Pricing

Low annual import prices for fruit wine related products indicate mostly lower value drinks such as coolers and rice wine rather than fruit wines (Table E.3). In 2004, 78 per cent of grape wine sales were at around HK$150 (A$26.00) a bottle, with quality New World and other wines at HK$100−200 (A$17.50−35.00. Restaurant prices range from US$15.00 (A$20.00) for New World wines to $1000.00 (A$1350.00) for French wines. Australian grape wines tend to retail in the very low or premium price categories (Austrade Hong Kong, 2007; Buckalew 2005; Business Victoria n.d.).

Distribution

Importers of wine must be licensed with the Hong Kong Customs and Excise Department (Austrade Hong Kong 2007). Import agents usually distribute direct to retailers and food service users. Around 60 per cent of wine is retailed, mainly through the large supermarket groups Park’n Shop and Wellcome, who prefer to buy large lines direct and have their own warehousing and distribution centres, although they still buy through local agents, as do second tier supermarket groups and convenience stores. Other outlets include specialty wine stores, convenience stores, and higher-end retail stores such as Great Food Hall, Citysuper and Oliver’s which buy smaller volume niche products through Australian and other consolidators. The other 40 percent is sold by clubs, bars and hotels, (Austrade Hong Kong 2007; AWBC Hong Kong 2007; Business Victoria n.d).

111 Promotion

Fruit wines can be promoted at the annual HOFEX trade show. Grape wines are typically promoted through retailer wine tastings and promotions, wine exhibitions, winemaker dinners, incentive programs and direct marketing (AWBC Hong Kong 2003).

Import regulations and requirements

According to the Hong Kong Customs and Excise Department, wine imports incur 40 per cent tax, 17 per cent VAT and 10 per cent consumption tax, adding A$8.00 to the landed price of A$10.00 a bottle. While ease of access has resulted in a market that is highly competitive on quality and price, Australia’s ‘clean and green’ production and food standards provide some competitive advantage (Austrade Hong Kong 2007).

Summary

Hong Kong has a very small market for imported fruit wine and related drinks, and minor but growing demand for high quality and red Australian grape wine, with attractive pricing but high import charges. It offers a minor opportunity to promote Australian tropical fruit wines from familiar fruits on quality, Australian origin and red colour.

E.1.3 India

Market profile

India has small emerging domestic and export markets for fruit wines (Table E.4) and regular consumption of major tropical fruits. Grape wine consumption was only five million litres in 2005, but has grown strongly in recent years, boosted by the removal of restrictions on liquor imports, a lowering of import duties (formerly 265 per cent), and the increasing popularity of wine clubs in major regional markets, although market growth is constrained by state excises, limitations on distribution and poor domestic wine quality. Key markets for grape wine includes young professional women, who are often well educated, have worked overseas, and embrace wine as a healthy lifestyle choice. Liquor consumption is higher in southern India, and most grape wine is drunk around Mumbai, and to a lesser extent New Delhi, Bangalore and Goa. Around 35 per cent of India’s 200 million consumers of alcoholic beverages drink wine. India’s middle class of 250 million represents a huge potential market for grape wine, with interest in wine expected to grow as people travel and socialise with wine drinkers. Tea remains the favourite drink in India. Annual average individual liquor consumption is only around 1.5 litres of mainly beer, and alcoholic drinks are customarily drunk as an aperitif rather than with the meal. The legal drinking age is 25. India has traditionally been a non-drinking country, and most Indians abstain from any alcoholic drinks. The Constitution prohibits consumption of intoxicating drinks, but state governments have been relaxing the implementation of this due to illicit distillation, the attraction of excise revenue from alcohol, and difficulties in enforcing prohibitions. However, consumption, mainly of wines but also RTDs and premium spirits, has been growing due to more favourable consumer attitudes, less illegal selling, more drinking by both sexes in restaurants and at home, and increasing sophistication, while beer sales are increasing with expanding distribution and the promotion of national brands (India Agro Industry 2007; Arora 2006; Business Monitor International 2006; AWBC India 2006; Dean n.d.; Euromonitor India 2007; Fernandez 2006).

Supply

India’s small emerging fruit wine industry produces fruit wines and fruit and grape wine blends, with India’s leading grape wine producer The Indage Group also claiming more than 80 per cent of the fruit

112 wine market (Menon 2000; Chauhan 2005). Annual imports of fruit wine related products fluctuated from 2002−05, from countries that included the United States, South Africa and Italy, and in 2006 a small quantity of high priced product from Australia (Table E.4). Table E.4: India: trade in fermented drinks HS2206#, 2002–06

Description 2002 2003 2004 2005 2006 HS 2206.00: Fermented beverages e.g. cider, perry, mead; mixtures of fermented beverages and non- alcoholic beverages not elsewhere specific or included Total imports – litres 55 150 5 000 133 840 27 980 not av. Total exports – litres 25 000 29 000 16 000 146 000 not av. Imports from Australia – litres 0 0 0 0 293 – A$ ^ – – – – 11 738 – A$ per litre ^ – – – – 40.06 Imports from United States 2 200 11 400 500 1 000 0 – A$ per litre ^ 1.84 1.54 1.36 1.31 – Imports from South Africa (A$) ^ 1 410 2 254 2 973 0 not av. Notes: # Excludes grape wine and beer. * CIF at importing country, ^ FOB from exporting country. Source: ABS; South Africa trade statistics; USDA trade statistics India’s new wine industry also produced 3.9 million litres of grape wine in 2005, with strong growth likely to continue due to new vineyards, new producers entering the industry, improving product quality, widening product and price ranges, and wineries lobbying against legal constraints in order to grow, although market development for grape wine has been affected by poor quality in domestic wines. The Indage Grover Group exports grape wine to more than 60 countries (Arora 2005; Chauhan, 2005; Euromonitor India 2007; Fitzgerald & Daw 2006). India’s very large population attracts considerable interest from wine exporters around the world. Imports of red, white and sparkling grape wines reached 1.1 million litres in 2005 following strong growth in recent years, mainly from France, the United States, Chile, Italy, South Africa and Australia (Arora 2006; Dhruva 2003; Fernandez 2006). From 2002−06 imports of Australia wine grew from 89 000 to 632 000 litres at an average A$3.70 a litre FOB in 2006 (ABS 2007).

Product profile

These products indicate the range of fruit wines and blends in the Indian market (Table E.5). Table E.5: India: examples of fruit wines Company and brand Description Price Domestic Future Wine & Spirit (P) Ltd’s Sutter House Apple wines, peach, plum and strawberry Rs 150 (A$4.95) for brand flavoured wines; apple cider 750 mls Hygeia Fruit And Veg. Processors Private Fruit wine, fruit cider Limited Sula Fruit wine The Indage Group Cherry, plum and kiwifruit wines; fruit and grape wine blends; apple cider Imported Riunity’s Riunite, Italy, imported by Future Flavoured white wines – ‘Strawberry White Rs799 (A$23.50) for Wine & Spirit Merlot’, ‘Peach Chardonnay’ 750 mls Sources: Chauhan 2005; Dhruva2003; Menon 2003 Research projects on mango, banana, apple, apricot, coconut, kinnow (a citrus), peach, pear, pineapple, plum and strawberry wines indicate further expansion in tropical and other fruit wines (Reddy & Reddy 2005, Shanmugasundaram et al. 2005).

113 Wine quality is now regulated under the new Food Safety Act (AWBC India 2007).

Pricing

Future Wine & Spirit retails its own Sutter House brand of fruit wines at around R150 (A$4.35) a bottle and imported Italian fruit wines at R799 (A$23.10) (Table E.5) Most grape wine retails at under R500 (A$14.50) a bottle, although sales have been increasing for local wines at up to R2000 (A$57.80) (Dean n.d.).

Distribution

Fruit wineries largely sell from the winery and mail order websites. In 2006 India had around 45 grape wine importers, with 60 per cent of imports handled by Brindco, Sansula and Global Tax-Free Traders, 25 per cent by another ten companies including Herma Connoisseurs, Sovereign Impex and SV, and most handling less than 9000 litres a year. Around 75 per cent of grape wine is sold in restaurants and bars and the rest, budget wines only, through retail stores, mainly those certified and controlled by the government but also a large number of independent specialists, mostly in West India. However, in 2005 few shops displayed or stored wine properly or had staff trained in selling wine, except in modern towns and new shopping malls. Sales have been growing as more bars and restaurants open in large cities. In recent years hotels and restaurants earning foreign exchange could spend five and 10 per cent of this respectively on duty free wines. However, such hotels often mark up the wines by 500−700 per cent, so a A$10.00 bottle of wine can be around A$102.00 after taxes and mark-ups). The domestic industry has been pressuring the government to reduce duties on wines sold to hotels and retailers and to centralise the collection and distribution of taxes (Arora 2006; Chandran 2007).

Promotion

Fruit flavoured wines have been positioned to appeal to the curious consumer as easy drinking; fun wines to be drunk at any time, not necessarily for certain occasions; and with specific foods. They could potentially be promoted as highly compatible with Indian food (Dhruva 2003). While advertising is prohibited, wine is promoted through wine appreciation, education and wine clubs; advertorials and articles in newspapers and magazines; events such as wine dinners; buyer trips; wine shows such as IFE India in Delhi and Annapoorna India in Mumbai; and importer promotions (Arora 2006; AWBC India 2007; Euromonitor India 2007).

Import regulations and requirements

Barriers to market entry are considerable. The Central Government’s basic customs duty is 100 per cent and additional and ‘extra-additional’ customs and duties can total 250 per cent, while VAT is 20 per cent, adding up to A$37.00 to a landed price of A$10.00 for a bottle of Australian fruit wine. Each of India’s 28 states and seven union territories then has its own tax regime. Combined Federal and State taxes can push the retail price over 500 per cent. Also, complex regulations over distribution and sale of wine, including individual state excise and retail policies, are aimed at inhibiting liquor consumption and protecting the domestic wine industry from import competition. However, some states are eliminating state excise and sales tax on local wine to give their industries a cost advantage. Access to distribution channels varies between states as state policies on retail and protection of domestic wine production vary as to whether an imported wine can be sold through a wine and liquor shop or supermarket. Some state governments have relaxed laws to allow sales of alcoholic drinks in supermarkets and department stores (Euromonitor India 2007).

114

Summary

India has a very small emerging and low priced market for tropical and other fruit wines and distribution channels for Australian and other imported grape wines, with attractive prices for imported fruit wine reflecting very high import and distribution costs. There is little opportunity for Australian tropical fruit wine to compete until tariffs fall and distribution channels are deregulated.

E.1.4 Indonesia

Indonesia has a fruit and herbal wine market of around nine million litres, located mainly in the production region of Bali, amidst a very large tourist market and small tropical fruit industry. From 2002–05 around one million litres of fruit wine related products were exported annually (Table E.6). The leading markets for grape wine are tourists and expatriates, due to 88 per cent of Indonesians being Muslims and to very high import charges. Around 60 per cent of grape wine is sold in Bali, 35 per cent in Jakarta and five per cent in other large cities (AWBC Indonesia 2001). Most supply is from fruit and herbal wine producers in Bali (where the Hindu religion dominates), including the leading winery Ultra Prima Abadi with its Orang Tua range, and the Dukuh Lestari Salak farmers group at Sibetan with salak wine (from zalacca or snakeskin fruit) (Harsaputra 2005). From 2002−05 small and declining imports of fruit wine related products included varying volumes from Australia, at low average prices indicating coolers and cider rather than wine (Table E.6). Table E.6: Indonesia: trade in fermented drinks HS2206, # 2002−06

Description 2002 2003 2004 2005 2006 HS 2206.00: Fermented beverages e.g. cider, perry, mead; mixtures of fermented beverages and non-alcoholic beverages not elsewhere specific or included Total imports –litres 26 000 13 000 2 000 0 not av. – A$ per litre* 2.55 5.34 1.36 – not av. Total exports – litres 1 234 590 1 053 000 756 780 1 240 000 not av. Imports from Australia – litres 1 452 11 292 180 0 225 – A$ per litre ^ 3.13 2.21 2.16 – 1.90 Notes: # Excludes grape wine and beer. * CIF at importing country, ^ FOB from exporting country. Sources: ABS; FAO 2007 There is minor and slowly growing consumption of grape wines, largely by middle and upper class consumers in hotels, restaurants and cafes, and members of wine clubs who often sell high quality imported wines to each other. There is a small supply of lower priced domestic wines from a few local wineries using local grapes, led by Hatten Winery in Bali, but most wine is imported from Australia and Chile. From 2002−06 imports of Australian grape wine rose 20 per cent to 849 700 litres averaging A$6.00 a litre in 2006 (ABS). Demand for alcoholic drinks is generally low, and distribution of drinks with more than five per cent alcohol is restricted to Hotel and Restaurant Industry Association members (AWBC Indonesia 2001; Euromonitor Indonesia 2007). Distribution is limited to Government-run importers and approved distributors, with most sales through duty free stores, supermarkets and specialist stores. Promotion is limited to non-public areas such as duty free stores and restaurants (AWBC Indonesia 2001). In 2001 fruit and grape wines incurred 170 per cent import tariffs (for Most Favoured Nations countries), Rp 10 000 (A$1.30) a litre, excise tax, 40 per cent sales tax, 10 per cent VAT at each stage of sale, and regional government levies and labelling levies. Indonesia is obliged to reduce its import tariffs as a WTO member (AWBC Indonesia 2001).

115 Summary

Indonesia has a small price-sensitive market in Bali for local fruit and wines, a substantial tourist market, high awareness of tropical fruits, and minor imports of Australian and other grape wine. There may be a minor opportunity for Australian tropical fruit wines to be differentiated on quality, tropical and exotic fruits, and Australian origin to international tourists through tourist-oriented outlets.

E.1.5 Republic of Korea

Market profile

The Republic of Korea (Korea) has a small fruit wine market, although shrinking imports and stable exports suggest consumption is growing. From 2002−05 exports of fruit wine related products were around 20 million litres a year, including to Japan, Australia, the United States and Canada, but as the tariff code HS 2206.00 includes wines from cereal these are assumed to be mostly rice wine (Table E.7). Korea is one of the world's largest liquor markets, averaging 78.1 litres per person in 2005, with the drinking of liquor considered an important part of everyday life and encouraged at social and business occasions. The wine market is immature, being only 16 million litres in 2004, with wine representing only two per cent of liquor sales, average individual consumption of around 0.5 litres a year, low consumer and distributor awareness of wine, and beer the preferred alcoholic drink. However, wine has taken market share from low priced traditional drinks such as shochu or soju (distilled spirit) and rice wine. The main markets for grape wine are young professionals and young women generally as they have more social and work lunch meetings than men and usually buy wine at department stores; and older people with high incomes living in cities, although they are drinking less alcohol due to health concerns and media warnings about excessive drinking of alcohol. Premium wines retailing at over KRW50 000 (A$65.00) a bottle retail are mostly bought by affluent Koreans who are well travelled and familiar with foreign wine brands. In 2004, 77 per cent of wine was consumed in Seoul (Austrade Korea 2007; Oh 2004). Growth in consumption of grape wine is expected to continue, due to growing demand for low alcohol and healthy drinks, young people shifting to western style alcoholic drinks, more young women drinking alcohol; economic growth and increasing incomes; growing interest in wines; and media publicity of health benefits from red wine. Around 60 per cent of wine is drunk at home and 40 per cent in restaurants. Wine is an increasingly popular gift, particularly for anniversaries and birthdays, with wine gift sets replacing liquor gift sets for the traditional Korean gift–giving holidays, Korean Thanksgiving Day (Chu-Sok) in mid-September, Christmas, Lunar New Year’s Day in late January, and Parent’s Day in May (Austrade Korea 2007; Brehm 2004; Sangyong n.d; Oh 2004, 2006).

Supply

Production of fruit wines (which would include grape wine) is minor, but with Government support grew from 409 to 1 125 litres of alcohol (estimated at approximately 4 090 to 11 250 litres of wine, assuming 10 per cent alcohol) from 1998-2004. Exports of up to 20 million litres a year from 2002−05 are probably mostly wines from cereals, such as rice wine (Han 2004; Oh 2006; Table E.7). Annual imports peaked at 1.27 million litres of fruit wine related products between 2002 and 2005, while imports from Australia have shrunk (Table E.7).

116

Table E.7: Republic of Korea: trade in fermented drinks HS2206, # 2002−06

Description 2002 2003 2004 2005 2006 HS 2206.00: Fermented beverages e.g. cider, perry, mead; mixtures of fermented beverages and non- alcoholic beverages not elsewhere specific or included Total imports – litres 1 273 320 1 220 040 683 000 987 040 not av. – A$ per litre * 2.38 2.03 2.22 3.14 not av. Total exports – litres 555 750 18 072 110 20 072 260 19 758 180 not av. – A$ per litre ^ 4.96 1.08 1.03 1.20 not av. Imports from Canada –A$ * 0 0 0 23 398 133 760 Exports to Canada –A$ * 66 995 98 467 104 457 170 018 139 849 Imports from Australia – litres 199 450 161 903 8 316 0 162 – A$ ^ 372 636 296 935 17 640 – 2430 – A$ per litre ^ 1.87 1.83 2.12 – 15.00 HS 2206.00.3020: Grape wine, cider, perry, mead, sake, fruit or vegetable wine Exports to Australia – litres 8 882 8 550 8 517 3 600 32 518 – A$ * 41 126 52 679 46 181 27 518 204 305 – A$ per litre * 4.63 6.16 5.42 7.64 6.28 HS2206.00.70 : fermented beverages not specified elsewhere, excluding cider and sake Imports from United States – litres 411 300 121 000 205 600 35 700 not av. – A$ per litre ^ 1.40 2.27 1.43 2.87 not av. HS2206.00.900: Fermented beverages other than grape wine, beer, cider, prune wine, sake, vermouth, or other effervescent wines Exports to United States – litres 1 400 71 100 109 800 25 600 not av. – A$ per litre * 9.21 7.37 7.96 8.46 not av. HS2206.00.221: wine coolers Exports to Japan – litres 399 700 400 200 502 300 602 700 579 600 – A$ per litre * 4.18 3.93 3.70 3.16 3.02 Notes: # Excludes grape wine and beer. * CIF at importing country; ^ FOB from exporting country. Sources: ABS 2007; Japan Customs Trade Statistics; United States trade statistics Domestic grape wine production has almost ceased due to imported wines being more competitive on quality and price, high land prices, and a climate unsuited to grape-growing, and is limited to local tourism products and blending with imported bulk wine. Major Korean liquor companies, led by Doosan Corporation Liquor BG and Gooksoondang Brewery (formerly Haitai Liquor) now either co- bottle with overseas wineries supplying Korea or import bulk wines to blend and bottle. Imports grew strongly in recent years, mainly from France (mostly medium and premium wine), the United States and Chile. From 2002–06 imports from Australia tripled to 1.74 million litres averaging A$5.40 a litre FOB in 2006 (Austrade 2007a; ABS; Dean n.d; Euromonitor Korea 2007; Oh 2004, 2006).

Product profile

Several winery websites promote wines from fruits such as apple, cherry, pine fruits, pomegranate, quince, and native berries on their websites, examples being: • Chungmaesil Farm: cider and liqueurs • Naju Bonghwang Agricultural Cooperative Pear Wine Processing Centre: Naju pear wine, in 375 ml glass and ceramic bottles • Bokbunja: Wild raspberry wine, which is exported to Singapore

117 • Applease Korea Brewery Co Ltd: pomegranate wine, which it promotes as a beauty enhancer, and Zujimong wine from pure cherry and apple juice and promoted as a palate cleanser • Jirisan Solsongju Co Ltd: medicinal wines and liqueurs such as ‘Wild strawberry and rice with fine pine needles’, with ISO quality assurance certification, and exported to four countries. • There is opportunity to supply the local fruit wine industry with bulk berry wines, mainly from blueberry, for blending (Oh 2006). Similar products are traditional berry liqueurs made from blackberries and raspberries in a light port style, with around 15 per cent alcohol, and a wine-type liqueur made by steeping fruits such as Prunus mume (‘maesil’) in soju, a popular spirit. However, these products present no direct competition to imported wines, but have helped consumers to develop a taste for table wines. Information on food safety regulations is on the Korean Food and Drug Administration website. Manufacturers have been modifying existing alcoholic drinks and introducing new products to meet growing demand for healthy drinks. Around 5000−6000 grape wine brands are imported, providing a wide variety of wines from around the world. Red wine is most popular due to its highly publicised health benefits, but demand is growing for white, sparkling and dessert wines. Consumers are strongly influenced by known brands, choosing them ahead of taste, but are also interested in new-to-market wines, and new places of origin so as to expand their wine experience and knowledge. Strong branding is needed to differentiate (AWBC Korea 2007; Brehm 2004; Kang 2005; Oh 2006).

Pricing

While very low annual average prices indicate most trade is in low value drinks such as coolers or rice wine, prices of A$5.00−$6.80 a litre CIF to Australia and A$7.40−9.20 CIF to the United States indicate higher value products such as fruit wine (Table E.7). In grape wines the most stable and more profitable price segments are mid-priced wines in liquor stores, supermarket and discount stores, and premium priced wines sold mostly in restaurants at more than KRW50 000 (A$65.00) a bottle. With mark-ups, tariffs, taxes, and distribution costs, an imported wine with a landing price of A$13.00 CIF retails at around A$30.00−33.00 in discount stores, A$38.00−45.00 at supermarkets and liquor stores, and A$90.00−150.00 in luxury hotel restaurants. Wines incur higher distributor mark-ups than other alcoholic drinks. Importers’ mark-ups are around 40 to 50 per cent to supermarkets and liquor stores, 30 per cent to discount stores, 40 per cent to luxury hotels and 15−30 per cent to wholesalers. Retailer mark-ups are typically 30−40 per cent by supermarkets and liquor stores, 8−20 per cent by discount stores and 200−400 per cent by restaurants in luxury hotels (Brehm 2004). As sales grow for premium priced wines and whisky, the price-sensitive are shifting to lower priced drinks such as New World grape wine, shochu, beer and whisky (Euromonitor Korea 2007).

Distribution

Of the numerous licensed liquor importers, around 30 actively import wine, with a few handling 80 per cent of imports. Distributors cannot buy wine from other businesses at the same level of distribution, so importers can supply wholesalers, retailers and restaurants, but not consumers, and some operate chains of retail outlets. Established importers usually have their own warehousing and logistics, while smaller companies use service providers. Wholesalers mostly supply small retail stores and restaurants. Distribution tends to be fragmented and inefficient; few companies have a national distribution system or full product range; and several distributors are needed to reach the national market. Seventy per cent of wine is sold through retail, mainly in supermarkets and hypermarkets which often have a designated wine section with a large selection of lower to mid priced wines, and buy through

118 importers rather than directly. Many new wine shops have opened in recent years, mostly independent franchises, specialty liquor stores which can carry 500−1000 mostly middle or premium priced wines, and convenience stores. Internet retailing of wine is increasing, and some fruit wine manufacturers sell through their websites. Restaurants and bars handle 30 per cent of wine sales, including traditional bars rather than hotels, and growing numbers of wine bars and wine restaurants in metropolitan areas offer serious drinkers wider ranges of wines at various price and quality points. Restaurants in five-star hotels sell mainly middle to premium quality wines; traditional Korean restaurants are increasingly offering wine, and growing numbers of western style food outlets, family restaurants and pizza houses can sell wine (Austrade Korea 2007; Oh 2006).

Promotion

Wine exporters can exhibit at the annual Seoul Food & Hotel, Seoul Wine Expo trade show and Seoul International Wine & Spirits Show. Considerable development of the wine market in recent years, largely by overseas manufacturers, has included wine exhibitions, trade shows, wine bars, Internet– based wine communities to educate new consumers on wine-drinking, manufacturer tasting seminars, cultural events coupled with tastings, providing wine samples to wine schools, briefing local wine experts, and positioning of grape wine as a healthy drink through social events and sponsorship of cultural events. Austrade also recommends restaurant tastings focused on young couples, in-store tastings, and supplying Korean language promotional materials to local distributors (Austrade Korea 2007; Euromonitor Korea, 2007, Oh 2006).

Import regulations and requirements

Wine attracts lower import tariffs, liquor tax and education tax than beer and spirits (USDA Korea 2005, 2006). However, import charges add around A$7.70 to a landed price of A$10.00 for a bottle of Australian fruit wine (Table E.8). Table E.8: Republic of Korea: import duties and taxes on fruit wine products Description Tax $ 2206.00.10: Fermented Import tariff 15% of CIF beverages prepared from Liquor tax 30% of CIF plus import duty fruits – cider, perry, wine cooler, other Education tax 10% CIF plus import tax plus liquor tax VAT (refunded to the importer) 10% of CIF plus import duty, liquor tax and education tax Customs clearance 8% Source: AWBC, Korea 2007; USDA, Korea 2005 Labelling and tax requirements on imported wine are complex, as are the documentation and inspection processes for new-to-market products for which the first shipment is subject to a detailed chemical food safety inspection from samples supplied by importers, and subsequent shipments receive visual inspection and random detailed chemical inspections (Austrade Korea 2007). Information on Customs requirements is available from the Korean Customs website and on taxes and excise from the Korean National Tax Service website.

Summary

The Republic of Korea has a very small but probably growing market for temperate fruit wines, emerging defined market segments for imported Australian and other grape wine, use of wine as a gift, experimental consumers, attractive pricing and wide distribution for wine, but strong competition from rice wine, spirits, a large innovative liquor industry and high brand consciousness. There may be a minor opportunity for Australian tropical fruit wine to be differentiated on novelty, wide assortment, and Australian branding.

119 E.1.6 Malaysia

Market profile

Malaysia has a very small market for local tropical fruit wines, and high awareness of tropical fruits. Grape wine consumption was 43 million litres in 2004, and has been growing at around 13 per cent a year. Liquor consumption averaged only 6.6 litres per person in 2005, led by brandy, whisky and beer. Market growth is constrained by 60 per cent of Malaysians following the Muslim religion which discourages alcohol consumption; and by high import duties and excise. Key market segments are Chinese, Indians, expatriates and foreign tourists, and increasingly affluent, sophisticated, well- travelled, and young Malaysians, with further market growth indicated by: • growing imports of grape wine, the fastest growing alcoholic drinks category • increasing health consciousness, with wine perceived as healthier than brandy and spirits • more young Malaysians drinking wine as a modern drink that signifies cultural refinement • more women drinking wine • students returning to Malaysia as wine drinkers • increasing affordability of wine • an increasingly international cuisine • frequent wine promotions by hotels and wine import agents and regular media articles on wine • a growing supermarket sector with cool storage facilities (Austrade Malaysia 2007; Chang 2006).

Supply

Malaysia has a small wine industry producing mostly tropical fruit wine, with some exports of fermented drinks, including to Japan and Singapore (Rem Corporation n.d; Table E.9). Imports of fruit wine related products rose at an average 25 per cent a year from 2002−05, but declined from Australia and ceased from the United States (Table E.9). Table E.9: Malaysia: trade in fermented drinks HS2206, # 2002−06

Description 2002 2003 2004 2005 2006 HS 2206.00: Fermented beverages e.g. cider, perry, mead; mixtures of fermented beverages and non- alcoholic beverages not elsewhere specific or included Total imports – litres 105 000 173 960 147 000 306 80 not av. – A$ per litre * 3.91 4.79 6.01 3.52 not av. Total exports – litres 90 650 247 890 67 000 117 000 not av. – A$ per litre ^ 2.23 2.13 6.90 4.48 not av. Imports from Australia (litres) 60 921 22 923 24 235 2 664 189 – A$ ^ 183 381 71 208 59 009 7 064 557 – A$ per litre ^ 3.01 3.11 2.43 2.65 2.95 HS 2206.00.700: fermented beverages not specified elsewhere, excluding cider and sake Imports from United States – litres 12 400 119 400 0 0 not av. – A$ per litre ^ 3.41 1.21 – – not av. HS 2206.00.229: fermented beverages including cider, perry and mead, but not sake or wine coolers Exports to Japan – litres 1 800 400 1 100 1 400 2 700 – A$ per litre * 6.11 12.50 5.45 4.29 5.19 Notes: # Excludes grape wine and beer. * CIF at importing country; ^ FOB from exporting country. Sources: ABS; FAO trade statistics; Japan Customs trade statistics; USDA trade statistics

120 Around 4.7 million litres of wine are imported annually, of which about one million litres are exported to other Asian countries. Australian wines leads the imports with a 42 per cent share, and from 2002−06 imports from Australia grew strongly to 2.58 million litres averaging A$6.50 a litre FOB in 2006. Preferred wines are red (80 per cent of sales) and ‘bolder’ styles, such as Australian grape wines. There is a high level of counterfeiting and smuggling in of higher priced drinks such as spirits, largely because of rising alcohol or ‘sin’ taxes (so-called because of the largely Moslem population) (ABS; Austrade Malaysia 2007; AWBC Malaysia 2007; Euromonitor Malaysia 2006).

Product profile

The larger fruit wineries include: • Rem Corporation Sdn Bhd: Rambola brand wines from carambola (starfruit) • Kluang: Pitaya Red Wine (dragonfruit), in Classic, Vintage and Reserve grades • Amsyar Resources, Malacca: fruit wines (see company websites, Imex Goods 2003). Also popular is a traditional low quality drink fermented from coconut juice and drunk as a wine. There are no industry standards for wine production, but label design and content has to comply with Department of Public Health guidelines, and alcoholic beverages must be clearly identified for the protection of Muslim consumers.

Pricing

No retail prices were identified for fruit wines. From 2002−05 import prices per litre for fruit wine products fluctuated between A$3.30 and $6.00 a bottle, and between A$2.40 and $3.10 for Australian product. Export prices varied between A$2.10 and $6.90 (Table E.9) In 2004, 33 per cent of grape wines sales sold at RM30 (A$10.80) and below, 46 per cent at RM30−50 (A$10.70 to $28.00), and 21 per cent at more than RM50 (A$28.00) (AWBC Malaysia 2007).

Distribution

Fruit wines are sold through wholesalers, retailers and entertainment venues. The local coconut wine is sold widely through restaurants, stores and karaoke bars, generally unrefrigerated. Several fruit wineries sell by mail order via their websites, and through distributor websites. Major importers supply grape wine to large retailers and distributors, while medium sized importers also cater to casual customers. Larger distributors are usually sole agents for leading Australian and European grape wine brands, and resist taking on new suppliers, but new exporters can use a medium- sized importer. Importers focussed on niche markets have been seeking small sustainable quantities of boutique and dessert wines. Around 40 per cent of imported grape wine is sold through retail, with lower priced wines mostly through supermarkets and hypermarkets and middle and higher priced wines mainly through liquor stores, and increasingly mail order. The rest is sold mostly in restaurants, hotels and entertainment outlets, but at very high prices due to large and ever-increasing tariffs and excise tax and large trade mark-ups (Austrade Malaysia 2007; Chang 2006).

Promotion

Fruit wines are mainly promoted on manufacturer websites. Grape wines are publicised through tabloids and trade magazines, including ‘The Edge’, ‘Hospitality Asia’, ‘Beverage Today’ and ‘Malaysia Retailer’ and often matched with foods at wine tasting sessions in fine dining restaurants and hotels. Australian wines can be exhibited at the major trade fair Food and Hotel Malaysia in Kuala Lumpur (Austrade Malaysia 2007; AWBC Malaysia 2007).

121 Import regulations and requirements

Wine incurs no import quotas or restrictions. Import tariffs and taxes add A$6.50 to a landed price of A$10.00 for a bottle of Australian fruit wine (Table E.10). Importation must comply with the Food Safety Information System of Malaysia regulated by the Ministry of Health, and the Royal Customs and Excise Department usually uses one bottle per case to assess alcohol content (Austrade Malaysia 2007). Table E.10: Malaysia: import tariffs and taxes on fruit and grape wine Description Tax Rate * HS 2206.00.400: Wines from the fermentation of juices of fruit other Import duty RM 1.085 a litre (A$0.39) than from grapes (including fig, date and berry) or vegetables HS 2204: Grape wine Still: RM7 a litre (A$2.55) Sparkling: RM23 a litre (A$8.39) All wine Excise RM12 a litre (A$4.38) Sales tax 20% of value Stamp duty RM0.50 (A$0.18) Sources: Asia-Pacific Economic Corporation 2007, Austrade Malaysia 2007

Summary

Malaysia has a very small market for domestic tropical fruit wines and other non-grape wines, high awareness of tropical fruits, strong demand for Australian branded grape wines from several defined segments, distribution channels for fruit wine, attractive pricing and moderate import costs. There is a minor opportunity for Australian tropical fruit wines to be differentiated on quality, novelty, range of fruits used, and Australian branding to middle class consumers.

E.1.7 Singapore

Market profile

Singapore has a small fruit wine market, mainly women new to wine-drinking who prefer sweet wines (Teo 2006), and is supplied entirely by imported products. A retailer of imported fruit wines sees potential for wines of all types, and for fruit wines to lead new wine drinkers to grape wine (Lin 2006). Exports from 2002−06 were small and intermittent and are assumed to be re-exports to other Asian countries (Table E.11). Grape wine consumption was around 10 million litres in 2004. While wine is a minor drink compared with beer, the market has been growing, due to more people drinking wine; greater wine knowledge and appreciation; acceptance of media messages of health benefits; a shift from cognac, spirits and beer to wine; more wine drunk at weddings and other celebrations and taken to parties; and more wine sold through supermarkets, restaurants, wine bars and other venues. Wine is usually seen as a formal drink with western-style meals and increasingly popular as a gift and a substitute for the traditional bottle of spirits in gift hampers. Consumption is highly seasonal, mainly November to February around the traditional events of Christmas, the Calendar New Year, Chinese New Year and for expatriates American Thanksgiving Day. (Austrade Singapore 2007; AWBC Singapore 2006; Euromonitor Singapore 2007; Stanton, Emms & Sia 2001a). The leading markets for grape wine are − • around 200 000 expatriates with middle to upper incomes who are knowledgeable about wine; confident in purchasing it; concerned with wine type, origin, quality and price; and buy from specialist wine shops, wine bars and restaurants rather than supermarkets

122 • a growing segment of younger middle to upper income people, usually aged 25 to 40 years. These are the trend-setters, who see wine-drinking as fashionable; have some knowledge of wine from experimentation, wine appreciation courses and media articles; and are influenced by price, taste, label, and reasons to buy such as gifts and special occasions • middle to upper income earners, 60 per cent of the population, who prefer lower alcohol and healthier drinks such as wine to spirits • a larger emerging market of more than 300 000 middle income Singaporeans under 50, with low understanding of wine or how to choose it. They follow rather than lead fashion, are influenced by peer groups when buying wine, and are concerned with value for money and product taste. Wine knowledge is generally low outside these market segments, and the market appears to have matured, with strong competition by numerous suppliers, products and labels, competitive pricing, and strong promotion on nationality and brand, particularly by Australian and French suppliers, although Singapore continues to be an important wine destination because of its large re-exports. Austrade recommends Australian suppliers offer boutique wines with competitive pricing and promotional support (Austrade Singapore 2007; Stanton, Emms & Sia 2001a).

Supply

There is no domestic wine production. FAO statistics indicate only small occasional imports of fruit wine related products but Australian export statistics report between 155 430 and 248 900 litres of fruit wine products to Singapore a year from 2002–06, and USDA trade statistics show imports from Canada (Table E.11). Imports are likely to include small quantities of tropical fruit wine from northern Queensland and mango wine from the Northern Territory (Wright 2007). Table E.11: Singapore: trade in fermented drinks HS2206, # 2002−06

Description 2002 2003 2004 2005 2006 HS 2206.00: Fermented beverages e.g. cider, perry, mead; mixtures of fermented beverages and non- alcoholic beverages not elsewhere specific or included Total imports – litres 0 0 1 360 30 184 not av. – A$ per litre * – 0.51 1.36 1.45 not av. Total exports – litres 0 3 000 2 000 1 820 not av. – A$ per litre ^ – 0.51 1.36 1.45 not av. Exports by Canada – A$ ^ 0 0 54 791 28 647 29 848 Imports from Australia – litres 248 930 253 550 155 432 182 508 184 935 – A$ per litre ^ 3.24 2.80 2.65 2.66 2.69 2206.00.3020 Grape wine, cider or perry, mead, sake, fruit or vegetable wine Export to Australia – litres 0 0 0 3 591 0 – A$ per litre * – – – 2.60 – Notes: # Excludes grape wine and beer. * CIF at importing country; ^ FOB from exporting country. Sources: ABS; FAO 2007; USDA trade statistics Most grape wine is imported from France and Australia. From 2002–06 Australian imports more than doubled to 7.45 million litres averaging A$5.60 FOB a litre in 2006, largely for re-export to larger Asian markets (Austrade Singapore 2007; AWBC Singapore 2006; Stanton, Emms & Sia 2001a).

Product profile

Fruit wines include Mijiah brand mango, soursop, berry and plum wines from the Philippines (Lin 2006), with small quantities of Australian tropical fruit wine in recent years. Grape wines are mostly red table wines in 750 ml bottles. Singapore’s Chinese consumers consider red wine signifies quality and white wine has inferior taste and is too acidic, and accept media messages about health benefits from red wine. Organic wine has not found a market position. Labels such as

123 from Australia and United States, that explain the wine and appropriate usage situations, are preferred over labels focussed on place of origin. With a large choice of products from almost every wine producing country, Singaporeans exhibit little loyalty to country of origin and will readily try new wines and tastes (Austrade Singapore 2007 Stanton, Emms & Sia 2001a).

Pricing

As Mijiah tropical fruit wines from the Philippines have been retailing in Singapore at A$22.10 (Lin 2006), the low annual average prices for imports and exports of these fermented drinks indicate most are low value drinks such as rice wine or coolers (Table E.11). In 2000 grape wine sales fell into these retail price categories: • low-price – under S$18.00 (A$18.50): 50 per cent of wine • mid-price – S$18.50−25.00 (A$18.00−25.70): 25 per cent • high price – S$25.80−40.00 (A$25.00−41.20): 10 per cent • premium price – over S$40.00 (A$41.20): five per cent. Prices can reach A$79.00 for premium Australian or French wines. Total distributor mark-up on the average bottle of wine was 30−50 per cent of retail price in 2001, and bar prices are usually 40−60 per cent higher. Large supermarkets also require listing fees, promotional costs and period price discounts from their suppliers. While retail prices are relatively high because of high taxes, wine attracts lower excise duties than cognac and brandy (Austrade Singapore 2007; AWBC Singapore 2000; Stanton, Emms & Sia 2001a).

Distribution

Numerous distributors handle grape wine for the Singapore market and for transhipment elsewhere in Asia. The principal importers are specialist wholesale wine merchants and general trading companies who act as agents and distributors to retailers, particularly supermarkets, hotels and the food service sector. Wine is also imported by specialised wine retail stores, the import and wholesale division of major retailers, and some smaller wine importers, often with retail outlets. Commodity traders often handle wine, particularly during the peak shopping season of November to February. As wine quality has been affected by lack of cool storage, some distributors have been offering appropriate training. There is wide and growing distribution of wine as retail stores move away from cognac, brandy and beer. Supermarkets and hypermarkets are led by Fairprice and Shop n’Save, and often have dedicated wine shops or large wine sections, and wine is also sold in convenience stores, minimarts, grocery stores, and specialist food and wine shops. Low to mid priced grape wines are usually sold in supermarkets and specialist outlets used by expatriates, such as the Cold Storage group (which owns the popular Jason’s Wine Cellar) and Fairprice-Liberty. Cold Storage group, which owns the popular, sells private wine labels, and has sales staff to advise consumers. Premium wines are usually sold in specialist wine shops, which sell boutique wines at more than S$30 (A$23.70) a bottle, and wine bars and fine dining restaurants. Hotel menus, particularly at the high end, usually offer French brands. Wine sales are also growing in the expanding food and beverage service sector, with more hotel restaurants and bars selling wines to local consumers, expatriates and tourist, and numerous new western and Chinese restaurants, often with wine cellars, although restaurants have discouraged an emerging trend of BYO with corkage fees as high as A$40.00. Other outlets are pubs; bars; wine bars, golf, country and other social clubs; duty free stores; airline catering businesses and around 500 ship chandlers to passenger cruise liners (Austrade Singapore 2007; AWBC Singapore 2006; Stanton, Emms & Sia 2001a).

124 Promotion

Wine launches in large retail stores are typically supported with promotional campaigns of store displays, media advertising, national wine promotions including education of shoppers; and bulk promotions during the festive season. Manufacturer sampling and media advertising are also common, and direct marketing, wine tastings, wine appreciation seminars, club and business functions, and direct mail from supermarkets can be used to educate new consumers (Austrade Singapore 2007; Stanton, Emms & Sia 2001a). Wine trade shows include the biennial Food & Hotel Asia, the annual Wine for Asia for trade and consumers, and the annual Australian Wine Fair held in a shopping mall. Australian wine can also be exhibited at Fair-Price and Cold Storage’s annual Australian Food Fairs. The AWBC and Retail Development Victoria included fruit wine producers in delegations to Wine for Asia in 2006 and 2007 (producer interviews).The Singapore Hotel Association and Training Education Centre (SHATEC) and the Singapore Australian Wine Importers Group organise an annual Singapore-Australian Wine Education Award to promote Australian wine to the food service industry (Austrade Singapore 2007). Many Singapore residents who have previously lived, studied or travelled in Australia continue to buy Australian wines and promote them by word of mouth (AWBC Singapore 2006).

Import regulations and requirements

There are no import duties on wine, but excise and GST add A$6.95 to the landed cost of a bottle of wine (Table E.12). Table E.12: Singapore: wine taxes Description Tax Rate HS 2206.00.90: Mead and other fermented S$70.00 (A$47.30) per litre of alcohol (A$6.15 for 750 beverages (includes fruit wine) Excise mls of wine with 13% alcohol) HS 2206.00.10: Cider and perry S$3.30 (A$2.23) a litre HS 2204: Grape wine S$9.50 (A$6.42) a litre All wine GST 5% of base retail price (CIF + commission, duties and incidental charges) Source: Asia-Pacific Economic Corporation 2007; Austrade Singapore, 2007

Summary

Singapore has a very small market for imported tropical and other fruit wines, high awareness of tropical fruits, a growing market and distribution for Australian and other grape wines, attractive pricing, consumers interested in new products, and numerous promotional opportunities. However, there is strong competition between numerous wine brands and other alcoholic drinks, and import charges are high. There is a moderately strong opportunity for Australian tropical fruit wines to be differentiated by quality, novelty, fruit assortment and Australian origin, but strong promotion of brands will be needed to attract attention.

E.1.8 Taiwan

Market profile

While Taiwan does not have a tradition of wine from fruits, a small fruit wine market is developing, supplied by an emerging domestic industry. Taiwan is also a large producer of, and market for, tropical and sub-tropical fruits. Wine is a popular gift, particularly for Chinese New Year, the Mid- Autumn Festival, Dragon Boat Festival and Father’s Day (Euromonitor Taiwan 2007). Stable exports of around 130 000 litres a year of fruit wine related products from 2002−05, including to Japan and the United States, although these are likely to include rice wine. Export statistics conflict

125 with Japanese Customs statistics which show substantially higher imports of fruit wine related products from Taiwan (Table E.13). Taiwan also has a small growing market for grape wine, representing around four per cent of Taiwan’s A$5 billion a year liquor market, and including buyers of premium wines who have good incomes and wine knowledge and like to try different products. However, the traditional market of business people and white collar workers is shrinking as tight political and economic conditions lead to businesses shifting to China (Austrade Taiwan 2007; AWBC Taiwan 2007; Euromonitor Taiwan 2007).

Supply

Taiwan’s Council of Agriculture has been supporting the development of a fruit wine industry through nine new ‘wine villages’ around Taiwan so that fruit producers can develop new markets in the face of greater competition from imported fruits since Taiwan’s accession to the World Trade Organisation. An example is the Dahu Farmers Association’s Dahu Winery producing strawberry and plum wines in this leading strawberry–growing region, mainly for a pre-existing farm tourism market of Taiwanese tourists who stay at ‘leisure farms’, enjoy the flowering orchards and later pick their own fruit, but also for export to Japan and Hong Kong. The Government has assisted producers through regulation, food safety management, and a quality evaluation system. However, although the Government’s Taiwan Tobacco and Wine Monopoly has relaxed control of wine production, volumes continue to be capped (Cheng 2004; Chu 2007; Taiwan Review 2004). From 2002−05, imports of fruit wine related products fell from 272 000 to 98 000 litres, fluctuated from Australia and Canada and grew from the United States, although it should be recognised that the various country statistics conflict with FAO data (Table E.13). Low annual average prices indicate mostly low value drinks such as rice wine or coolers. Table E.13: Taiwan: trade in fermented drinks HS2206, # 2002−06

Description 2002 2003 2004 2005 2006 HS 2206.00: Fermented beverages e.g. cider, perry, mead; mixtures of fermented beverages and non-alcoholic beverages not elsewhere specific or included Total imports – litres 272 250 205 000 109 000 98 000 not av. – A$ per litre * 4.15 3.68 4.27 5.19 not av. Total exports – litres 119 370 149 350 129 370 117 940 not av. – A$ per litre ^ 5.03 4.49 3.34 4.16 not av. Imports from Australia – litres 52 560 104 355 87 984 13 248 2 882 – A$ per litre ^ 2.59 2.54 2.19 4.68 2.62 Imports from Canada (A$) ^ 23 079 0 38 333 42 722 not av. HS2206.00.229: fermented beverages including cider, perry and mead, but not sake or wine coolers Exports to Japan – litres 541 300 521 800 345 400 319 100 244 700 – A$ per litre * 5.08 4.04 3.90 3.77 4.23 HS2206.00.70: fermented beverages, excluding cider and sake Imports from United States – litres 246 600 279 400 505 700 466 100 477 900 – A$ per litre ^ 3.26 3.04 2.29 2.42 2.48 HS2206.00.90: excluding cider and sake Exports to United States – litres 5 000 0 0 2 700 0 – A$ * 2.60 – – 7.41 – Notes: # Excluding grape wine and beer. * CIF at importing country; ^ FOB from exporting country. Sources: ABS; FAO 2007; Japan Customs trade statistics; USDA trade statistics Relaxation of the same Government monopoly has also led to many new grape wineries. Taiwan imports wine from all major wine producing countries, led by France with a 50 per cent market share in 2006, against growing competition from low priced quality wine from Australia, the United States,

126 Chile and Argentina. From 2002−06 Australia’s supply grew fourfold to 1.78 million litres at an annual average price of A$6.75 FOB in 2006 (ABS; Austrade Taiwan 2007).

Product profile

Domestic fruit wines are made from a range of subtropical and temperate fruits, examples being: • Chateau Shu-Sheug − grape wine blended with imported blueberries • Dahu Winery − semi-sweet strawberry wine aimed at women aged 18-35, and a semi-dry plum wine, both with around 11 per cent alcohol • Dongshi Tangerine Grove Winery − tangerine wine • Puli Agriculture Village Chateau − rose petal and other flower wines • Taipei’s First Winery of Taiwan Tobacco & Wine Board − lychee, plum and rose wines, white grape wine and honey grape wine (a sweet blend of white wine and honey) • Taiping Winery − longan, loquat and lychee wines, onion and chive wines and fruit liqueurs • Taiwan Tobacco and Liquor Corporation − Aronia berry fruit wine and a grape wine blend • Yiquing Ranch and Winery − plum and grape wine blends, plum liqueurs. Tourists are permitted to make their own wine (Cheng 2004; Wieman 1995). Imported fruit wines include Fort Wine Canada’s berry wines (Luke 2005). Demand in grape wine is strongest for red wine with medium body in long bottles with classic simple labels, due to the influence of French wine promotions (Austrade Taiwan 2007). Imported wines are required to comply with Tobacco and Alcohol Administration Law standards, with labels containing mandatory information in Chinese language (Austrade Taiwan 2007).

Pricing

The market is price-sensitive and competition between large retailers is bringing down prices. Grape wine sales fall into five main price categories: • Low price – A$20.00−30.00 a bottle: Very large volumes of imports, including lower quality French and Spanish wines imported at A$2.00 and retailed at around A$8.00−12.00 • Table wines – A$30.00−60.00: Includes most Australian and other New World Wines, retailing at A$12.00−30.00 in supermarkets, department and convenience stores, restaurants and nightclubs • Premium range – A$60.00−200.00: Sold in restaurants, hotels and selective bottle shops, with strong competition from around the world • Ultra premium range – A$200.00 and higher: Mainly sold at wine dinners, and in five star hotels, premium clubs, and VIP wine clubs • Collectable range, such as Penfolds Grange (Austrade Taiwan 2007; AWBC Taiwan 2007).

Distribution

Imported grape wines are generally distributed and promoted by import agents. Wine is mostly sold through restaurants, pubs, hotels and retail stores, and fruit wines are also sold from the wineries and distributor websites. Specialist liquor stores, independent food stores and duty free shops are facing increasing competition from supermarkets, hypermarkets and convenience stores such as RT-Mart, Carrefour, Costco, Jason’s the Market Place and 7-Eleven, which have been introducing wine sections with wide product range, service staff, discounting and lower prices, and sales promotions (AWBC Taiwan 1997; Euromonitor Taiwan 2007).

127 Promotion

Fruit wines are mostly promoted to domestic tourists through the wineries. Grape wines are promoted at dinners and wine clubs, various Australian events and the Taipei International Food Show, and reviews from RPJ, Decanter and Wine Spectator magazines are particularly influential. Wine marketers have focused on young consumers through celebrity events, themed social gatherings and event sponsorships, and the French wine industry has provided extensive education in the selection and drinking of grape wine. Promotional literature should be in Chinese language (Austrade Taiwan 2007; Euromonitor Taiwan 2007). Advertisements and other promotion to vulnerable consumers are regulated under the Tobacco and Alcohol Administration Act, and have to carry conspicuous health warnings such as ‘excessive drinking endangers health’ (AWBC Taiwan 2007).

Import regulations and requirements

Import duty and various taxes add more than A$5.00 to a landed cost of A$10.00 per bottle (Table E.14). Table E.14: Taiwan: import taxes and tariffs on wine Description Tax Rate Fruit and grape wine Import duty 20% Still 10%; Sparkling 20% Wine tax NT$7 (A$0.2546) per % alcohol per litre, i.e. A$2.51 for 750 mls with 13% alcohol * GST 5% Business tax Source: Asia-Pacific Economic Corporation 2007; Austrade Taiwan 2007 Wine production, hygiene, imports, marketing and advertising are controlled and regulated under the Tobacco & Wine Control Act, the Tobacco & Wine Tax Law and the Tobacco and Alcohol Administration Act. Samples and gifts are subject to full import duties.

Summary

Taiwan has a small growing market for quality domestic fruit wines, high awareness of tropical fruits, demand for quality imported grape wines including Australian branded wines, attractive pricing, moderate import tariffs and taxes, and distribution channels for fruit wine and Australian wine. There is some opportunity for Australian tropical fruit wines to be differentiated by fruit type, premium quality, fruit range, and Australian branding if strong promotional support is provided.

E.1.9 Thailand

Market profile

Thailand does not have a long-standing fruit or grape wine tradition, but a fruit wine market and industry have developed in recent years. Sales of fruit and herbal wines reached 1.4 million litres in 2007, to markets that include Japanese and Korean tourists. Distributors of wine coolers focus on young people aged 20 and over, indicating potential markets for fruit wine (Aeusvrivongse 2002; AWBC Thailand 2007; Mattei 2006; Rivard 2007a). Exports of fruit wine related products grew from 5.9 to 7.3 million litres from 2002−05, including small quantities of tropical and other wines and blends with grape wine by Chiang Rai Winery, Weereeya Rattana Thai Wine and The Siam Winery to Japan, Norway, Sweden, Laos and Myanmar, for outlets such as Thai restaurants (Mattei 2006; Rivard 2007b). Large volumes and low average prices indicate mostly lower priced drinks such as coolers or rice wine (Table E.15).

128 Grape wine represents 20 per cent of total liquor sales, with stable consumption of around eight million litres a year for some years but with signs of growth in 2006. Key markets include young people beginning to drink alcohol, a growing tourist market, and people switching from traditional drinks such as whisky to wine for its lower alcohol content and reputed health benefits. Grape wine is drunk with both western and Thai foods and often to celebrate significant events and fine dining with wine is growing. However, market growth has been constrained by low understanding of grape wine and low incomes (Austrade Thailand 2006; AWBC Thailand 2007; Euromonitor Thailand 2007; Mattei 2006).

Supply

Thailand has around 1000 producers of fruit wines and liqueurs, led by the Chiangmai Wine Co- operative Co. Ltd which represents several farming organisations in Chiangmai Province and has research and development facilities. Kasetsart University in Bangkok also provides industry support through seminars and workshops in wine making and quality control, and product research. Industry growth has been helped by the lack of Government restrictions on production of lower alcohol drinks with up to 15 per cent alcohol, but smaller wineries usually lack the finances to meet new industrial standards and to buy imported equipment, chemicals and bottles. Also a requirement that producers be Thai registered companies with a majority of Thai national shareholders has deterred foreign investment and access to expertise needed to improve the quality and competitiveness of the wines (Aeusrivongse 2002; Mattei 2006; Chaingmai Mail 2004; Chaingmai & Chaingmrai Magazine n.d.). From 2002−05 imports of fruit wine related products were stable at around 430 000 litres most years, include small declining quantities of low priced fruit wine products from Australia and the United States (Table E.15). Table E.15: Thailand: trade in fermented drinks HS2206, # 2002−06 Description 2002 2003 2004 2005 2006 HS 2206.00: Fermented beverages e.g. cider, perry, mead; mixtures of fermented beverages and non- alcoholic beverages not elsewhere specific or included) Total imports – litres 413 000 431 000 1 385 000 445 000 not av. – A$ per litre * 2.17 2.06 1.74 1.64 not av. Total exports – litres 5 884 000 7 028 000 7 989 000 7 319 830 not av. – A$ per litre ^ 0.97 0.78 0.70 0.68 not av. Imports from Australia – litres 81 464 1 769 9 700 0 0 – A$ per litre ^ 3.29 1.67 1.00 – – HS2206.00.229: fermented beverages including cider, perry and mead, but not sake or wine coolers Exports to Japan – litres 9 900 0 14 400 10 900 13 500 – A$ per litre * 2.83 – 3.68 3.39 2.52 HS2206.00.70: fermented beverages not specified elsewhere, excluding cider and sake Imports from United States – litres 15 900 16 700 4 000 6 800 3 000 – A$ per litre ^ 2.55 2.12 1.70 1.74 2.21 Notes: # Excluding grape and beer. * CIF at importing country; ^ FOB from exporting country. Sources: ABS; FAO 2007; Japan Customs trade statistics; USDA trade statistics Thailand’s grape wine industry is around ten years old, with only a few businesses producing around three million litres of wine a year, mainly tourist wineries near the Khao Yai National Park and in hydroponic ‘floating vineyards’ on Central Thailand’s wet flood plains. The Royal Project Foundation provides technical support, equipment and imported grape cultivars (Rivard 2007b). Grape wine imports fell from 3.4 to 3.15 million litres from 1998−2004 due to high import taxes. Thais strongly prefer red, still and dessert grape wines, while expatriates and the large foreign tourist market buy red and white (Austrade Thailand 2007). France is the leading country of supplier followed by Australia, Italy, Chile and the United States. Australian grape wines are regarded as good

129 quality and value for money, and from 2002–06 imports from Australia grew steadily to 1.5 million litres averaging A$5.10 per litre FOB in 2006 (ABS; Austrade Thailand 2006; Mattei 2006).

Product profile

Wineries are using a wide range of tropical, exotic and medicinal fruits, examples being: • B. J. Garden Winery: Chateau de Klaeng mangosteen, noni, Black ginseng and mamao wines • Chiang Rai Co-operative Co. Ltd: around 40 000 bottles a year of Le Santé lychee, mangosteen, noni, Black ginseng and herbal Tokay wines (‘Le santé’ is French for ‘health’) • Phisith Industrial Co. Ltd: Wine de Lapoon longan wine, which ‘tastes like fruit juice’ and ‘nourishes the heart’ according to the company website • Siam Winery: Spy wine coolers and grape wine. The winery also offers tours and wine classes • Thiptipa Company: mangosteen, bignay, Black ginseng, sparkling lemon, sparkling strawberry, and grape wines • Weereeya Rattana Thai Wine: Wines from jackfruit, noni, longkong, mangosteen, passionfruit, rosella, salak, santol and rose apple (Syzygium jambos Alston); Black galangal; honey; apple; olive; sticky rice with Thai herbs; and a rosella–grape wine blend • Zearch Wine Coolers: Mangosteen, apple, peach, lychee, lime, grape, orange, pineapple and strawberry blends with five per cent alcohol, in 330 ml bottles (company websites; Alibaba 2007; JETRO 2006; Mattei 2006; Fuzing.com 2007). Fruit wines and herbal wines such as krachai, noni and ginseng wines are generally positioned as health drinks. One winery states on its website that it does not add water to its wines, so as to preserve typical flavour and aroma (Mattei 2006). All winemakers are required to comply with Government standards across the entire winemaking process, including hygiene and waste management standards, with a TISI 2089–2544 bottle logo for compliant wines (Mattei 2006; Thailand Illustrated Magazine n.d.).

Pricing

Chaing Rai Co-operative retails its fruit wines at 320 baht (A$11.90) a bottle. Grape wine retail prices have been around A$15.00−30.00 for table wines, A$50.00−100.00 for premium wines, and A$260.00−400.00 and more for super-premium wines. Growing consumer resistance to high prices has led to distributors seeking lower-cost supplies (Austrade Thailand 2007).

Distribution

Some fruit wineries sell direct to the consumer, particularly in tourist regions, and via mail order websites and local restaurants. A joint venture between a group of liquor producers and leading gas and oil firm PTT has been retailing fruit wines and traditional liquors in booths in service stations under the ‘One Village, One Product’ brand (Chaingmai Mail 2004). Grape wine is sold mainly through hypermarkets, five star hotels, and higher quality Thai hotels and restaurants.

Promotion

The Government Public Relations Department website provides suggestions for matching fruit wines with various Thai dishes. Wine and winemaking have been promoted at a fruit wine tasting festival at Assumption University, Bangkok, the International Food & Hospitality Show National Contest and the Thai Fruit Wine Satho competition, and through Siam Winery’s winemaking and wine-tasting classes at its education centre (Assumption University 2006; Chiangmai Mail 2004; Tupchai 2003).

130 Continual product launches, media publicity of wine’s reported health benefits, distributors’ client dinners, wine-tastings and other promotions have contributed to growing sales of grape wine. However, the Thai Government is expected to prohibit liquor advertising to reduce liquor consumption (Euromonitor Thailand 2007).

Import regulations and requirements

Import tariffs on Australian wines are 36 per cent of CIF value, having been reduced from 60 per cent in the Free Trade Agreement between Australia and Thailand. Import tariffs are to be phased out by 2015. Wine also incurs excise tax of 60 per cent on CIF Value and import duty; municipal tax of 10 per cent of excise tax; health tax of four per cent of excise tax; and VAT of seven per cent of the combined CIF value and charges, reimbursed by the importer (AWBC Thailand 2007). The total fees would add around A$9.15 to a landed price of A$10.00 for a bottle of Australian fruit wine.

Summary

Thailand has a small emerging market for domestic fruit wines from a wide range of domestic tropical and temperate fruits, and growing demand for Australian grape wine, but strong competition from beer and spirits, limited distribution and high taxes. There is little opportunity for Australian tropical fruit wines to differentiate except on premium quality to high income quality-focused Thai niches.

E.1.10 Vietnam

Market profile

Fruit wines comprise around three quarters of Vietnam’s wine market, although there is some shift to grape wine due to the influence of western culture and grape wine’s reputation for health benefits. There is also a shift to beer as growing competition makes it more affordable (Worldsurface.Com n.d). Vietnam is also a large producer of and market for tropical and sub-tropical fruits. Annual exports of fruit wine related products fluctuated between 9600 and 646 000 litres from 2002−05, and included 30 000−55 000 litres a year to Japan (Table E.16). Recent export statistics are likely to include exports to Germany from a Vietnamese-German joint venture, and VWD lychee wine (Vietnam News 2004). Minor but growing grape wine consumption reached 22 million litres in 2005, mainly by a small expatriate community and a growing tourist industry. Strong growth in wine consumption is due to increasing disposable incomes, a growing middle class, westernisation of the culture, more eating out as a family and buying wine in restaurants. It is also due to the perception of wine as a stylish drink and healthier than spirits due to lower alcohol. All categories of alcoholic drinks have been growing, with wine and beer expanding ahead of spirits. However, wine remains a minor drink compared with beer (97 per cent of liquor sales volumes in 2005). Imported vodka, brandy, cognac and whisky continue to be widely used to celebrate weddings, other ceremonies, and parties since French colonialists established production and domestic distribution of distilled spirits in Vietnam in the 1930s (AWBC Vietnam 1997, 2007; Global Business Management n.d.; Euromonitor Vietnam 2006; Worldsurface.Com n.d).

Supply

Most fruit wine is produced in elevated regions of northern Vietnam by commercial and cottage producers, led by Thang Long Liquor Company. A small emerging industry of local producers such as Hanoi Alcohol Company and Gia Lam Fertiliser Company and joint ventures of Vietnamese and European producers supply domestic and export markets with fruit wine, grape wine and coffee liqueurs (AWBC Vietnam 1997).

131 Most wine is made from imported fruit according to the Viet-Nam Wine and Beer Association, although this is changing with the growing wine grape supply (Euromonitor Vietnam 2006; Worldsurface.Com n.d; Highland News 2004). Imports of fruit wine related products grew strongly from 98 000 to 723 000 litres from 2002−05 (Table E.16). Although import values are not available, these are assumed to be lower value drinks such as rice wine or coolers, given the slowing wine market. Small quantities of fruit wine products were imported from Australia in 2005−06. Table E.16: Vietnam: trade in fermented drinks HS2206, # 2002−06 Description 2002 2003 2004 2005 2006 HS2206.00: Fermented beverages e.g. cider, perry, mead; mixtures of fermented beverages and non- alcoholic beverages not elsewhere specific or included Total imports – litres * 97 840 513 000 761 000 723 000 not av. Total exports – litres ^ 66 000 9 650 645 790 42 280 not av. HS2206.00.229: fermented beverages including cider, perry and mead, but not sake or wine coolers Exports to Japan – litres 32 200 54 700 53 300 36 700 36 900 – A$ per litre * 4.10 4.33 0.54 5.42 1.49 Notes: Excluding grape wine and beer. * CIF at importing country; ^ FOB from exporting country. Sources: ABS; FAO 2007; Japan Customs trade statistics Grape wine is also imported from France, the United States, some eastern European countries and Australia. French wines dominate retail and food service sales, due largely to former colonial ties. The preferred grape wine style continues to be Bordeaux, although often blended or substituted with poor quality product, or faked. Australian grape wines are priced lower than French wines of equivalent quality and perceived as premium quality at a reasonable price, and from 2002–06 imports of Australian grape wine grew strongly to 537,000 litres with an average price of $5.80 a litre FOB in 2006 (Austrade China and Vietnam 2003; ABS; Euromonitor Vietnam 2006; Taipei Times 2006).

Product profile

These examples demonstrate the range of commercial fruit wines being produced: • Lam Dong Food Joint Stock Company: Dalat still and sparkling apricot, orange, lemon and strawberry wines, and a mulberry-grape blend in 375 ml, 500 ml and 750 ml bottles and a three litre bag−in−box (Dalat Wine 2006) • Huong Son Commune: Huong Tich apricot wine. However, this is made as a liqueur through steeping apricots in rice wine, not by fermentation (Vietnam Travel 2007) • Kimbien Fruit Processing Co-operative: White wine from fresh lychee juice and red wine from dried lychee fruits (mainly the Thieu cultivar), with 13 per cent alcohol, in 600 ml bottles. Wines are fermented for at least six months (ecw.com 2007) • Soamai Co Ltd: Fruit wine, spirits, juice and beer (Imex Goods 2007) • Van Nguyen Joint Venture Company: a recent co-operative arrangement with German company Weingut Gres Gutsabfuling to produce fruit wine (Vietnam News 2004). Fruit and grape wines are often promoted on their health benefits, such as one winery’s claim to “aid digestion, appetite, and sleep, and lower coronary disease” (Worldsurface.Com 2006).

Pricing

Trade statistics and other sources provide little indication of pricing for fruit wine; however, Australian product was imported at A$5.80 a litre FOB in 2006. Rising wine prices due to rising fuel costs, the introduction of VAT and high import tariffs have constrained market growth for wine. Prices vary widely due to significant quantities of alcoholic

132 drinks, including around half of all spirits sold, being smuggled in and sold illegally at prices well below fully taxed imported drinks (AWBC Vietnam 1997, 2007; Euromonitor Vietnam 2006).

Distribution

Several fruit wine producers retail from the winery and by mail order through their own and distributor websites. A Hanoi restaurant specialises in fruit wines and liqueurs from local hill tribe villages. Grape wine is handled by import, trading and distribution companies and sold by large chains such as Metro Cash & Carry, small shops, hotels and restaurants (Austrade China and Vietnam 2003).

Promotion

Domestic fruit wines are often promoted through producer and distributor websites. Wine promotions include the International Wine Challenge of Vietnam.

Import regulations and requirements

Wine imports are regulated by the General Department of Vietnam Customs and the Ministry of Finance, and product testing is administered by the Ministry of Science, Technology and Environment. Imported wines require a Certificate of Analysis and a lengthy process of product registration. High import tariffs of 65 per cent, excise tax of 60 per cent, VAT of 10 per cent and Special Consumption Tax of 20 per cent would add around A$25.00 to an Australian wine with a landed price of a A$10.00. The granting of Most Favoured Nation (MFN) status has entitled Australian products to Privileged import tax tariffs, a reduction of 150 per cent on Ordinary tax tariffs, on presentation of a Certificate of Origin from an Australian state chamber of commerce. As Vietnam has now accessed the World Trade Organisation, MFN tariffs are to reduce to 50 per cent by 2012 (AWBC 2007). More information is available on the Vietnam Customs website.

Summary

Vietnam has a medium sized, stable and low priced market for domestic temperate fruit wines and strong demand for French and Australian grape wines, but limited distribution for fruit wine, very high import tariffs and taxes, and French wines perceived as epitomising premium quality. There is no apparent opportunity for Australian tropical fruit wines to compete until import costs fall.

E.2 Country profiles – North America

E.2.1 Canada

Market profile

Canada has a moderately sized fruit wine market of mostly tourists buying from wineries in wine producing regions of western Canada. Consumption is expected to grow as domestic supply increases (The Canadian Wine Industry, 2002; Dyck 2006). In 2006, 14.4 million litres of cider, fruit wine, perry, mead, hard lemonade and related drinks valued at A$34.5 million were exported to 16 countries (at low average prices indicating mostly low value drinks such as coolers and flavoured wine). In 2006 export markets were led by the United States (although volumes fell from 34.6 to 5.7 million litres since 2002), followed by Japan, Taiwan, the Republic of Korea, Singapore, Belgium, the United Kingdom, Hong Kong, Italy Vietnam, Spain, China, Australia, Denmark and the Philippines. Exports to Korea, Japan and Taiwan include Fort Wine’s berry wines (Luke 2005; USDA Trade Statistics; Table E.17). Grape wine consumption was 358 million litres in 2005, with annual average individual consumption increased from 11.0 to 14.7 litres since 1997, and growing demand for quality wine. While young

133 professionals are drinking more wine, wine remains a drink for special occasions rather than every day for most Canadians (AWBC Canada 2007; The Canadian Wine Industry 2002; US Foreign Agricultural Service 2006).

Supply

A moderately sized fruit wine industry is concentrated in British Columbia, Alberta and Quebec, and grew strongly in recent years due to fruit wineries expanding and grape wineries, often larger companies, diversifying into fruit wines, ciders and hard lemonade (alcoholic lemonade) (Dyck 2006). With government support the industry has formed the national Fruit Wines of Canada Association and associated regional and provincial organisations. While there are inconsistencies between some trade statistics, imports of fruit wine related products, mostly fruit wines, wine coolers and ciders, were relatively stable at around six million litres from 2002−06, and mainly from the United States (58 per cent by value), the United Kingdom (26 per cent) and Japan (eight per cent), followed by Spain, Belgium, Ireland, Italy and Korea, with small quantities from France, Germany, Denmark, China, Poland, South Africa, Finland and Argentina (USDA Trade Statistics). From 2002−06 imports from Australia were small and fluctuating, peaking at 224 000 litres averaging $4.00 a litre FOB in 2003 (ABS). Table E.17: Canada: trade in fermented drinks HS2206, # 2002–06 Description 2002 2003 2004 2005 2006 HS 2206.00: fermented beverages such as cider, perry, mead, hard lemonade, mixtures of fermented beverages and non-alcoholic beverages not elsewhere specific or included Total imports – litres 6 485 000 6 661 910 5 555 000 6 010 900 not av. – A$ a litre * 3.73 3.95 4.55 4.50 not av. Total exports – litres 36 784 000 20 027 000 10 700 000 14 384 550 not av. – A$ a litre ^ 3.23 2.93 2.61 2.40 not av. Imports from Australia – litres 70 960 224 638 61 158 33 668 0 – A$ ^ 18 729 55 821 17 136 9 036 – – A$ per litre ^ 3.79 4.02 3.57 3.73 – Imports from United Kingdom – A$ * 2 400 420 2 830 233 4 419 827 5 127 556 6 746 696 Imports from Japan – A$ * 1 205 988 1 416 293 1 611 754 1 883 529 2 119 492 Exports to Japan – A$ * 18 017 4 113 28 018 86 471 165 857 Imports from France – A$ * 18 400 42 860 50 890 112 540 64 090 Exports to France – A$ * 252 106 20 900 65 500 73 500 518 210 Imports from Spain – A$ * 346 385 560 827 491 222 748 692 800 447 HS 2200.600.229: fermented beverages including cider, perry and mead, but not sake or wine coolers Exports to Japan – litres 3 000 4 700 357 200 538 600 4 300 – A$ per litre * 22.0 21.1 1.2 1.5 45.1 HS 2206.00.9000: Fermented wine beverages other than grape wine, beer, cider, prune wine, sake, vermouth, or other effervescent wines Imports from United States – litres 5 138 900 7 275 400 8 246 000 8 863 000 9 728 000 – A$ ^ 3.21 2.41 1.97 1.92 2.12 Exports to United States – litres 34 635 700 18 336 300 9 231 100 12 698 100 5 698 500 – A$ ^ 3.28 2.96 2.68 2.47 2.78

Notes: # Excluding grape wine and beer. * CIF at importing country; ^ FOB from exporting country. Sources: ABS; FAO 2007; Japan Customs Trade Statistics; USDA Trade Statistics; Statistics Canada Canada has a small grape wine industry with around 170 wineries, although production is concentrated in five large firms which produce 90 per cent of total domestic wine, led by two large national wineries. It is a leading producer and exporter of icewine, made from grapes frozen on the vine. Production is again concentrated in Ontario (around 82 per cent), British Columbia and Quebec and growing, largely due to planting of grapes better suited to the growing conditions, but most regions are

134 not suited to grape growing, and the industry has lost market share to increasingly competitive imports from New World suppliers (The Canadian Wine Industry 2002). In 2004, 290 million litres of grape wine, two-thirds of total supply, were imported, mainly from France, Australia and the United States (AWBC Canada 2007). From 2002−06 imports of Australian wine grew strongly to 49.5 million litres and a 14.5 per cent market share, while average import price per litre fell from A$8.30 to $4.90 FOB (ABS; US Foreign Agricultural Service 2006).

Product profile

Most fruit wines are made from apple, berries, cherries, kiwifruit and stonefruit, with some grape wine blends, maple wine from maple tree sap, and ice wine from fruits (Table E.18). Table E.18: Canada: product audit for fruit wines Manufacturer and brand Products Pricing * Archibald Orchards Estate Apple, cherry, currant, and peach wines; ciders and C$10.00–17.00 (A$11.70 –20.00) Winery, Ontario fruit flavoured ciders; maple wines Cherry-chocolate wine $19.00 ($22.00) Bellamere Country Market & Fruit wines and blends with grape wine Winery, Ontario Blossom Winery, British Blossom brand berry wines Columbia Elephant Island, British Apple, apricot, berry, crabapple and pear wines; Wine C$13.00–25.00 (A$14.00– Columbia icewine from Fuji apple 28.00); port C$37.00 (A$42.00) Fort Wine Company, British Apple, apricot, berry, kiwifruit, peach and C$14.00 (A$16.40) Columbia strawberry wines, blends and fortified wines Fortified dessert wines C$15.00–20.00 (A$17.60–23.40) for 375 mls Iced apple wine (dessert wine) C$23.00 (A$27.00) for 375 mls Lunenburg Country Winery Apple, blueberry, pear, rhubarb and River cherry C$11.00 (A$12.45) wines; maple wines Sunnybrook Farm Estate Apple, berry, cherry, pear and stone fruit wines C$15.00–25.00 (A$17.00–28.00) Note: * Assumed to be 750 mls unless otherwise stated. Sources: Company and distributor websites; Luke 2005 The Fruit Wines of Canada National Quality Standards and Regulations, which were developed to provide a standard of quality and credibility and to support market development and training, provide these definitions for fruit wine: • Fruit wine: ‘the alcoholic fermentation of the juice of sound ripe fruit, fruit juices or concentrate, other than juice from fresh grapes’; and ‘an alcoholic beverage produced by the complete or partial alcoholic fermentation of fresh fruit or fruit juice, with an alcoholic content not less than 7.1 per cent’. Wines exceeding 14.9 per cent alcohol may be labelled ‘dessert’ or ‘aperitif’ • Iced fruit wine: fruit wine fermented from fruit juice obtained through cryo-extraction • Fortified fruit wine: fruit wine with food-based alcohol added to not less than 14 per cent alcohol • Sparkling fruit wine: derived from primary or secondary fermentation or impregnation with carbon dioxide. The terms ‘traditional method’ and ‘Charmat method’ (tank-fermented under pressure) are permitted (Food & Drink Weekly 2000). The standards also specify the fruits permitted for use in fruit wine, including apples, pears, stone fruit, berries, cherries, kiwifruit, various native fruits and rhubarb (Dyck 2006; Fruit Wines of Ontario n.d.). Canada’s Food and Drugs Act and Regulations also provide definitions and compositional requirements, and the Canadian Food Inspection Agency administers a Code of Practice for the Production and Distribution of Unpasteurised Apple and Other Fruit Juice/Cider. Wines also need to

135 comply with the Consumer Packaging and Labelling Act and Regulations, with labels in both English and French language (AWBC Canada 2007; Dyck 2006).

Pricing

Fruit wines, ciders and hard lemonade retail in three price ranges: low, low-to-medium with domestic table grape wines, and mid-to-premium with branded items such as icewines. Winery prices are generally A$11.00−25.00 a bottle for fruit wines and $18.00−25.00 for 375 mls of fortified and dessert fruit wines (Dyck 2006; The Canadian Wine Industry, 2002; Table E.19).

Distribution

Where state laws permit, many small fruit wineries sell through the cellar door, mail order and the Internet. Around 85 per cent of grape wine is also sold through retail stores. With some exceptions, provincial liquor boards control wine distribution, either through retail stores that they operate or through their local agents who supply restaurants and hotels. Several wine manufacturers bottle and blend imported bulk wine in Quebec as wine sold in grocery stores has to be bottled within the State. Outside Quebec and Ontario most provincial restrictions have now been replaced by ‘national treatment’, where imported wines have equal interprovincial access to domestic product (AWBC Canada 2007; Dyck 2006; The Canadian Wine Industry, 2002).

Promotion

Fruit wines are mostly promoted on producers’ websites. Wine competitions that include fruit wines include the Canadian Wine Awards, All Canadian Wine Championships, Fruit Wines of Canada National Awards and Northwest Wine Summit.

Import regulations and requirements

The harmonised code HS 2206.00 provides several specific domestic subcategories for fruit wines for Canada, indicating fruit wines are a significant imported category. Imported wines are subject to tariffs, excise, GST, levies and provincial taxes (Table E.19). Table E.19: Canada: import taxes and tariffs on wine Description Tax Rate HS 2206.00: Non grape wine – 2206.00.501: Fruit wine (not sparkling) Customs duty Can$2.82 (A$3.14) a litre not exceeding 13.7% alcohol (equals excise duty on domestic HS 2204: Grape wine products) – Imported still grape wine not exceeding Can$3.74 (A$4.17) a litre 13.7% alcohol and sparkling grape wine not more than 22.97% alcohol All wine Federal Excise Tax Can$0.69 ($0.76) per litre Federal Goods and Services Tax 7% of retail price, includes (GST) Harmonised Sales Tax in some states Wine and bottle levy Environment fee Provincial Sales Tax collected on 7–15% (varies by state, includes behalf of provinces GST in some states) State Wine Excise Tax Varies with states Source: Asia-Pacific Economic Corporation 2007; AWBC Canada 2007; Canada Customs: Excise Act and Excise Act 2001 Each province has a liquor control board which controls distribution, regulations on liquor licensing, importation of alcohol beverages, and labelling and packaging standards, and sets prices and quotas,

136 so wine exporters are advised to liaise with the relevant board (AWBC Canada 2007). More information can be obtained from the Canada Border Services Agency website.

Summary

Canada has a medium sized market of mostly regional market segments in wine producing regions, growing domestic production of quality temperate fruit wines which appears to be satisfying local demand, export-focussed producers, attractive pricing and growing demand for Australian grape wine. While there may be an opportunity for quality Australian tropical fruit wines to provide novelty and variety under strong Australian branding, in-market investigation is needed to clarify potential markets and distribution channels.

E.2.2 Mexico

There is a market for domestic fermented fruit drinks, such as persimmon wine; colonche, a sweet fizzy drink from fermented juice of the fruits of the prickly pear cacti; tepache, a light sweet drink made by fermenting fruits such as pineapple, apple and orange with natural yeasts and sugar for only a couple of days; and wines from the sap of coconut and other palms (The Gale Groupe 2007). A recent research project made fruit-flavoured wines by blending wine from cane sugar with passionfruit juice and rosella flower (Rivera-Espinoza et al.2005). From 2002−05 annual exports of low-priced fruit wine related products varied between 141 000 and 1 595 000 litres, mostly to its United States neighbour, while imports grew steadily to 6.8 million litres. Low annual average prices and specific tariff codes for wine coolers and blends of wine with soft drink and wine with beer indicate most trade is in these drinks (Table E.20; Asia-Pacific Economic Corporation 2007). Table E.20: Mexico: trade in fermented drinks HS2206, # 2002−-6

Description 2002 2003 2004 2005 2006 HS 2206.00: fermented beverages such as cider, perry, mead, mixtures of fermented beverages and non- alcoholic beverages not elsewhere specific or included Total imports – litres 5 230 470 5 183 000 6 447 000 6 807 610 not av. – A$ per litre * 3.76 2.72 2.08 2.19 not av. Total exports – litres 1 595 460 141 000 265 000 598 300 not av. – A$ a litre ^ 3.40 2.14 2.05 1.53 not av. HS 2206.00.90: Fermented beverages other than grape wine, beer, cider, prune wine, sake, vermouth, or other effervescent wines Imports from United States – litres ^ 618 100 927 400 5 433 300 5 752 500 6 125 000 – A$ a litre 3.65 2.49 2.06 2.09 1.99 Exports to United States – litres * 367 200 247 700 308 200 735 500 978 300 – A$ a litre 3.12 3.04 2.30 1.74 1.32 Notes: # Excluding grape wine and beer. * CIF at importing country; ^ FOB from exporting country Sources:. ABS; FAO 2007; United States trade statistics Grape wine consumption is growing due to more young people drinking wine and higher disposable incomes (Euromonitor Mexico 2007). However, from 2002−06 imports of Australian grape wine halved to 257 000 litres, while annual average price fell from A$8.30 to $6.00 per litre FOB, indicating a highly competitive market (ABS). Fruit wine products incur 20 per cent import duty (Asia-Pacific Economic Corporation 2007). High taxes, including a 50 per cent Special Products and Services Tax and five per cent VAT, have curbed growth in alcoholic drinks consumption, and encouraged illegal production and importing (Euromonitor Mexico 2007).

137 Summary

A substantial market for specialised domestic fruit wines and uncertain imports of low priced fruit wine products from Mexico’s neighbour and close trading partner the United States, indicate little opportunity for Australian tropical fruit wines. Further research may identify a minor opportunity but falling imports of Australian grape wine indicate a lack of competitive advantage.

E.2.3 United States

Terms used for fruit wines in the United States include ‘fruit wines’ and ‘country wines’. ‘Hard cider’ is used for fermented apple juice, and ‘cider’ for unfermented apple juice (The Wineman.com 1999; NSW DPI 2002).

Market profile

There is a large fruit wine market of mostly people buying from their local wineries, and a potential market of 32 to 44 year olds. The market is much larger for cider and flavoured grape wine, usually from large manufacturers. Cider was widely drunk in colonial America as a safer alternative to water until water treatment and sanitation practices were developed, when the emerging Temperance movement influenced cider-drinkers to switch to low alcohol beer. Cider consumption has revived in recent decades, particularly with people of both sexes aged 21−30, and still and sparkling perry (‘pear cider’) are also popular. Young Americans are also buying more of a large and growing range of flavoured spirits as RTDs, energy drinks and cocktails (The Wineman.com 1999; Euromonitor United States 2007; Merwin 2005; McGourty & Butzke 1998). From 2002−06 annual exports of fruit wine related products fluctuated, peaking at 62.06 million litres in 2004, with 21.48 million litres to 108 countries in 2006. In 2006 markets for fruit wine drinks were led by Canada (doubled to 9.73 million litres since 2002) and Mexico (a tenfold increase to 6.12 million litres), followed by Japan and Taiwan, with exports to Australia growing from 1200 to 8160 litres a year over the same period (Table E.21; United States Trade Statistics). Grape wine consumption was 2660 million litres in 2005, having grown steadily and consistently in the past decade due to strong growth in wine-drinking in households with above average incomes, people drinking wine earlier as young consumers moved from beer and spirits to wine (mostly red), recognition of health benefits from moderate alcohol consumption, and improved marketing campaigns. Annual average individual consumption is around 9.8 litres and rising, with around 25 per cent of adults drinking wine at least once a week; however 43 per cent of adults are abstainers. Consumption is higher on the east coast, where people are often wealthier, sophisticated and well travelled (Austrade United States 2007; AWBC USA 2007; AWBC Winefacts 2007; Wine Institute 2003; US Foreign Agricultural Service 2006; Datamonitor 2006).

Supply

Around 200 mostly small fruit wineries are located across the country, mainly on the east coast and usually in fruit growing regions and regions unsuited to grape-growing. Several liquor manufacturers have diversified into fruit wines and fruit flavoured grape wines. Tropical fruit wines and blends with grape wine are produced in Hawaii and Florida and wines from berries, stonefruit, apples and indigenous fruits in the country’s northeast and northwest (Healey 2006; Wine basics 2006; The Wineman.com 1999) In 2005/6 total wine production of 1243 million litres of wine included unspecific quantities of fruit wine, 8.37 million litres of cider and 121 million litres of wine coolers (fruit flavoured grape wines. In 2006, 10.7 million litres of cider were imported, mainly from the United Kingdom, Ireland, Canada and Spain. These statistics indicate strong demand for fruit wine related products (Table E.21; US Department of Treasury 2007).

138 Table E.21: United States: trade in fermented drinks HS2206, # 2002–06 Description 2002 2003 2004 2005 2006 HS 2206.00: fermented beverages e.g. cider, perry, mead; mixtures of fermented beverages and non- alcoholic beverages not elsewhere specific or included Total imports – litres 49 383 500 32 451 300 24 043 400 29 588 500 25 110 200 – A$ per litre * 3.53 3.39 3.44 3.25 3.55 Total exports – litres 11 014 100 23 655 500 62 065 900 33 672 700 21 483 300 – A$ per litre ^ 2.93 1.71 1.18 1.75 2.10 Imports from Australia – litres 20 997 270 0 45 63 – A$ ^ 1 156 2 390 – 375 119 – A$ per litre ^ 0.06 8.85 – 8.33 1.89 HS 2200.600.229: fermented beverages including cider, perry and mead, but not sake or wine coolers Exports to Japan – litres 108 600 48 900 113 700 71 600 79 500 – A$ per litre * 6.39 6.30 5.79 5.91 6.39 HS 2206.00.3020: fruit wine, cider or perry, mead, sake, grape wine blends Exports to Australia – litres 1 269 1 362 1 023 2 648 8 163 – A$ 7 583 6 452 4 284 8 107 28 290 – A$ per litre ^ 5.98 4.74 4.19 3.06 3.47 HS 2206.00.900: fermented beverages other than grape wine, beer, cider, prune wine, sake, vermouth, or other effervescent wine, and HS 2206.00.300: prune wine Imports from Canada – litres 34 635 700 18 336 300 9 231 100 12 698 100 5 698 500 – A$ per litre * 3.73 3.62 3.97 3.53 5.78 Imports from Spain – litres 1 070 500 1 170 600 1 133 400 1 389 400 1 668 500 – A$ per litre * 3.62 3.08 2.22 2.19 2.23 Imports from Mexico – litres 367 200 247 700 308 200 742 900 978 300 – A$ per litre * 3.12 3.04 2.30 1.72 1.49 Imports from Ireland – litres 95 400 204 100 369 800 363 800 782 000 – A$ per litre * 8.12 8.22 6.83 7.27 6.84 Imports from Japan – litres 484 700 335 300 475 900 433 400 497 300 – A$ per litre * 6.61 6.43 5.90 6.08 6.02 Imports from Italy – litres 1 507 800 708 400 327 600 308 200 388 600 – A$ per litre * 2.97 3.08 2.83 3.31 3.13 Imports from Denmark – litres 55 400 152 100 122 700 199 600 135 400 – A$ per litre * 6.31 5.51 5.10 2.93 5.27 Notes: # Excluding grape wine and beer. * CIF at importing country; ^ FOB from exporting country. HS 2206.00.900 is the United States’ export code for fermented wine products not specified elsewhere, and HS 2006.00.700 is its code for imports of the same products. Sources: ABS, Japan Customs trade statistics; USDA trade statistics; U.S. Census Bureau Foreign Trade Statistics While a large wine industry of some 4000 wineries produced 2700 million litres of grape wine in 2004−05, the United States imported 30 per cent of its wine supply in 2005 (US Foreign Agricultural Services 2006) (Note: these statistics conflict with Department of the Treasury, Alcohol and Tobacco Tax and Trade Bureau data, see US Department of Treasury 2007). Australia is the second largest supplier after Italy and ahead of France and Chile, with 28 per cent of imports. From 2002−06 imports from Australia almost doubled to 218 million litres averaging A$4.10 a litre FOB in 2006 (ABS).

Product profile

Most commercial fruit wines are made from apple, berries and stone fruit, with tropical fruits such as jaboticaba, guava, lychee, mango, papaya, pineapple, passionfruit and various citrus used mainly in Florida and Hawaii. (Table E.22).

139 Table E.22: United States: examples of fruit wines Winery and brand Product description Pricing * Tropical fruit wines Florida Orange Groves & Florida Tropical Fruit Wine from mango, guava, Wine US$16.00−19.00 (A$19.12−22.70), Winery, Florida passionfruit, pineapple and watermelon, with ‘100% sparkling mango $25.00 (A$29.90) Florida fruit’ Florida Citrus Wine, from 100% fruit – pink grapefruit, Wines US$16.00−17.00 (A$19.12− Key lime, orange, tangelo, tangerine 20.30), sparkling US$21 (A$27.90) Florida Specialty Wine – orange, pineapple and coconut US$16.00−19.00 (A$19.12−22.71) blend; cream and chocolate blends; mead Berry and stone fruit wines US$16.00− 20.00 (A$19.12−23.90) Carrot and tomato wines US$16.00 (A$19.12) Orchard Heights Winery, Hawaiian brand mango, papaya, passionfruit, pineapple Oregon and tropical blend Schnebly Winery, Florida Caramobola, guava, lychee, mango and passionfruit US$14.00−19.00 (A$16.70−22.70) wines St Armand’s, Florida Still and sparkling wines and blends from 100% mango, US$25.00 (A$29.90) grapefruit, lime, passionfruit, orange, peach, tangerine, tangelo, watermelon, berries, cherry and carrot, some with chocolate or coffee flavouring Tedeschi Vineyard, Hawaii Pineapple, passionfruit, berry and other fruit wines and blends, e.g. Maui Blanc Pineapple Wine Maui Splash Cross Creek Groves, Mango, passionfruit, orange, pineapple, pink grapefruit, US$16.00−20.00 (A$19.12−23.90) Florida tangerine, Key lime, tangelo, cranberry blueberry, orange chocolate and Pina colada wines Island Princess Tropical Pineapple, passionfruit, mango, papaya and ‘tropical’ Wines, Hawaii wines Volcano Wine, Hawaii Blends of grape wine with jaboticaba, guava, US$16.00−17.00 (A$19.12−22.30) macadamia and honey; mead Wineries with temperate fruit wines Carlson Vineyards, Apple, cherry, pear, stone fruit and grape wines and US $8.00 (A$9.60) Colorado blends Cream Ridge Winery, New Berry, cherry and grape wines, blends with almond and US$10.00−15.00 (A$17.90−19.30) Jersey chocolate; Sangria with citrus Linganore Winecellars, Apple, berry, stone fruit, grape and dandelion wines, Maryland sangria, spiced wine and mead Lynfred Winery, Chicago Apple, apricot, berry, cherry, pear, plum and rhubarb US$8.00−12.00 (A$10.60−14.30) wines Piney Woods Country Berry, orange, stone fruit, grape, and pecan–flavoured Wines, Texas wine Prairie Berry Winery, Wild plum, wild chokeberry, wild buffalo berry and US$13.00−14.00 (A$15.50–16.70) South Dakota rhubarb wines Imported fruit wines Vinliz, China Lychee wine US$18.00 (A$21.50) Kiuchi, Japan Yuzu wine, 500 mls US$15.00 (A$19.30) NV Kijafa, Denmark Danish cherry wine US$12.00 (A$14.30) *Note: Assumed 750 mls unless otherwise specified. Currency conversion is average for 2006. Source: Winery websites, WINEwarehouseinc.com; Wally’s n.d. Many fruit wineries also make other drinks including blends of fruit and grape wine, fruit juice and grape wine; blends of fruit wine with foods such as coconut, cream and chocolate; flower wines, and mead, sometimes from honey produced around specific flowers such as macadamia and citrus. Imported wines include wines from traditional Asian fruits such as lychee and Japanese yuzu.

140 Large manufacturers of fruit wines, flavoured wines and in some cases also grape wines include Canandaigua with the Arbor Mist brand; The Wine Group with Lyrica; Matt Brewing with Mountain Blush; Gallo; Trinchero Family Estate’s Portico, Soleo and Sutter Home brands (US Foreign Agricultural Service 2002; Khermouch 1999; Khermouch & Howard, 1999). Around 50 cider makers range in size from corporations producing carbonated six-packs such as HardCoreTM to small producers of naturally sparkling and still ciders and apple wines in 750 ml bottles. Miller’s, Stroh’s and other large brewers have moved into cider production, and large European cidermakers have invested in North American ciders such as the WoodchuckTM brand, to access the United States market (Merwin 2005). Major perry brands include Halewoods International’s Lambini Perry. The highest quality sparkling perry is made by 'Méthode champenoise' where a secondary fermentation occurs in the bottle (Beverage Industry 2001). Imports of grape wine have been shifting from French wines to wines from Australia, New Zealand, Italy, Spain, Portugal, Chile and South Africa. Australian wine is recognised as value for money at all points, and particularly in the premium sector. The market’s leading brand is Australian wine company Casella Wines’ Yellow tail. Demand is also shifting to premium and super premium brands (often with limited production runs) as manufacturers educate wine drinkers to appreciate the production process and superior quality of these wines. Younger wine drinkers respond to imported ‘critter’ labels such as Yellow tail, unconventional product names and single-serve packaging (AWBC USA 2007; Euromonitor United States 2007; US Foreign Agricultural Service 2006). Imports of wine need to comply with the Code of Federal Regulations, which include labelling and packaging, administered by the Alcohol Tobacco Tax and Trade Bureau (see US Department of Treasury 2007a), and the Fair Packaging and Labelling Act and Bioterrorism Act administered by the Food and Drug Administration (AWBC USA 2007). Labelling regulations are detailed on the websites of the ATF Bureau of Alcohol, Tobacco, Firearms and Explosives and the Bureau of Alcohol, Tobacco, Tax & Trade (US Department of Treasury).

Pricing

Winery websites typically advertise tropical fruit wines at around A$16.00−25.00 a bottle. Import prices reached A$8.22 a litre for Irish fruit wine drinks and A$9.33 for prune wine in 2003, but low annual average import and export prices indicate most trade is in low value drinks (Table E.23). Most domestic grape wines retail at either under US$4.25 (A$5.10) or over US$10.00 (A$11.95) a bottle, while imported wines are typically between US$4.25 (A$5.10) and US$10.00 (A$11.95). Demand has shifted from higher priced French wines to lower priced drinks, particularly from young drinkers, and world oversupply has led to significant discounting in recent years (AWBC USA 2007; Euromonitor United States, 2007; US Foreign Agricultural Service 2006).

Distribution

Fruit wine is mostly sold by producers through the wineries or their Internet or mail order services, with some sold in liquor stores and restaurants and on distributor websites such as Alibaba, Blanchards Wines & Spirits, and Wally’s Wineshop. A San Francisco restaurant uses lychee wine in cocktails. Major brands of flavoured fruit wines and cider are sold in supermarkets and other stores. Importers of fruit wine include Paleewong Trading Incorporated, LeDati Wine; and wine.com. Around 4500 wholesalers handle grape wine, although sales through brokers and the Internet are increasing. Eighty per cent of wine is sold through retail stores, mainly supermarkets and liquor stores, and the rest mostly in bars and restaurants (Austrade United States 2007). Wine distribution has been restricted significantly by state laws that have only allowed wineries to retail wine to consumers within their own states and required them to use licensed wholesalers or distributors for interstate sales. A recent legal challenge has resulted in most states now permitting direct sales, so the national wine market is likely to be increasingly competitive. New exporters are

141 advised to liaise with a licensed importer and to contact the U.S. Alcohol, Tobacco, Tax & Trade Bureau which regulates the sale and movement of alcoholic drinks within the United States (AWBC USA 2007; Austrade United States 2007; Euromonitor United States 2007). The Wine Institute website provides information on market regulations and requirements and interstate shipping laws, and the Free the Grapes website also provides information on State regulations and laws. Foreign wine producers usually enter the market via licensing agreements or joint ventures with an established domestic manufacturer. For example, Casella Wines joined with a local distributor to introduce its successful Yellow tail brand (Appendix C: Case studies; Austrade United States 2007).

Promotion

Many fruit wineries promote their wines on their websites, and numerous websites feature fruit wine articles. There is some trade promotion, such as the 2003 ‘Fruit Wine Faire’ organised by a New York wine store, giving tastings of more than 40 fruit wines (Vintage New York 2003). Fruit wines can compete in several wine competitions including the annual Indy International Wine competition run by Purdue University in Florida and the Illinois State Fair (Bardgett 2006; Indiana State Fair n.d.). The most popular and most cost-effective promotions for grape wine have been media articles and advertisements in wine trade and food publications. Manufacturers are focussing on younger drinkers, and promoting wines at events in clubs and bars in large cities, including with celebrity endorsements (AWBC USA 2007; Euromonitor United States 2007).

Import regulations and requirements

Fruit wine incurs similar tariffs and taxes to grape wine, but lower excise. Import duty and excise add only A$1.10 to a bottle of Australian wine with a landed price of A$10.00 (Table E.23). Table E.23: United States: import duties and taxes on wine Description Duties and taxes Rate 22060090 Fermented beverages (other than grape wine, beer, Import duty US$0.69 (A$0.85) a litre cider, prune wine, sake, vermouth, or other effervescent wines) Federal Excise Tax US$0.21 (A$0.25) per litre 2204 Grape wine, not more than 14% alcohol Import duty US$0.069 (A$0.85) per litre Naturally sparkling wine Federal Excise US$0.98 (A$1.07) a litre Artificially carbonated wine Federal Excise US$0.87 (A$1.04) per litre All wine State Excise tax Sales tax Wholesale taxes Other taxes Source: Asia-Pacific Economic Corporation 2007; AWBC USA 2007 The maximum alcohol content for wine to be classed as table wine is 14 per cent, compared with Australia’s 15 per cent, with higher tariffs if more than 14 per cent. Most Favoured Nations including the Andean countries, Canada, the Caribbean, Israel and Mexico, benefit from lower tariffs on wine (Austrade United States 2007). The websites of the Alcohol, Tobacco, Tax & Trade Bureau and the United States Customs Service provide more information on tariffs, taxes and import requirements and the United States Government website lists all state excise, sales, wholesale and other taxes.

Summary

The United States has a large market for tropical and other fruit wines, with strong demand and established distribution for related products, Australian grape wine and quality wines. There is a good opportunity for Australian tropical fruit wines that can be differentiated on quality and fruit type for fruit wine enthusiasts, Asian consumers, and novel contemporary presentations for young drinkers.

142 While the market is very complex and highly regulated, rewards could be very lucrative for businesses prepared to invest to support market entry.

E.3 Country profiles – Europe

E.3.1 European profile

Market profile

Europe has a long tradition of fruit wines which, like grape wines, have been made in the home for centuries, using various fruits and vegetables containing sugar, and often beet sugar, honey and other sources of sugar. Production has been highest in northern countries too cold for grapes. Europe has very large markets for fruit wine, cider and perry produced in Europe and imported from countries outside the European Union (EU), the largest fruit wine and cider markets being in the United Kingdom, Ireland, Belgium, Denmark, Germany, Finland, and the Netherlands, with smaller fruit wine markets in Sweden and Russia and a large cider market in France. Around one million litres of fruit wine were exported from the EU in 2002 (AICV 2005, AICV n.d.). In 2007 the EU’s members were Austria, Belgium, Bulgaria, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Romania, Spain, Slovakia, Slovenia, Sweden and the United Kingdom (Europa 2007a). Several nations are major markets for Australian grape wine, including the Australia’s leading market, the United Kingdom, which takes 35 per cent of Australia’s export volumes; Denmark; Germany; Ireland; the Netherlands and Sweden. In 2006 Australia supplied the EU with 388 million litres of wine valued at A$1.2 billion, 51 per cent of its wine exports (AWBC EU 2007). More wine trade information can be found at the Eurostat and European Union Trade websites. Much of Europe’s fruit wine production was established in eastern European countries formerly in the United Soviet Socialist Republic (USSR) to supply other USSR countries. Until the 1980s, the USSR produced 870 million litres a year of fruit wine and 4200 million litres of still and sparkling grape wine, and imported around 235 million litres of grape wine. Although individual consumption averaged only 17 litres a year, 80 per cent was fortified jug wine, resulting in high alcoholism, so in 1985 the administration of President Gorbachev began a campaign against high alcohol drinks. This inadvertently ended the production of fruit wine and importation of all wine and, compounded by restrictions placed on retail hours, led to an 80 per cent fall in wine production and the closing of 85 per cent of liquor stores, from which the industry has never recovered (Litvak 1992; Hesse n.d.). Several countries including Bulgaria, Georgia, Lithuania and Moldova continue to produce very large volumes of fruit wine, usually low priced and low quality, most of which is exported within Europe.

Supply

The Association of the Cider and Fruit Wine Industry of the EU (Association des Industries des Cidres et Vins de Fruits de l’EU-ICV) based in Brussels represents the fruit wine industries of Belgium, Denmark, France, Finland, Germany, Denmark, Ireland, Lithuania, Netherlands, Spain, Sweden and the United Kingdom. Members includes more than 180 cider and fruit wine manufacturing companies, including some large producers from mainly Belgium, France, Germany, Ireland, Spain and the United Kingdom; national industry associations; and directly affiliated producers of fermented fruit wines and fortified fruit wines. In 2000 AICV members produced 50 million litres of fruit wine and 930 million litres of cider and perry (AICV 2005; AICV n.d.). The combined European grape wine industry produced 15 million litres of wine in 2005, but is not expected to expand significantly in the medium term due to policy controls and growing competition. The major European wine producing nations France, Italy, Germany, Portugal and Spain dominated world wine trade in 2005 with 64 per cent of exports (AWBC European Union, 2007; US Foreign

143 Agricultural Service 2002). However, Europe has a large wine surplus, resulting in a government program to subsidise grape growers who remove vineyards until 2011 and much of Europe’s wine production being diverted to industrial ethanol.

Product profile

Europe’s leading fermented fruit wine drinks are fruit wines, cider and perry. Cider is usually drunk as a less alcoholic sparkling alternative to sparkling white wines in Belgium, France and Spain, and is a popular celebration drink. Cider was once a popular traditional drink in Europe but was largely replaced by beer in northern countries and wine in the south; however, it has made a comeback in recent decades in the historically Celtic regions of northern Spain, Brittany and Normandy in France, and western England, as both an important beverage and a tourist attraction, being sold in restaurants and cellar doors and along cider routes. The EU has been promoting and supporting cider production to rejuvenate rural economies, use out of grade fruit, and develop exports. Products range from low priced high alcohol products to rough English ‘scrumpies’ and premium high priced limited-production cidre bouchon (corked cider) in trendy French restaurants (AICV n.d.; Johnston 2004; Merwin 2005). Perry, or pear wine, was drunk in Roman times as ‘Castomoniale’ and remains an important fruit wine in England and northern France (AICV n.d.; Shea 2007). The AICV provides general production rules under its Code of Practice for fruit wine, cider and perry; an Analytical Method Manual that specifies methods to measure parameters for quality it considers important; and technical support for producers. The European Union (EU) requires imported wines to have the same production methods and labelling as local wines, and its labelling laws specify informal and optional additional information for EU members and non-members (Brans 2006). Details of EU production, packaging and labelling standards are available from the Food Standards Agency website. The AICV Code of Practice requires all fruit wines to be obtained by the fermentation of the juices of fruits, other than grape, and to contain at least some alcohol derived from the fermentation of the relevant fruit (or other vegetable matter) that gives them the character of fruit wine. Wines can be still or sparkling, and range from dry through to sweet, with the adding of sugar permitted. The Code requires between 1.2 and 14 per cent alcohol by volume, and permits fortification with distilled alcohol of agricultural origin, to a strength of up to 22 per cent of alcohol by volume (Denmark and Germany have their own limits of 20 per cent). In colder countries, mainly Denmark, Finland, Lithuania and Sweden, alcohol is often added to provide the same levels as similar grape wines. Cider and perry must be made solely by fermentation (sugar may be added during the fermentation) to up to 8.5 per cent alcohol, and alcohol content can vary between 1.2 and 8.5 per cent. If fermented to more than 8.5 per cent alcohol, or if alcohol is added, cider is classed as apple wine with added alcohol and perry as pear wine with added alcohol. Both drinks can be still or sparkling, with secondary fermentation or the injection of carbon dioxide being used to produce sparkling wine.

Distribution

Within the EU around 47 per cent of cider and perry sales are through pubs, hotels, restaurants and catering, and the rest in supermarkets, specialised stores and other retail outlets for home consumption. Other fruit wines are drunk only in the home (AICV n.d.). Controls on licensing, promotion, distribution and taxes vary by country according to the degree of influence by various organisations to reduce or abstain from alcohol consumption for health and social reasons.

Import regulations and requirements

As fruit wine is not traded in large volumes it is not included in the EU classification of ‘Fermented Beverages other than Wine or Beer’ but attracts the tariff rate for similar grape wine (Table E.24).

144 Table E.24: Import tariffs on bottled wine – European Union Description Import duty per litre Still wine – €0.137 (A$0.25) for up to 13% alcohol; €0.154 (A$0.25) if exceeding 13% but not 15%; and €0.186 (A$0.35) if exceeding 15%, but not 18% Sparkling wine, any strength €0.32 (A$0.52) Source: AWBC, EU 2007 Excise tax and VAT vary between countries, and are often the same as for grape wines (Table E.25). Table E.25: European Union: Excise and VAT on imported fruit and grape wine, 2007 Country and Description HS220600: Fermented HS200400: Grape wine All code beverages other than wine grape wine Excise duty per litre Excise duty per litre VAT# National EUR National EUR % currency currency Austria AT 0 0 20 Belgium BE Still 0.470998 0.470998 21 Sparkling 1.611308 1.611308 Bulgaria BG 0 0 20 Czech Republic Still 0 0 19 CZ Sparkling CZK 23.40 0.8272 CZK 23.40 0.8272 Denmark DK 6–15% alcohol still DKK 6.14 0.8234 DKK 61.4 0.8334 6–15% “ sparkling DKK 9.20 1.2337 15–22% “ still DKK 9.2 1.2337 DKK 9.20 1.2337 25

15–22% “ sparkling DKK 12.26 1.644 Estonia EE Still EEK 10.40 0.6647 EEK 10.40 0.6647 18 Sparkling EEK 10.40 0.6647 EEK 10.40 0.6647 Finland FI 2.12 2.12 22 France FR Still 0.034 0.034 19.60 Sparkling 0.034 0.084 Germany DE Still 0 0 19 Sparkling 1.36 1.36 Ireland IE Still 2.73 2.73 21 Sparkling 5.4601 5.4501 Italy IT 0 0 20 Lithuania LT LTL 1.50 0.4344 LTL 1.50 0.4344 18 Luxembourg LU 13% alcohol & over 0 0 12 Below 13% alcohol 0 0 15 Hungary HU Still HUF 80.00 0.2909 0 20 Sparkling HUF 122.00 0.4436 HUF 122.00 0.4436 Netherlands NL Still 0.5902 0.5902 19 Sparkling 2.0124 2.0124 Poland PL POL 1.36 0.3434 PLN 1.36 0.3434 22 Spain ES 0 0 16 Sweden SE Still and sparkling SEK 22.08 2.3661 SEK 22.08 2.3661 25 United Kingdom Still GBP ₤1.7799 2.6256 GBP ₤1.7799 2.6256 17.50 UK Sparkling GBP ₤2.2799 3.3631 GBP ₤2.2799 3.3631 Notes: Minimum excise duty. Average conversion rate of 1.63592 in 2007. # VAT is Valued Added Tax. Sources: Taxation and Customs Union, European Commission, 2007

145 More information on taxes and tariffs can be found on the European Union Trade website. As individual countries are accepted into the EU they have been required to reduce restrictions on wine trade between members. While this has been done by the countries to varying degrees, numerous regulations and restrictions continue, particularly on production and on promotion to vulnerable people such as children (Osterberg & Karlsson n.d.). More information on wine industry reform is available on the European Commission’s European Agriculture and Rural Development website.

E.3.2 Austria

Market profile

Austria has a small fruit wine market of mainly cider and perry. Fruit wine is drunk with meals. In 2006, 186 300 litres of fruit wine related products were exported, mainly to Switzerland and Russia, with small quantities to Australia and Japan (European Commission, 2007). Alcohol plays an important part in everyday social life and festivities, mainly beer followed by wine, but consumption of wine and liquor in general is falling as people adopt healthier lifestyles. In 2004 Austrians drank 215 million litres of wine, averaging around 30 litres each, mainly women, with men and younger people drinking mostly beer (AWBC Austria 2006; Osterberg & Karlsson n.d.).

Supply

From 2002−06 imports of fruit wine related drinks fluctuated, with 2.18 million litres in 2006. That year, 1 071 100 litres were imported from outside the European Union, mainly from China with 984 500 litres averaging A0.66 a litre CIF (likely to be rice wine), and 64 600 litres from Switzerland averaging A$2.07 a litre, while 200 litres averaging A$5.00 a litre came from Canada (European Commission, 2007). Around 72 per cent of grape wine is supplied by a domestic industry of around 263 million litres of wine a year from some 32 000 wineries, including around 2500 larger producers. Most is white wine, as those grapes are more suited to Austria’s soil and climate than red wine grapes. In 2004, 38 million litres of grape wine were imported, mainly from Italy, Spain and France. Australia leads the New World suppliers, with 540 500 litres of mostly red wine averaging A$4.10 a litre FOB in 2006 (ABS; AWBC Austria 2007; Osterberg & Karlsson n.d.).

Product profile

Fruit wineries produce mainly apple, pear and berry fruit wines, cider and perry. Members of the Association of the Cider and Fruit Wine Industry of the EU (AICV) follow its quality standards which are aligned to European and national regulations (AICV n.d.). Production, hygiene and labelling have to meet European Union regulations. Labelling in German language assists with marketing. Consumption is similar for red and white grape wine, with growing demand for sparkling wines (following removal of a luxury tax), red wine, bottled wines and premium wines. Consumers are highly conscious of quality (Austrade Austria 2007; AWBC Austria 2006).

Distribution

Fruit wines are sold at the wineries and also in wine taverns, particularly in Upper Austria. Around 53 per cent of grape wine is drunk at home, 38 per cent in restaurants and 9 per cent in wine taverns (AWBC Austria 2002, 2006).

Promotion

Wine taverns promote fruit wines, particularly from apples and pears during their harvest seasons.

146 Grape wine is mostly mainly promoted by group tastings, word of mouth and trade shows such as Vienna’s annual VINOVA International Wine Fair. The Austrian Wine Marketing Service promotes domestic wines with funding from the industry and wine producing provinces (AWBC Austria 2002).

Import regulations and requirements

Fruit wine incurs EU import duty of €0.137 (A$0.22) a litre for still wine with up to 13 per cent alcohol and €0.154 (A$0.25) with 13 to 15 per cent alcohol, and VAT of 20 per cent, but no excise, adding from $2.30 to a bottle of Australian fruit wine with a landed price of A$10.00. Exporters are advised to obtain a written customs duty ruling known as a Binding Tariff Information (BTI) from the Austrian Customs Service, which control wine imports, and a certificate of quality issued by an approved authority must accompany wine imports to meet EU requirements (AWBC Austria 2006).

Summary

Austria has a small attractive market for domestic fruit wine from temperate fruits and low priced imports of fruit wine and related drinks, strong demand for grape wine and Australian brands, and distribution channels for fruit wines and Australian wine. There maybe an opportunity for quality Australian tropical fruit wines to broaden the existing product range.

E.3.3 Belarus

Market profile

Fruit wines from berries and other fruits are amongst the most popular drinks in Belarus, particularly for people on lower incomes, although demand is growing for local and imported grape wine. Consumers are used to low priced high alcohol drinks, and have resisted government efforts to shift them from fortified fruit wines and vodka to lower alcohol beer to counter high levels of alcoholism. From 2002−05, exports of fruit wine related products fluctuated, with 4.7 million litres in 2005. Annual average import prices ranged between A$1.00 and A$1.50 a litre. Large fruit wine producers include liquor manufacturer Akvadiv which produced 9.5 million litres in 2005 and liquor and vodka manufacturer Minsk Kristall EU which makes blueberry, blackcurrant, cranberry and grape wine under ISO quality assurance certification. Fruit wines are often fortified. From 2002−05 imports of fruit wine related products doubled to 28 million litres while annual average import price fell from A$0.65 to A$0.47 a litre, indicating low quality drinks. In 2005 fruit wine production was 18 million litres, down eight per cent from 2006. In 2007 the Government’s alcohol production quotas were 257 million litres for ‘berry and fruit wines’ and 44 million litres for grape wine. The Government plans to increase production and imports of natural fruit and berry wine, and does not limit imports of fruit wine, unlike grape wine. In 2005 grape wine production was 950 000 litres and growing, usually ‘special fruit wine’ (chernila) made from dry and fermented concentrate imported mainly from Moldova and from other eastern Europe countries due a lack of grapes. Domestic supply of a narrow range of mostly low priced domestic grape wines is supplemented with imported wine mainly from Moldova but also other eastern European countries, and Italy, France and Germany, often for blending with local product. Import quotas and production subsidies support the domestic grape wine industry against competition from imports. During the 2002−06 period 18 100 litres of grape wine averaging A$6.00 per litre FOB were imported from Australia in 2006. In 2007 retail price ranges were: • BYR4000−8000 (A$2.24−4.48): local berry and fruit fortified wines • BYR6000−12 000 (A$3.36−6.72): local bottled grape wine from imported materials • BYR11 000−32 000 (A$6.16−17.92): imported grape wine.

147 Liquor distribution is confined to state-controlled kiosks, state food shops, and universal shops in outlying villages, giving little access to illegal and counterfeit products, unlike neighbouring Russia. However, modern retailing is emerging. Restaurants usually sell a few wines from BYR22 000−111 000 (A$12.32−62.15) a bottle.

Summary

Belarus has a large price-sensitive market with strong demand for low quality low priced high-strength domestic and imported fruit wines and grape wines, restricted distribution, and no apparent channels for Australian wine. There appears to be little opportunity for Australian bottled tropical fruit wines, except possibly for bulk wine to bottling and re-export.

E.3.4 Belgium

Belgium has moderately sized fruit wine and cider markets. Annual exports of up to 19.5 million litres of fruit wine related products from 2002–06, mostly to Canada, Switzerland, and Taiwan, probably included ‘Fruit Lambics’, beers fermented from wheat, malt and fruits such as stonefruit and berries in the Brussels region (AICV n.d.; Ogletree 2001; European Commission 2007). From 2002−05 imports of these fermented drinks doubled to 7.4 million litres, although very low annual average prices again indicate these are mostly lower value drinks such as cider (Table E.26). (Note: European Commission and FAO trade data conflict). In 2006 imports of 277 700 litres of fruit wine related products from outside the European Union were mostly from China, Japan and Taiwan, presumable rice wine (European Commission 2007). Individual grape wine consumption in Belgium and Luxembourg averages 23 litres annually and is growing, although beer remains the most popular drink. The northern Flemish are more likely to experiment with new drinks than the French-speaking Belgians in the south. Table E.26: Belgium - trade in fermented drinks, 2002−06

Description 2002 2003 2004 2005 2006 HS 2206.00: fermented beverages e.g. cider, perry, mead; mixtures of fermented beverages and non- alcoholic beverages not elsewhere specific or included Total imports – litres 3 629 000 3 612 000 4 017 000 7 423 000 not av. – A$ per litre * 2.31 1.81 2.47 3.18 not av. Total exports – litres 19 576 000 13 709 000 13 801 830 16 682 150 not av. – A$ per litre ^ 1.59 1.64 1.48 1.27 not av. Notes: * CIF at importing country; ^ FOB from exporting country. Source: USDA trade statistics; Japan Customs Trade Statistics, FAO 2007; ABS The combined grape wine production of Belgium and Luxembourg was 6.3 million litres in 2004, and Belgium’s small wine industry has started to focus on improving product quality. Most grape wine is imported, usually bottled wine from France and South Africa, against strong competition, and imports of Australian wine, mostly red and bulk wine, grew four-fold from 2002–06 to 19.6 million litres at a low average price of A$1.88 a litre a litre FOB in 2006. Around 65 per cent of wine is sold in supermarkets and hypermarket chains led by Carrefour, Delhaize, Colruyt and ALDI, and 25 per cent in hotels and restaurants (Austrade Belgium 2007; ABS; AWBC Belgium & Luxembourg 2007; AWBC EU 2007; Tigelman 2007). Fruit wine imports are subject to EU tariffs of €0.137 (A$0.22) a litre for still wine with up to 13 per cent alcohol and €0.154 (A$0.25) for 13 to 15 per cent, and €0.32 (A$0.52) for all sparkling wine; excise of €0.470998 (A$0.77) a litre for still wine and €1.611308 (A$2.63) for sparkling; and 21 per cent VAT, adding from A$3.00 to a bottle of Australian fruit wine with a landed cost of A$10.00. Information on duties and tax is available from the Belgian Ministry of Finance and Foreign Trade Board.

148 Summary

Belgium has medium sized affluent and experimental markets for domestic and imported fruit wines and related drinks, and strong demand and established distribution for Australian grape wines. There may be a minor opportunity for Australian tropical fruit wines to provide novelty and variety to the current fruit wine range, supported by Australian branding.

E.3.5 Bulgaria

Bulgaria is a substantial producer of fruit and grape wine. When Bulgaria was in the USSR its fruit wine was substandard as peels and skin were used as the primary flavouring in the wine. This practice has ceased in recent years as better farming techniques have increased fruit supply, reducing the need for substitutes. Up to 198 000 litres of fruit wine related drinks were exported annually from 2002–05, and Bulgarian fruit and grape wine is advertised internationally on the Alibaba website. No imports of fruit wines have been identified. While Bulgarians have a taste for fruit wines, they lack the means to buy imported products and so are content to drink their own inferior product. Bulgaria has imported small intermittent quantities of grape wine from Australia in recent years (ABS). Higher income earners are drinking more wine, mainly low priced brands but some of higher quality, as a result of promotions and product launches and expanding distribution. However, the main drinks remain beer and spirits. Wine is mainly promoted through media publicity and store promotions including discounting and giveaways (Euromonitor Bulgaria 2007).

Summary

Like most former Eastern Bloc Countries, Bulgaria has a price-sensitive fruit wine market with low quality expectations and focussed on exports for revenue rather than imports for luxury consumption. There are few if any opportunities for Australian fruit wines unless personal incomes rise.

E.3.6 Denmark

Market profile

Denmark has a long tradition of fruit wines, which are typically drunk before and after meals. It is one of Europe’s largest markets for fruit wine and cider, with fruit wine representing 10 per cent of the total wine market in 1995. From 2002−05 export markets including the United States and Canada, although low average export prices indicate mostly lower priced fermented drinks such as cider (AICV 2007; Osterberg & Karlsson n.d.). Grape wine consumption was 180.7 million litres in 2004, averaging around 33.6 litres per person, and mainly with meals. Wine represents 45 per cent of liquor consumption, and is steadily taking market share from beer (AWBC Denmark 2007; Austrade Denmark 2007; Osterberg & Karlsson n.d.). From these statistics the fruit wine market has been roughly estimated as averaging around 20 million litres a year, with a value of A$200 million, assuming stable consumption and a retail price of A$10.00 a litre.

Supply Fruit wine is made from local fruits (AICV n.d.). Imports of fruit wine related products declined from 3.7 to 2.5 million litres from 2002−05, with fruit wine imports including intermittent quantities from the United States and Canada, and 2600 litres from Australia averaging A$5.23 a litre FOB in 2004. Low annual average prices indicate most trade is in drinks such as coolers (Table E.27).

149 Table E.27: Denmark - trade in fermented drinks HS2206, # 2002−06

Description 2002 2003 2004 2005 2006 HS 2206.00: fermented beverages e.g. cider, perry, mead; mixtures of fermented beverages and non- alcoholic beverages not elsewhere specific or included Total imports – litres 3 715 810 3 492 350 2 610 650 2 486 450 not av. – A$ per litre * 1.45 1.97 2.11 2.74 – Total exports – litres 1 847 110 2 452 000 1 921 000 1 694 920 not av. – A$ per litre ^ 4.00 3.23 3.65 4.19 – Imports from Australia – litres 0 0 2 610 0 0 – A$ per litre ^ – – 5.23 – – HS2206.00.70: fermented beverages not specified elsewhere, excluding cider and sake Exports to United States – litres 55 400 152 100 122 700 119 600 135 400 – A$ * 6.31 5.51 5.10 4.89 5.27 Imports from United States – litres 0 0 11 700 11 600 21 700 – A$ ^ – – 3.49 3.39 1.84 Exports to Canada (A$) * 49 436 42 163 27 922 26 245 27 558 Imports from Canada (A$) ^ 0 0 12 528 0 1 581 HS 2206.00.229: fermented beverages including cider, perry and mead, but not sake or wine coolers Exports to Japan – litres 1 600 1 800 0 0 0 – A$ per litre * 5.62 5.55 – – – Notes: # Excluding grape wine and beer. * CIF at importing country; ^ FOB from exporting country. Source: ABS; FAO 2007; United States trade statistics In 2006 imports of 53 500 litres of these fermented drinks from outside the European Union included 20 500 litres from Norway at an average price of A$5.00 a litre CIF and 6200 litres from Switzerland at an average A$15.20 a litre CIF (European Commission, 2007). There is no domestic grape wine production. In 2004 grape wine imports reached 180.7 million litres, 65 per cent being bottled wine. In 2006 the leading countries of supply were France, Chile, Italy and Australia. From 2002−06, imports of Australian grape wine grew steadily to 21.5 million litres averaging A$2.50 a litre FOB in 2006 (ABS). Danish travellers also bring home wine from countries with lower VAT, estimated at 30 million litres in 2000 (AWBC Denmark, 2007; Osterberg & Karlsson n.d.).

Product profile

Fruit wines include blackcurrant, elderberry, strawberry and cherry wines, including NV Kijafa Danish Cherry Wine which is exported to the United States and Europe. One winery promotes its International Food Standard certification as value–adding its fruit wines in supermarkets (Cuisine of Denmark n.d., Taster Wine n.d; Wally’s n.d.). In grape wine Danes prefer bottled, red, and increasingly Australian wine. Labelling needs to meet EU regulations, and include a declaration of any sulphites and sorbates (Austrade Denmark 2007; AWBC Denmark 2007).

Pricing

Kijafa Danish Cherry wine is advertised on a distributor’s mail order website at US$12.99 (A$17.25) a bottle. Consumers are highly price–sensitive, usually buying from supermarkets and on promotional discounts (Austrade Denmark 2007).

150

Distribution

Around 60 importers handle more than 200 brands of grape wine, and 40 import Australian grape wine, mostly around Copenhagen; however, most of Denmark’s 1000 wine importers are hobbyists or ‘garage-importers’. Around 80 per cent of grape wine is retailed in supermarket chains and other self service outlets, 10 per cent through hotels, pubs and restaurants, and the rest by numerous specialist wine shops. Wholesaler and retailer mark-up is around 20 per cent, and restaurant mark-ups can reach 300 per cent (Austrade Denmark; AWBC Denmark 2007; Neilsen 2006; Tigelman, M, 2007).

Promotion

Advertising and other promotion of liquor is restricted, so product promotions are needed to create consumer awareness. The leading trade show is the biennial TEMA Trade Fair, which includes the Copenhagen Wine and Spirits Show (AWBC Denmark 2007; Osterberg & Karlsson n.d.). There may be an opportunity to build brand loyalty to Australian brands through Princess Mary’s connection.

Import regulations and requirements

Fruit wine imports incur EU tariffs of €0.137 (A$0.22) a litre for still wine with up to 13 per cent alcohol and €0.154 (A$0.25) for 13− 15 per cent, and €0.32 (A$0.52) for all sparkling wine; excise of €0.8234 (A$1.34) a litre for still wine and €1.2337 (A$2.12) for sparkling wine; 25 per cent VAT; and bottle tax (including VAT) of DKK2 ($0.45) per bottle, paid by the importer, adding from $4.40 to a bottle of Australian fruit wine with a landed price of A$10.00. EU members’ exemption from import duty provides a cost advantage over non-member countries (AWBC Denmark 2007).

Summary

Denmark has medium sized and affluent markets and distribution channels for fruit wine, strong demand and developed distribution, including for Australian branded wines. There is a moderately strong opportunity for Australian tropical fruit wines to be differentiated by new and exotic fruits to provide novelty and wider choice, supported by Australian branding.

E.3.7 Estonia

Estonia is a very large fruit wine producer with a long fruit wine tradition, a substantial fruit wine market and growing cider consumption that reached four million litres in 2006. From 2002–06 exports of fruit wine related products grew strongly to 8.4 million litres a year, including small quantities to Australia in 2003 and regular exports to the United States. Annual average export prices fell from A$1.31 to $0.70 a litre over the same period, indicating mostly lower value drinks such as coolers and cider, and growing competition or falling demand in most export markets (Table E.28). In 2006 the only exports to outside the EU were 100 litres to Norway (European Commission 2007). From 2002−06 imports of these fermented drinks were stable at around 8.5 million litres, again at very low prices (Table E.28).

151

Table E.28: Estonia - trade in fermented drinks HS2206, # 2002−05

Description 2002 2003 2004 2005 HS 2206.00: fermented beverages e.g. cider, perry, mead; mixtures of fermented beverages and non- alcoholic beverages not elsewhere specific or included Total imports – litres 8 284 000 6 235 000 8 796 000 8 543 000 – A$ per litre ^ 1.41 1.45 1.43 1.34 Total exports – litres 1 030 000 1 688 740 2 110 000 8 402 000 – A$ per litre ^ 1.31 1.13 0.81 0.70 HS2206.00.70: fermented beverages not specified elsewhere, excluding cider and sake Imports from United States – litres 62 100 117 600 96 500 54 900 – A$ ^ 1.93 1.66 1.49 1.51 HS 2206.003020: Grape wine, cider or perry, mead, sake, fruit or vegetable wine Exports to Australia – litres 0 10 579 0 0 – A$ a litre * 0 1.45 – – Notes: # Excluding grape wine and beer. * CIF at importing country; ^ FOB from exporting country. Source: ABS; FAO 2007; USDA trade statistics Only 9600 litres of these fermented drinks were imported from outside the European Union in 2006, from Russia and Thailand (European Commission 2007). Examples of large fruit wineries are: • Polstsamaa Felix winery, which produces up to one million bottles a year of still and sparkling apple, blackcurrant, gooseberry and redcurrant wines with 8 to 15 per cent alcohol, for the domestic, Lithuanian, Latvian and Finland markets (‘Fruits of their labours – Estonian winemakers are wasting no time in getting back into production’, 2002) • Saku Õlletehase Brewery, which supplies around 37 per cent of the market. Products include the KISS range of canned apple and pear ciders and blends with carbonated water (Saku 2007). From 2002−06 imports of Australian grape wine grew strongly to 168 000 litres averaging $4.40 a litre FOB in 2006 (ABS). Wine laws are harmonised with EU regulations, with EU imports tariffs of €0.137 (A$0.22) a litre for still wine with up to 13 per cent alcohol, €0.154 (A$0.25) for 13−15 per cent, and €0.32 (A$0.52) for all sparkling wine of any strength; excise of €0.6647 (A$1.09) a litre and 18 per cent VAT, adding at least A$2.95 to a landed price of A$10.00 for a bottle of Australian fruit wine.

Summary

Estonia has large markets for domestic and imported fruit wines and distribution channels and strong demand for Australian branded grape wines. It offers a minor opportunity for Australian tropical fruit wines to develop a niche in higher income markets through differentiating on fruit type, product quality and Australian branding, to provide novelty and wider choice.

E.3.8 Finland

Market profile

Finland has a long tradition of fruit wines and ciders, and one of Europe’s largest markets for these drinks, totalling around 10.4 million litres a year. In the 1990s fruit wine and cider represented half of all wine consumed (AICV website; Osterberg & Karlsson n.d.). Exports of fruit wine related products grew strongly from 5.58 to 8.47 million litres a year from 2002−05, including small quantities annually to Japan, although at very low annual average prices.

152 Grape wine consumption is around 153.2 million litres a year and growing steadily due to a trend towards lower alcohol drinks, growing interest in grape wine, rising disposable incomes, a strong continental influence on food and drink, and introduction of lower priced bag−in−box wines. Wine is the strongest growing alcoholic drink category, although beer still held a 71 per cent market share in 2005 and vodka remains popular (AWBC Finland 2007, Euromonitor Finland 2006).

Supply

Domestic fruit wine production was 2.6 million litres in 2005, having fallen by a third since 2003, probably due to a shift to grape wine (Nielsen 2006 pers. comm.). While commercial fruit wine production began in the 1930s as an outlet for fruit producers, Finland had only four fruit wineries until 1994 due to restrictions on the production, import, export, wholesale and retail of alcoholic beverages by Alko, a Government statutory authority used by the Ministry of Social Affairs and Health to discourage excessive alcohol consumption. When Alko relinquished these controls on Finland’s accession to the European Union in 1995, fruit wine producers could obtain production licenses and sell wine with less than 13 per cent alcohol from the cellar door, and by 2000 53 wineries were licensed to produce berry and fruit wines, mostly farmers making small quantities of wine, while home production declined. However, Alko still dominates production through its subsidiary Primalco which manufactures wine and bottles domestic and imported wine (Osterberg & Karlsson n.d.). Imports of fruit wine related products grew from 11.5 to 16.3 million litres a year from 2002−05, including up to 64 900 litres of low priced fruit wine products from Australia in some years (Table E.29). Table E.29: Finland - trade in fermented drinks, 2002−06

Description 2002 2003 2004 2005 2006 HS 2206.00 (fermented beverages e.g. cider, perry, mead; mixtures of fermented beverages and non- alcoholic beverages not elsewhere specific or included) Total imports – litres 11 570 700 10 844 000 11 608 000 16 289 000 not av. – A$ per litre * 1.37 1.42 1.32 1.27 not av. Total exports – litres 5 853 120 5 182 000 7 847 000 8 468 000 not av. – A$ per litre ^ 1.64 1.63 1.55 1.41 not av. Imports from Australia – litres 60 566 0 43 686 64 909 0 – A$ ^ 237 057 – 37 923 155 814 – – A$ per litre ^ 2.15 – 1.75 1.81 – HS 2206.00.229: fermented beverages including cider, perry and mead, but not sake or wine coolers Exports to Japan – litres 7 700 1 100 17 400 10 000 13 800 – A$ per litre * 5.71 30.00 6.67 5.20 3.62 Note: Excludes grape wine and beer. *CIF at importing country; ^ FOB from exporting country. Source: FAO 2007; Japan Customs trade statistics, ABS, USDA trade statistics In 2006 34 600 litres of fruit wine related products were imported from outside the European Union, mainly from Thailand at an average landed price of A$2.20 a litre and from the United States at an average price of A$7.00 a litre (European Commission 2007). Finland has no grape wine industry, importing mainly from Chile, France, Italy, South Africa and Spain. From 2002−06 imports of Australian wine more than doubled to 3.6 million litres averaging A$3.90 a litre FOB in 2006 (ABS; AWBC Finland 2007; Austrade Finland 2007).

Product profile

Finnish fruit wines include blackcurrant, cherry, strawberry and blueberry, and are often fortified. In 2007 monopoly retailer Alko’s product list of fruit wines listed only domestic products, offering 11 sparkling, seven non-sparkling and 20 fortified wines, both domestic and imported (the list does not specify brands or fruit bases). Alko’s assortment reflects the retail market (Neilsen 2006, pers.

153 comm.). In related drinks, demand has been shifting from perry to flavoured cider and perry, and to spirit-based FABs (flavoured alcoholic beverages). In grape wine, red wine is preferred (AICV 2005; AWBC Finland 2007; Euromonitor Finland 2006).

Pricing

Alko’s website lists fruit wine from €2.96 to €13.86 (A$4.84 to $22.67) a bottle. Australian grape wines have moved from budget to mid-priced, and are considered good value and easy to understand. The wine market is highly price-sensitive, with 85 per cent of table grape wines under €10.00 (A$16.30) in 2005 (Austrade Finland 2007; AWBC Finland 2007).

Distribution

While more than 150 businesses are licensed to import and wholesale wine, only ten handle 90 per cent of wine imports. Alko imports some wine but mainly concentrates on retailing, having retained its monopoly on the retail of drinks with more than 4.7 per cent alcohol. It handles around 85 per cent of wine sales through some 327 Alko stores and another 138 points where customers can order from its price list. The rest is mainly sold through some 7300 grocery stores and 5000 restaurants and cafes, including an Alko-owned chain of hotels and restaurants. Domestic fruit wine producers are permitted to sell wine with less than 13 per cent alcohol direct to the consumer (Austrade Finland 2007; Osterberg & Karlsson n.d.).

Promotion

Government restrictions apply to wine advertising. Wine is promoted through media publicity; Alko’s generic campaigns and product price lists (as a state monopoly Alko has to act transparently and treat all products and brands impartially so does not promote single brands); importer tastings in hotels and restaurants; the annual Viniexpo wine fair and a biennial food fair. Australian grape wine is also promoted by Australian Wine Bureau regional tasting tours and promotions (Austrade Finland 2007).

Import regulations and requirements

Taxes are prohibitively high to discourage the drinking of alcohol. Import regulations comply with those of the European Union, with import tariffs of €0.137 (A$0.22) a litre for still wine with up to 13 per cent alcohol, €0.154 (A$0.25) for 13−15 per cent alcohol, and €0.32 (A$0.52) for all sparkling wine; excise of €2.12 (A$3.47) a litre for still and sparkling wine; VAT of 22 per cent; alcohol beverage tax; and a surcharge on retail containers unless refillable or recyclable. Combine d these add more than A$5.60 to a bottle of Australian fruit wine landed at A$10.00. The Finnish Customs, Europa and Ministry of Agriculture and Forestry websites provide more information.

Summary

Finland has a medium sized fruit wine market with moderate demand and attractive pricing for domestic and imported fruit wine and similar drinks, and strong demand for Australian branded grape wines, but limited distribution and promotional opportunities There is a minor opportunity for Australian tropical fruit wines to be differentiated on fruit type to extend the current choice, and on Australian branding, but suppliers may have difficulty promoting product attributes to consumers.

154 E.3.9 France

Market profile

France has minor fruit wine and perry markets and Europe’s fourth largest cider market. Cider and perry consumption have been stable at around 100 million litres in total, with a value of €274 million (A$447 million) in 2005. Cider and perry are drunk mainly with meals and used in cooking, as a lower alcohol substitute for sparkling white wine (AICV 2005 n.d.; Euromonitor France 2006). Exports of fruit wine related products were relatively stable from 2002−05, with 23 million litres valued at A$47 million in 2005. Annual exports included 200 000−300 000 litres of fruit wine drinks (not coolers) to Japan, and exports to the United States and Canada, but low annual average prices indicate most trade is in low value drinks such as cider, not fruit wine. Grape wine consumption was 2730 million litres in 2004, wine-drinking being a traditional part of French life, and around a third of wine is drunk with meals. Individual annual consumption fell from 60.2 to 47.6 litres from 1996-2005 due largely to a campaign against alcohol abuse, fewer working people taking long lunches, and a long-term shift from wine to distilled spirits and beer (AWBC France 2006; AWBC Winefacts 2007; Osterberg & Karlsson n.d.).

Supply

While most production is of cider and perry, an internet search identified some fruit wines. Large volumes of fruit wine related products are imported, with 14.59 million litres in 2005, including fermented fruit drinks from the United States and Canada and small quantities intermittently from Australia (Table E.30). Table E.30: France - trade in fermented drinks HS2206, # 2002−06

Description 2002 2003 2004 2005 2006 HS 2206.00 (fermented beverages e.g. cider, perry, mead; mixtures of fermented beverages and non- alcoholic beverages not elsewhere specific or included) Total imports – litres 12 720 000 18 742 000 15 046 000 14 593 740 not av. – A$ per litre * 1.49 1.97 2.15 1.53 not av. Total exports – litres 26 744 730 19 856 450 22 559 800 23 320 370 not av. – A$ per litre ^ 1.37 1.89 1.80 2.02 not av. Imports from Australia – litres 552 000 0 1 656 0 0 – A$ ^ 1 864 357 – 3 938 – – – A$ per litre ^ 3.38 – 2.38 – – Exports to Canada (A$) * 18 446 42 865 50 888 112 542 64 091 Imports from Canada (A$) ^ 252 106 20 908 65 522 73 507 518 209 HS2206.00.70: fermented beverages not specified elsewhere, excluding cider and sake Exports to United States – litres 60 700 22 000 14 500 21 300 17 200 – A$ * 1.37 1.89 1.80 2.02 1.37 Imports from United States – litres 62 400 50 700 20 800 88 000 45 000 – A$ per litre ^ 3.39 4.90 2.09 2.12 2.89 HS 2206.00.229: fermented beverages including cider, perry and mead, but not sake or wine coolers Exports to Japan – litres 273 400 245 400 370 100 232 100 220 700 – A$ per litre * 3.67 4.21 2.97 3.31 3.59 Notes: # Excluding grape wine and beer. * CIF at importing country; ^ FOB from exporting country. Sources: ABS; FAO 2007; Japan Customs trade statistics; South Africa trade statistics; United States trade statistics In 2002 imports of 775 000 litres of fruit wine products came from outside the EU, mainly from China and Japan (assumed to be mostly rice wine) and the United States (European Commission 2007).

155 France leads the world in grape wine production, with 5850 million litres of table wine production and exports of 1472 million litres of exports in 2005, but is increasingly affected by overproduction and shrinking exports as world competition grows. In 2005, 682 million litres of wine were imported, representing 24 per cent of supply. From 2002−06 imports from Australia doubled to 8.8 million litres (mostly bulk wine) averaging A$1.60 a litre FOB in 2006 (ABS, Austrade France 2007; US Foreign Agricultural Service 2006).

Product profile

Examples of French fruit wine producers and products are: • Horizon Biere Sarl: sparkling wines from raspberry, redcurrant and Mirabelle plum using only fruit juice and natural fermentation with no added sugars, concentrate, alcohol or carbonation • Perle: sparkling fruit wine from redcurrant, raspberry and mirabelle plum juice • Sparkling Framboise wine from 100 per cent unfiltered fruit, made by the champenoise method, with no added alcohol, fruit concentrate or carbonated water • A winery in Alsace making rhubarb, yellow plum, red currant and raspberry wines using pure fruits, natural carbonation and no added sugar, and exporting to Germany and the United States (Alibaba n.d.; ‘Fruit wines from Alsace 2005’). Producers belonging to the Association of the Cider and Fruit Wine Industry of the EU (AICV) follow its quality standards which are aligned to European and national regulations (AICV n.d.). Wine producers and importers are responsible for recycling or disposal of packaging, and alcoholic beverages are required to carry health warnings for pregnant women (Austrade France 2007). Under French law grape wines are classed as ‘quality’ or ‘table’ wines. If they meet the required production standards they may be labelled as ‘Appellation Contrôleé’ or first quality to guarantee quality and origin or ‘V.D. Q.S.’ (Vins Délimités de Qualité Superiére) for second quality, otherwise they are classed as table wines (Osterberg & Karlsson n.d.). French wines are also classified by region of production (‘Vine de Pays’). French grape wines are perceived as the best quality and achieve the highest prices worldwide. This is largely due to legal quality controls introduced in the early 1920s to protect consumers and guarantee wine quality from certain regions. Chateauneuf du Pape in the Rhone Valley pioneered the development of a set of rules for the region’s wine producers defining the area allowed to produce Chateauneuf du Pape; the grape varieties permitted; production, harvest and grape–sorting systems; and minimum alcohol levels, and set production quotas. This became the framework for the Appellation Contrôlée laws implemented by the National Institute for Appellations of Origin (INAO) founded in 1936 to control and provide rules for grape growing, wine production and production standards for every key wine region in France, with regional standards for geographic limits of the production area, vine planting density, trellis systems, pruning style and standards, yields per hectare, vineyard practices, permitted grape varieties, wine making techniques, standards for laboratory analysis, and mandatory tasting by a certification panel. While creating an enormous number of rules the system successfully established quality standards, and most countries regulating their wine industries have used it as the model. Despite strong loyalty to French wines, particularly in wine producing areas, consumer interest in imported wines is growing. As awareness of Australian wine grows due to French investment in the Australian industry and Australian winemakers working in France, Australian wine is promoted by country rather than by product or region, and on its clean and green image. Novice wine drinkers also appreciate the simple easy-to-understand labels of New World wines (AWBC France 2006).

156

Pricing

Distributor websites list Perle sparkling fruit wines at €3.80 ($6.20) for 750 mls and Cave de Massillargues orange–flavoured grape wine at €15.00 (A$24.50) (Alibaba 2007; 123Lozere 2007). Key price points for grape wines in Paris are: budget price A$5.70, mid price A$10.00 and premium price A$15.00. Consumers increasingly buy on quality over price (AWBC France 2006).

Distribution

About 25 importers handle imported Australian grape wine, mainly bulk wine for bottling in France for buyers own brands for retail in United Kingdom supermarkets. Distribution has been increasingly consolidated through mergers and alliances between leading hypermarkets and supermarkets and five central buying offices across the seven largest retailers, and chain bottle shops in larger cities use central purchasing to allow attractive prices at higher margins than supermarkets. Specialist wine stores are more likely to promote lesser known brands to customers. Some large hypermarkets and supermarkets sell mid-range foreign wines, including around 20 per cent of Australian wine, particularly in northern Channel ports to British travellers avoiding United Kingdom excise. Consumers tend to buy small quantities of above average quality wine from mostly hypermarkets or supermarkets in northern France, and larger quantities with lower alcohol content from these and other outlets in the south. The catering and food service sector has been growing steadily, and wine is popular drunk with meals in bars, restaurants and cafes (Austrade France 2007; AWBC France 1997).

Promotion

Television advertising of alcohol is banned and French law limits other media promotion and sponsorships, particularly to young audiences (AWBC France 2006).

Import regulations and requirements

Wine laws and tariffs are harmonised with EU regulations, with EU duty of €0.137 (A$0.22) a litre for still wine of up to 13 per cent alcohol, €0.154 (A$0.25) for 13−15 per cent, and €0.32 ($0.52) for all sparkling wine; €0.034 ($0.0556) a litre excise and VAT of 19.6 per cent; adding from A$2.40 to a landed price of A$10.00 for a bottle of Australian fruit wine, depending on alcohol content.

Summary

France has a small market for mainly domestic fruit wines, large markets for related drinks, and some awareness of tropical fruits, but fruit wines face intense competition from grape wine, and there is limited demand or distribution for Australian branded grape wines. There is a minor opportunity at best for Australian fruit wines to be differentiated on fruit type and novelty.

E.3.10 Germany

Market profile

Germany has a long tradition of fruit wines, and one of Europe’s largest fruit wine and cider markets, including around 3.6 million litres a year of mulled fruit wine and punch. Fruit wines are usually drunk before and after meals (AICV n.d.). Exports of fruit wine related products fell from 19.24 to 13.8 million litres a year from 2002−05, including up to 54 700 litres annually to Japan and up to 38 900 litres (not cider) to the United States (Table E.31). Low annual average prices indicate these were mostly very low value products such as coolers. In recent years German fruit wines and related drinks were exported to Australia and Japan.

157 Alcoholic drinks, mainly beer, are drunk at numerous occasions, and often throughout the day. Wine represents around a third of consumption. Germany has the world’s fourth largest grape wine market, with annual consumption stable at around 2000 million litres, averaging 23 litres a person, and very large exports (AWBC Germany 2006; Osterberg & Karlsson n.d.).

Supply

A large fruit wine industry is led by manufacturers such as Katlenburger which has capacity for 300 000 bottles a day and exports to Europe, America, Asia and the Pacific (Katlenburger 2007). Strong demand for fruit wine related products is indicated by imports which from 2002−05 grew to 39 million litres a year, including intermittent quantities of low-priced fruit wine products from Australia, Canada and increasingly the United States (Table E.31). Table E.31: Germany - trade in fermented drinks HS2206, # 2002−06

Description 2002 2003 2004 2005 2006 HS 2206.00 (fermented beverages e.g. cider, perry, mead; mixtures of fermented beverages and non- alcoholic beverages not elsewhere specific or included) Total imports – litres 31 649 000 23 445 980 31 238 790 39 180 000 not av. – A$ per litre ^ 0.98 1.16 1.51 1.54 not av. Total exports – litres 18 246 010 19 060 710 15 125 070 13 861 330 not av. – A$ per litre ^ 1.83 1.81 1.97 1.98 not av. Imports from Australia – litres 124 530 21 862 0 0 0 – A$ ^ 322 436 50 607 – – – – A$ per litre ^ 2.59 2.31 – – – HS 2206.00.229: fermented beverages including cider, perry and mead, but not sake or wine coolers Exports to Japan – litres 32 200 54 700 53 300 36 700 36 900 – A$ per litre * 4.10 4.33 0.54 5.42 1.49 HS 2206.00.900: Fermented beverages other than grape wine, beer, cider, prune wine, sake, vermouth, or other effervescent wines Imports from United States – litres 59 000 156 000 166 000 218 000 368 000 – A$ per litre ^ 0.57 0.72 0.81 0.95 0.90 HS 2206.00.3030: Grape wine, cider or perry, mead, sake, fruit or vegetable wine Exports to Australia – litres 96 753 122 945 118 839 137 627 116 523 – A$ per litre 2.43 2.57 2.37 2.27 2.43 Notes: # Excluding grape wine and beer. * CIF at importing country; ^ FOB from exporting country. Sources: ABS; FAO 2007; Japan Customs Trade Statistics; United States trade statistics In 2006 imports of 2.56 million litres of these drinks from outside the European Union were mainly from China, Ukraine, Japan, Russia and the United States. While 56 per cent were from China and Japan these are likely to be mostly rice wine (European Commission 2007). The large German grape wine industry produced 990 million litres of wine in 2005, and is shifting from white to red wine to meet market demand. Germany is also the world’s leading import market for grape wine, with annual imports of around 1560 million litres representing nearly 80 per cent of supply, including large volumes of bulk wine. In 2004 its leading suppliers were Italy, Spain and France. From 2002–06 annual imports of Australian wine, mostly bulk wine, doubled to 25 million litres, with an average price of A$2.10 a litre FOB in 2006 (ABS; AWBC Germany 2006; US Foreign Agricultural Service 2006).

158 Product profile

A wide range of fruit wines is produced, as well as mulled fruit wine and punch, cider, fruit and grape wine blends and wine-based cocktails. As an example, prominent manufacturer Katlenburger makes a diverse range of fruit wine products under the Dr Demuth brand, including ‘pure fruit’ wines from mango and various berries; Tropica Fruit Wine Cocktails from fruits such as pitaya (dragonfruit), lime, cherry, kiwano melon, kumquat, lemon, peach and strawberry; fruit wine cocktails with mango and berry; fruit wine coolers with pineapple, strawberry, peach and raspberry; mulled wines from apple, blueberry, cherry, cinnamon, sloeberry and elderberry; blends of yoghurt with strawberry, peach, apple and blueberry wine, and a blend of fruit wine, exotic juices and vitamins. Katlenburger wine is Japan’s leading imported fruit wine brand (Japanese trade interviews, Katlenberger 2006). It is also sold by an Australian retail chain. Mulled fruit wine and punch are growing categories, mulled wine being particularly popular as a winter alternative to traditional mulled grape wine, with new products such as Christmas drinks, winter drinks based on apple wine, and variations on mulled apple wine adding value in a beverage market suffering price decline (AICV 2005 n.d.; Agriculture and Agri-Food Canada 2007). Members of the Cider and Fruit Wine Industry of the EU (AICV) follow its quality standards aligned to European and national regulations, and wine importers expect products to meet exact specifications and comply absolutely with all EU and German standards (AICV n.d.; Austrade Germany 2007). While Germany is the world’s leading market for sparkling grape wine, with domestic sparkling wine an affordable every day drink with around 20 per cent market share, demand is shifting to still wine, red wine (60 per cent of the market), dry and semi-dry styles, and from bottled to bulk. Domestic organic wines have two per cent of the market, with growing demand from increasingly health conscious consumers. There are numerous wine brands, and brand loyalty is low (Austrade Germany 2007; AWBC Germany 2006).

Pricing

The wine market is price–sensitive, with competition between large retail chains lowering price. Most sales are under A$10.00 a bottle, including 80 per cent of white wine imports, with small but growing sales for higher quality products including red wines and boutique lines. Australia supplies mostly bulk wine for bottling, of which two-thirds retail at $2.50 and under a bottle, and the rest mostly at between A$2.50 and $4.99 (AWBC Germany 2006).

Distribution

Fruit wine distribution includes winery sales and internet retailing. Two-thirds of grape wine is sold in supermarkets and discount stores (AWBC Germany 2006). Australian wines enter Germany through external borders of the European Union or through ports such as the Bremerhaven and Hamburg seaports and Frankfurt airport (Austrade Germany 2007).

Promotion

Wine shows include the annual Pro-Wein international trade fair and the biannual ANUGA Foodtec Fair. The industry has voluntary codes of conduct for advertising and promotion (Osterberg & Karlsson n.d.).

Import regulations and requirements

Fruit wine laws are harmonised with EU regulations, with EU tariffs of €0.137 (A$0.22) a litre for still fruit wine with up to 13 per cent alcohol, €0.154 (A$0.25) for alcohol of 13−15 per cent, and €0.32 (A$0.52) for all sparkling wine; excise of €1.36 (A$2.22) a litre for sparkling wine and none for still

159 wine; and 19 per cent VAT, adding at least A$4.00 to a landed price of A$10.00 for a bottle of Australian fruit wine, depending on alcohol content.

Summary

Germany has a medium sized, affluent, mature and innovative market for domestic and imported fruit wines, including some tropical fruit wines, and a large market for related drinks, but minor demand and distribution for Australian branded wines. It offers a moderately strong opportunity for Australian tropical fruit wines to differentiate on fruit and product variety to provide novelty and more choice.

E.3.11 Ireland

Market profile

Ireland has one of Europe’s largest fruit wine markets, its leading cider market of around 66 million litres a year with strong growth, perry consumption of 11 million litres in 1998, and a tradition of home-made wines (AICV 2005; Wine consumption to grow 15.4% to 2010’; Osterberg & Karlsson n.d., Shea n.d.). Strongly growing exports of fruit wine related products, including to Australia, Japan and the United States, are probably cider, given their low annual average prices (Table E.32). Liquor consumption is amongst the world’s highest but has declined in recent years because of tighter regulation of public smoking and excessive drinking of alcohol, high excise duties, higher living costs and less leisure time for socialising in bars (Euromonitor Ireland 2006). Grape wine consumption was 31.5 million litres in 2000 and annual average individual consumption grew strongly from 7 to 18 litres from 1997−2006 at the expense of beer and spirits. Around 45 per cent of people now drink wine, due largely to higher incomes, an increasingly well travelled and cosmopolitan market, European cultural influence, more wine drunk with meals, and wine’s healthier image than beer and spirits. There is a growing market of women. Smoking bans in hotels and restaurants have led to more wine-drinking at home (Austrade, Ireland 2007; AWBC Ireland 2006).

Supply

There is little wine production, with Bunratty Mead & Liquor Co. one of Ireland’s few wineries. Cider and perry production grew fivefold from 1990–2000, led by drinks group C&C with the prominent Magners and Bulmer’s brands, and Diageo Ireland Ltd, Ireland’s leader in alcoholic drinks including the iconic Baileys, Smirnoff and Guinness brand and its second largest manufacturer of cider, perry and RTDs (Euromonitor Ireland 2006; Griggs 2006). Liquor production is dominated by whisky and beer, with almost all grape wine imported except ‘made wine’ produced from imported concentrate, and a shift from Old World to New World suppliers. Australian wine has a 20 per cent market share, and from 2002–06 imports of Australian wine grew steadily to 12.3 million litres averaging A$4.60 a litre FOB in 2006 (ABS; Austrade Ireland 2007; AWBC Ireland 2006; Osterberg & Karlsson n.d.). Imports of fruit wine related products grew from 5.8 to 11.3 million litres from 2002−05, including minor imports from the United States. Annual average import prices indicate these are mostly low value drinks such as wine coolers (Table E.32).

160

Table E.32: Ireland – trade in fermented drinks HS2206, # 2002−06

Description 2002 2003 2004 2005 2006 HS 2206.00 (fermented beverages e.g. cider, perry, mead; mixtures of fermented beverages and non- alcoholic beverages not elsewhere specific or included) Total imports – litres 5 852 890 6 457 000 8 069 000 11 303 000 not av. – A$ per litre * 2.07 1.72 1.50 1.30 not av. Total exports – litres 9 210 000 10 605 000 15 411 000 34 306 000 not av. – A$ per litre ^ 4.29 4.33 4.43 4.07 not av. HS 2206.00.229: fermented beverages including cider, perry and mead, but not sake or wine coolers Exports to Japan – litres 1 200 2 100 3 000 7 000 8 900 – A$ per litre * 5.00 4.76 5.33 4.29 4.72 HS 2206.003020: Grape wine, cider or perry, mead, sake, fruit or vegetable wine Exports to Australia – litres 0 0 72 100 50 636 126 048 – A$ per litre ^ – – 3.30 3.20 3.48 HS 2206.00.70: fermented beverages not specified elsewhere, excluding cider and sake Imports from United States – litres 50 600 182 200 0 12 100 0 – A$ per litre ^ 1.84 1.54 – 1.31 – Notes: # Excluding grape wine and beer. * CIF at importing country; ^ FOB from exporting country. Sources: ABS; FAO 2007; Japan Customs trade statistics; United States trade statistics

Product profile

No product detail was found for fruit wines. Packaging and labelling for domestic and imported wine needs to comply with EU and Irish legislation, and more information can be obtained from the websites of the United Kingdom Department of Food and Agriculture and the Wine Development Board of Ireland. Demand is similar for white and red grape wines. Consumers are strongly loyal to brands, expect quality packaging and presentation, and accept Australian branded wines as value for money with informative labelling (AWBC Ireland, 2006; Austrade Ireland 2007).

Pricing

Annual average export prices for fruit wine related products indicate wholesale prices of up to A$8.22 a litre for fruit wine and around A$4.00 a litre for major drink categories such as cider and RTDs (Table E.32). Ireland is a price-sensitive market, with 76 per cent of retail sales of grape wine under €10 (A$16.70) in 2006 (AWBC Ireland 2006).

Distribution

Around 70 per cent of wine is retailed, mainly through large Irish retail chains with centralised purchasing and category management, which expect suppliers to handle all distribution problems, and specialist liquor stores. While the rest is sold in pubs, hotels and restaurants, sales are shifting to retail outlets as more wine is drunk at home (Drinks Industry Ireland 2007; Euromonitor Ireland 2006).

Import regulations and requirements

Imported fruit wines incur EU import duty of €0.137 (A$0.22) a litre for still wine with up to 13 per cent alcohol, €0.154 (A$0.25) for 13−15 per cent, and €0.32 (A$0.52) for all sparkling wine; excise of €2.73 (A$4.46) per litre for still wine and €5.4601 (A$8.93) for sparkling; and VAT of 21 per cent,

161 combining to add from A$6.35 to a landed price of A$10.00 for a bottle of Australian fruit wine. Wine exporters should consult the Irish Customs Authority before shipping product (AWBC Ireland 2006.

Summary

Ireland has a large, affluent but price-sensitive market for fruit wines and related drinks and for imported grape wines, particularly Australian brands. There may be a minor opportunity for Australian tropical fruit wines to be differentiated as a novelty drink with strong Australian branding.

E.3.12 Italy

Market profile

Italy does not have significant fruit or cider markets (AICV 2007). However, relatively stable imports of around 21 million litres of fruit wine related products a year from 2002−05 indicate demand for such products. Over that time exports declined from 50.06 to 43.93 million litres, including fruit wine products to the United States, Canada and Japan (Table E.33). Italy has one of the world’s largest grape wine markets, 2.6 billion litres in 2005, with wine the leading alcohol drink and considered an important part of the daily diet, particularly with meals at home. However, average personal consumption fell from 54.5 to 48.1 litres from 1996−2005. Wine is drunk more by the lower social classes, mainly men but increasingly young women. Demand has shifted from lower priced traditional wines to higher in quality and price; to sparkling wines for special occasions and dining out; to less wine with lunch; and to drinks with little or no alcohol. Italy is the world’s third largest wine exporter, with 1.4 billion litres of exports in 2004 (AWBC Italy 2006; Osterberg & Karlsson n.d., Wine Australia Winefacts; US Foreign Agricultural Service, 2006).

Supply

Annual imports of fruit wine related products fluctuated at around 20 million litres from 2002−05 (Table E.33). Table E.33: Italy - trade in fermented drinks HS2206, # 2002−06

Description 2002 2003 2004 2005 2006 HS 2206.00 (fermented beverages e.g. cider, perry, mead; mixtures of fermented beverages and non- alcoholic beverages not elsewhere specific or included) Total imports – litres 19 119 000 11 585 970 21 745 000 19 950 000 not av. – A$ per litre * 0.65 0.78 0.98 0.68 not av. Total exports – litres 52 059 270 42 503 980 46 532 350 43 933 010 not av. – A$ per litre ^ 1.21 1.41 1.51 1.31 not av. Exports to Canada (A$) * 8 650 231 800 13 437 43 565 213 191 HS 2206.00.229: fermented beverages including cider, perry and mead, but not sake or wine coolers Exports to Japan – litres 0 1 400 1 400 500 2 000 – A$ per litre * 5.71 5.00 12.00 6.50 5.71 HS 2206.00.9000: Fermented beverages other than grape wine, beer, cider, prune wine, sake, vermouth, or other effervescent wines Imports from United States – litres 1 400 15 300 7 300 12 300 0 – A$ * 13.15 3.33 4.84 2.03 – Exports to United States litres 1 507 800 708 400 327 600 308 200 388 600 – A$ ^ 2.97 3.08 2.83 3.31 3.13 Notes: # Excluding grape wine and beer. * CIF at importing country; ^ FOB from exporting country. Sources: ABS; FAO 2007; Japan Customs Trade Statistics; United States trade statistics

162 In 2006, 2.84 million litres of these fermented drinks were imported from outside the EU, of which 70 per cent was from China and Japan, probably mostly rice wine (European Commission 2007). Some 800 000 wineries produced 5300 million litres of grape wine in 2004. Despite ideal growing conditions for wine grapes, production has declined over decades. Imports reached 283 million litres and 10 per cent of consumption in 2004, mostly of bulk wine and prestige products such as champagne, port and sherry from neighbouring European countries, with minor growing imports of New World wines (AWBC Italy 2006; US Foreign Agricultural Service 2006). Imports of mostly bulk wine from Australia have stabilised, with 1.3 million litres averaging A$2.00 a litre FOB in 2006 (ABS).

Product profile

These examples of fruit wine products are promoted on distributor websites: • Perl Wine: Italian Lemon and Blood orange wine in 500 ml bottles, sold in Japan (Mercian) • Vin Up: Tropical fruit wine from grape must and fruit juice, 4.5 per cent alcohol, described as ‘sweet with tropical fruit taste’ and a trendy drink that can be served frozen (Alibaba). • Consumers are drinking better quality wine but less often, with demand for red, white and rosé styles. • Wine labels require a recycling statement, a wastepaper basket symbol or the phrase ‘non dispedere il vetro nell’ ambiente’ (do not dispose of the glass in the environment) (AWBC Italy 2006).

Pricing

The grape wine market is price sensitive, with higher quality bottled wine typically retailing at around A$6.55 (AWBC Italy 2006; ABS).

Distribution

Sixty per cent of grape wine, including mid-priced imported wines, is sold mainly in supermarkets and hypermarkets, and the rest in food service outlets. Premium imported wines are usually sold in specialist wine shops and leading restaurants, or direct to the consumer (AWBC Italy 2006).

Promotion

Italy’s main wine trade fair is the annual Vinitaly (AWBC Italy 2006).

Import regulations and requirements

Import duty and excise comply with EU regulations, with EU import duty of €0.137 ($0.22) a litre for still wine with up to 13 per cent alcohol, €0.154 (A$0.25) for 13−15 per cent, and €0.32 ($0.52) for all sparkling wine. Fruit wine does not attract excise but is subject to VAT of 20 per cent and a strip stamp levy of €0.3873 (A$0.63) per stamp for a 750 ml bottle. The combined tariffs and taxes add at least A$2.80 to a landed price of A$10.00 for a bottle of Australian fruit wine.

Summary

Italy has a small market for domestic fruit wine, including tropical fruit flavoured grape wine, and low demand and limited distribution for Australian branded grape wine. It offers a minor opportunity at best for Australian tropical fruit wines, provided distribution channels are available.

163 E.3.13 Lithuania

Lithuania has large fruit wine and cider markets and had annual exports of around two million litres of fruit wine related products from 2002−05 (AICV 2005). Fruit wine producers include Anyksciai Winery; AB Alita; which makes apple and berry wines, grape wine and fruit juices and has production capacity of three million litres; and the Mejer Berger factory which produces fruit wine, carbonated water and lemonade (AB Alita 2006; Museums of Lithuania 2006). Annual imports of fruit wine related products rose from 1.8 to 16 million litres from 2002−05 as annual average prices fell from A$1.12 to $0.63 per litre, indicating low value drinks (FAO statistics). In 2006 only 8900 litres were imported from outside the EU, from Armenia and Belarus (European Commission 2007). Imports of Australian grape wine were insignificant (ABS). Lithuania is a member of the European Union, and imports of fruit wines are subject to its import tariffs and the same excise of €0.4344 (A$0.71) a litre and 18 per cent VAT as grape wines, adding from A$2.60 to a landed price of A$10.00 for a bottle of Australian fruit wine.

Summary

Lithuania has medium sized markets for low-priced domestic fruit wine and related drinks but falling imports of these drinks and low demand for Australian grape wine. There appears to be limited opportunities for Australian tropical fruit wines.

E.3.14 Luxembourg

While Luxumbourg lacks significant markets for fruit wine and cider, growing demand for related drinks is indicated by a doubling of imports of fruit wine related products to one million litres a year from 2002−05, with small declining exports, although low annual average prices indicate most trade is in low value drinks such as cider or coolers (FAO statistics). No fruit wine products were imported from outside the European Union in 2006 (European Commission 2007). Individual grape wine consumption of around 55 litres a year is amongst the world’s highest. Markets include numerous political and business travellers, tourists, and cross-border shoppers seeking lower priced wines. Wine is sold through liquor stores and grocery stores, and many workers bring in wine while commuting from neighbouring countries. Around 1.5 million litres of mainly white wine are produced annually but the climate is too unstable for major production so most wine is imported. Imports from Australia from 2002–06 were minor, with 5500 litres averaging A$10.00 a litre in 2006 (AWBC Belgium & Luxembourg 2007; ABS). Fruit wines incur EU import tariffs of €0.137 (A$0.22) a litre for still wine of up to 13 per cent alcohol, €0.154 (A$0.25) for 13−15 per cent, and €0.32 (A$0.52) for all sparkling wine; 15 per cent VAT, and no excise, adding from A$2.00 to a bottle of Australian fruit wine landed at A$10.00.

Summary

Luxembourg has a small affluent market for domestic fruit wine which competes with a large and maturing market, and little demand or distribution for Australian grape wine. It offers a minor opportunity at best for Australian tropical fruit wines to provide variety.

E.3.15 Republic of Moldova

Moldova is one of the world’s largest producers of fruit wine, using berries and other fruits. It has been the leading supplier of low-priced fruit wines to Russia, and supplies large quantities of grape wine to mainly eastern European countries (Feller 1977; Grapes & Barley Co. 2006). Imports of fruit wine related products fluctuated between 0.27 and 6.07 million litres annually from 2002–05, while exports fell from 86.7 to 67.6 million litres, all averaging below A$1.00 a litre (FAO

164 2007; ABS). While the research indicates a large domestic fruit wine market, the large trade volumes may include transhipments of imported drinks to other countries in the region. There were no imports of grape wine from Australia from 2002−06 (ABS).

Summary

Moldova has a large but price-sensitive market based on domestic fruit wine, with little opportunity evident for Australian tropical fruit wines

E.3.16 Netherlands

Market profile

The Netherlands has a long tradition of fruit wines, and is one of Europe’s largest markets for fruit wine and cider. Fruit wines are typically drunk before and after meals. The De Simonehoeve cheese farm serves Dutch berry wines with cheese tastings. Growing demand for the category is indicated by increasing imports, although low prices suggest these are drinks other than fruit wine. Exports of fruit wine related products fluctuated between 7.21 and 10.97 million litres from 2002–05. While these included small quantities of fruit wine to Australia and the United States, low average prices indicate mostly low value drinks (AICV n.d.; Simonehoeve 2007; Table E.34). Grape wine consumption of 325 million litres in 2004 represented a third of liquor consumption. Average individual wine consumption rose from 15 to 23 litres a year from 1996−2005, mainly by 25−50 year olds, and is likely to continue growing as consumers switch from spirits in response to health concerns and a government campaign to reduce alcohol abuse, which has included an increase in excise on spirits (Austrade Netherlands 2007; AWBC Netherlands 2006; AWBC Winefacts 2007).

Supply

Domestic producers make fruit wines from local fruits (AICV n.d.). Demand for fruit wines is further indicated by growth in imports of fruit wine related products from 3.06 to 3.74 million litres from 2002−05, including fluctuating quantities from the United States (Table E.34). Table E.34: Netherlands - trade in fermented drinks HS2206, # 2002−06

Description 2002 2003 2004 2005 2006 HS 2206.00: fermented beverages e.g. cider, perry, mead; mixtures of fermented beverages and non- alcoholic beverages not elsewhere specific or included Total imports – litres 3 068 000 3 979 360 3 748 100 3 738 960 not av. – A$ per litre ^ 3.20 3.61 3.30 2.77 not av. Total exports – litres 7 207 540 10 970 380 8 873 930 10 684 530 not av. – A$ per litre ^ 1.68 1.13 1.30 1.25 not av. Imports from Australia – litres 10 922 0 0 71 634 – A$ per litre ^ 1.89 – – not av. not av. HS 2206003020: grape wine, cider or perry, mead, sake Exports to Australia – litres 0 0 0 0 1205 – A$ per litre * – – – – 5.60 HS 2206.00700: fermented beverages not specified elsewhere, excluding cider and sake Imports from United States – litres 46 000 215 800 200 71 800 122 400 – A$ per litre ^ 2.74 1.63 30.00 1.11 0.90 Notes: # Excluding grape wine and beer. * CIF at importing country; ^ FOB from exporting country. Sources: ABS; FAO 2007; USDA trade statistics

165 In 2006 the main imports of fruit wine related products from outside the European Union were from China and Japan (presumably rice wine) and 239 000 litres from the United States which may include fruit wine and cider (European Commission 2007). Due to a lack of suitable growing conditions for grapes, all grape wine is imported (Osterberg & Karlsson n.d.). While France remains the leading country of supply, imports have been shifting from Europe to Australia, Chile, South Africa (due to historic cultural ties) and the United States (Austrade Netherlands 2007). From 2002–06 imports from Australia grew steadily to 25.1 million litres averaging A$2.70 a litre FOB in 2006 (ABS).

Product profile

Fruit wines are made from fruits such as blackcurrant, red currant and strawberry. New World grape wines are considered good value, with easy-to-read labels that educate and assist shoppers (AWBC Netherlands 2006).

Pricing

Due to intense competition between retail chains, 99 per cent of grape wine retails at less than A$4.50 a bottle (AWBC Netherlands 2006).

Distribution

There are some 800 wine importers, including more than 30 companies distributing a large range of Australian wines across the country. Around 90 per cent of wine is sold by retail, mainly through large chains such as Ahold, C1000 and the Laurus group, and in liquor stores (AWBC Netherlands 2006; Austrade Netherlands 2007).

Import regulations and requirements

Imports incur EU import tariffs of €0.137 (A$0.22) a litre for still wine to 13 per cent alcohol, €0.154 (A$0.25) for 13−15 per cent, and €0.32 (A$0.52) for sparkling wine of any strength; excise tax of €0.5902 (A$0.96) a litre for still fruit wine and €2.0124 (A$3.29) for sparkling wine, and VAT of 19 per cent, adding at least A$3.00 to a landed price of A$10.00 for a bottle of Australian fruit wine.

Summary

The Netherlands has medium sized and affluent markets for fruit wine and related drinks, demand for quality wines, and demand and distribution for Australian grape wines, but strong price competition between large retailers. There is a minor opportunity at best for Australian tropical fruit wines to provide variety, novelty and Australian branding.

E.3.17 Norway

Market profile

Norway does not have a significant fruit wine market, although demand for the category is indicated by imports of up to seven million litres of fruit wine related products a year from 2002−05 (Table E.35). Grape wine consumption is growing as consumers become more knowledgeable about wine through media publicity, books and overseas travel. Demand is seasonal, being strongest for red wine in cooler months and white in summer.

166 Supply

Imports of these fermented drinks fluctuated between 3.05 and 6.99 million litres a year from 2002−05, but declined overall, indicating weakening demand for the category (Table E.35). Table E.35: Norway - trade in fermented drinks HS2206, # 2002−05

Description 2002 2003 2004 2005 HS 2206.00: fermented beverages such as cider, perry, mead, mixtures of fermented beverages and non-alcoholic beverages not elsewhere specific or included Total imports – litres 4 632 000 6 990 810 3 054 300 2 844 000 – A$ per litre * 2.27 2.55 1.77 1.35 Total exports – litres 54 000 206 000 80 650 37 000 – A$ per litre ^ 1.67 2.04 1.65 2.06 Notes: # Excluding grape wine and beer. * CIF at importing country; ^ FOB from exporting country. Sources: ABS; FAO 2007; USDA trade statistics Most grape wine is imported, including bulk wine which is bottled locally by private businesses (Wine News 2006). From 2002−06 imports of Australian wine grew strongly to 3.9 million litres averaging A$3.90 a litre FOB in 2006 (ABS). More trade information is on the Statistics Norway website. There is a high level of illicit production and importing of grape wine, and returning travellers bring in around 10 per cent of supply, mainly from Sweden, to avoid Norway’s high liquor prices and taxes (Euromonitor Norway 2007).

Product profile

Imported fruit wines include tropical fruit wine from Thailand (Mattei 2006). In grape wines, demand is mainly for red wine, and shifting from mostly bulk and bag−in−box to bottled wine (AWBC Norway 2000). Information on production standards and requirements can be obtained from the Norwegian Food Safety Authority (Mattilsynet) website.

Pricing

No prices were found for fruit wine. Grape wine consumers are very price conscious due to high retail prices which reflect some of Europe’s highest taxes and distribution costs. Sales have been growing in the low price range below NOK80 (A$15.60), with around 60 per cent of sales in the mid-price segment of NOK 80−130 (A$16.33−26.55) including European Union and Australian wines. Wines at more than NOK 130 (A$26.50) are mostly from France (AWBC Norway 2000).

Distribution

Wine can only be sold through licensed restaurants or retailed through the government monopoly Vinmonopolet which was formed during a temperance campaign in the mid 1800s to control imports and sales of major alcoholic beverages. When the monopoly was divided in 1996, Vinmonopolet retained control of retail sales for wine, spirits and strong beer, and it now operates 200 retail stores which handle 90 per cent per cent of wine sales. Importers of alcoholic drinks must be listed with Vinmonopolet to access Norway’s retail sector. The split also resulted in former state-owned company Arcus AS, which was privatised in 1998, taking over the importing, wholesale and export of wine and bottling of imported bulk wine. While Arcus AS remains the largest importer and supplier of wine and spirits to Vinmonopolet and the hotel and restaurant trade, new private companies formed to distribute wine, and in 2006 Norway had around 200 licensed wine importers who supply Vimonopolet and

167 licensed restaurants, usually as agents on an exclusive basis, and 450 wholesale wine companies (AWBC Norway 2006; Osterberg & Karlsson n.d.). Vinmonopolet, who previously provided customers with only minimal product information and price lists in its stores and only sold over the counter, has recently restructured the stores so customers can read wine labels and point of sale material and choose from off-the-shelf displays.

Promotion

While media advertising is almost totally banned, media publicity about wine, including new product launches, is increasingly stimulating consumer interest. Promotion is largely confined to tastings staged by agents in hotels and restaurants. The Australian Wine Bureau promotes Australian grape wines at tastings, seminars and the biennial Vinexpo Wine Fair in Oslo (AWBC Norway 2006).

Import regulations and requirements

Although not a member of the EU, Norway is closely aligned to it as a signatory to the Agreement on the European Economic Area (EEA). Wine imports comply with EU legislation and tariffs but may require an EAN or UPC code for sale through Vinmonopolet. Fruit wines are subject to import tariffs of €0.137 (A$0.22) a litre for still wine to 13 per cent alcohol, €0.154 (A$0.25) for 13−15 per cent, and €0.32 (A$0.52) for all sparkling wine; excise of NOK3.67 (A$0.75) per percentage of alcohol per litre; and VAT of 23 per cent which is refunded if for use by a VAT chargeable business. A recycling tax of 1.8 per cent is charged on alcoholic beverage containers with return rates below 25 per cent. The combined charges add from A$1.20 to a landed price of A$10.00 for a bottle of Australian fruit wine. Exporters are advised to contact the Norwegian Ministry of Agriculture (AWBC Norway 2006; Osterberg & Karlsson n.d.). More information is available from the Directorate of Customs and Excise website.

Summary

Norway has a small affluent market for local and imported fruit wines, including some tropical fruit wine, and demand for Australian grape wine, but is a price-sensitive market with high import costs and restricted distribution and promotion, indicating little opportunity for Australian tropical fruit wines.

E.3.18 Poland

Market profile

Poland has a fruit wine tradition dating from the 13th century, with fruit wines representing around 60 per cent of all wine consumed. Poles continue to prefer low priced sweet fruit wines, despite more choice in recent years. Wine consumption is strongest over Christmas, during winter carnivals in February, and in spring when religious observances inhibit vodka consumption (Ganczewska n.d.; Jelonkiewicz 2001). Exports of fruit wine related products grew strongly from 17 000 to 5.63 million litres from 2002−05, although low average prices suggest these are mostly lower value drinks such as coolers rather than wine (Table E.36). Annual grape wine consumption is around 700 million litres, averaging around 5.6 litres a person, and expected to grow at 10 to 15 per cent a year due to consumers switching from beer and vodka to wine, growing consumer acceptance of health claims for wine-drinking, rising incomes in the fast-growing economy, and widening retail distribution (Ganczewska n.d.; Jelonkiewicz 2001).

Supply Annual wine production grew from a total of 211 million litres in 1990 to around 300 million litres of fruit wine and 120 million litres of grape wine in 2000, but fruit wine production is declining as

168 consumers shift to grape wines and to wines from outside Eastern Europe. Fruit wine producers include large juice processors and other businesses as well as wineries. It was expected that imports of European bottled and bulk fruit wines would increase as Poland accessed the European Union, supported by strong growth in imports of fruit wine related products from 77 000 to 554 700 litres a year from 2002−06. These imports included a small quantity of Australian fruit wine in 2005 (Jelonkiewicz 2001; Table E.36). Table E.36: Poland - trade in fermented drinks HS2206, # 2002−06

Description 2002 2003 2004 2005 2006 HS 2206.00: fermented beverages such as cider, perry, mead, mixtures of fermented beverages and non-alcoholic beverages not elsewhere specific or included Total imports – litres 77 000 131 000 806 290 554 750 not av. – A$ per litre * 3.54 3.58 1.05 2.36 not av. Total exports – litres 17 000 140 000 1 664 400 5 635 850 not av. – $A ^ 6.17 4.93 2.27 0.68 not av. Imports from Australia – litres 0 0 0 554 0 – A$ ^ – – – 6.90 – HS 2206.00.9000: Fermented beverages other than grape wine, beer, cider, prune wine, sake, vermouth, or other effervescent wines Imports from United States – litres 9 400 1 400 36 500 4 500 1 900 – A$ ^ 11.16 2.20 7.90 12.83 3.50 Notes: # Excluding grape wine and beer. * CIF at importing country; ^ FOB from exporting country. Source: ABS; FAO 2007; USDA trade statistics There is no large-scale grape production, and around 200 businesses bottle import bulk wine. Imports of grape wine have resulted in more than 10 000 wine brands, with demand strongest for red and sparkling, and falling for dessert wines. Consumers are conscious of country of origin and increasingly buying bottled wine imported mainly from Australia, Chile, France, Germany, South Africa and the United States (Ganczewska n.d.). From 2002−06 imports of Australia wine grew strongly to 680 000 litres averaging A$3.30 per litre FOB in 2006 (ABS).

Product profile

Examples of Polish fruit wine producers and products are: • Nalewka Babuni - Fruit wines from cherry and peach • 18 brand - Dessert wines, including Currant 18 from blackcurrant and apple, and Cherry 18, a blend of cherry, apple, blackcurrant, bilberry and sloe, made in the madeira style with 16−18 per cent alcohol and 13−15 per cent sugar. • Other fruits used include white and red gooseberries, apple and aronia. Hot mulled wines from grape wine and spices are also popular (Stawski Distributing 2003). Wine consumers respond to ‘exotic’ and ‘ecological’ messages and value-adding promotions such as providing a corkscrew with the bottle (Ganczewska n.d). A law on the production, bottling and trade of wine products, which was developed to harmonise Polish law with European Union standards, provides three categories for wine that is not solely from grape: ‘Fermented wine beverages’, which includes fruit wines and wine-derived drinks; ‘Fermented aromatised wine product’ if mixed with herbs, such as vermouth; and ‘Grape wine products’. Grape wine produced from concentrate is defined as Polish Wine under EU legislation. Polish law permits the use of non-grape sugar, but not colorants (Ganczewska n.d; Jelonkiewicz 2001).

169 Pricing

Annual average price per litre of these fermented drinks declined significantly from 2002−05 as imports and export rose, indicating a shift in product type, while annual average import prices of up toA$6.90 FOB a litre Australia and A$12.83 a litre from the United States indicate demand for high quality and higher priced products (Table E.37). Retail prices for wine reflect type, country and region of origin and perceived quality, and range from 8−100 zlotys (A$3.46−$43.32) in supermarkets and 20−1200 zlotys (A$8.66−520.00) in wine specialty shops. Most are in the low-price category, reflecting low consumer incomes and ability to purchase (Ganczewska n.d.; Ganczewska & Gregory n.d.).

Distribution

Around 200 firms import and bottle bulk wine. Large importers are usually also wholesalers or supply independent wholesalers to hypermarkets, speciality shops and small retail stores in large cities. Most retail sales are through around 30 specialist wine stores in larger cities and supermarkets and grocery stores; with some home delivery (Ganczewska, n.d; Jelonkiewicz 2001).

Promotion

Specialist retailers provide advice and tastings to customers, unlike supermarkets. Wine promotion has largely been through television advertising, word of mouth and wine-tasting events such as the Polish National Wine Competition and Austrade’s annual Taste of Australia in Warsaw (Austrade 2004; Ganczewska n.d.).

Import regulations and requirements

Fruit wine is subject to EU import tariffs of €0.137 (A$0.22) a litre for still wine with up to 13 per cent alcohol and €0.154 (A$0.25) for alcohol of 13−15 per cent, and €0.32 (A$0.52) for all sparkling wine; excise of zl 1.36 (€0.58) a litre and 22 per cent VAT, adding at least A$2.90 to a landed price of A$10.00 for a bottle of Australian fruit wine, depending on alcohol content (Jelonkiewicz 2001).

Summary

Poland has a large mature market for domestic and imported fruit wines, but with strong competition from grape wine; growing demand for premium quality, healthy, environmentally conscious wines and Australian grape wines; and attractive pricing for premium quality grape wines. There is a moderately strong opportunity for Australian tropical fruit wines to be differentiated on fruit type, quality and Australian branding.

E.3.19 Russia

Market profile

Russia has a large fruit wine market, consuming around 15 million litres of domestic fruit wine in 2003 and large quantities of imports from countries such as Moldova, and also one of Europe’s largest cider markets (AICV n.d.). Fruit and grape wine represented around seven per cent of Russian liquor consumption in 2003. Annual exports of fruit wine related products fluctuated between 48 000 and 798 000 litres from 2002−05 (AICV 2005; Davydova 2003; Table E.37). Grape wine consumption is estimated at one billion litres a year and growing at around 20 per cent a year with rising incomes and demand for lower alcohol alternatives to vodka. Key markets are a substantial expatriate business community, mainly in Moscow, and an emerging market of younger more affluent Russians. In 2006 grape wine represented 12 per cent of total alcoholic drinks, averaging 9.2 litres per person annually, but wine-drinking is not established, with only 10 per cent of

170 Russians drinking wine at least once a week (Austrade Russia 2007; AWBC Russia 2007; Hesse n.d.; The Department of Trade and Industry SA 2005). Young Russians drink mainly RTDs and high- strength premixes which are Russia’s fastest growing alcoholic drinks sector and supported with strong manufacturer promotions (Euromonitor Russia 2007).

Supply

Wine production has struggled to recover from the USSR’s anti-alcohol campaign in the 1980s. Fruit wine production was around 15 million litres in 2003 but has been declining (Austrade Russia, 2004). Manufacturers include Moscow wine bottling factory Rubin which in 2003 produced up to one million bottles (around 750 000 litres) a month of Ke-Co brand fruit wine (Davydova 2003). Imports of very low priced fruit wine related products fluctuated between 126.77 and 171.43 million litres a year from 2002−05 (Table E.37). Table E.37: Russia - trade in fermented drinks HS2206, # 2002−06

Description 2002 2003 2004 2005 2006 HS 2206.00: fermented beverages e.g. cider, perry, mead; mixtures of fermented beverages and non- alcoholic beverages not elsewhere specific or included Total imports – litres 134 745 000 171 432 000 126 772 300 159 166 350 not av. – A$ per litre * 0.75 0.66 0.66 0.61 not av. Total exports – litres 117 000 798 000 691 000 48 000 not av. – A$ per litre ^ 1.22 1.52 1.93 1.52 not av. Imports from Australia – litres 0 0 0 72 0 – A$ per litre ^ – – – 31.00 – HS 2206.00.70: fermented beverages not specified elsewhere, excluding cider and sake Imports from United States – litres 0 0 29 500 0 17 100 – A$ per litre ^ – – 2.94 – 1.96 Notes: # Excluding grape wine and beer. * CIF at importing country; ^ FOB from exporting country. Source: ABS; FAO 2007; USDA trade statistics Grape wine production was 316.7 million litres in 2004, although largely from imported materials, and has declined steadily to well below production capacity. Poor quality has also inhibited market development for domestic products (AWBC Russia 2007; Austrade Russia 2007). In 2004 a third of the grape wine market was supplied by imports of 350 million litres. Imports have grown strongly for several years, with around 85 per cent being low-end wines from eastern Europe, mainly from Moldova at around A$3.40 a bottle, and some higher priced wines from France, Hungary, Italy and Spain, while the Australian, Argentina, Chile, South Africa and United States industries are making efforts to develop a market share (Austrade Russia, 2007; Hesse n.d.). From 2002−06 Australia’s exports almost tripled to 650 000 litres at an average price of A$3.90 FOB in 2006 (ABS).

Product profile

Plum wine is a particularly popular fruit wine, produced locally and imported from China, Japan and Germany. Manufacturer Rubin produces Ke-Co brand wines from fruits such as white plum and rose plum, apricot, bilberry, chokeberry and mango in 725 ml and 1.45 litre bottles from ingredients supplied by Ke-Co Japanese Bottlers Limited and imported fruit. Other Russian products include Cornelian cherry wine (Weaver 2005; Davydova 2003). In grape wines Russians prefer red, semi-sweet, pure and natural, and have been switching from semi- sweet Moldovan wines to higher quality products from Western Europe and New World suppliers. Loyalty to Russian brands remains strong, but not in people aged under 20 (Austrade Russia 2007). Wine imports need to comply with food safety, additive, labelling and other regulations. The Russian Government has introduced controls on production, importation and sales of alcoholic drinks to curb

171 illicit production and trade; quality controls, which have affected imports from major wine suppliers Moldova and Georgia; and trademark protection (AWBC Russia 2007; Euromonitor Russia 2007).

Pricing

Retail prices were not found for fruit wine. Grape wines retail at around A$5.30 a bottle, and Australian grape wines usually from A$2.50 to $4.99 or over A$10.00 (AWBC Russia 2007).

Distribution

Around 50 wine traders in Moscow and St Petersburg import, wholesale and distribute through trading houses that often have one division to supply specialty stores and supermarkets and a second for hotels and restaurants. DP-Trade, Rus Import, Svarog-M and White Hall are among the largest importers. Fruit wine distributors include Euroservice. Most grape wine is sold in restaurants and boutique wine outlets, and increasingly supermarket chains that include the Russian companies Mosmart, Patersson and Perekrestok and western chains such as Auchan, Metro Cash & Carr and Ramstore. Wine shops are sophisticated with high standards of presentation and display (Austrade Russia 2007; AWBC Russia 2007; Davydova 2003; Hesse n.d.).

Promotion

The annual DRINKS St. Petersburg trade show includes a category for fruit wines. Austrade promotes Australian wine at events such as Australia Week in Moscow, a wine website aimed at Russian importers, and advertisements in specialised Russian media.

Import regulations and requirements

Wine imports attract 20 per cent import tariff, excise of US$0.80 (A$0.95) a litre, and 28 per cent VAT, adding A$6.27 to a landed price of A$10.00 for a bottle of Australian fruit wine. Austrade advises taking local partners to navigate the complex Customs system (Austrade Russia 2007; AWBC Russia 2007).

Summary

Russia has a large market for low quality low-priced and mostly imported fruit wines, growing demand for wine-style drinks and Australian branded wines, and market segments with rising incomes and demand for quality wine, but substantial import tariffs. There is a moderately strong opportunity for Australian tropical fruit wines to be differentiated on quality and fruit type to provide novelty and variety, and on Australian country of origin.

E.3.20 Spain

Market profile

Spain’s market for fruit wine related products was 34.6 million litres valued at A$203 million in 2004, mainly cider and sangria, a traditional grape wine and fruit juice blend often drunk with ice (AICV 2005; Shea 2007; USDA Spain 2006). Around 70 per cent of fruit wine is drunk at home. Exports of these drinks, probably cider and sangria, grew from 15 to 34 million litres from 2002−06, including small quantities to Japan (Table E.38). Grape wine consumption was 1100 million litres in 2004, with markets that include up to 70 million tourists a year. Average individual consumption has been stable at around 33 litres a year and is likely to remain so as demand shifts to lower consumption of better quality wine and from wine to beer and soft drinks (Austrade Spain 2007; USDA Spain 2006). Local lighter grape wines are generally drunk with meals, and high quality wines at special occasions and away from the home.

172 Supply

Spain has substantial production of fruit wine, cider and sangria and strongly growing imports of mostly low priced fermented drinks such as cider and coolers from 2002−05 (Table E.38). In 2006 most imports from outside the European Union were from China, with small quantities from Japan, Korea and the United States, presumably rice wine (European Commission 2007). Table E.38: Spain - trade in fermented drinks HS2206, # 2002−-6 Description 2002 2003 2004 2005 2006 HS 2206.00: fermented beverages e.g. cider, perry, mead; mixtures of fermented beverages and non- alcoholic beverages not elsewhere specific or included Total imports – litres 5 291 000 6 193 000 9 764 000 11 449 830 not av. – A$ per litre * 1.74 1.72 1.46 1.46 not av. Total exports – litres 15 355 000 23 812 310 33 523 730 34 347 390 not av. – A$ per litre ^ 1.13 0.93 0.79 0.76 not av. Exports to Canada (A$) ^ 346 385 560 827 491 222 748 692 800 447 Imports from Canada (A$) * 0 5 501 0 59 524 4 954 Imports from Australia – litres 1 350 6 285 1 800 9 960 840 – A$ ^ 3 226 12 143 2 934 20 365 1 575 – A$ per litre ^ 2.39 1.93 1.63 2.04 1.88 HS 2206.00.229: fermented beverages including cider, perry and mead, but not sake or wine coolers Exports to Japan – litres 100 2 500 6 000 10 100 5 500 – A$ per litre ^ 60.00 4.40 1.67 4.36 3.09 HS 2206.00.70: fermented beverages not specified elsewhere, excluding cider and sake Imports from United States – litres 0 0 200 15 300 8 500 – A$ per litre ^ – – 34.00 4.20 3.75 Notes: # Excluding grape wine and beer. * CIF at importing country; ^ FOB from exporting country. Sources: ABS; FAO 2007; USDA trade statistics In the 2005/06 year Spain produced 3 300 million litres of grape wine and exported around 1350 million, mainly to other EU countries. Growing imports of grape wine reached 33.5 million litres in 2005, half from Italy, and almost all from within the EU. From 2002−06 imports from Australia grew strongly to 505 000 litres averaging A$2.40 a litre FOB in 2006. The wine industry is focussing on improving product quality as competition grows (Ramos 2006; ABS; Austrade Spain 2007).

Product profile

Sangria is a traditional Spanish drink of red or white still or sparkling grape wine mixed with juices such as citrus and peach. Brands include Bodegas Sanviver’s Sangria Lolailo and Hermanos Alberca Martinez, S. L. (Alibaba 2007; Shea 2007). In grape wine, demand is mainly for red wine, and increasingly new and different wines, while young consumers are preferring imported wine over domestic (Austrade Spain 2007; USDA Spain 2006).

Distribution

Wine is imported by specialist importers and some retailers. Specialist distributors supply most hotels and restaurants, and wholesalers and retail chains also supply smaller outlets, Australian wine often enters Spain via the United Kingdom as an English language point, pushing up the freight cost. Wine is mostly retailed through mainstream wine retailers, their online mail order services, specialist wine outlets, department stores, hypermarkets, small convenience stores, discounters and other mail order services. Higher-end supermarket chains usually carry more international wines than lower end stores. While 45 per cent of wine is drunk at home, hotels, bars, restaurants and caterers are important outlets, particularly for high quality, sparkling and table wine (Austrade Spain 2007).

173 Import regulations and requirements

Fruit wine imports have to meet EU regulations, with EU duty of €0.137 (A$0.22) a litre for still wine of up to 13 per cent alcohol, €0.154 (A$0.25) for 13−15 per cent alcohol, and €0.32 (A$0.52) for all sparkling wine, and VAT of 16 per cent (but no excise), adding at least A$1.80 to a landed price of A$10.00 for a bottle of Australian fruit wine (Austrade Spain 2007; Table E.38).

Summary

Spain has a small fruit wine market with strong demand for related drinks and for Australian grape wine. Further research may determine limited opportunities for Australian tropical fruit wines.

E.3.21 Sweden

Market profile

Sweden’s fruit wine and cider markets consumed a total of 60 million litres in 2003, mostly cider (AICV 2005; Dahlbacka 2004). Demand is seasonal, so leading retailer Nya Systembolaget caters for this by promoting seasonally oriented products (Systembolaget 2007). From 2002−05 fluctuating exports of fruit wine related products reached 21.6 million litres in 2005, low annual average prices indicating these were mostly of cider (Table E.39). Grytthyttan Winery’s berry wines retail in IKEA stores in Europe, the United States and Canada. Grape wine consumption was around 161 million litres of imported wine in 2003 and around 45 million litres a year are brought in by Swedish travellers returning home from other EU countries. Individual consumption averages 25 litres a year, and is expected to continue growing as consumers shift from traditional vodka and beer to wine, develop a taste for quality wines, and drink more wine with evening meals. Women are the main wine market while younger people are increasingly drinking beer (Dahlbacka 2004; Osterberg & Karlsson n.d.).

Supply

Sweden has some private manufacturers of fruit wine (AICV n.d.). From 2002−05 declining imports of low priced fruit wine related products included small growing volumes of fruit wine from Australia, the United States and Canada (Table E.39). Table E.39: Sweden - trade in fermented drinks HS2206, # 2002−06

Description 2002 2003 2004 2005 2006 HS 2206.00: fermented beverages such as cider, perry, mead, mixtures of fermented beverages and non-alcoholic beverages not elsewhere specific or included Total imports – litres 4 923 000 4 146 800 3 314 000 2 468 000 not av. – A$ per litre * 1.84 1.92 2.04 2.02 not av. Total exports – litres 12 376 000 11 694 090 4 941 300 21 612 280 not av. – A$ per litre * 1.32 1.41 3.54 1.06 not av. Imports from Australia – litres 0 0 250 339 0 – A$ per litre ^ – – 15.56 19.04 – HS 2206.00700 – fermented beverages not specified elsewhere (excludes cider) Imports from United States – litres 11 800 27 000 14 000 28 100 43 600 – A$ per litre ^ 6.24 5.20 4.57 4.39 3.23 Notes: # Excluding grape wine and beer. * CIF at importing country; ^ FOB from exporting country. Source: ABS; FAO 2007; USDA trade statistics

174 In 2006, 87 700 litres of fruit wine related products were imported from outside the European Union, led by Thailand with 29 000 litres at an average price of A$2.39 a litre, while 8400 litres at A$9.08 a litre came from Switzerland (European Commission 2007). Despite recent wine grape plantings, grape wine is not traditionally produced in Sweden as the climate is unsuited to grape-growing. Most manufacturers use imported grape must, including former Government agency Aktiebolaget Vin & Spiritcentralen (Vin & Spirit) and other licensed producers. In 2003 6.7 million litres of grape wine were exported to other European Union countries (Dahlbacka 2004; Osterberg & Karlsson n.d.). Although most imported grape wine is from Europe, mainly Spain and Italy, demand has been growing for New World wines from Australia, South Africa and Chile (AWBC, Sweden 2007; Dahlbacka 2004). From 2002−06 imports of Australian wine grew from 7.8 to 9.4 million litres with an average price of A$4.30 a litre FOB in 2006 (ABS).

Product profile

An example of Swedish fruit wine producers is Grythyttan Winery which uses hand-picked and wild- harvested fruit for its Bjork Vin still and sparkling wines from raspberry, lingonberry, blueberry, juniper berry and cloudberry, and Forestglögg, a mulled spiced blueberry and lingonberry wine from forest-picked fruit, in 750 ml and 375ml bottles (Grytthyttan Winery n.d.). Demand in grape wines is growing for high quality, red wine, new products, screwcaps, and soft packaging such as bag–in–box, particularly for outdoor outings and small serves. While Australian bulk grape wines are considered value for money, sales are declining and better quality wines are moving into higher price brackets (AWBC Sweden 2006; Dahlbacka 2004; Systembolaget 2007).

Pricing

Grythyttan wines are priced at SEK 93 (A$16.45) for 750 mls for still wines, SEK 129 (A$22.80) for sparkling, and SEK 99 (A$17.50) for 375 mls of Raspberry Red on the company’s website. While low average import prices reflect mostly low value drinks, imports of Australian fruit wine products averaged A$15.50 and $19.00 a litre FOB in 2004 and 2005 respectively (Table E.39). These 2003 price categories indicate retail pricing for grape wine: • under SEK61 (A$11.60) − 50 per cent of sales • mid-price – SEK61−70 (A$11.60−13.35) − 30 per cent and growing • over SEK70 (A$13.35): 20 per cent (Dahlbacka 2004).

Distribution

A strong Temperance influence has resulted in a public health policy with considerable controls and restrictions on alcohol distribution and promotion to prevent financial gain from supplying liquor so as to reduce the negative effects of consumption. Since the Government relinquished control of liquor production, import, sale and exports on joining the European Union in 1995, allowing domestic producers and private licensed importers to distribute wine and spirits, more than 600 licensed importers have emerged. However, the Government continues to control retail sales through its company Nya Systembolaget which holds a monopoly on all retailing of wine, spirits and full strength beer through its 400 liquor stores. Even wineries cannot sell direct to customers. Nya Systembolaget sold 142 million litres of wine, 64 per cent of total wine sales, in 2003, but has lost market share to direct imports (AWBC Sweden 2007; Dahlbacka 2004; Grythyttan n.d.). Vin & Spirit continues to distribute wine but no longer has a monopoly on wholesaling. Wholesalers, restaurants and caterers are increasingly importing and distributing wine direct;u, and relaxed private alcohol import quotas now allow individuals to bring in up to 90 litres of wine from neighbouring EU countries with lower prices and taxes (AWBC Sweden 2007; Dahlbacka 2004).

175 Promotion

In recent years media advertising of alcoholic drinks has been permitted, but within strict guidelines that exclude television, radio and billboard advertising, so newspaper and magazine wine writers have become very influential. Fruit wines are also promoted at events such as Aker Brygge Foodfestival, and Nya Systembolaget provides product lists in its stores which are updated twice a year and more frequently for temporary product ranges, and lists its products on its website and in a monthly newsletter. Promotion for grape wines includes product launches and exhibits for Australian and other imported wines, tastings, courses, wine appreciation through wine clubs and societies, and the biannual Vinordic wine fair (AWBC Sweden, 2006; Dahlbacka 2004).

Import regulations and requirements

Imported fruit wines are subject to EU regulations and incur EU import tariffs of €0.137 (A$0.22) a litre for still wine with up to 13 per cent alcohol, €0.154 (A$0.25) for 13−15 per cent, and €0.32 (A$0.52) for all sparkling wine, as well as excise of SED 22.08 (A$3.90) a litre, 25 per cent VAT and glass bottle duty, adding more than A$4.30 to a landed price of A$10.00 for a bottle of Australian fruit wine (Austrade Sweden 2007; Tables E. 38, E.39).

Summary

Sweden has a small attractively priced market for local and imported temperate fruit wines, and strong demand for similar drinks and for imported grape wine, including Australian brands, but restricted liquor distribution. There may be a minor opportunity to differentiate Australian tropical fruit wine products on novelty and Australian branding.

E.3.22 Switzerland

Switzerland has no significant fruit wine consumption (AICV 2005), but large and growing imports of fruit wine related products, including fruit wine products from Australia, suggest demand for the category (Table E.40). It also has one of the world’s wealthiest and highest-consuming grape wine markets⎯291.6 million litres with average individual consumption of around 40 litres in 2004⎯mostly by older people living in the south, but the market is slowly shrinking, due in part to a government campaign against drink- driving (AWBC Switzerland, 2006; AWBC Winefacts 2007). Table E.40: Switzerland - trade in fermented drinks HS2206, # 2002−05

Description 2002 2003 2004 2005 HS 2206.00: fermented beverages such as cider, perry, mead, mixtures of fermented beverages and non-alcoholic beverages not elsewhere specific or included Total imports – litres 2 869 020 3 704 850 4 250 260 4 808 380 – A$ per litre * 3.61 3.62 3.61 3.46 Total exports – litres 90 890 110 250 141 510 98 520 Imports from Australia – litres 8 274 0 0 21 605 – A$ ^ 22 064 – – 53 468 – A$ per litre ^ 2.60 – – 2.47

Notes: # Excluding grape wine and beer. * CIF at importing country; ^ FOB from exporting country. Source: ABS; FAO 2007 Switzerland produces sufficient white grape wine for domestic requirements but the more popular red wine is imported (AWBC Switzerland 2006). From 2002−06 annual imports of Australian grape wine fell from 4.6 to 1.37 million litres with an average price of A$4.60 a litre FOB in 2006 (ABS).

176 Switzerland is not an EU member. Wine imports incur a monopoly tax of CHF 29 (A$22.90) per litre of pure alcohol, with a reduced rate of CHF 14.50 ($14.45) per litre of pure alcohol for ‘natural’ wines such as fruit and berry wines with alcohol of more than 15 per cent but not exceeding 22 per cent, and VAT of 7.6 per cent, adding A3.10 to a landed price of A$10.00 for a bottle of Australian fruit wine with 13 per cent alcohol. Imports are regulated by the Federal Trade in Wine Control Commission, the Federal Office for Agriculture and the Federal Customs Office. More information on tariffs and taxes is available at the websites of TARES, the Swiss Portal and the Swiss Federal Office of Agriculture. New exporters are advised to engage an experienced wine agent (AWBC Switzerland 2006).

Summary

Switzerland has an uncertain market for fruit wines, heavy grape wine consumption and imports of Australian fruit and grape wine but declining fruit and grape wine markets and high import taxes, indicating minor potential at best for Australian tropical fruit wine.

E.3.23 Turkey

Market profile

Turkey has a small market for local fruit wines. Exports of fruit wine related products fluctuated from 2002–05, which low annual average prices suggest were mainly low value drinks such as cider (FAO 2007). Despite 99.8 per cent of people following the Islamic religion, Turkey is not governed by Sharia law so alcohol consumption is permitted, and Christians and Jews have produced and consumed wine in Turkey since before the Ottoman Empire’s 500 year dominance. Grape wine consumption is around 69 million litres a year, averaging one litre per person, but is increasing with wider choice and distribution, urbanisation, the growing economy, around 15 million tourists visiting each year, and some exports, mainly to Europe and Japan. Turkish grape wine drinkers are usually young, educated and sophisticated, and living in Istanbul, Ankara or Ismir (Leone 2004 n.d. USDA Turkey 2007).

Supply

A small fruit wine industry appears to meet domestic demand as imports declined from 2002−05. Low average prices indicate most imports are lower value drinks such as cider or coolers rather than wine (FAO 2007). Some 80 wineries produced around 60 million litres of grape wine in 2004 using indigenous and imported grape cultivars, with production forecast to expand to meet increasing demand. Production was dominated by government monopoly Tekel and a few favoured wineries that were protected by high import duties, until the industry was opened to new producers in the 1990s. There is also a large illicit industry of around 12 million litres a year (Brosnahan n.d.). While most imports of grape wine have been from Italy, France and Chile in recent years, small quantities have come from Australia, including 13 000 litres averaging A$6.30 a litre FOB in 2006 (ABS).

Product profile

Fruit wine producers include Artemis Winery at Sirence, who retail from the winery, and Asya Fruit Juice and Food Industrial Corporation and Olivo Organics Ltd who advertise on distributor websites such as Imex Goods and Alibaba. Research conducted on fruit wines from mulberry, blackberry, quince, apple, apricot, melon raspberry, bilberry, sour cherry and strawberry for their pharmaceutical potential indicates these are significant fruits used in wine-making (Yildirim 2006).

177 Pricing

No prices were found for fruit wines. Medium quality grape wines retail at around A$9.30−13.30 and higher quality at around A$19.50−22.40. Prices can be prohibitively high, particularly in restaurants (Brosnahan n.d.).

Distribution

Wine imports are handled by independent importers, agents and distributors, rather than retailers buying directly. Wine is sold mostly through retail stores such as domestic and international supermarket chains (42 per cent), wine shops, duty free stores, restaurants and a growing sector of hotels and resorts (USDA Turkey 2007).

Promotion

Fruit wines are mainly promoted through winery tastings and internet distributor websites. Grape wines are often promoted through articles in newspapers and food magazines, and at tastings in luxury hotels, often during food festivals (USDA Turkey 2007).

Import regulations and requirements

Taxes on wines are prohibitively high. Imported wines are subject to import duty of 70 per cent, VAT of 18 per cent, special consumption tax of 63.3 per cent (import duty is 50 per cent for EU wines) and customs clearance fees of 10 per cent, which add A$11.28 to a landed price of A$10.00 for a bottle of Australian fruit wine. Additional costs such as storage, distribution and importer mark-up add another A$9.00 or more. Also, supermarkets charge high fees for shelf space, and luxury hotels mark up the prices of imported wines by around 200−300 per cent. If Turkey is accepted into the European Union, import taxes will fall to EU levels (USDA Turkey 2007).

Summary

Turkey has a small market for domestic fruit wine and Australian grape wine but high tariffs and taxes on imported wines. While there may be a minor opportunity for Australian tropical fruit wines to be differentiated by fruit type and quality, they are unlikely to be cost-competitive against domestic wines free of import taxes.

E.3.24 United Kingdom

Fruit wines are also called country wines and British wines. Production and trade are reported under three different product codes. HM Revenue and Customs use the harmonised code HS 2206 and also SITC 11226 for fermented fruit products, while the Office of National Statistics use PCC 15941000 for ‘cider and other fruit wines’ which includes perry, mead and fortified wines such as vermouth and grape wines flavoured with plants or aromatic substances, but not beer or grape wine. These different combinations of products in each code make comparison and analysis of trade data difficult.

Market profile

The United Kingdom has a long tradition of non-grape wines made from fruit, honey (mead), ginger, flowers and vegetables, led by cider, perry and ginger wine. It has one of Europe’s largest fruit wine markets, with stable consumption of around 40 to 50 million litres a year. Annual average consumption rose from 10.2 to 12.6 litres per person from 1994–2004 and major British drinks manufacturers and an emerging Scottish fruit wine industry have revealed large and growing sales of fruit wine in recent years (Hibberd 2003; Johnston 2004).

178 Total fruit wine, cider and perry consumption grew from 597 to 750 million litres from 2001–05, while exports fell from 30 to 19 million litres, indicating strong demand (Table E.41; Osterberg & Karlsson n.d.; Wilson 2006). Growing consumption, production and imports and shrinking exports indicate continuing demand, although mainly for cider and perry. The United Kingdom is Europe’s second largest cider market. The key market segment has traditionally been young working-class men drinking cider as an alternative to beer and often buying bottled or draught cider in pubs, but manufacturers are also now attempting to win RTD drinkers over to cider (AICV n.d.; Blake & Boyle, 1992; Solley 2004, 2006). The market for semi-sparkling perry is estimated at around 100 million litres a year, based on manufacturer Halewood’s claim of a 50 per cent market share with 50.4 million litres in sales. Perry has become a leading wine-style drink, and sales have grown for manufacturers such as Matthew Clark who have successfully repositioned their long-standing Babycham perry from a cider to a sparkling wine by promoting to young female shoppers in retail stores (Hibberd 2003). These demand trends indicate further market growth for fruit wines, cider and perry: • 20–25 year olds who want light and fruity wines with a clear explanation of their taste features • continuing demand for coolers • development of new distribution channels, such as regional retail chains • consumer interest in novel and innovative products • strong recent growth in ginger wine sales, expected to continue • consumers shifting to lower alcohol wines and other drinks (AICV 2005, Austrade United Kingdom 2006; Bacot & Lewis 2007; Chapman 1991; Hibberd 2003). However, fruit wines have limited popularity and appear to sell best in their local area of production. Department stores have experienced no consumer demand for fruit wines, and efforts to sell Australian mango wine have encountered low consumer awareness and a need for strong promotion (Austrade, United Kingdom 2006; Rochetau-Hasan 2007). Exports of fruit wine related products (mainly cider), fell from 19.16 to 12.9 million litres a year from 2002−05. In 2004 two-thirds were to other European Union countries, followed by the United States, Canada and the Middle East (National Statistics). From 2002−06 exports to Australia grew strongly to 42 415 litres in 2006, but in low value drinks such as cider (Table E.41). Grape wine consumption was 1259 million litres in 2004 and growing steadily, but the market may be maturing as two-thirds of British people now drink wine. The main wine market is men and women aged over 35 with above average incomes, and growth in wine sales is attributed to higher consumption in this segment rather than young people adopting wine. Individual consumption rose from 12.0 to 21.1 litres from 1996–2005, largely because of to a shift from beer to wine due to more European lifestyles, more wine drunk with meals at home, higher individual disposable incomes, and a high level of women in employment. Australian wines are particularly popular with women and with men aged 20−35 (Austrade United Kingdom 2006; AWBC United Kingdom 2007; AWBC Winefacts 2007; Wilson 2006; US Foreign Agricultural Service 2006). A British survey by VINEXPOS found 20−25 year olds saw wine as trendy, fashionable and beneficial to health, rather than as a means to inebriation, and all respondents aspired to drink more wine. They saw wine drinkers as refined, educated and older, and suggested wine with a younger image would appeal more to their age group, provided it did not target them specifically. They liked traditional bottles and labels. Key concerns inhibiting purchase were anxiety about knowledge of wine, how to match it with food, if it provide value for money, and an assumption that enjoying wine requires knowledge and effort. Respondents complained wine labels were confusing and uninformative, and should guide them on when and how to drink a wine. They saw quality wine as expensive, including by the glass at GBP£4.00−6.00 (A$9.60−14.35) (Bacot & Lewis 2007).

179 Supply

In 2005 domestic production of fruit wines and cider was 750 million litres (mostly cider), having grown 26 per cent since 2001 (Table E.41). Producers include numerous small fruit wineries across the country, large manufacturers expanding in fruit wine production, and an emerging Scottish industry which produced around 330 000 litres of fruit and flower wines in 2004 (Johnston 2004). Table E.41: United Kingdom - production, imports and exports of fruit wines, cider, mead, fortified wines, vermouth and herbal grape wine * Volumes (litres) 2001 2002 2003 2004 2005 Manufacturer sales 612 443 000 644 898 000 664 834 000 525 287 000 735 359 000 Total imports 15 559 000 17 712 000 19 460 000 26 134 000 34 040 000 Total exports 30 001 000 25 928 000 19 564 000 19 771 000 19 236 000 Net supply (market size) 597 616 000 636 682 000 664 860 000 531 650 000 750 163 000 Note: * Product code is PCC 15941000. Source: The Office of National Statistics 2007 Cider and perry manufacturers include some very large companies and international brands, and are represented by The National Association of Cider Makers. Gaymer Cider Company, owned by the world’s leading wine company Constellation Brands, has been expanding its cider and apple production in recent years, but falling cider sales have led to other large manufacturers shifting to the more profitable Flavoured Alcoholic Beverages, light wine and spirits categories (Hibberd 2003; Parson 2006; Solley 2004; Merwin 2005). Imports of fermented drinks, including fruit wine, cider, perry and mead, grew from 52.8 to 72.1 million litres from 2001-04 according to Food and Agriculture Organisation statistics. Imports included growing quantities of fruit wine (excluding cider) from the United States and occasional small volumes from Australia, Canada and South Africa. Low annual average import and export prices indicate most trade is in lower priced drinks such as cider and coolers rather than fruit wines. However, National Statistics data for 2004 indicates imports of 19.4 million litres of fruit wines and cider; 16.7 million litres with from other European Community countries and 2.7 million litres from non-EU countries. The discrepancies appear to reflect different combinations of products in the codes. Table E.42: United Kingdom - trade in fermented drinks HS2206, # 2001-05 Description 2001 2002 2003 2004 2005 HS 2206.00: fermented beverages such as cider, perry, mead, mixtures of fermented beverages and non- alcoholic beverages not elsewhere specific or included Total imports – litres 52 855 339 58 507 211 68 925 717 72 113 430 not av. – A$ per litre * 2.74 2.97 2.74 2.14 not av. Total exports – litres 19 166 120 14 289 460 18 680 280 12 297 990 not av. – A$ per litre ^ 11.26 11.70 8.79 13.05 not av. Imports from Australia – litres 2 402 0 45 0 not av. – $ per litre ^ 11.77 – 69.33 – not av. Imports from Canada – A$ ^ 0 0 0 42 895 15 522 Exports to Canada – A$ * 2 400 420 2 830 233 4 419 827 5 127 556 6 746 696 Imports from South Africa – A$ ^ 58 688 18 855 21 021 0 not av. HS 2206.00.3030: Grape wine, cider or perry, mead, sake, fruit or vegetable wine Exports to Australia – litres 8 945 10 377 20 724 41 117 42 415 – $ per litre * 2.76 3.50 2.61 1.75 1.98 HS 2206.00.70: fermented beverages not specified elsewhere, excluding cider and sake Imports from United States – litres 88 100 59 000 99 000 106 800 not av. – A$ per litre ^ 0.37 7.43 3.10 2.51 not av. Notes: # Excluding grape wine and beer. * CIF at importing country; ^ FOB from exporting country. Sources: ABS; National Statistics 2002−05; FAO 2007; USDA trade statistics

180 A small domestic grape wine industry supplies around 0.01 per cent of the market with an estimated 1.9 million litres of grape wine. While most wine is produced from white domestic grapes, some is ‘made wine’ or ‘British wine’ produced from grape concentrate imported mainly from Italy (US Foreign Agricultural Service 2006; Wilson 2006). Grape wine imports were 1396 million litres in 2004. Australia has overtaken France as market leader, with six of the ten leading brands by value, and from 2002 Australian supply grew steadily to 261 million litres at an average price of A$3.60 a litre FOB in 2006. New World wines have eroded the market shares of traditional European suppliers and caused increasing price competition (ABS; AWBC United Kingdom 2007; Austrade, Wilson 2006; US Foreign Agricultural Service 2006).

Product profile

There is a diverse range of fruit wines from temperate fruits, with smaller wineries often also producing drinks such as cider, perry, grape wine, mead and ginger wine (Table E.43). Table E.43: United Kingdom - examples of fruit wine producers and products Manufacturer Products and brands Price * Domestic fruit wine Large manufacturers Broadlands Berry and plum wines, and blends with grape wine £5.99 (A$14.35) CWF Harvest Fruits Apricot, peach, cherry and damson fruit wines; meads; perry (7.5% alcohol); mulled wine with citrus; green ginger wine Small producers Avalon Vineyard and Organic wines from apple, elderberry, gooseberry, plum, raspberry, £6.00−10.00 Pennard Organic Wines, tayberry, ginger and grape (A$14.35−23.90) Somerset Broughton Pastures Blackcurrant, elderberry, elderflower, blackberry and gooseberry £5.95 (A$14.30) fruit wines, ginger wine and mead, organic wines Cairn O'Mohr, Scotland Strawberry, raspberry, brambleberry, elderberry, and gooseberry £7.23 (A$17.30) wines; wines from flowers and leaves Celtic Country Wines, Wales Old Grumpy’s Allotment berry wines flavoured with silver birch, ₤6.95 (A$16.6) gorse or autumn oak Lurgashall Winery ‘Premium’ wines from elderflower, elderberry, rose petals and birch £7.25 (A$17.30) for 700 mls Lyme Bay Classic Fruit ‘Country wines’ including apricot, elderberry, blackberry and apple, £5.95 (A$14.30) Wines, Devon cherry, cranberry, damson, peach and strawberry; cider; flower wines; birch wines and mead Orkney Wine Company, Blackcurrant, crabapple, cranberry, blueberry, elderberry, rhubarb, Wine £10.00 (A$23.30), Scotland rowanberry, and grape wines and blends fortified £12.00 (A$28.70) Large manufacturers of cider, perry and ginger wine Halewood’s Lambrini Semi-sparkling Perry, 700 mls Lambrini Perry, 250 mls Gaymer Cider Company Babycham (semi-sparkling perry); Blackthorn, Olde English and Diamond White ciders; fortified wines – Stone’s Ginger Wine, Old England, Tudor Rose, QC and VP Scottish & Newcastle Strongbow cider Constellation Brands Stones Green Ginger Wine £5.38 (A$12.85) Imported fruit wines Peter Knapp, Switzerland Cristallo Vin de Fraise strawberry wine, medium-dry style, 13% £14.50 (A$34.65) for 375 alcohol mls Note: * Assumes a 750 ml bottle unless otherwise stated. Source: Producer websites, Parson 2006; Hibberd 2003; Gary 2002; Vinceremos Organic Wines 2006; Continental Wine and Food n.d.; Rocks Organic 2005; DoRewards Hall n.d.; Dinky-Drinks 2004

181 Internet distributor Hip Pocket Wine Company lists 50 ‘English’ fruit wines, 50 ‘country’ wines, and 34 cider and perry products on its website. No evidence was found of recent tropical fruit wine sales. Large manufacturers such as Broadlands and CWF (the Harvest Brand) have been extensively developing new fruit wines following strong demand for products with around 13.5 per cent alcohol (Bacot & Lewis 2007; Hibberd 2003). Fruit wine producers use various strategies to differentiate on quality and branding, including organic wine, labels referring to use of ‘domestic fruit’, ‘premium wines’ (from single fruit) and ‘traditional winemaking methods’, and strong branding. Brothers Drinks have extended their cider range with premium quality pear and apple ciders and a strawberry–pear blend, while Gaymer Cider Company is focusing on RTD drinkers by positioning its ciders as premium alcohol branded drinks with quality packaging, promotion of place of origin for ingredients, and introducing a premium reserve. Cider drinkers are strongly brand-loyal, and cider production has shifted substantially from private/own-label to major brands (AICV n.d.; Blake & Boyle 1992; Solley 2004, 2006; Hibberd 2003). While EU legislation for grape wine does not extend to fruit wine, in recognition of the United Kingdom’s long tradition of making wine and wine products from imported grape must and juice, EU regulators have given a special dispensation for British producers to use the term ‘British’ or ‘made’ wines when sold in the United Kingdom. Accordingly the British Wine Producers’ Committee of the Wine and Spirit Trade Association, whose members follow its Code of Practice, provides general rules on the definition, description and presentation of ‘made wines’ or ‘British Wines’, and standards of quality parameters and monitoring procedures. ‘British wine’ refers to fruit wine and grape wine, including wines from grape concentrate or dried grapes, juice or must (crushed grapes). The finished wines may contain other fruits or vegetables or honey, ginger, added sugar, added water; wine, cider, flavourings, permitted colours or preservatives, carbon dioxide, nitrogen or other legally permitted additives. Wines with aromatic ingredients such as herbs and spices are defined as ‘Aromatised British wines’. Wines with 15 per cent alcohol and above, including fortified wines, are called ‘British fortified wines’. This category includes fruit wine, ginger wine and so-called ‘tonic’ wine, but is mostly the fortified grape wines sherry, port and vermouth (herb-flavoured grape wine). Products must have four to 22 per cent alcohol or at least 30 per cent single strength grape must or juice. While ‘made wine’ products can be called ‘wine’, wines made from vegetables or fruits other than grape require a composite name of the ingredient characterising the product and the word ‘wine’ prefixed with a term such as ‘British’ or the fruit, for example ‘Strawberry wine’ (Department for Food, Environment and Rural Affairs 2007; The Wine and Spirit Trade Association 2007). Fruit and ‘made’ wines are required to comply with the labelling requirements of the Food Standards Agency. More information on wine standards is available on its website and those of the Wine Standards Board and the Wine & Spirit Trade Association. In grape wines, demand has been increasing for still and sparkling rosé but stable for vermouth and other aromatised wines to lack of uptake by young consumers (Wilson 2006). Around 77 per cent of wine imports are bottled, with growing sales of softpacks (AWBC United Kingdom 2007). EU regulations apply to production and labelling.

Pricing

Prices for domestic fruit wines on producer and distributor websites range from £1.50−10.00 (A$3.60−23.90) for 750 mls, with fortified wines at around £12.00 (A$28.70) (Table 43). More than 80 per cent of still grape wine retailed at below £5.00 (A$11.95) for 750 mls in 2005. Supermarkets have been discounting major brands to build market share, particularly Australian wine in recent years due to its oversupply (Austrade United Kingdom 2006; Wilson 2006).

182 Distribution

Most fruit wine producers retail directly via their wineries, websites or mail order services. Some supply bulk wine to other manufacturers to blend with grape juice and bottle as flavoured wine (Hibberd 2003). Most wines sold by wineries and in country towns and villages are local wines from local fruits such as berries and elderflower. Fruit wines are also sold through large retail chains; regional retail chains such as Scotland’s Asda stores selling Scottish products; a small chain of stores operated by the National Heritage Trust; gift catalogues and farmers markets. Large manufacturers such as Matthew Clark Drinks and Broadlands distribute fruit wine, cider and perry mostly through large retail chains, small stores, delicatessens and markets, and some have their own import, wholesale and export operations. The emergence of RTDs and similar drinks categories has reduced the availability of shelf space for traditional categories such as fruit wine (Johnston 2005; Hibberd 2003). In 2000 alcoholic drinks were sold through around 42 000 liquor shops including specialist liquor and grocery stores, 70 000 pubs and bars, 32 000 clubs and 31 500 licensed restaurants. The major retailer chains Tesco, Sainsbury, Asda, Safeway, Dwik Save, Somerfield, Morrisons and Waitrose handle most of the 80 per cent of grape wine sold through retail. Sales have been shifting from smaller stores to supermarkets, and to more direct selling such as mail order (Austrade United Kingdom 2006; Osterberg & Karlsson n.d.; Wilson 2006).

Promotion

Advertising of alcoholic beverages is not regulated but voluntary standards apply, and the alcoholic drinks industry supports a Government campaign for ‘drinking in moderation’. Fruit wines are promoted on company and distributor websites and in wine competitions such as the annual National Fruit Wine, Mead & Liqueur Association Awards, while large cider and fruit wine manufacturers use major promotional campaigns. The main grape wine trade shows are the trade-only International Food and Drink Event in odd-numbered years in London and the annual London International Wine and Spirits Fair (AWBC United Kingdom 2007). The previously mentioned survey found that 20−25 year old consumers want more merchandising and education aimed at their age group in wine bars and retail stores (Bacot & Lewis, 2007). As tropical fruit wines are new to the British market, a successful market introduction would require a strong consumer educational campaign and capacity to supply large retailers (Rocheteau-Hasan 2007).

Import regulations and requirements

Import tariffs on imported fruit wines, cider and perry comply with EU regulations (Table E.44). Table E.44: United Kingdom - duties and taxes on fruit wine products Product Tax Rate (2007) Less than 2 litres Import tariff €0.07 (A$0.11) per litre Still wine – More than 5.5% alcohol but less than 15% ₤1.78 (A$4.25) per litre – More than 15% alcohol but less than 22% Excise ₤2.37 (A$5.67) per litre – More than 22% alcohol ₤19.56 (A$46.75) per litre Sparkling wine €2.228 (A$3.65) per litre All fruit wine VAT 17.5% Source: HM Revenue and Customs Fruit wine imports incur EU tariffs of €0.137 (A$0.22) a litre for still wine of up to 13 per cent alcohol, €0.154 (A$0.25) for 13−15 per cent, and €0.32 (A$0.52) for all sparkling wine; excise of €2.62 (A$4.38) a litre for still and €3.36 (A$5.50) for sparkling; and VAT of 17.5 per cent, adding from A$5.80 to a landed price of A$10.00 for a bottle of Australian fruit wine, depending on alcohol content.

183 While import duty is lower than for grape wine, it gives domestic producers and those from other European Union countries a substantial cost advantage (Hibberd, 2003). Potential exporters are advised to obtain a written customs ruling from HM Revenue and Customs before shipping wine (AWBC, United Kingdom 2007). More information can be found on import tariffs at the HM Revenue and Customs website, on liquor laws and regulations at the Wine and Spirit Trade Association website, and on the United Kingdom wine industry and industry organisations at the Department for Environment, Food and Rural Affairs website.

Summary

The United Kingdom has a medium sized and growing market with attractive pricing, some retail distribution for domestic fruit wines, and strong demand for similar drinks, with Australian brands leading in the grape wine market. There is a moderately strong opportunity for Australian tropical fruit wines to be differentiated by fruit type for novelty and variety, and by quality and Australian origin.

E.4. Pacific region

E.4.1 New Zealand

Market profile

New Zealand has a small fruit wine market which appears to have shrunk from 6.2 to 3.8 million litres from 2002−05, according to net supply volumes (Table E.45). Over the same period exports of fruit wine related products fluctuated between 58 930 and 835 000 litres a year, including up to 87 000 litres a year to Japan, up to 2100 litres a year to the United States, and small intermittent quantities to Australia (ABS; Japan Customs Trade Statistics, USDA trade statistics). Grape wine consumption was 111 million litres in 2006, averaging 20.8 litres per person, following several years of steady growth (New Zealand Wines Online; Austrade New Zealand 2007).

Supply

Around 40 fruit wineries, with annual production ranging from 3 000−780 000 litres a year, are concentrated mainly around Hawke's Bay, Nelson/Marlborough, Taranaki and Auckland (NZ Ministry of Agriculture and Forestry n.d.). Annual production almost halved, to 3.8 million litres, from 2002−06 (Table E.45), indicating a lack of market development. Table E.45: New Zealand - production of non-grape wine, 2002−06 Year Not more than 14% alcohol More than 14% alcohol Total Litres 2002 6 075 000 104 000 6 179 000 2003 5 841 000 87 000 5 928 000 2004 4 503 000 75 000 4 578 000 2005 4 876 000 76 000 4 952 000 2006 3 692 000 78 000 3 770 000 Source: Mair; Non-grape wine available for consumption 2006 The industry is represented by the Fruit Wine and Cider Makers Association of New Zealand, founded in 1985 to represent commercial producers of fruit wines, ciders, liqueurs and fruit juices. Initially funded voluntarily by members, the association has been developing a compulsory levy system (Fruit Wine and Cider Makers of New Zealand n.d.). Annual imports appear to have stabilised at around 200 000 litres and average prices of around A$5.00 a litre (Table E.46), although these are likely to include cider and flavoured wines.

184 Table E.46: New Zealand - trade in fermented drinks HS2206, # 2002−06 Description 2002 2003 2004 2005 2006 HS 2206.00: fermented beverages such as cider, perry, mead, mixtures of fermented beverages and non-alcoholic beverages not elsewhere specific or included Total imports – litres 100 280 224 000 194 540 197 240 not av. – A$/litre * 5.51 4.81 4.95 5.34 not av. Total exports – litres 835 170 62 960 58 930 75 510 not av. – A$/litre ^ 3.79 5.53 5.45 5.09 not av. Imports from Australia – litres 10 190 188 841 184 068 239 246 86 476 – A$ per litre ^ 8.22 3.15 2.92 2.99 8.59 HS 2206.00.229: fermented beverages including cider, perry and mead, but not sake or wine coolers Exports to Japan – litres 87 000 59 400 79 200 47 400 42 400 – A$/litre * 6.88 5.64 5.30 6.14 5.89 HS 2206.003020: Grape wine cider or perry, mead, sake, fruit or vegetable wine Exports to Australia – litres 12 617 0 1 512 0 0 – A$/litre * 1.74 – 5.50 – – HS 2206.00.9000: Fermented beverages other than grape wine, beer, cider, prune wine, sake, vermouth, or other effervescent wines Exports to United States – litres 2 100 1 000 1 500 2 100 2 000 – A$/litre * 12.3 10.8 9.1 10.0 9.3 Notes: # Excluding grape wine and beer. * CIF at importing country; ^ FOB from exporting country. Sources: ABS, FAO 2007; Japan Customs Trade Statistics, USDA Trade Statistics From 2002–06 grape wine production grew strongly from 89 to 133 million litres a year, due largely to a focus on exports which more than doubled to 57.8 million litres annually from 2002–06, and improved quality (Wine Online – New Zealand 2007; Benson-Rea et al, 2003). Products include Pernod Ricard’s Lindauer Fraise, a white grape wine flavoured with strawberry essence, which is exported to Australia (Pernod Ricard 2007). New Zealand Winegrowers represents the wine and grape industries, being funded by levies, user-paid activities and sponsorships, while the Wine Institute Of New Zealand, also levy funded, supports domestic and international market development, research and other representation for grape wines (NZ Ministry of Agriculture and Forestry n.d.). From 2001/2−2005/6 grape wine imports fell from 41.8 to 36 million litres a year as demand shifted from imported to domestic wine. Australia leads with around 75 per cent of imports, supplying 32 million litres averaging A$3.20 a litre FOB in 2006 (ABS; AWBC New Zealand 2006).

Product profile

The fruit wine industry produces a wide range of fruit wines, led by kiwifruit wine, as well as cider, vegetable wines and mead (Table E.47). Two per cent of production is fortified (Table E.45). Table E.47: New Zealand - examples of fruit wine producers and products Brand Products Bay Classic Fruit Wines, Hawke’s Bay Boysenberry, feijoa and kiwifruit wine, still and sparkling Mamaku Blue, Rotorua Blueberry wine Prestons Kiwifruit Winery, Taurana Kiwifruit wine Purangi Estate, Coromandel Peninsula, North Island Fruit wines, fortified wines and liqueurs from organic fruit and herbs, and grape wine Robb’s Fruit Winery and Rocket Café, Bay of Islands Apple, kiwifruit, boysenberry and feijoa wines Sentry Hill Winery, Lepperton Boysenberry, kiwifruit & feijoa wines; cider; juices Unique New Zealand Fruit Wines, Taupo Fruit wines, ports, ciders and cream liqueurs Sources: Fruit Wine and Cider Makers of New Zealand n.d.; dmoz 2000; company websites, Gary 2002

185 Imported wines need to comply with the manufacturing standards in Standard 2.7.4 of the Food Standards Code developed by Food Standards Australia New Zealand (FSANZ) and administered by the New Zealand Food Safety Authority (NZSFA), which provides general definitions for wine and wine products and standards for production, composition, labelling and exporting, and regulates those foods that can be added during production. Wines must also meet Maximum Residual Levels and other regulations (AWBC, New Zealand, 2006). More information is available on the New Zealand Food Safety Authority, the Food Standards Australia and New Zealand and New Zealand Wine websites. For the trading of grape wines, New Zealand and Australia are signatory countries to the Mutual Acceptance Agreement on Oenological Practices (see Definitions). Grape wine consumers are quality, brand, and health conscious, and usually living in cities. They are shifting from cask to bottled wine and to screwcaps and, while loyal to domestic white wine, are buying more imported sparkling wine and red wine, particularly Australian red wines which are seen as value for money with consistent quality at a range of prices. Importers seek Australian wines with known brands and a point of difference (AWBC New Zealand 2006; Austrade New Zealand 2007).

Pricing

Winery websites advertise fruit wines from NZ $13.00−23.00 (A$11.40−20.20) a bottle, while Bay Classic fruit wines are advertised on the Products from New Zealand.com website at A$26.90 for 760 mls for boysenberry and feijoa wines and A$28.06 for kiwifruit wine. From 2002−06 annual import prices were around A$5.00 a litre, indicating mostly lower priced products such as cider and coolers, while export prices per litre of up to A$6.88 to Japan and A$12.30 to the United States indicate fruit wine. Almost half of Australian grape wine retails at A$2.50−4.99 a bottle. This competitive pricing has contributed to growing imports from Australia (AWBC New Zealand 2006).

Distribution

Fruit wines are increasingly retailed by producers via their wineries, websites or mail order. National retailer Woolworths sells apricot wine on its website and passionfruit, boysenberry and strawberry wines on its Foodtown website. Preston Kiwifruit wine is advertised on a Japanese distributor’s website and sold on flights to and from Japan (Foodtown 2007; Japanese trade interviews). Around 60 per cent of grape wine is sold by retail chains, led by Foodstuffs Limited (NZ) and Progressive Enterprises (owned by Woolworths Australia), and the rest by independent liquor stores, specialist wine retailers, restaurants, hotels, online retailers and direct mail companies. New exporters can access the supermarket, wine retail and food service sectors through a local agent or importer; through direct sales to supermarket groups for large volumes of lower priced product, where they will generally be expected to fund marketing; and through specialist wine retailers who often prefer exclusive products or deals (Austrade New Zealand 2007; AWBC New Zealand 2006).

Promotion

Fruit wines are promoted on company, distributor and retailer websites. The Fruit Winemakers Association runs an annual Fruit Wine and Cider Competition for domestic and international fruit wines, and lists New Zealand and overseas members on its website with links to their own websites. Grape wine promotion includes importers’ and other wine tastings for consumers, trade and the wine media, often in wine shops and supermarkets; promotional pricing; co-operative advertising in consumer magazines, in conjunction with supplier-funded discounting; co-operative advertising with large retailers; and reviews in food, wine and lifestyle publications. Suppliers of new products need to provide promotional support for up to five years to hold retail shelf space (Austrade New Zealand 2007; AWBC NZ, 2006).

186 Import regulations and requirements

Wines with 50 per cent or more Australian content are duty free under the Australia-New Zealand Closer Economic Relations Trade Agreement but incur excise of NZ$2.2592 (A$1.98) a litre, an Alcohol Advisory Council (ALAC) levy on all alcoholic beverages of NZ$4.93 (A$4.33) cents a litre for unfortified wine, GST of 12.5 per cent of Customs value, anti-dumping and countervailing fees. Import permits are not required (Asia-Pacific Economic Corporation 2007; AWBC, NZ, 2006; Austrade, New Zealand 2007). The combined taxes and charges add A$6.60 to a bottle of Australian fruit wine with a landed cost of a $10.00. ALAC levies, freight and insurance only apply to producers with gross annual turnover exceeding NZ$40 000 (A$35 140). More information on tariffs is available on the New Zealand Customs website.

Summary

New Zealand has a shrinking fruit wine market but with attractive pricing, similar quality standards, established distribution channels, potential for industry co-operation and a close trading relationship with Australia. Further research may identify limited opportunities to differentiate Australian tropical fruit wines on fruit type, range, value for money and Australian branding.

E.4.2 Regional profile – Pacific (Oceania)

This region has been included because although its countries have small populations and minor wine imports, most have significant tourist markets; substantial expatriate communities; high consumer awareness of tropical fruits; and trade, distribution and cultural links with Australia. Table E.48: Pacific countries - leading imports of fermented drinks HS2206, # 2002−06

Imports of fermented drinks HS2206 Australian grape wine imports in Country Trade 2002 2003 2004 2005 2006 2006, 5-year trends Christmas From Australia – litres 1 486 1 102 121 5 736 3 556 19 683 litres at $8.90 Island – A$ per litre 3.23 3.02 2.98 1.06 2.86 a litre, growing Total imports – litres 15 000 17 680 87 920 33 000 704 293 litres at Fiji Islands not av. – A$ per litre 1.35 2.88 0.59 2.13 $5.70 a litre, growing From Australia – litres 21 981 4 103 0 0 0

– A$ per litre 2.52 8.07 – – – Total imports – litres 92 810 468 420 1 125 540 89 570 not av. French 5184 litres at $7.00 a – A$ per litre 1.96 0.31 0.14 2.55 Polynesia litre, stable Total exports – litres 1 110 3 250 7 290 56 190 Total imports – litres 7 000 11 540 4 900 19 000 not av. 43 782 litres at $4.40 Guam From Australia – litres 473 401 17 0 0 a litre, stable – A$ per litre 1.90 7.07 25.94 – Total imports – litres 160 020 201 000 153 000 181 530 not av. New 218 992 litres at From Australia – litres 462 0 0 0 0 Caledonia $3.50 a litre, growing – A$ per litre 8.79 – – – – Total imports – litres 10 000 1 000 4 000 2 000 not av. Papua New 452 950 litres at From Australia – litres 10 124 705 90 74 0 Guinea $3.70 a litre, growing – A$ per litre 0.61 16.05 – 6.89 – Total imports – litres 13 000 92 000 121 000 123 000 not av. 44 000 litre at $3.00 a Tonga From Australia – litres 0 0 0 0 18 litre, stable – A$ per litre – – – – 5.67 Total imports – litres 0 1 280 2 000 1 510 not av. 119 000 litres at Vanuatu From Australia – litres 396 0 0 0 801 $2.67 a litre, stable – A$ per litre 2.53 – – – 2.61 Notes: # Excluding grape wine and beer. All import values FOB from exporting country. Sources: ABS; FAO 2007

187 Most imports of these fermented drinks have been to Fiji, French Polynesia, New Caledonia and Tonga, which have substantial tourist industries and often transhipment to neighbouring countries. Low average prices indicate most was low priced drinks such as coolers and cider. Imports of grape wine from Australia to most countries have been substantial (Table E.48). While countries in this region often have enduring political, cultural and trading ties with New Zealand, France and the United States, eastern Australia’s proximity and shipping services provide some freight advantages, and grape wine exports indicate distribution channels for Australian wines.

Summary

Further investigation may identify some potential markets such as international tourists familiar with fruit wine and seeking tropical drinks. Australian tropical fruit wines could be differentiated on popular fruits, novelty, quality and Australian branding, and distributed through similar channels to Australian grape wine.

E.5 Regional profile – Central and South America

E.5.1 South America

Table E.49 indicates South America’s leading country markets for imported fruit wine related products. These countries are familiar with most fruits used in Australian tropical fruit wines, and often have colonial links with wine producing countries, a wine culture and industries producing grape wine, including fruit-flavoured wine. Trade with Australia is included, and Australian grape wine exports in 2006 indicate demand and distribution channels for Australian wine. In 2006 Paraguay and Venezuela had the largest imports of these fermented drinks, and volumes were growing to Chile, Columbia, Peru and Uruguay. Argentina, Brazil, Paraguay, Uruguay and Venezuela have a common market union, MERCOSUL, with tariffs close to zero between member countries, giving them a trading advantage in each other’s markets.

188

Table E.49: South America - leading imports of fermented drinks HS2206, # 2002−06 Country Imports of fermented drinks HS2206# Imports of Australian grape wine 2006; 5- Trade 2002 2003 2004 2005 2006 year trend Argentina Total imports – litres 15 000 35 700 42 000 21 000 not av. 1585 litres at – A$ per litre 2.24 2.20 2.22 1.90 not av. $18.09, emerging Total exports – litres 14 708 000 9 605 420 9 349 000 10 085 000 not av. market To Australia – litres 4 140 5 725 2 117 11 529 2 713 – A$ per litre 1.84 1.62 3.65 1.23 1.27 Brazil Total imports – litres 181 000 236 000 144 000 257 000 not av. 234 202 litres at – A$ per litre 3.50 2.97 2.45 2.36 not av. A$6.10, growing Total exports – litres 1 403 000 1 360 000 2 074 540 2 335 190 1 403 000 Chile Total imports – litres 144 000 84 000 88 000 614 000 not av. 603 litres at – A$ per litre 1.69 1.50 1.47 not av. not av. A$14.50 a litre Total exports – litres 3 955 700 3 803 240 5 810 730 2 439 900 not av. Colombia Total imports – litres 23 000 150 850 153 530 291 000 not av. 4221 litres at – A$ per litre 2.09 1.82 1.78 1.32 not av. A$7.50 Total exports – litres 37 000 27 000 108 000 107 000 not av. Ecuador Total imports – litres 579 000 895 110 333 000 350 000 not av. 0 – A$ per litre 1.82 1.39 1.61 1.92 not av. Total exports – litres 5 000 4 000 11 000 136 000 not av. El Total imports – litres 508 000 562 000 474 120 228 000 not av. 0 Salvador – A$ per litre 1.45 1.23 1.22 0.00 not av. Total exports – litres 0 0 0 2 000 not av. Nicaragua Total imports – litres 394 000 183 260 143 000 185 000 not av. 1 978 825 litres at – A$ per litre 1.29 1.23 1.23 1.19 not av. A$0.85, new Total exports – litres 0 60 0 0 not av. Paraguay Total imports – litres 1 071 000 3 960 320 3 277 000 5 172 000 not av. 0 – A$ per litre 0.83 0.68 0.73 not av. not av. Peru Total imports – litres 288 940 198 590 235 600 331 860 not av. 9290 litres at – A$ per litre 1.97 2.15 1.70 1.36 not av. A$5.34, stable Total exports – litres 6 000 10 000 25 000 29 040 not av. Uruguay Total imports – litres 108 000 104 000 168 000 181 000 not av. 9900 litres at – A$ per litre 0.66 0.64 0.56 0.00 not av. A$7.23, growing Total exports – litres 40 000 0 1 000 1 830 not av. Venezuela Total imports – litres 2 020 140 2 015 000 1 901 250 2 108 000 not av. 10 098 litres at Total exports – litres 66 000 213 000 232 000 126 000 not av. A$3.50, fluctuating – A$ per litre 3.24 0.98 1.04 1.43 3.24 Notes: # Excluding grape wine and beer. All prices are annual averages. Codes used are HS2206 (fermented drinks excluding grape wine and beer) for total imports and exports. Total import prices are CIF, total export prices are FOB. Sources: FAO 2007

Argentina

A fruit wine industry is indicated by internet advertisements for fruit wine from manufacturers Bizzarri Miguel Angel and Beverage S.A. (Imex Goods 2007) and annual exports of up to 14.7 million litres of fruit wine related products from 2002–06, including small quantities to Australia at prices fluctuating between A$1.23 and $3.65 a litre CIF.

189 Grape wine consumption was 1300 million litres in 2005, averaging around 30 litres per person, with a third of supply imported, mainly from Chile and Europe. From 2002−06 the only imports of Australian grape wine were 1585 litres averaging $18.09 a litre FOB in 2006, suggesting an emerging market for premium quality Australian wine. The wine industry is export focussed, introducing new technology and premium cultivars and switching from bulk to bottled wines to improve its competitiveness (US Foreign Agricultural Service 2006; ABS).

Brazil

A fruit wine market is indicated by annual imports of up to 257 000 litres of fruit wine related products from 2002–06 at low average prices of up to A$3.50 a litre. Manufacturers of fruit wines include Angulo Agro Industrial Ltda, Caninha 51, Cereser S/A, and Bebidas Primor, Bocche Importacao E Exportacao de Alimentas ldta, and Bomfigio Commercio (Imex Goods 2007). Grape wine consumption is around 340 million litres a year, mainly by British and American expatriates, and growing steadily due to an expanding middle class, acceptance of health claims for red wine, a shift from spirits and high alcohol drinks motivated by health concerns, growing sophistication and wine knowledge, the introduction of BYO in restaurants, more wine being drunk in the home, and a strong European influence in the southern wine producing region. However, Brazil does not have a developed wine culture, with individual consumption averaging only 1.8 litres a year, and wine represents only six per cent of the liquor market, against strong competition from beer and cachaca, an alcoholic drink distilled from fermented sugar cane juice. Grape wine production is around 320 million litres a year, and growing despite often unsuitable growing conditions for wine grapes due to increasing domestic demand and exports as quality improves. In 2005, 44.8 million litres of wine were imported mainly from Argentina and Chile. From 2002 Australia’s supply grew steadily to 23 400 litres averaging A$6.10 a litre FOB in 2006. Red wine is preferred because of its purported health benefits and compatibility with Brazilian cuisine. Demand is growing for high quality wines from Europe and other South American countries, particularly through the growing restaurant and hotel sector. Production standards follow CODEX Alimentarius recommendations, with a maximum of 14 per cent alcohol, and product information in Portuguese on labels or stickers. Most domestic wine is lower quality, and retails at less than A$7.00 a bottle to people on lower incomes. Supermarket prices are mostly under A$12.00 a bottle. Around 75 per cent of wine is sold through retail, with better quality wines mainly in supermarkets, specialised wine stores and good restaurants. The annual Australia Festival in Brazil is the Australian Government’s largest trade show in Latin America. Considerable barriers to entry include a 40 per cent import tax on wine; up to 40 per cent in other state and federal indirect taxes; sales tax, customs fees and various other taxes; poor road and rail services; long sea journeys; four weeks to clear customs and ports; and the need for air conditioned warehousing. Imported wines need to be registered with The Secretariat of Foreign Trade of the Ministry of Development, Industry and Foreign Trade and the Ministry of Health. (Sources: ABS; AWBC 2007; Figueivedo-Stevenson 2003).

Chile A large fruit wine industry and market are indicated by annual imports of up to 614 000 litres and up to 5.8 million litres of exports of fruit wine products, which include Fresita sparkling wines flavoured with tropical fruit juice sold in Australian retail chains. Grape wine consumption was 390 million litres in 2005, averaging 16 litres a person. Approximately 800 million litres of wine are produced annually from table grapes and increasingly wine grapes, supplemented with around 60 000 litres of imports, including small and declining quantities from Australia with 603 litres averaging A$14.50 a litre in 2006. Fruit wines incur eight per cent import tax (Asia-Pacific Economic Corporation 2007; ABS; US Foreign Agricultural Service 2006).

190 Columbia

A domestic fruit wine industry and market are indicated by research projects on wines from fruits such as plantain, and by minor growing trade in very low priced fruit wine related products from 2002–06. Meanwhile, imports of Australian grape wine fell to 4221 litres averaging A$7.50 a litre FOB in 2006, indicating poor competitiveness (ABS; Carreño & Aristizábal 2003).

Peru

Imports of fruit wine products rose to 330 000 litres from 2002–06, while exports reached 29 000 litres. Domestic products include Maloca Restaurant & Winery’s ‘Gran Maloca’ fruit wines and brandies from fruits such as star fruit, mamey sapote, camu camu and carambola, aged for a ‘Madiera’ port-style effect. Imports include 9290 litres of Australian grape wine averaging A$5.34 a litre FOB in 2006. Wine imports incur a 12 per cent import tariff (Asia-Pacific Economic Corporation 2007; ABS; Glan Maloca 2006).

Summary

There are a number of small markets for fruit wines and related drinks, supplied by domestic and imported product, larger grape wine markets, and small emerging markets for Australian grape wine. Further research may identify opportunities to position Australian tropical fruit wines in more affluent market niches as quality wines from familiar fruits with Australian branding, and overseas trade agencies could assist in finding distributors.

E.5.2 Central America

Several countries have small fruit wine markets, tourist markets, expatriate communities, and high awareness of tropical and exotic fruits. Minor fruit wine exports indicates some domestic production and a number of countries have been importing significant quantities of fruit wine related products (Table E.50). Wine producers are using a wide range of fruits. Panama’s Tropic Wines and Leap of Faith Farms produce wines from pineapple, naranjilla, noni, borojo, passionfruit, nance, cashew fruit, tropical raspberry, tropical strawberry, tropical blackberry, tropical rhubarb and aloe vera, which they market as ‘Tropical fruit wines’ (Alibaba website). A cottage industry in Barbados makes wine from banana, guava, temperate fruits and breadfruit (Grant n.d.). Despite mostly low annual average prices, there are some indications of higher priced drinks such as fruit wine. Some countries import growing volumes of Australian grape wine, indicating demand, distribution channels and competitiveness for Australian wines. The United States is an important supplier to some countries, but others import most of these drinks from elsewhere (Table E.50).

191

Table E.50: Central America - leading imports of fermented drinks HS2206, # 2002−06 Imports of fermented drinks HS2206# Australian grape wine imports for 2006 and Country Trade 2002 2003 2004 2005 2006 5-year trends Bahamas Total imports – litres 200 000 314 000 433 000 242 000 not av. 32 141 litres at From USA – litres 11 400 90 300 179 500 107 200 320 300 A$4.06/litre, growing – A$ per litre 7.59 2.44 2.42 2.86 2.42 Barbados Total imports – litres 100 000 97 000 22 000 178 000 not av. 88 159 litres at –– A$ per litre 4.05 3.45 2.04 1.66 not av. A$3.88/litre, growing Total exports – litres 12 000 14 630 13 000 11 000 not av. From USA – litres 5 700 0 0 2 500 5 500 – A$ per litre 4.52 – – 1.57 3.86 Bermuda Total imports – litres 122 000 66 000 50 000 60 000 not av. 141 208 litres at From USA – litres 109 200 42 600 33 600 31 600 34 600 A$6.00/litre, growing – A$ per litre 10.94 2.82 7.61 3.99 3.65 Cayman Total imports – litres 680 000 876 000 787 000 82 000 not av. 20 205 litres at Islands Total exports – litres 16 080 16 620 4 150 17 690 not av. A$2.74/litre, fluctuating From USA – litres 583 800 875 700 781 900 78 900 78 900 – A$ per litre 3.20 2.41 1.98 2.69 0.00 Costa Rica Total imports – litres 190 710 82 000 104 000 131 930 190 710 24 468 litres at $7.28/litre, – A$ per litre 1.88 1.54 1.44 1.36 1.88 growing Total exports – litres 6 000 2 000 0 1 000 not av. Jamaica Total imports – litres 222 300 16 000 55 000 81 000 not av. 493 562 litres at Total exports – litres 241 000 283 000 265 000 499 000 not av. A$3.06/litre, growing strongly From USA – litres 400 0 16 300 15 300 5 500 – A$ per litre 13.81 – 4.09 1.97 3.14 Panama Total imports – litres 697 000 630 000 575 000 692 000 not av. 246 321 litres at – A$ per litre 2.78 2.57 2.46 2.29 not av. A$2.78/litre, growing strongly Total exports – litres 14 310 6 710 18 000 2 000 not av. From USA – litres 84 200 85 200 113 800 128 100 19 900 – A$ per litre 3.50 3.66 4.64 3.21 1.74 Trinidad and Total imports – litres 264 000 387 000 1 320 260 289 000 Not av. 41 060 litres at Tobago (Port – A$ per litre 2.15 1.51 0.71 1.10 Not av. A$5.57/litre, growing of Spain) Total exports – litres 790 710 1 448 000 549 000 816 210 Not av. From USA – litres 9 300 19 500 0 0 12 900 – A$ per litre 9.50 2.13 – – 1.85 Notes: # Excluding grape wine and beer. All prices are annual averages. Codes used are HS2206 (fermented drinks other than grape wine or beer) for total imports and exports, and HS220600700 and HS220600900 for United States exports and imports respectively of fermented beverages not specified elsewhere and excluding cider, rice wine and prune wine. Total imports are CIF, total export prices and United States export prices are FOB. Source: ABS, FAO 2007; USDA Trade Statistics

Summary

Several countries have small markets with high awareness of tropical and exotic fruits, imports of fruit wine products, and demand and distribution channels for Australian grape wine. Further investigation may reveal opportunities for Australian tropical fruit wines to compete on quality, use of traditional fruits, and Australian branding, through similar channels to grape wine.

192 E.6 Regional profiles – Africa

While most African countries are unlikely markets for Australian fruit wines, these countries are mentioned as they have fruit wine and tropical fruit wine production, and significant imports or exports of fruit wine products. Producers range from cottage operations to tourist wineries, with commercial trials and wine training programs indicating further growth in fruit wine production. Egypt has produced wine in the Nile delta for 5000 years, and has the largest market for cider and perry in the African and Middle East region, valued at around $13.9 million in 2004 and predicted to reach $16.3 million by 2009 due to expanding middle and upper classes and tourist markets, and more advertising, promotion and choice of wine products and brands. Still grape wines are preferred, and small stable quantities were exported from Australia from 2002−06, with 576 litres averaging A$15.00 FOB a litre in 2006 (Datamonitor 2005; Euromonitor Egypt 2006). Malawi villagers have learnt to make wine from bananas, tangerines and papaya through courses by aid programs, with on-going support from the Development of Malawian Enterprises Trust. The Mkondezi Wine co-operative advertises banana wine at K150 (A$2.80) a bottle, mainly for religious and other mass celebrations (Biodiversity International 2005). A project in Namibia has trialled wine from the indigenous Eembe fruit (Barrion, Keya et al. 2001). In Nigeria, fruit wine is made from fruits such as black plum, and research projects on banana, carambola and black plum wines indicate a growing commercial industry (Anim & Tano-Debra 2004; Akubar et al. 2002; Okigbo 2003). While demand has grown for fruit wines from South Africa, the United Kingdom and the United States, total annual imports of fruit products fell from 637 000 to 155 000 litres from 2002–06 (Daya 2005; Table E.51). Kenya has a small fruit wine market for new low-priced wines from tropical fruits such as mango, papaya and passionfruit, as well as some white grape wine from local producers such as Naivasha Wineries and palm wine fermented from coconut and doum palms (Rough Guides 2007). South Africa had growing imports of fruit wine products from 2002–06, and exports which fell from 8.1 million litres to 368,000 litres, and included small annual quantities to Australia. A 90 per cent tariff applies to fruit wines from Most Favoured Nations. Grape wine consumption was 566 million litres in 2005 (Daya 2005; US Foreign Agricultural Service 2006). Tanzania has some fruit wine production including pineapple, banana and papaw. Banana Investments retails three banana wine products locally at US$0.25 to $0.40 (A$0.33 to $0.43) for 250 to 400 mls (Department for International Development 2007). Members of a banana farmer’s association in Uganda have begun producing and selling banana wines fermented with maize flour, with plans to expand (Kapanze 2006). Most countries export fruit wine related products, with large quantities from South Africa and Tunisia, and some have substantial imports. As fruit wine statistics were available for Australia, the United States and South Africa, these are provided, and exports of Australian wine have been included to indicate the existence of distribution channels for Australian wine (Table E.51).

193

Table E.51: Africa - leading imports of fermented drinks HS2206, # 2002−06 Imports of fermented drinks HS2206# Australian grape wine imports in Country Trade 2002 2003 2004 2005 2006, and 5-year trends Angola Total imports – litres 2 782 000 1 740 000 1 422 000 647 000 7376 litres at A$3.70, From South Africa – A$ 313 531 297 997 73 254 0 emerging Egypt Total imports – litres 21 000 4 000 44 000 18 000 576 litres at A$15.60, A$ per litre 3.16 1.54 3.06 0 stable Total exports – litres 3 000 13 000 0 6 000 Ghana Total imports – litres 299 000 304 210 289 000 641 000 20 600 litres at $4.73, A$ per litre 1.66 not av. not av. not av. stable Total exports – litres 21 000 0 14 000 24 000 Kenya Total imports – litres 351 270 14 000 1 868 000 95 000 10 900 litres at A$ per litre 2.05 3.19 0.61 Not av. A$4.97, declining Total exports – litres 22 000 33 000 2 000 0 Malawi Total imports – litres 164 600 76 500 89 000 108 000 800 litres at A$18.60, A$ per litre 1.15 2.06 not av. not av. new exports From South Africa – A$ 39 125 7 788 1 274 0 Mauritius Total imports – litres 131 570 142 950 150 000 164 000 47 800 litres at A$ per litre 3.23 3.71 3.44 3.14 A$6.63, stable From South Africa – A$ 4 406 205 6 582 0 Total exports – litres 9 000 12 000 9 000 21 000 Mozambique Total imports – litres 1 884 000 787 000 316 000 444 000 0 From South Africa – A$ 432 845 298 612 68 370 0 Namibia Total imports – litres 976 000 1 488 050 0 1 000 9198 litres at A$3.12, A$ per litre 0.65 0.72 – not av new exports Total exports – litres 411 000 46 000 0 0 Nigeria Total imports – litres 638 000 306 000 90 260 155 410 106 300 litres at A$ per litre 0.51 Not av. not av. not av. A$3.50, fluctuates Total exports – litres 1 000 1 000 710 7 000 From South Africa – A$ 20 268 0 0 0 South Africa Total imports – litres 48 190 50 290 54 130 156 780 52 825 litres at A$ per litre 3.36 3.84 1.92 1.70 A$8.50, growing Total exports – litres 8 092 750 5 918 000 3 811 790 2 367 820 To Australia – litres 326 2 518 3 908 113 A$ per litre 1.76 2.63 2.34 9.93 From Australia – litres 2 306 0 0 0 A$ per litre 7.47 – – – Tanzania Total imports – litres 10 910 118 000 64 000 86 020 0 A$ per litre 2.03 1.27 1.19 1.31 Total exports – litres 0 15 000 2 000 2 030 Notes: # Excluding grape wine and beer. All prices are annual averages. Import and export values are not available for some countries. Codes used are HS 2206 (fermented drinks excluding grape wine and beer) for total imports and exports and HS2206003020 (fruit wine) for Australia. Sources: ABS, FAO 2007; South Africa trade statistics; USDA Trade Statistics

194 Summary

Regional markets are developing for local low-priced tropical and other fruit wines of variable quality and imports and distribution channels are growing for higher priced Australian grape wines. Further research may identify minor prospects for Australian tropical fruit wines that can be differentiated on quality and Australian branding.

E.7 Regional profile – Middle East

E.7.1 Israel

Israel has a small fruit wine market, mainly for domestic product. Fruit wines are accepted as kosher by religious Jews, unlike grape wine where production has to be supervised by a rabbi (Stub 2006). Many residents are immigrants from eastern European countries where fruit wine is a tradition. Grape wine consumption and exports have been growing at more than 10 per cent a year. While most wine production is grape wine, with growing numbers of boutique wineries, there is some commercial and home production of fruit wines. Kibbutz Amiad’s Galil Winery produces a range of feijoa, kiwifruit and cumquat wines, and retails its own and other domestic and imported wines (Rogov n.d.). Rimon Wineries, which has a large pomegranate farm, has begun producing large quantities of pomegranate wine in dry, dessert, rose and port styles, and plans to export these to Asia, the United States, Europe, and South America. The wines retail at US$15.50−24.50 (A$20.60−32.50) a bottle, in the same price range as fine grape wines (Stub 2006). From 2002–06 imports of fruit wine related products fluctuated between 160 000 and 266 000 litres a year, with annual average import prices of around A$3.00 a litre, and no apparent exports (FAO 2007). Over this period Australia supplied fluctuating volumes of grape wine, with 142 000 litres at an average price of A$4.60 a litre FOB in 2006.

Summary

Israel has a small fruit wine market with attractive pricing and distribution channels for domestic and imported fruit wine and Australian grape wine, where further investigation may identify minor opportunities for Australian tropical fruit wines.

E.7.2 Arab Nations

Liquor consumption is very low in these countries, where Sharia law prohibits consumption by Moslem people and restricts distribution and retailing of alcoholic drinks to others. A literature search located little evidence of fruit wine markets or production. However, the region is included as most countries are importing fruit wine related products, including from Australia; most permit expatriate residents to buy and consume alcohol drinks; awareness is high for tropical and exotic fruits; and the region is the focus of various Australian trade development efforts. While imports fluctuated from 2002−06, several countries appear to have new imports of fruit wine products recently, and some are receiving significant import quantities of grape wine (Table E.52).

195

Table E.52: Middle East - leading imports of fermented drinks HS2206, # 2002−06 Imports of fermented drinks 2206# Imports of Country Trade Australian grape 2002 2003 2004 2005 wine in 2006 and 5-year trend Lebanon Total imports – litres 15 000 25 000 45 000 42 000 0 – A$ per litre 1.60 1.85 1.18 not av. Total exports – litres 166 910 380 370 370 000 41 960 From Australia – litres 0 18 548 0 0 – A$ per litre 0 14.97 – – From United States – litres 0 179 700 0 0 – A$ per litre 0 $0.79 – – Oman Total imports – litres 146 000 1 000 0 61 090 52 825 litres at A$7.00 – A$ per litre 2.85 3.08 – 1.22 a litre Qatar Total imports – litres 173 140 0 73 000 32 000 255 780 litres at – A$ per litre 1.72 0.80 2.62 A$3.40 a litre United Arab Total imports – litres 985 000 459 780 85 000 155 940 2.43 million litres at Emirates – A$ per litre 2.52 1.63 not av. not av. A$4.00 a litre From Australia – litres 0 0 556 500 0 – A$ per litre – – 0.03 – Total exports – litres 78 550 3,000 137 400 37 090 From United States – litres 0 0 0 5 100 – A$ per litre – – – 1.80 Notes: # Excluding grape wine and beer. Codes used are HS 2206 (fermented drinks other than grape wine and beer) for total imports and exports and HS 220600700 and HS 220600900 (fruit wine) for trade with the United States, and HS2206003020 (fruit wine) for Australia. All prices are annual averages. Import prices from the United States and Australia are FOB. Some import and export values are not available. Sources: ABS, FAO 2007; South Africa trade statistics; USDA Trade Statistics

Summary

The Middle East has very small but highly affluent markets for wine, but with significant barriers to consumption and distribution. Further research may identify minor opportunities for Australian tropical fruit wine to be differentiated as a novelty, from preferred fruits, and for gifts.

196

Appendix F: Questionnaire for distributor survey

Name and company: Date: A. Regarding wholesaling and distribution Q.A1: To understand the structure of the industry, what operations does your business operate? Q.A2: What retail outlets do you supply? Q.A3: Do you supply other wholesalers and/or distributors? If yes, please describe category. Q.A4: Are you in any marketing groups, co-operatives, etc? If yes, please describe. Q.A5: What warehousing and transport facilities do you have? Q.A6: How many staff do you employ? Q.A7: How many sales staff? Q.A8: Do the various levels of the liquor distribution system work on any typical margins? Q.A9: What are your main product lines? Q.A10: What fruit-based alcoholic drinks do you distribute? Q.A11: What consumer promotions do you use for new products? Q.A12: What trade publications do you read, promote through and find new products through? Q.A13: Would wholesalers and distributors handle volumes of less than a pallet? B. Regarding the market for fruit wines Q.B1: What commercial fruit wines are you aware of in Australia, and who are the markets for them? Q.B2: How would you rate these products (1 – 7) in terms of their perceived quality position? (please mark ‘7’ for high quality, ‘4’ for medium and ‘1’ for low) Fruit wines __ Tropical fruit wines __ Fruit flavoured wines __ Coolers __ Ciders __ Fruit ports __Fruit flavoured RTDs __ Fruit wine liqueurs __ Other fruit alcoholic beverages __ (please name) Q.B3: Are there any consumption trends indicating current or future markets for fruit wines? Q.B4: In your opinion, who are the most likely markets for fruit wines? (i.e. the typical customer) Q.B5: What are these consumers drinking now? Q.B6: What strategies could motivate these potential consumers to switch to fruit wine? Q.B7: What fruit wines and/or similar alcoholic beverages have you handled, when and where? Q.B8: What was your experience with them? Q.B9: How likely are you to sell fruit wines in the future? C. Regarding marketing of fruit wines Q.C1: What image do fruit wines have in the marketplace? Q.C2: If unfavourable, what strategies can the industry use to create a positive image? Q.C3: What attributes of fruit wines are most likely to appeal to consumers? Q.C4: What type of fruit wine product would you prefer to sell? Q.C5: How should positive attributes be conveyed to the consumer for these products? Q.C6: How useful is a regional brand for this kind of product?

197 Q.C7: What retail category should ‘fruit wines’ be marketed under? (given that products being called ‘fruit wines’ often have various combinations of grape wine, fruit wine and/or fruit juice) Q.C8: How should fruit wines (i.e. with no grape juice) be differentiated at the point of sale? Q.C9: Could fruit wines and cider be marketed in the same category? Q.C10: How could a range of wines from different fruits be displayed in retail outlets? Q.C11: Can you suggest indicative retail price for the following products (750ml equivalent)? Fruit wines _ Tropical fruit wines _ Fruit ports _ Fruit wine liqueurs _ Comments? Q.C12: How should fruit wines (without grape wine) be positioned in early markets? Q.C13: Does any particular fruit provoke a higher quality image that wine can be made from? Q.C14: Does any particular fruit provoke a lower quality image that wine can be made from and therefore should be avoided? Q.C15: What distribution channels would best suit this product, and for what reasons? Q.C16: What type of retail outlets might be interested in fruit wines? Regarding retail promotions to the consumer Q.C17: What marketing can best be used to introduce this kind of product to the market? Q.C18: Who in the distribution channel should be involved? Q.C19: Who do you believe should fund such marketing, and how can this be best managed? Q.C20: What are the most likely market barriers fruit wines will encounter? Q.C21: How can the industry overcome such barriers? Q.C22: Who might champion an Australian fruit wine industry, and what effect would this have? Q.C23: Are there any successful product introductions or models this industry could learn from? Q.C24: Are you interested in receiving more information on fruit wines? Q.C. 25: Any additional comments?

198

Appendix G: Questionnaire for consumer survey

Date: Place: 1. Where do you live? 2. Have you ever bought, tried or seen fruit wines? 2. Which of these wines have you come across before today? 3. What wines would you like to try? (self select - number 1, 2, 3 etc ) What did you think of it? 4. What alcohol drinks do you usually drink? 5. If not wine, is there a reason?

6. What do you drink at parties? Restaurants? Home? 7. Where on this scale do you prefer drinks to taste: Very fruity ... … … … … … … ... Not at all fruity Sweet ... … … … … … … ... Very dry 8. Could you see yourself drinking these wines? If yes, in what situations? 9. Would they be good gifts, and for what occasions? 10. Where would you expect to buy them? If bottle shop, in what section? 11. Where do you usually buy your drinks? 12. What do think about these bottles? 13. What’s a good bottle size for someone with your lifestyle? 14. What do you think about these labels? 15. What should be on the label for these wines? 16. What information would you need to buy a new drink like these in a bottle shop, and how should it be provided?

17. Would you buy a drink like these without having tasted it first? 18. How important is the type of fruit? 19. How important is where the wines are made? 20. How important are medals? 21. Are food-matching suggestions helpful when buying wine? 22. Is ‘tropical fruit wine’ the best name for this category? 23. Do healthy ingredients matter in wine? 24. Who do you get advice from when buying wine? 25. What would you expect to pay for these wines? 26. Would you expect some wines to be dearer than others?

27. In what circumstances might you pay more for a wine?

199 28. How likely are you to buy wines like these in the future? 29. Who usually buys the wine at your place? 30. Who decides what to buy? 31. How often would you visit a winery? 32. How knowledgeable about wines do you feel? Male Female Age group: Under 25 25-35 35-55 55+ Nationality (if not Australian) ………….

200

Glossary

Ad valorem: Tariffs that are a constant proportion of the value for duty Alcopops, FAB: Terms used mainly in Europe for flavoured alcoholic beverages, described as ‘RTDs’ in this report for convenience Appellation: Usually the name of a precise geographic region where specific grape varieties are permitted to be grown and certain wine-making practices allowed under a country’s laws. The term is used as a guarantee of quality and authenticity. Australia's version of the appellation system is known as Geographical Indicators Bag–in–box, soft-pack, cask: Plastic container in a cardboard outer, from 2 to 20 litres Cider: Fermented apple wine with low alcohol Cooler: Grape wine diluted to below seven per cent alcohol, the legal lower limit for wine, with added fruit flavour and sugar Country wine: A fermented alcoholic beverage made from ingredients other than grapes. Also everyday wines for the average person Fermentation: The conversion of sugar in the juice into alcohol by yeast metabolism Fortified wine: Wines to which alcohol is added so as to extend shelf life once opened. Fruit flavoured wine: Usually grape wine that has been changed by adding fruit flavours or juice Fruit liqueur: A normally sweet spirit, highly flavoured by mixing with fruit or a fruit product, containing more than 15 per cent alcohol by volume at 20°C Fruit wine: Wine made from fermented fruit other than grapes (Food standards Australia and New Zealand) Fruit wine related product: Alcoholic drinks traded under the classification of HS2206, which includes fruit wine, cider, perry, rice wine, wine coolers, fruit beers and mixtures of fermented beverages and non-alcoholic beverages not elsewhere specific or included Hard lemonade: Alcoholic lemonade Herbal wine: Herbal flavoured wine, usually grape wine HS code: The Harmonised System (HS) code is an international method of classifying products for trading purposes and used to determine duties, taxes and regulations. In some Asian countries the term ‘wine’ includes rice wines such as sake, mistelles, and wine fermented from any fruit, including grapes. The Code International des Pratiques Oenologiques of the International Organisation of Vine and Wine (O.I.V.) states: ‘Wine is exclusively the beverage resulting from the complete or partial alcoholic fermentation of fresh grapes, whether crushed or not, and from the grape must. Its acquired alcoholic strength should not be less than 8.5 %/ vol. Nevertheless, considering climatic conditions, soil or grape variety, special qualitative factors or individual traditions specific to certain vineyards, the total minimum alcoholic strength can be reduced to 7%/ vol. by special legislation of the region in question.’ The present standard does not apply to special wines defined by the said Code. Liqueur: A spirit flavoured or mixed with other foods, which contains more than 15 per cent alcohol by volume, measured at 20°C Mead: Wine from fermented honey Mistelle: Wine made by adding alcohol to a fruit juice, also called liqueurs Mulled wine: Sweetened wine heated with spices and sometimes fruit or peel

201 New World Wines: From Argentina, Australia, Canada, Chile, New Zealand, South Africa, the United States and Uruguay Old World Wines: France, Germany, Italy, Portugal and Spain Perry: Fermented pear wine with low alcohol Prune wine: Wine from fermented prunes Quality: See Appendix B for a discussion of wine quality RTD: ‘ready–to–drink’ alcoholic beverages in small containers, usually bottles or cans Sake: Wine from fermented rice Sparkling wine: Wine with bubbles in it Tariff: Customs duty on imports, as a fixed rate per measure or based on the value of the import (Australian Department of Agriculture, Forestry and Fisheries) The Mutual Acceptance Agreement on Oenological Practices: This agreement recognises differences in countries’ winemaking practices and accepts that wine made in another signatory country should be allowed to be sold in its market regardless of differences in oenological practices. Signatory countries are Australia, Argentina, Canada, Chile, New Zealand, South Africa and the United States Tropical fruit wine: Made from fermented tropical fruit Wine: While wine is a fermented drink, the legal definition is commonly restricted to grape wine in Australia and most wine producing countries.

202 Markets for Tropical Fruit Wine Products

RIRDC Publication No. 09/033

By Judy Noller and Brian Wilson

A small emerging industry exists in northern Australia regions. It discusses the competitive situation for Australian producing wine from various fruits. This industry seeks wines produced from tropical, exotic and Australian native to expand sales as production volumes increase and more fruits and the strategies needed to develop existing and new producers enter the industry. markets.

The Australian fruit wine market has remained small and The Rural Industries Research and Development Corporation under-developed compared with the grape wine market. In (RIRDC) manages and funds priority research and translates contrast, many overseas countries have large fruit wine markets results into practical outcomes for industry. and strong traditions of wines produced from fruit other than grapes. Our business is about developing a more profitable, dynamic and sustainable rural sector. Most of the information we This report describes the current and potential markets for produce can be downloaded for free or purchased from our fruit wines in Australia and Japan, and provides information website: www.rirdc.gov.au, or by phoning 1300 634 313 (local on fruit wine markets in 37 other countries and several call charge applies).

Cover photo: Australian tropical fruit wines

Contact RIRDC: Most RIRDC books can be freely downloaded Level 2 or purchased from www.rirdc.gov.au or by 15 National Circuit Barton ACT 2600 phoning 1300 634 313 (local call charge applies). PO Box 4776 Kingston ACT 2604

www.rirdc.gov.au Ph: 02 6271 4100 Fax: 02 6271 4199 Email: [email protected] web: www.rirdc.gov.au