Overseas opportunity: Export markets will continue to be critical to revenue growth IBISWorld Industry Report C1214 Wine Production in Australia November 2013 Ryan Lin 2 About this Industry 18 International Trade 36 Technology & Systems 2 Industry Definition 20 Business Locations 36 Revenue Volatility 2 Main Activities 37 Regulation & Policy 2 Similar Industries 23 Competitive Landscape 38 Industry Assistance 2 Additional Resources 23 Market Share Concentration 23 Key Success Factors 39 Key Statistics 4 Industry at a Glance 23 Cost Structure Benchmarks 39 Industry Data 25 Basis of Competition 39 Annual Change 5 Industry Performance 26 Barriers to Entry 39 Key Ratios 5 Executive Summary 26 Industry Globalisation 5 Key External Drivers 40 Jargon & Glossary 6 Current Performance 28 Major Companies 9 Industry Outlook 28 Treasury Wine Estates Limited 12 Industry Life Cycle 29 Premium Wine Brands Pty Ltd 30 Accolade Wines Holdings Australia Pty 14 Products & Markets Limited 32 Casella Wines Pty Limited 14 Supply Chain 14 Products & Services 16 Demand Determinants 35 Operating Conditions 35 Capital Intensity 17 Major Markets www.ibisworld.com.au | (03) 9655 3881 | [email protected] WWW.IBISWORLD.COM.AU Wine Production in Australia November 2013 2 About this Industry Industry Definition The Australian Wine Production in bottles or casks then sold to wine industry purchases grapes and other merchants and retail outlets. This key ingredients, which are processed industry also includes other alcoholic into wine, port and wine-based alcoholic beverages not categorised elsewhere. beverages. These products are packaged Main Activities The primary activities of this industry are Carbonated wine production Wine production Sparkling wines production Fortified and unfortified wine production Winemaking residue collection Wine-based fruit drink production Cider production Sherry production Perry production Mead production The major products and services in this industry are Other alcoholic beverages Red varieties Sparkling varieties White varieties Similar Industries A0131 Grape Growing in Australia Firms in this industry grow or sun dry grapes. C1140 Fruit and Vegetable Processing in Australia Companies in this industry manufacture canned, bottled, preserved, quick-frozen or dried fruit and vegetable products. F3606a Liquor Wholesaling in Australia This industry wholesales beer, wine and spirits. G4123 Liquor Retailing in Australia Operators in this industry retail beer, wine and spirits for consumption off the premises only. H4520 Pubs, Bars and Nightclubs in Australia Hotels, bars or similar establishments sell alcoholic beverages for consumption on and off the premises (e.g. from bottle shops located at such premises). Additional Resources For additional information on this industry www.gwrdc.com.au Grape and Wine Research and Development Corporation WWW.IBISWORLD.COM.AU Wine Production in Australia November 2013 3 About this Industry Additional Resources www.wineaustralia.com continued Wine Australia www.wfa.org.au Winemakers’ Federation of Australia IBISWorld writes over 500 Australian industry reports, which are updated up to four times a year. To see all reports, go to www.ibisworld.com.au WWW.IBISWORLD.COM.AU Wine Production in Australia November 2013 4 Industry at a Glance Wine Production in 2013-14 Key Statistics Revenue Annual Growth 09-14 Annual Growth 14-19 Snapshot $5.7bn -1.9% 2.0% Profit Exports Businesses $302.6m $2.0bn 1,867 Revenue vs. employment growth Alcohol consumption Market Share Treasury Wine 10 10.8 Estates Limited 10.6 15.3% 0 Premium Wine 10.4 Brands Pty Ltd −10 Litres 10.2 10.0% % change −20 Accolade Wines 10.0 Holdings Australia −30 9.8 Pty Limited 8.9% Year 06 08 10 12 14 16 18 20 Year 04 06 08 10 12 14 16 18 Casella Wines Pty Revenue Employment SOURCE: WWW.IBISWORLD.COM.AU Limited 6.6% p. 28 Wine production 0.5% Key External Drivers 2.1% ACT 0.2% Alcohol consumption 5.6% TAS NT Demand from QLD 32.3% liquor retailing SA Demand from pubs, bars and nightclubs 14.1% WA Trade-weighted index Domestic price of wine grapes 18.5% NSW 26.7% VIC p. 5 SOURCE:SOURCE: WWW.IBISWORLD.COM.AU WWW.IBISWORLD.COM.AU Industry Structure Life Cycle Stage Mature Regulation Level Medium Revenue Volatility High Technology Change Medium Capital Intensity Medium Barriers to Entry Medium Industry Assistance Medium Industry Globalisation High Concentration Level Medium Competition Level High FOR ADDITIONAL STATISTICS AND TIME SERIES SEE THE APPENDIX ON PAGE 39 WWW.IBISWORLD.COM.AU Wine Production in Australia November 2013 5 Industry Performance Executive Summary | Key External Drivers | Current Performance Industry Outlook | Life Cycle Stage Executive The Australian Wine Production industry offset volatile economic conditions in Summary has faced difficult trading conditions over key export markets. Continual the past five years. Exports have been discounting and oversupply of wine will hurt by volatile economies in key export still weigh on domestic revenue. markets, a soaring Australian dollar IBISWorld expects industry revenue to (which has made industry exports decrease at an annualised 1.9% over the uncompetitive) and rising competition five years through 2013-14 to reach $5.7 from new low-cost wine producers. billion. However, industry revenue is Manufacturers are losing bargaining expected to rebound slightly during power against supermarket giants and 2013-14, posting slight growth of 0.7% consumer preferences are changing. In on the previous year due to recovering addition to these factors, a vast economic sentiments and rising oversupply of wine and wine grapes has consumer confidence. forced down prices, squeezing margins Continuing growth is forecast for and forcing many producers out of 2014-15, as the sluggish global economy business. However, the emergence of recovers momentum. Weak price growth ciders has helped to slightly offset the is expected to constrain domestic revenue falling international demand for performance and profitability as industry Australian wines, with domestic demand players look to capitalise on domestic fuelled by Australians’ love of a cold consumption. In the two to three years beverage on a hot summer day. leading up to the end of 2018-19, industry Having belatedly come to terms with operators are expected to shift production the chronic oversupply of wine in the towards premium wines, while Asian market, producers have addressed the export markets will play an increasingly problem by writing off assets, closing important role in the industry’s future. down wineries and destroying vines. The Winemakers are likely to work on industry faces a long and painful process producing single-vineyard wines, while before the market returns to balance. focusing more on cellar-door and online However, conditions are expected to be sales. In the five years through 2018-19, less challenging in 2013-14, as the industry revenue is forecast to grow at an declining Australian dollar helps to annualised 2.0% to $6.3 billion. Key External Drivers Alcohol consumption expected to increase over 2013-14 in line A number of factors have moderated with the number of liquor retailing Australian alcohol consumption, outlets around Australia. including increased health and wellbeing awareness, drink-driving Domestic price of wine grapes campaigns, and enforcement of laws The cost and availability of raw materials around alcohol consumption. These (including grapes) affects profit margins factors act as a downward force on and sale prices in the Wine Production industry revenue. Nevertheless, alcohol industry. The domestic price of wine consumption is expected to increase in grapes is projected to fall in 2013-14, as 2013-14, bringing more opportunity for the industry recovers from a glut of industry growth. grape production. Demand from liquor retailing Demand from pubs, bars and nightclubs The Liquor Retailing industry is one of Pubs, taverns and bars are key links to the most important markets for the final consumption of wine, so winemakers. The Wine Production manufacturers need to establish good industry relies heavily on orders from relationships with operators of these retailers. Demand from liquor retailing is establishments. Demand from pubs, WWW.IBISWORLD.COM.AU Wine Production in Australia November 2013 6 Industry Performance Key External Drivers taverns and bars is expected to increase producers receive from exports. They also continued over 2013-14, especially as more drive- affect the demand for imports by altering through bottle shops open up. their competitiveness. The trade- weighted index is expected to increase Trade-weighted index slightly in 2013-14. The Australian dollar Currency exchange rates affect the is expected to fall in 2013-14, threatening Australian dollar returns that local revenue levels for export businesses. Alcohol consumption Demand from pubs, bars and nightclubs 10.8 4 10.6 3 2 10.4 1 Litres 10.2 % change 0 10.0 −1 9.8 −2 Year 04 06 08 10 12 14 16 18 Year 08 10 12 14 16 18 20 SOURCE: WWW.IBISWORLD.COM.AU The Wine Production industry is facing emphasis on direct sales to the Current some challenging conditions including a Australian public. As a result, domestic Performance major oversupply of wine grapes, a shift wine consumption is expected to have in consumer preference towards cheaper grown at a faster pace over the past five wine and, more recently, a collapse in years compared with previous years. demand from key export markets. Efforts to address the oversupply of wine Although a recovery in global markets in the industry by closing wineries and and growth in domestic demand is destroying vines have helped alleviate expected in 2013-14, challenges are the problem. expected to persist, with low export sales In the five years through 2013-14, to key UK and US markets. Industry industry revenue is expected to decrease players are attempting to combat this by at an annualised 1.9% to total $5.7 encouraging consumers to drink billion, with a slight recovery of 0.7% premium wines and placing greater over 2013-14.