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.
Wine glut The most challenging issue faced by the Corporation released a joint statement industry over the five years through highlighting the structural surplus of 2013-14 has been the structural wine and wine grapes in Australia, which oversupply of wine in Australia. In called on producers to take steps to November 2009, the Winemakers’ reduce production. The research noted Federation of Australia, Wine Grape that at least 20.0% of bearing vines in Growers’ Australia, the Australian Wine Australia were in surplus, and at least and Brandy Corporation, and the Grape 17.0% of vineyard capacity was and Wine Research and Development uneconomic. The study asserted that WWW.IBISWORLD.COM.AU Wine Production in Australia November 2013 7
Industry Performance
Wine glut Australia was producing 20 million to 40 continued million cases a year more than it is Per capita consumption of wine in selling. This has contributed to the large Australia volatility experienced by the industry, particularly during 2010-11 and 2011-12. Consumption (litres) (% change) Over the past five years, the oversupply Year of wine has entrenched a culture of heavy 2008-09 29.4 3.9 price discounting, devaluing the 2009-10 30.1 2.4 Australian brand internationally and 2010-11 29.4 -2.3 reducing producer profitability. Demand 2011-12* 30.2 2.7 for Australian wine, both at home and 2012-13* 31.6 4.6 abroad, has fallen due to a variety of 2013-14* 31.0 -1.9
factors. These include volatile economic *Estimate conditions in key export markets, the SOURCE: ABS AND IBISWORLD emergence of other low-cost producing countries, unfavourable exchange rate grapes crushed falling 8.4% in 2008-09 movements, heavy discounting by liquor and a further 4.8% in 2009-10, to reach retailers, rising imports and growth in 1.6 million tonnes. However, over the private labels. past five years, IBISWorld expects that Producers have responded to this by the level of grape production will remain writing down assets, shutting down or mostly the same, especially as a return to selling vineyards and destroying vines. more favourable weather conditions in This looked to be bearing fruit, with total 2012-13 aid largest harvests.
Other alcoholic Amid the struggle experienced by wines, industry. On the other hand, sparkling beverages other alcoholic beverages have wines have benefited from the growing experienced more favourable popularity of champagne. As a conditions. Sparkling wines and ciders sophisticated and refreshing alcoholic have been the biggest winners of this beverage, champagne and sparkling product segment, especially as the wines have transformed from a uptake of ciders during hot summers celebratory drink to a more widely have made it increasingly popular with consumed kind of beverage. Over the younger drinkers. As a result, cider is past five years, this change in image has expected to be by far the fastest growing brought sparkling wines and champagne product within the Wine Production onto the dinner table.
Global markets Exports are important to the industry. Argentina, Chile and, more recently, Over the past five years, wine exports South Africa, have taken advantage of have declined sharply, as key export UK lower costs and rising popularity to and US markets have suffered recessions supplant Australian wines in major and the rising Australian dollar has wine-consuming markets. Competition eroded export competitiveness. Exports has also increased from producers in have had to contend with rising France, Italy and Spain, as these competition from other low-cost wine countries regain their iconic status as producers. Cheap Australian wines winemakers. Australian producers have dominated the UK market 10 years ago. responded by trying to improve the However, during the past decade, several reputation of Australian wine and new producers have entered the market. increasing sales of higher value wines Wine producers such as New Zealand, through intense marketing. Furthermore, WWW.IBISWORLD.COM.AU Wine Production in Australia November 2013 8
Industry Performance
Global markets producers are targeting Asian markets, popular in the white wine market. During continued particularly China. Australia is the 2011, eight of the top 10 selling white second-largest importer of wine to China, wines were Marlborough sauvignon after France. blancs. However, the tide appears to be Imports have increased over the past turning, with locally produced semillon five years, fuelled by the rising Australian sauvignon blanc and pinot gris growing dollar and soaring demand for New strongly over the past couple of years. Zealand sauvignon blanc. Sauvignon Additionally, imports of other alcoholic blanc and, to a lesser extent, pinot noir beverages, especially cider, have from the Marlborough region of New increased over the past five years. More Zealand have enjoyed success in the than one-quarter of all cider consumed in Australian market over the past five Australia is imported foreign brands. years. This has been underpinned by This suggests that while the consumption savvy marketing and generic fruity wines of cider has grown in Australia over the mainly targeted at female drinkers. This past five years, Australian production has is in contrast to the oaky Australian failed to cater for total domestic demand chardonnays, which were previously of this beverage.
Profit and Industry profitability is expected to have grow marginally over the five years employment declined sharply during the past five through 2013-14. This is reflected in the years due to falling sales and weak price slow growth of establishment numbers. growth. Domestic wine prices have come Both Treasury Wine Estates (formerly under pressure due to oversupply in the Foster’s Group) and Constellation market and heavy discounting by Brands (now Accolade Wines) have supermarket liquor retailers. Margins slowly reduced their workforces over the have taken a hit, as export sales dropped past five years, as they cut costs and due to the dire economic conditions in closed wineries in a reaction to key markets and the soaring Australian oversupply and falling profitability and dollar. Industry labour, advertising and sales. New technologies have also distribution costs have increased. lowered the labour requirements for the Industry employment is expected to production of many wines.
Supermarket power A major concern for wine producers is giants in liquor retailing has given the increasing dominance of Coles and Woolworths and Wesfarmers Woolworths in liquor retailing. significantly more bargaining power over Woolworths and Wesfarmers (Coles) wine producers. The market-wide have aggressively increased their discounting by these two operators has presence in the liquor retailing market contributed to limited wholesale price over the past five years, expanding the growth over the past five years. number of Dan Murphy’s, Woolworths The supermarket chains have also Liquor, BWS, Liquorland and First exploited their market power to reduce Choice outlets in Australia. The shelf space for branded products and supermarket giants’ share of the push their own private-label and control- Australian alcohol retailing market now label wines. Woolworths recently reported stands at about 60%. This figure is set to that own-brand wine sales were the increase, as the two major supermarket biggest growth area of its liquor retailing chains have plans to open another 270 business over the first half of 2009-10, stores between them over the next two with brands like Baily & Baily, Crittenden years. The dominance of the supermarket and Vivant growing strongly. Wesfarmers WWW.IBISWORLD.COM.AU Wine Production in Australia November 2013 9
Industry Performance
Supermarket power has recorded similar growth for its account for about 8.0% of wine sold. continued own-label wine, with products such as Supermarkets drive the sales of own-label Robinsons Marlborough sauvignon blanc wine by undercutting branded products, and Pensilva McLaren Vale shiraz. As of depressing prices and undermining 2013-14, private-label wine is expected to producers’ profitability.
After a tough period, conditions for wine global economy take a toll on exports. Industry producers should gradually improve over Weak price growth will constrain domestic Outlook the next five years. Having belatedly come revenue growth and profitability. In the to terms with the oversupply of wine in longer term, producers will move towards the market, producers have started premium wines, which will bode well for addressing the problem by reducing margins and industry profitability. In the production and closing wineries. Growth five years through 2018-19, industry will remain moderate in the immediate revenue is expected to increase by an future, as the strong dollar and sluggish annualised 2.0% to reach $6.3 billion.
Turning the corner Conditions in the Wine Production industry are expected to improve further Industry revenue during 2014-15. Nevertheless, growth will 10 continue to be slightly constrained by an oversupply and weak prices. Revenue is forecast to grow over 2014-15, albeit at a 0 slow 1.0%. Export demand is projected to recover slightly as the strong dollar falls. −10
Asian markets are likely to become % change increasingly important for wine −20 producers, with China expected to record robust growth, especially from its −30 burgeoning middle class. Year 06 08 10 12 14 16 18 20 With consumers having deleveraged, and the Mining division likely to continue SOURCE: WWW.IBISWORLD.COM.AU supporting employment and wage growth, domestic demand will be stronger. The Domestically produced semillon- strengthening consumer environment sauvignon blanc and pinot grigio are should boost demand for wine from both likely to sell well. While shiraz is likely to on-licence and off-licence sectors. remain the leading red, newer varieties However, revenue growth will continue to such as tempranillo, sangiovese and be limited by heavy discounting and the malbec will increase in planting and oversupply of wine. Efforts to reduce the sales. IBISWorld forecasts strong growth oversupply will be beneficial, but not in single-vineyard wines, as producers try enough to put upward pressure on prices. to sell more wine at higher pricepoints. Growth in private-label wine will continue Wineries are likely to increasingly focus to take market share from mid-tier on direct sales, invest in restaurants and producers. Wine producers will focus on vineyards to boost cellar-door sales, and lifting profitability by moving up the value use web and social media to increase chain and directing marketing and online sales. Producers of cider are promotions at premium brands. expected to ramp up production over the Consumers are expected to shift away next five years as the popularity of the from New Zealand sauvignon blancs. beverage continues to increase. WWW.IBISWORLD.COM.AU Wine Production in Australia November 2013 10
Industry Performance
Dealing with The biggest issue facing the industry over oversupply the next five years is the oversupply of wine in Australia. Despite slowly falling Over the next five years, wine production volumes, total wine low-cost producers will produced plus total stock is still almost double total demand (domestic demand begin to exit the industry plus exports). Clearly, this cannot last. The oversupply continues to encourage heavy price discounting, devaluing the and the exit of mid-tier producers, Australian brand internationally and particularly in areas around the Murray- weighing on prices and profit margins Darling Basin, remain the only viable received by domestic winemakers. With solutions to the oversupply in the the recovery of the global economy domestic wine market. Producers need to progressing slowly, export move away from the low-cost, high- competitiveness continues to be volume model favoured during the past challenged by the strong dollar. decade and focus on improving Furthermore, the market power of the Australia’s reputation for producing fine supermarket giants is likely to increase. wines. Over the next five years, enterprise The growing Chinese market is a and establishment numbers are expected potential destination for bulk exports. to decline as low-value producers begin However, the removal of vine plantings to exit the industry.
The global landscape Export revenue growth depends on the that two of the most prominent export opening up of emerging export markets markets, the United Kingdom and the such as Ireland, Canada, Germany, China, United States, are becoming more India, South Korea and Japan. However, polarised in terms of preferences. While competition is expected to be intense in American consumers prefer fuller, richer export markets, as wine producers in wines and are happy to drink wines with other countries become more reliant on higher alcohol content, consumers in the exports. Export levels in 2014-15 are still United Kingdom are shifting towards expected to be lower than they were five subtle, lighter varieties with more finesse. years ago, as global demand for The difference in preferences presents a Australian wines remains weak. Australia difficult decision for producers as to is expected to lose some share of whether they should produce a variety of international trade while demand wines to appeal to both or concentrate on conditions in major importing nations one export market. This decision may be (such as the United States, the United further complicated by a relative Kingdom and Germany) remain poor. abundance or scarcity of the necessary Another challenge for the industry is types of grape.
Improving IBISWorld expects industry profit to responded to the major oversupply of profitability grow moderately over the five years wine by writing billions of dollars off through 2018-19. Some growth in profit their wine assets and selling vineyards. margins is likely to arise from an During 2009-10, Treasury Wine Estates emphasis on exporting higher value axed 37 wine brands and sold 31 premium wines, and rationalisations vineyards, while Constellation Wines sold leading to cost savings. A rise in wine 10 wineries and 23 vineyards. Although grape input costs will negatively affect this has had a disastrous effect on profitability. Major wine producers have profitability, it should improve profit in WWW.IBISWORLD.COM.AU Wine Production in Australia November 2013 11
Industry Performance
Improving the longer term as production capacity expected to increase on average. profitability matches demand. However, the increase will have only a continued Improvements in profitability are moderate effect on the costs of likely to be realised from 2014-15 production. High-volume, low-value onwards, as wine inventories are sold producers will find it difficult to maintain down and the industry returns to their business models. Such producers balance. Small decreases in production, are expected to shift to higher value along with increases in price, will allow production. Across the industry, wine producers to expand their margins while prices are likely to rise at a marginally controlling costs. Wine grape prices are higher rate than the prices of inputs. WWW.IBISWORLD.COM.AU Wine Production in Australia November 2013 12
Industry Performance Life Cycle Stage Export sales growth has driven revenue increases due to aggressive overseas marketing Increasing population levels have led to a wider market Domestic GDP and disposable income growth have increased the tendency to wine and dine The industry faces strong competition as many producers flood the world market
20 Maturity Quality Growth Key Features of a Mature Industry Company High growth in economic consolidation; importance; weaker companies Revenue grows at same pace as economy level of economic close down; developed Company numbers stabilise; M&A stage importance stable technology and markets Established technology & processes Total market acceptance of product & brand 15 Rationalisation of low margin products & brands % Growth in share of economy in share % Growth
10
Quantity Growth Many new companies; minor growth in economic importance; substantial 5 technology change
Wine Production
0 Flour and Grain Mill Product Manufacturing Hotels and Resorts Casinos Fruit and Vegetable Processing
-5 Decline Shrinking economic importance
Grape Growing -10 -10 -5 0 5 10 15 20 % Growth in number of establishments
SOURCE: WWW.IBISWORLD.COM.AU WWW.IBISWORLD.COM.AU Wine Production in Australia November 2013 13
Industry Performance
Industry Life Cycle The industry is expected to be in the years through 2013-14. Exports have mature phase of its life cycle. IBISWorld been adversely affected by the high estimates that in the 10 years through Australian dollar and competition from This industry 2018-19, industry value added increases emerging producers, particularly South is Mature at an annualised 4.3%. In comparison, Americans. The high value of the the annualised GDP is estimated to Australian dollar over much of the past increase an annualised 2.5%. Despite this five years has meant that Australian fast growth, the increase in value added wines are not able to compete profitably has been mostly attributable to the low at lower pricepoints. Despite this, the wages and profit margins during financial geographic spread of export sales has crisis years in 2008-09. IBISWorld continued to grow, with Ireland, expects wine supply and demand to Canada, Germany and Asian markets rebalance over the next five years and accounting for an increased share of value added growth to rise to levels Australian wine sales. The geographic similar to general economic growth. spread of production facilities has With many wineries reporting losses in continued, following vineyard the five years through 2013-14, evidence operation’s shift into cooler regions. suggests that small and medium-size However, over the coming years, the industry players have struggled to control Australian dollar is expected to fall, costs sufficiently to remain competitive. boosting export opportunities. This is This has had a negative effect on industry expected to be aided by growing Asian value added. Although cider remains the markets that are likely to demand more fastest-growing segment within the Australian wines. Some new products and industry, the segment is not big enough brands have entered the market. Many to have any substantial effect in have been aimed at attracting the under- propelling industry growth. 30s market, especially as other alcoholic Export sales are estimated to decline beverages such as sparkling wines and by an annualised 6.5% over the five cider continue to grow in popularity. WWW.IBISWORLD.COM.AU Wine Production in Australia November 2013 14 Products & Markets Supply Chain | Products & Services | Demand Determinants Major Markets | International Trade | Business Locations
Supply Chain KEY BUYING INDUSTRIES F3606a Liquor Wholesaling in Australia Liquor wholesalers purchase wine from producers. G4123 Liquor Retailing in Australia Liquor retailers are a key direct market for wine producers. H4401 Hotels and Resorts in Australia Minibars in hotel rooms and in-house bars and restaurants are usually licensed to sell wine, which means these establishments form an important market for wine producers. H4520 Pubs, Bars and Nightclubs in Australia Pubs, taverns and bars purchase a significant quantity of bottled wine from producers for sale to consumers. R9201 Casinos in Australia Casinos with bars are a market for wine producers.
KEY SELLING INDUSTRIES A0131 Grape Growing in Australia The Wine Production industry purchases grapes, its most important major raw material, from the Grape Growing industry. C1140 Fruit and Vegetable Processing in Australia Ascorbic and citric acids are inputs required for some wine types. These require fruit processed from growers. C1161 Flour and Grain Mill Product Manufacturing in Australia This industry produces yeast, which is an input into wine making. C1521a Paperboard Container Manufacturing in Australia Containers are required to store and transport the wine bottles along the supply chain. C2010 Glass and Glass Product Manufacturing in Australia Glass bottles are essential for storing wine and preserving the quality over significant time periods, and for transport to markets.
Products & Services Wine production is expected to account contribution to industry revenue is for 88.4% of industry revenue, while other expected to drop over the next five years, alcoholic beverages within the industry as low-cost red wines lose popularity. account for the remainder. In 2013-14, the Shiraz is projected to be the leading levels of production of red grapes and grape variety planted in Australia, white grapes are projected to be similar. accounting for almost one-quarter of all grapes produced. Australia is renowned Red varieties for producing some of the best shiraz in In 2013-14, red varieties are forecast to the world. Traditional shiraz-producing account for 48.3% of industry revenue. regions include the Barossa Valley, Clare Australian red wines are among some of Valley and McLaren Vale in South the most prestigious and widely Australia, Heathcote in Victoria, and the consumed red varieties in the world. Margaret River region in Western Despite similar production volumes Australia. The large number of between red and white grapes, red grapes production sites, in addition to the have contributed to a greater proportion full-bodied and fruity flavour of the wine, of industry revenue. This is because the has led to its continuing popularity. production process of red wines is Cabernet sauvignon is the second- relatively more complicated and intensive largest red variety produced in Australia, than white wines, adding to the cost of accounting for about 14.0% of total red wines. This product segment’s relative grapes produced. Despite its large WWW.IBISWORLD.COM.AU Wine Production in Australia November 2013 15
Products & Markets
Products & Services production volume, the high tannin white varieties. Chardonnay production is continued levels and strong taste have led to many forecast to slow over the long term as drinkers to switch to lighter red drinkers switch to other white varieties. varieties. Merlot has grown to represent Sauvignon blanc is the second-largest about 6.6% of total grapes produced in white variety to be produced in Australia, 2013-14. The production of merlot has accounting for about 5.2% of grapes grown healthily over the past five years, produced. Sauvignon blanc production with the variety retaining its popularity has increased steadily, as surging demand due to its relatively lower tannin levels for the popular New Zealand sauvignon and ease of drinking. blanc has made the grape the fastest selling white grape variety in Australia. White varieties Other prominent white grape varieties While the production of white wine include colombard and semillon, which grapes account for half of total grapes represent a growing proportion of grapes produced, white wine grapes make up being produced. This is largely due to the only 40.1% of industry revenue. This is overproduction of red grapes and the due to the relative ease in producing growing popularity of the lighter, and white wines compared with red varieties. easier to drink, white wines, especially However, white varieties have continued with female drinkers. to be popular among Australian drinkers and in export markets. The share of Sparkling varieties revenue attributable to this product Sparkling wines are anticipated to segment is expected to increase over the account for 7.2% of industry revenue in next five years, as younger drinkers turn 2013-14. This segment has grown over away from stronger flavoured reds the past five years as consumers begin to towards easy-to-drink white varieties. change their consumption of sparkling In 2013-14, chardonnay is the second wines from a celebratory drink to an most common grape produced in everyday alcoholic beverage that can be Australia, representing about one-quarter consumed with meals. This trend has of total grapes produced, similar to shiraz. been spurred on by the growing Chardonnay has recently declined in popularity of French champagnes, often popularity, with young and female seen as a classy and sophisticated drinkers opting for more fashionable beverage, and often a substitute for white styles, including sauvignon blanc wines. IBISWorld expects this trend to and pinot gris, some of the fastest growing continue over the coming years as
Products and services segmentation (2013-14) 6.4% Other alcoholic beverages 7.2% Sparkling varieties 47.3% Red varieties 39.1% White varieties
Total $5.7bn SOURCE: WWW.IBISWORLD.COM.AU WWW.IBISWORLD.COM.AU Wine Production in Australia November 2013 16
Products & Markets
Products & Services industry operators respond to growing range of red and whites in the industry. continued demand for sparkling and champagne. Cider accounts for the largest proportion of industry revenue in this Other alcoholic beverages segment and continues to grow at a Other alcoholic beverages in the strong pace. The Australian cider industry include similar fermented market is projected to account for about fruit-based varieties such as cider and a 80% of this product segment. The range of fortified and unfortified niche popularity of cider is forecast to wines such as sherry and mead. The continue to increase over the next five share attributable to niche wines and years, making up a larger proportion of alcoholic beverages such as sherry, mead the wine industry as wine production and perry is expected to remain stable returns to parity. The popularity of over 2013-14. These niche varieties are cider has grown due to its image as a expected to lose popularity over the refreshing alternative to beer, especially coming years due to the expanding given Australia’s warm climate.
Demand As an export-intensive industry, trends in substitutes for beer and spirits. Determinants key export markets such as the United Consequently, demand for industry Kingdom and United States significantly products depends on its appeal relative to influence the determination of demand. spirits and beer. Consumer preferences Nevertheless, domestic factors have an are influenced by marketing and beverage important role in the determination of taste. Additionally, perception of trends wine consumption and demand. in wines, such as a trend towards lighter wines for young female drinkers, affects Disposable income how wine is consumed. In general, higher disposable income allows consumers to spend more on Consumer confidence discretionary products, including wine. It Along with growth in disposable can also serve to shift consumers from income, greater confidence among low-price to high-price products. Higher consumers in the outlook of the incomes have facilitated more meals economy stimulates higher being eaten away from home, increasing consumption of discretionary products demand for wine from restaurants. such as wine. Consumer confidence is affected by macroeconomic factors such Relative prices and exchange rates as employment, interest rates and The favourable movement in wine prices inflations, and political events. relative to beer prices has encouraged wine consumption in Australia. In part, Health considerations and this resulted from the relatively consumption restrictions favourable tax treatment of wine. Wine drinking in moderation has often The increasing proportion of exports been seen as an alternative to other for the industry means that exchange rates alcoholic beverages, with its consumption are an important determinant of demand, often used as a digestive or sleep aid. On as are income and general economic the other hand there are many negative conditions in key overseas markets. aspects of drinking beer and spirits, such as the higher calorific content in beer and Consumer tastes and trends the stronger alcoholic content of spirits. Wine, cider and other alcoholic beverages As a result, consumers may choose wine produced by the industry are close over beer and spirits. WWW.IBISWORLD.COM.AU Wine Production in Australia November 2013 17
Products & Markets
Major Markets Exports represent one of the largest wholesale market through wholesale markets for Australian wine producers. bypass and the sale of private-label wines. Exports have declined in real value terms over the past five years, due to global Domestic retailers oversupply, the high Australian dollar Direct domestic sales account for an and subsequent lack of global demand. estimated 15.3% of annual sales. However, the industry remains export Downstream liquor retailing is becoming oriented, with exports accounting for more consolidated, leading to an 34.5% of industry revenue in 2013-14. increasing proportion of sales direct to The major destinations for exported retailers. The Coles Group includes wines are the United Kingdom, the Liquorland, while Woolworths has United States, China, Canada and New in-store liquor departments and owns Zealand. Export markets are particularly Dan Murphy’s. The purchasing power of important for larger companies, making these retailers has grown significantly up a greater proportion of their sales. over the past five years, and their rising Exports fell sharply at the beginning of share of the retail liquor market accounts the five years through 2013-14, as key US for the increasing sales of wine direct to and UK export markets suffered retailers rather than through wholesalers. economic stress while competition increased from other low-cost wine- Other markets producing nations. Other markets consist of a number of niche downstream markets, such as Domestic wholesale wine merchants direct-to-consumers, online markets, The largest market segment, domestic caterers and businesses. Some major wholesale wine merchants, accounts for industry players have their own direct 41.8% of industry revenue. Wholesalers sales distribution through mail orders or distribute wine, sparkling wine and other site visitations to bypass wholesalers. In alcoholic beverages such as cider to liquor the leading wine state of South Australia, retailers, pubs, restaurants and other about one million people visit winery hospitality venues as well as cellar doors each year, spending more supermarkets. Wholesalers are than $300.0 million. While cellar-door accounting for a declining proportion of sales make up a small proportion of sales from the industry, as the liquor overall sales, they are a particularly retail segment consolidates. Large important market segment for smaller supermarket chains Woolworths and producers and premium wine producers. Coles have increasingly avoided the Larger producers make proportionally
Major market segmentation (2013-14) 8.4% Others 41.8% 15.3% Domestic wholesale wine merchants Domestic retailers
34.5% Export markets
Total $5.7bn SOURCE: WWW.IBISWORLD.COM.AU WWW.IBISWORLD.COM.AU Wine Production in Australia November 2013 18
Products & Markets
Major Markets fewer sales at the cellar door, but many promote brand awareness. continued large wineries maintain a presence in this Direct online purchases of wine are segment. For example, Treasury Wine increasing, a method of delivery which Estates has a number of wineries open to bypasses retailers. These are undertaken the public, often accompanied by a both by wineries as part of their direct- restaurant or cafe where wines can be to-consumers sales and by wholesalers to purchased on site, which helps to expand their distribution networks.
International Trade The geographic spread of wine production is closely correlated with the Industry trade balance distribution of wine grape production. Level & Trend 4000 Wine production facilities are often Exports in the located at or near vineyards to limit 3000 industry are High transport costs and ensure the freshest and Decreasing grapes are crushed. Of those employed in 2000 the industry, just 29% work in Imports in the 1000 metropolitan areas, with nearly 62% $ million industry are working in inland regional areas. This 0 Medium and Steady reflects the location of the grape growing and wine production facilities. South −1000 Australia and Victoria tend to produce a Year 06 08 10 12 14 16 18 20 higher proportion of premium wines Exports Imports Balance than other states. New South Wales SOURCE: WWW.IBISWORLD.COM.AU produces a higher proportion of low unit value wines. Valley, Mornington Peninsula, South Australia dominates the Wine Heathcote, Western District, Rutherglen Production industry, at an estimated and Beechworth. The state combines cool 32.3% of production. In South Australia, climate and warmer climate growing wineries are concentrated in the south- regions, resulting in wine varieties such east of the state, around the world as shiraz, chardonnay and pinot noir. famous Barossa, Clare Valley, Brown Brothers, based in Beechworth, Coonawarra, Eden Valley and Adelaide has emerged as one of Australia’s fastest- Hills regions. The Barossa is Australia’s growing wineries. most famous wine region and home to New South Wales accounts for about some of the world’s most praised shiraz. 18.5% of Australian wine production. A Shiraz, cabernet sauvignon and long belt of NSW wineries begins in the grenache-shiraz-mouverdre (GSM) are damp, grape growing environment of the the most typical red wines produced in Hunter Valley and continues across the the state. The Eden Valley is Australia’s Great Dividing Range through Orange most famous riesling region. These are and Forbes, and on to Griffith in the areas of reliable rainfall, warm summer Murrumbidgee Irrigation Area. The climates and good soil conditions for Hunter Valley was one of the first wine wine grape vines. grape growing regions to be cultivated in Victoria is the second most important Australia, in the early 1800s. Hunter region in the country, home to 26.7% of Valley semillon is world class, while the Australian wines. Victorian wineries are cooler climate also produces distinctive mostly located in the warm, high rainfall shiraz and chardonnay. Other wineries regions along the Murray River, where are located in grape growing areas along much of Australia’s cheaper, bulk wines the New South Wales side of the Murray are produced. The state’s major table River, where much of Australia’s cheaper, wine producing regions are the Yarra bulk wine is produced. WWW.IBISWORLD.COM.AU Wine Production in Australia November 2013 19
Products & Markets
International Trade In Western Australia, the grape cool climate wines such as pinot noir, continued growing regions south of Perth have sauvignon blanc and sparkling wine. become popular for winery development. The geographical spread of the industry The most famous is Margaret River, but has the potential to have a positive effect Frankland and Mount Barker also on the industry, according to theories on contain wineries. To the north of Perth industry clusters. When an industry is are the Bindoon and Swan Valley physically concentrated in certain areas winemaking regions. Western Australia (e.g. the Barossa Valley, SA, and the accounts for about 14.1% of wine Hunter Valley, NSW), there are gains to be production. Western Australia has made from the availability of inputs such demonstrated the fastest growth over the as skilled professionals and raw materials. past decade. Shiraz, cabernet sauvignon Furthermore, proximity to supporting and chardonnay are typical of the region. industries, such as distributors or grape Tasmania is a very small but fast growers, can reduce transport costs and growing segment. The state produces times, and improve efficiency.
Exports To... 9.4% Imports From... Canada 32.6% 10.9% Other China 3.6% 5.6% Sweden Italy 21.4% 9.8% United Kingdom Other
29.6% France
25.7% 51.4% United States of America New Zealand
Year: 2013-14 Total $2.0bn Total $542.9m SIZE OF CHARTS DOES NOT REPRESENT ACTUAL DATA SOURCE: ABS WWW.IBISWORLD.COM.AU Wine Production in Australia November 2013 20
Products & Markets
Business Locations 2013-14
NT 0.2
QLD 5.6
WA 14.1
SA 32.3
NSW 18.5
ACT 0.5
VIC 26.7
Wine production (%) Cold Zone (<10) TAS 2.1 <25 <50 Hot Zone (<100) Not applicable
SOURCE: WWW.IBISWORLD.COM.AU WWW.IBISWORLD.COM.AU Wine Production in Australia November 2013 21
Products & Markets
The geographic spread of this industry is Business Locations Distribution of wine production vs. largely weighted in the favour of wine population production, and as a result is closely 40 correlated with the distribution of wine grape production. Wine production facilities are often located at or near 30 vineyards to limit transport costs and ensure the freshest grapes are crushed. Of 20 those employed in the industry, just 29% Percentage work in metropolitan areas, with nearly 10 62% working in inland regional areas. This reflects the location of the grape 0 SA growing and wine production facilities. NT WA VIC TAS ACT QLD South Australia and Victoria tend to NSW produce a higher proportion of premium wines than other states. New South Wales produces a higher proportion of low unit Wine production value wines. For the cider segment, a Population large proportion of establishments lie in SOURCE: WWW.IBISWORLD.COM.AU Victoria and New South Wales. South Australia dominates the Wine growing wineries. Production industry, at an estimated New South Wales accounts for about 32.3% of production. In South Australia, 18.5% of Australian wine production. A wineries are concentrated in the south- long belt of NSW wineries begins in the east of the state, around the world famous damp, grape growing environment of the Barossa, Clare Valley, Coonawarra, Eden Hunter Valley and continues across the Valley and Adelaide Hills regions. The Great Dividing Range through Orange Barossa is Australia’s most famous wine and Forbes, and on to Griffith in the region and home to some of the world’s Murrumbidgee Irrigation Area. The most praised shiraz. Shiraz, cabernet Hunter Valley was one of the first wine sauvignon and grenache-shiraz- grape growing regions to be cultivated in mouverdre (GSM) are the most typical Australia, in the early 1800s. Hunter red wines produced in the state. The Eden Valley semillon is world class, while the Valley is Australia’s most famous riesling cooler climate also produces distinctive region. These are areas of reliable rainfall, shiraz and chardonnay. Other wineries warm summer climates and good soil are located in grape growing areas along conditions for wine grape vines. the New South Wales side of the Murray Victoria is the second most important River, where much of Australia’s cheaper, region in the country, home to 26.7% of bulk wine is produced. Australian wines. Victorian wineries are In Western Australia, the grape mostly located in the warm, high rainfall growing regions south of Perth have regions along the Murray River, where become popular for winery development. much of Australia’s cheaper, bulk wines The most famous is Margaret River, but are produced. The state’s major table Frankland and Mount Barker also wine producing regions are the Yarra contain wineries. To the north of Perth Valley, Mornington Peninsula, are the Bindoon and Swan Valley Heathcote, Western District, Rutherglen winemaking regions. Western Australia and Beechworth. The state combines cool accounts for about 14.1% of wine climate and warmer climate growing production. Western Australia has regions, resulting in wine varieties such demonstrated the fastest growth over the as shiraz, chardonnay and pinot noir. past decade. Shiraz, cabernet sauvignon Brown Brothers, based in Beechworth, and chardonnay are typical of the region. has emerged as one of Australia’s fastest- Tasmania is a very small but fast WWW.IBISWORLD.COM.AU Wine Production in Australia November 2013 22
Products & Markets
Business Locations growing segment. The state produces (e.g. the Barossa Valley, SA, and the continued cool climate wines such as pinot noir, Hunter Valley, NSW), there are gains to be sauvignon blanc and sparkling wine. made from the availability of inputs such The geographical spread of the industry as skilled professionals and raw materials. has the potential to have a positive effect Furthermore, proximity to supporting on the industry, according to theories on industries, such as distributors or grape industry clusters. When an industry is growers, can reduce transport costs and physically concentrated in certain areas times, and improve efficiency. WWW.IBISWORLD.COM.AU Wine Production in Australia November 2013 23 Competitive Landscape Market Share Concentration | Key Success Factors | Cost Structure Benchmarks Basis of Competition | Barriers to Entry | Industry Globalisation
Market Share The four largest Australian wine producers have been highest following the acquisition Concentration collectively account for 40.8% of industry of Southcorp by Foster’s Group (now revenue. This represents a medium level Treasury Wine Estates) during the early of market share concentration. 2000s. Over the past five years, market Level Concentration in the industry has changed share concentration has increased, Concentration in this as major producers have purchased and especially as the oversupply of Australian industry is Medium then divested certain production facilities. wines causes the closure of smaller Industry concentration is estimated to industry players.
Key Success Factors Production of goods currently and ensure healthy cashflows. favoured by the market An ability to switch production for a Supply contracts in place for key inputs IBISWorld identifies market that has ever-changing tastes is Contracts will ensure a steady stream of 250 Key Success critical to success. Industry wine-tasting grapes for specific varieties that are Factors for a awards are an effective means of produced into wine. business. The most marketing wines with an appealing taste. important for this Economies of scope Economies of scale Manufacturers that produce a range of industry are: Wine producers with larger production wine varieties, wine brands and other facilities can achieve lower average costs, beverages can achieve efficiencies in which can in turn facilitate lower pricing, activities such as distribution, marketing increased marketing expenditure or and administration. capital investment. Establishment of export markets Financial structure of the company Strong ties to export markets have been a The extent of a company’s debt and critical growth factor for players during the way in which it is financed will the weak domestic conditions of the past affect its ability to acquire new assets five years.
Cost Structure Cost structures can vary according to the account for 5.3% of revenue in 2013-14. Benchmarks level of vertical integration. Expenses Over the past five years, profit margins depend on the extent to which wineries have fallen due to weak wine prices in key and cider makers produce their own foreign markets, as competition levels in grapes and other fruits. Some producers most markets led to heavy price concentrate on selling lower-margin discounting. During the period there was bulk wine to other firms that bottle and a major production glut of Australian brand the product themselves. wines, which continues to weigh against Producers that sell their own branded profitable prospects for the industry as wine to wholesalers, retailers and heavy price discounting continues. through their own cellar-door or other direct sales (e.g. direct mail) will tend to Purchases produce higher profit margins relative to Although they vary from year to year and those that do not (direct sales produce are subject to variation in grape and wine higher margins than sales through prices, industry purchases accounted for wholesalers and retailers). an estimated 62.8% of revenue in 2013- 14. Purchases costs include containers Profitability and other packaging materials; wine for Industry profit margins are expected to blending, fortification or distillation; WWW.IBISWORLD.COM.AU Wine Production in Australia November 2013 24
Competitive Landscape
Cost Structure grape juice and grape spirit; sugar; and Depreciation Benchmarks other purchases. Grapes, the most Depreciation remains at about 4.5% of continued important production input, are revenue. This is a little higher than other predominantly grown and harvested beverage industries such as Beer specifically by wineries for the purpose of Manufacturing, chiefly due to the greater wine production. costs involved in wine maturation equipment and storage. Recent Wages downgrades in production volumes, Labour costs account for an estimated however, have caused manufacturers to 17.3% of revenue. Wages are expected to divest certain product machinery. have grown as a proportion of total Companies in this industry that sell revenue in 2013-14. This growth was branded products tend to spend between mostly due to falling revenue, but also 5.0% and 10.0% of annual revenue on because of the labour intensiveness of marketing, but the industry as a whole is various functions in wine and cider close to 5.0% of revenue. This is likely to production, such as the upkeep and have increased over the past five years maintenance of vineyards and since promotional spending on manufacturing processes. Wages are Australian wineries increased (especially expected to fall as a proportion of in Britain and the United States) revenue over the next five years due to following efforts to rebuild Australian increasing investment in modern wine brand equity as Australian wines technologies, thereby making the flood international markets. Other crucial industry’s production process more costs include administrative costs and highly capital intensive. general selling expenses.
Sector vs. Industry Costs
Average Costs of all Industries in Industry Costs sector (2013-14) (2013-14) 100 7.6 5.3 ■ P r o fi t 1.8 3.1 1.4 2.2 ■ Rent 4.5 ■ Utilities 3.4 6.5 ■ 80 8.0 Depreciation ■ Other 14.0 17.3 ■ Wages ■ Purchases 60
40
Percentage of revenue Percentage 62.2 62.8
20
0 SOURCE: WWW.IBISWORLD.COM.AU WWW.IBISWORLD.COM.AU Wine Production in Australia November 2013 25
Competitive Landscape
Basis of Competition Competition is high and increasing due research cooperation and low-cost supply to the expansion of global wine of grapes (due to access to land, water production. Wine producers are subject and capital). The industry also benefits Level & Trend to increasing competition from cleanskin from the network of related industries Competition in wines and falling margins due to the including tourism and hospitality. this industry is increasing distribution power of Australia’s reputation as a high-quality High and the trend supermarkets. Wine producers face producer is a major selling point in is Increasing competition from both internal sources overseas markets. (other wineries) and external sources Major buyers include international (players in other industries). retail groups and it can be important to promote products among this group. Internal competition TWE has built a global direct wine sales Producers of wine in the mid to high- business and acquired a major US winery price bottled products range compete on to build distribution channels globally the basis of quality and branding. The and in the United States. However, at the quality with respect to the taste of the niche end of the industry, small premium wine is a basis of competition for wineries can compete successfully with individual brands, winemakers and just a cellar door and small selection of enterprises. A wine with an appealing specialty retailer distributors. taste to the consumer can encourage repeat purchases and build loyalty to the External competition brand and winemaker. Wine shows and External competition is increasing with awards are an important means for more premium beer brands, which promoting the quality of particular wines. compete directly against wine and cider Awards and positive media reviews can being promoted in the Australian market. attract new customers and build brands. Wine faces competition from spirits and, Marketing and branding activities by to a lesser degree, non-alcoholic wine producers can also contribute to beverages, while cider and other alcoholic consumer perceptions of quality. beverages face stronger competition from By volume, industry sales are traditional beer and ready-to-drink dominated by bulk wines, which compete alcoholic beverages. However, the primarily on the basis of price. growing popularity of cider and sparkling IBISWorld estimates that wine bottles wines have partially offset this trend. under $8 account for 37% of industry Australians are projected to consume revenue and 65% of volume sales. Given 10.0 litres of alcohol per person per the importance of price, the size of a wine year, measured in terms of pure alcohol. production enterprise is playing an This level of alcohol consumption is increasingly important role in unlikely to change greatly. Hence, for competition due to economies of scale per capita wine consumption to and scope. The size of an enterprise will increase, it has to compete with other also contribute to determining access to alcoholic beverages. Over recent years, markets and distribution channels. per capita consumption of beer has At the international level, Australian fallen, while consumption of wine and wineries have a competitive advantage ready-to-drink alcoholic beverages has over their international rivals due to a increased. This indicates that consumers concentration of professional expertise, are willing to substitute between favourable climatic conditions, industry alcoholic beverages. WWW.IBISWORLD.COM.AU Wine Production in Australia November 2013 26
Competitive Landscape
Barriers to Entry Historical increases in both enterprise and establishment numbers according to Barriers to Entry checklist Level wine demand suggest low to medium Competition High Level & Trend barriers to entry. However, large Concentration Medium Barriers to Entry multinational companies have recently Life Cycle Stage Mature in this industry acquired Australian wine operations, Capital Intensity Medium are Medium and thereby concentrating the industry, Technology Change Medium Increasing increasing the power of the major players Regulation & Policy Medium and raising the barriers to entry. New Industry Assistance Medium entrants will find it more difficult to achieve the scale and distribution SOURCE: WWW.IBISWORLD.COM.AU networks necessary to succeed. This reflects the rationalisation of the global Branding is now imperative for success wine industry. Marketing, distribution in the industry, especially for cider makers, and export capabilities are becoming being a relatively young product. The more critical, which is a major reason for variety of wine brands in the Australian the rationalisation. industry has rocketed, with consumers Capital requirements are significant, typically choosing a brand that they are although operation on a small scale is familiar with, seeking reliability of quality possible. As some large wine companies and a consistent taste. The widening array divest parts of their operations, these of existing brands available domestically become available for purchase by any and abroad represents an increasing potential new entrants. Any new entrant barrier to entry. Early movers have an will require superior financial advantage over later entrants. Early management skills and industry-specific participants in each product segment have knowledge to be successful. established brand awareness.
Industry Industry globalisation is significant in the company Kreglinger, a commodities Globalisation Australian Wine Production industry. Key trader, joined the Australian industry by operators in the industry have heavy ties paying $30.6 million for the small with foreign-owned enterprises and are Tasmanian wine producer, Pipers Brook Level & Trend largely exposed to shifts in international Vineyard. Lion Nathan is 100% owned by Globalisation in markets and foreign enterprises, Japanese brewer Kirin. this industry is especially with large multi-discipline Major players in the Australian Wine High and the trend beverage manufacturers such as Lion and Production industry are active investors is Increasing SABMiller’s Foster’s Group making globally. Industry participant Treasury inroads through cider manufacturing. Wine Estates owns wineries in California. Foreign ownership in the Australian Its US winemaking segment, Beringer Wine Production industry is high. For Blass Wine Estates, has about 6.0% instance, Accolade Wines is wholly market share of the US wineries industry. owned by US-based Constellation Brands Furthermore, Constellation Brands and and Inc. Premium Wine Brands is wholly Pernod Richard have wine production owned by French multi-beverage establishments around the world. company Pernod Ricard. French Constellation Brands is the largest company Moet et Chandon invested $10 winemaker in the world, with 7.0% share million to establish a winery in the Yarra of global revenue. Valley, VIC. Other major French Combating the increasing level of producers (Bollinger and Roederer) are globalisation is the growth of large also expanding their activities in domestic retailers like Woolworths and Australia. In addition, the Belgian Coles. Along with its purchase of Dorrien WWW.IBISWORLD.COM.AU Wine Production in Australia November 2013 27
Competitive Landscape
Industry Estate Winery in 2011, Woolworths many closing vineyards in Australia. Globalisation recently announced plans to expand their However, these plans fell through, with continued private liquor offering, particularly in Barossa Valley Estate sold to the wine production, through the proposed Delegat’s Group, the New Zealand takeover Barossa Valley Estate, one of the producers of the Oyster Bay wine brand.
International trade is a Trade Globalisation Going Global: Wine Production 2003-2013 major determinant of an industry’s level of 200 Export Global 200 Export Global globalisation. Exports offer growth opportunities for fi rms. 150 150 However there are legal, economic and political risks 100 100 associated with dealing in foreign countries. Exports/Revenue Exports/Revenue 50 50 2003 Import competition can Wine Production 2013 bring a greater risk for companies as foreign 0 Local Import 0 Local Import producers satisfy domestic 0 40 80 120 160 0 40 80 120 160 demand that local fi rms Imports/Domestic Demand Imports/Domestic Demand would otherwise supply. SOURCE: WWW.IBISWORLD.COM.AU WWW.IBISWORLD.COM.AU Wine Production in Australia November 2013 28 Major Companies Treasury Wine Estates Limited | Premium Wine Brands Pty Ltd Accolade Wines Holdings Australia Pty Limited | Casella Wines Pty Limited | Other Companies
Major players Casella Wines Pty Limited 6.6% (Market share) Premium Wine Brands Pty Ltd 10.0% 59.2% Other
Treasury Wine Estates Limited 15.3%
Accolade Wines Holdings Australia Pty Limited 8.9% SOURCE: WWW.IBISWORLD.COM.AU
Player Performance Treasury Wine Estates Limited (TWE) is business and renamed it Treasury Wine an Australia-owned producer and Estates. In September 2010, Foster’s distributor of wine with global Group rejected a US$2.5 billion offer Treasury Wine operations. The company was renamed for its wine business. The bid was Estates Limited TWE in 2011 following the Foster’s Group reported to have been made by New Market share: 15.3% decision to separately list its wine and York-based private equity firm Cerberus Industry Brand Names beer assets in 2010. The company’s beer Capital Management. Yarra Valley segment was subsequently acquired by TWE attributes much of its success to Wolf Blass global brewer SABMiller. After its its diverse operations across the globe. Rothbury demerger from the Foster’s Group, TWE The strategic placement of operations Mildara became one of the world’s largest wine throughout various regions allows TWE Lindeman’s Wines producers, with 56 wineries across to hedge performance between regions. Penfolds Australia, the United States, New Zealand A slowdown since 2008-09 in the and Italy. The company’s brands include mid-tier wines for the United States Penfolds, Lindeman’s, Wolf Blass, market was offset by the strong Rosemount, Beringer, Matua Valley and performance of the Asian region. In Castello di Gabbiano. addition to this, TWE’s general trend of In the early 2000s, Foster’s Group premiumisation, along with its luxury acquired wine companies Beringer Blass and boutique wines throughout Asia Wines (United States) and Southcorp and the United States, contributed to (Australia). Foster’s Group struggled to its strengthening position as a global integrate these two businesses into its wine manufacturer. In mid-2013, existing portfolio, while the businesses TWE purchased the Tasmanian White themselves were adversely affected by Hills vineyard, which formerly belonged domestic and international oversupply of to Brown Brothers. This strategic wine early in the decade. This culminated acquisition is expected to further in 2008 when Foster’s Group announced strengthen the company’s scale significant writedowns on its US and of operations. Australian wine businesses. After the completion of a strategic review of its Financial performance wine business in 2009, the company The company has embarked on a decided against selling off the continual strategy to boost sales of beleaguered segment. premium wine in the Australian and In 2009, Foster’s Group announced North American markets. This strategy the separation of its wine and beer has already proved successful, with global segments, with the creation of a stand- sales volumes falling, while net sales alone beer, cider and spirits business revenue per case are increasing. Growth under the Carlton United Breweries in the emerging Asian market was strong name. In May 2010, the company again, with volume growth in China separated its beer and wine businesses, increasing by almost 40.0% over 2013-14. with the two companies to be listed The company’s revenue has grown in separately. In July of the same year, the the years since TWE’s creation. This is company restructured its wine largely due to its diversified operations WWW.IBISWORLD.COM.AU Wine Production in Australia November 2013 29
Major Companies
Player Performance around the world, which involves continued manufacturing and distribution to avoid TWE Australia – industry segment clustering and overcapacity. The performance* Australian industry segment is expected to enjoy a dominant market position Revenue through the continuing demand for Year ($ million) (% change) much of its industry-leading products, 2008-09 N/C N/C especially the Penfolds range, which 2009-10 602.1 N/C has been both a domestic and 2010-11 664.4 10.3 international hit. The company has outperformed the 2011-12 782.4 17.8 overall industry, despite wine trade 2012-13 852.2 8.9 revenue for the industry following a 2013-14 875.7 2.8 declining trend over the three years
TWE has been in operation. Profit levels *Estimate are anticipated to rise as the company’s SOURCE: IBISWORLD focus on brand premiumisation and customer relationships across the region This was partly offset by a fall in volume helps boost perceived value of products. sales for Rosemount, Lindeman’s and In volume terms, there was strong Wolf Blass. The change in brand mix growth for most brands including was due to shifting sales and marketing Penfolds, Yellowglen, Annie’s Lane, expenditure and some out-of-stock Wynns, Devil’s Lair and Pepperjack. wines during peak periods.
Player Performance Premium Wine Brands is the Australian United States. When Pernod Ricard took subsidiary of France-based spirits and over Orlando in 1989, 600,000 cases of wine giant Pernod Ricard. In 1847, Johann Jacob’s Creek were wine sold annually. Premium Wine Gramp, a Bavarian immigrant, planted the By 2009, this had grown to over 6.7 Brands Pty Ltd vineyard that would mark the beginning of million cases. Market share: 10.0% Orlando Wines. In 1989 and 1990, Pernod In October 2010, the Pernod Ricard Industry Brand Names Ricard acquired both Orlando Wines and group restructured its global operations, Jacob’s Creek Wyndham Estates, one of the oldest bringing its premium wine labels Wyndham Estate wineries, and merged the two entities into together under the management of Richmond Grove Orlando Wyndham Group. Premium Wine Brands. In July 2010, Morris Wines In addition to owning a large range of Pernod Ricard Pacific Pty Ltd changed its Montana local wines, Orlando owns four brands name to Premium Wine Brands Pty Ltd. Stoneleigh and wineries: Jacob’s Creek (one of Gramp’s Australia’s most renowned wine brands), Financial performance Orlando Wyndham Estate, Montana and From 2008-09, Premium Wine Brands’ Trilogy Stoneleigh. Jacob’s Creek Sparkling, revenue fell in three consecutive years, as launched in 1998, is a popular sparkling conditions deteriorated both at home and wine in Australia, New Zealand, Japan abroad. Profit before tax slumped by and the United Kingdom. The brand is more than 40.0% over the years, as wine also growing in popularity in France. The prices declined and the stronger company retained the price position of Australian dollar ate into export revenue. Jacob’s Creek in an environment of By 2010-11, revenue had declined to price-cutting by competitors, which has below $600.0 million, as discounting and allowed it to retain brand equity and oversupply took a toll on sales. In the five value growth. Furthermore, Orlando years through 2013-14, company revenue Wyndham is looking to new markets in is expected to have declined at an China, Japan, Scandinavia and the annualised 3.8%, underperforming the WWW.IBISWORLD.COM.AU Wine Production in Australia November 2013 30
Major Companies
Player Performance overall industry. Oversupply and heavy sales to the United Kingdom in continued discounting have been further particular were extremely strong in the exacerbated by the strong dollar. years before 2008-09, but have trended Premium Wine Brands is trying to downwards since as economic boost sales of premium wines to offset conditions in the United Kingdom this. The company has stated that the deteriorated. However, Montana pinot wine glut and global financial crisis had grigio grew strongly both in Australia created some of the most difficult and New Zealand. The company has conditions the Wine Production struggled with the rising oversupply of industry had ever recorded. Depressed grapes and the strong dollar for much of demand and extreme retail the past five years. Over the next five consolidation in the United Kingdom years, a focus towards premiumisation weighed heavily on UK exports. In the is expected to help lift revenue and United Kingdom, about 70% of wine is profit levels, with revenue expected to sold through five retail groups. Export grow in 2013-14 as a result.
Premium Wine Brands Pty Ltd – fi nancial performance Sales EBIT Year ($ million) (% change) ($ million) 2008-09 689.0 N/C -19.7 2009-10 631.9 -8.3 -28.2 2010-11 511.6 -19.0 -38.7 2011-12 509.4 -0.4 -25.3 2012-13* 544.1 6.8 N/C 2013-14* 568.4 4.5 N/C
*Estimate SOURCE: ANNUAL REPORT AND IBISWORLD
Player Performance Accolade Wines Holdings Australia Pty number of wineries in Australia including Limited was founded in 1853 as Hardy Hardys, Stanley Wines, Houghtons, Wine Company. The Adelaide winery Renmano, Notting Hill, Omni, Banrock Accolade Wines grew to become the largest in South Station, Barossa Valley Estate, Brookland Holdings Australia Australia. In 2003, after being acquired Valley and Emu Wines. Formerly the Pty Limited by Constellation Brands Inc (CBI), the largest wine producer in Australia, Market share: 8.9% company renamed itself Constellation Constellation Brands has chosen to focus Australia, and incorporated both on its assets in the US, where it is Industry Brand Names Constellation Wines Australia and attempting to improve profitability by Hardys Europe (CWAE), which held the entering the premium wine market. Echo Falls Australian, UK and South African wine During December 2008, Constellation Tintara assets formerly owned by US-based wine and rival Australian Vintage applied for Houghton producer CBI. In January 2011, merger clearance from the Australian Constellation Brands Inc agreed to sell Competition and Consumer Commission 80.0% of CWAE to Sydney-based to combine a number of Constellation’s CHAMP Private Equity for $290.0 Australian and UK wine operations with million. Constellation Brands retained a Australian Vintage in exchange for a 20% interest in the company. non-controlling 50.0% equity interest in In July 2011, CBI changed its name to the merged entity. However, discussions Accolade Wines. Accolade Wines owns a were called off in April 2010. WWW.IBISWORLD.COM.AU Wine Production in Australia November 2013 31
Major Companies
Player Performance Due to the burgeoning oversupply of through 2013-14, with revenue and profit continued Australian wine stocks, many Australian falling. A recovery was expected during wineries are faced with the pressure of 2010-11, when Accolade Wines generated overcapacity and production revenue of $666.2 million, up 8.4% from inefficiencies. In early 2010, the company 2009-10. However, a decline of 34.1% in made 40 staff redundant at its South 2011-12 amid restructuring and Australian bottling headquarters as it divestment dashed hopes of any shifted more of its production to the significant recovery. As a result, in the United Kingdom to cope with the global five years through 2013-14, company wine slump. CBI also made 30 revenue for Accolade Wines has redundancies at its Tintara winery, contracted at an annualised 3.9%, marking the second round of underperforming the overall industry. redundancies for the year. In 2012, During the years prior to 2008-09, the Accolade Wines and Treasury Wine company benefited from higher wine Estates (TWE) reached a bottling prices and the slight increase in demand agreement, whereby TWE will bottle wine for premium wines. This was followed by for Accolade in Australia and Accolade four years of decline or flat growth. The will bottle for TWE in the UK market. company booked a revenue loss of more In August 2008, the US parent than $100.0 million for the year, company, Constellation, began its reflecting ongoing writedowns of wine restructuring plans to put $200 million assets. The three years ending through of Australian wine assets on the market 2009-10 were characterised by and shed about one-third of the labels challenging economic conditions in both carried under its brand. The company the local economy and key export also slashed 350 jobs, about one-third of markets, while the oversupply of grapes the company’s workforce, as part of the in Australia weighed on wine prices and plans to consolidate bottling operations profitability. While revenue recovered in and streamline production. During 2012, 2010-11, the company recorded a loss in the company also cut a further 175 jobs as earnings before interest and tax (EBIT). part of the deal with TWE to bottle some Accolade Wines is expected to have of Accolade Wines products in Australia. undergone heavy restructuring in 2011- 12, forming strategic partnerships with Financial performance other wine producers. Lay-offs and The financial performance of Accolade divestments in that year are expected to Wines has declined over the five years have caused a 34.1% decline in revenue.
Accolade Wines Holdings Australia Pty Limited – fi nancial performance Revenue EBIT Year ($ million) (% change) ($ million) 2008-09 622.9 N/C -69.9 2009-10 614.6 -1.3 -258.6 2010-11 666.2 8.4 -29.2 2011-12 438.7 -34.1 22.5 2012-13* 486.2 10.8 N/C 2013-14* 510.3 5.0 N/C
*Estimate SOURCE: ANNUAL REPORT AND IBISWORLD WWW.IBISWORLD.COM.AU Wine Production in Australia November 2013 32
Major Companies
Player Performance Casella Wines Pty Limited is a family- recent years, despite recession in the owned winery in the Riverina region of United States (its key market) and a New South Wales, established in strong Australian dollar. This was a sign Casella Wines Pty Australia in 1965. Prior to the move to of Casella’s increased efforts in marketing Limited Australia, the family enterprise traces its and brand positioning operations. Market share: 6.6% roots back to Italy, where the Casella Financial performance Industry Brand Names family has been making wine since 1820. Yellow Tail The company, headquartered in Yenda, Following the financial crisis, Casella NSW, now employs over 450 people, with Wines, like many other Australian operations solely in Australia. Casella manufacturers of wines, continues to face Wines brands include Yellow Tail, overcapacity and a strong Australian Reserve, Yendah, Mallee Point and Crate dollar. As a result, revenue is expected to 31. The company is one of Australia’s decline at an annualised 2.4% over the five largest exporters of wine. Yellow Tail is years through 2013-14, underperforming one of the most widely exported and the overall industry. This is expected to be consumed wines outside of Australia. The due to the significant focus on export company also operates Australia Quality markets, especially in the struggling UK Vines, the largest commercial vine and US markets. Revenue began to fall as nursery in the Riverina. a significant level of exports to the United Casella Wines is best known for its States, the crisis epicentre, were halted. Yellow Tail brand’s market penetration in This further exacerbated the already the US wine market, where it has enjoyed over-productive industry, increasing wine strong growth. Since launching in 2001, stocks of manufacturers. Despite this, Yellow Tail has grown to become the Casella Wines was able to maintain highest-selling imported wine in the profitability, with profit margins holding United States. The company has up despite particularly tough periods performed well relative to its peers in during 2009-10.
Casella Wines Pty Limited – fi nancial performance Revenue EBIT Year ($ million) (% change) ($ million) 2008-09 426.7 N/C 64.6 2009-10 410.9 -3.7 20.9 2010-11 412.6 0.4 68.0 2011-12 343.7 -16.7 -30.2 2012-13* 352.1 2.4 N/C 2013-14* 377.2 7.1 N/C
*Estimate SOURCE: ANNUAL REPORT AND IBISWORLD
Other Companies At the next level, there are several Estate Wines, Peter Lehmann Wines and medium-size companies, including De Tyrrells. With the growing popularity of Bortoli Wines, McWilliam’s, and Samuel cider in the Australian market, cider Smith & Son. There are also small firms, producers have also grown in market which crush less than 100 tonnes of share over the past five years. grapes annually and account for between Many of the firms in the industry are 2.0% to 4.0% of wine production. Smaller small family businesses. However, the producers include Zilzie Wines, Kingston ownership of wineries has tended to WWW.IBISWORLD.COM.AU Wine Production in Australia November 2013 33
Major Companies
Other Companies move away from family-owned firms it acquired from Bulmer Australia in continued towards ownership by public companies. 2003. Today, the group still produce, This has allowed consolidation of distribute and market the cider, which is infrastructure and maximisation of cost considered the most popular cider in the and marketing synergies. Australian cider market. Since the 1990s, some wineries have divested their fixed assets, particularly Lion Pty Ltd their vineyards. This has released Estimated market share: 2.0% capital, which can be used in the core Lion Nathan National Foods is a business of making and selling wine. proprietary company owned by Japanese One example of this is the Challenger food and beverage corporation Kirin Wine Trust (formerly Beston Wine Holdings Company Limited, which Industry Trust), which holds vineyards operates in the Australian food and purchased from Brian McGuigan Wines beverage manufacturing sector. Cider’s and Grant Burge Wines. increasing popularity has given Lion a small but increasing market share. The Australian Vintage Limited: company’s 5seeds cider is marketed and Estimated market share: 4.5% bottled under the Toohey’s division of Australian Vintage Limited (AVL) is an alcoholic beverages. As Australia’s cider Australia-owned and ASX-listed market develops further, Lion’s market integrated winemaking business. It is the share in the Wine Production industry is second-largest vineyard owner in expected to increase. Australia. Headquartered in Parkside, SA, the company employs more than 700 McWilliam’s Wine Group Ltd people. After its incorporation in 1991, the Estimated market share: 2.0% wine producer engaged in several McWilliam’s Wine Group Ltd, which acquisitions. The company was created by dates back to 1877, is the seventh-largest the merging of Brian McGuigan Wines wine producer in Australia. The company Ltd and Simeon Wines Ltd. Formerly is based in Sydney and employs more known as McGuigan Simeon Wines than 300 people. Major local brands Limited, the company changed its name include McWilliam’s, Evans & Tate, in 2008 to Australian Vintage Limited to Mount Pleasant, Coonawarra, Lilydale better reflect a unified business rather Estate and Barwang. Wineries are located than a collection of merged entities. The in regions such as the Hunter Valley, company has three main wineries in NSW; Yarra Valley, VIC; and Adelaide South and south-east Australia, which Hills, SA. The company also distributes operate all year round. Its Buronga Hill Taittinger Champagne, Henkell Trocken winery in New South Wales is one of the Sparkling Wine, Mateus Rose and largest wineries in Australia and produces whisky-based liqueur Drambuie. In 2010, most of the company’s wines. Its Hunter the company became an unlisted public Valley, NSW, and Barossa Valley, SA, company and changed its name to wineries produce premium and boutique McWilliam’s Wine Group Ltd. vintages, but at much smaller capacities. De Bortoli Wines Pty Limited Foster’s Group Limited: Estimated market share: 2.0% Estimated market share: 2.5% De Bortoli Wines was founded by Italian Foster’s Group is a recently acquired immigrant Vittorio De Bortoli in 1924 brewing and bottling subsidiary of and continues to be a family-owned UK-based international brewing and company based in Griffith, NSW. The bottling company SABMiller PLC. company also has wine operations in Foster’s Group operates in the industry Victoria’s Yarra Valley. Brands include through its Strongbow cider range, which Windy Peak, Gulf Station and Noble One. WWW.IBISWORLD.COM.AU Wine Production in Australia November 2013 34
Major Companies
Other Companies Warburn Estate and has been in operation since 1923, continued Estimated market share: 2.0% when it was established as a wine Formerly known as Riverina Wines Pty merchant. The Yalumba brand was Ltd, Warburn Estate is a privately owned trademarked by the company in 1894. In wine producer located in the Riverina 2000, the company acquired the region, NSW. Owned by the Sergi family, Redback Wines. the company has grown at a stellar rate over the past five years and now has more Brown Brothers Milawa Vineyard than 1,000 hectares under vine, with a Estimated market share: 1.5% crush capacity of 40,000 tonnes. Brands Brown Brothers Milawa Vineyard is a include Warburn Estate, Aspen Estate, family-owned wine producer based in Stephendale, Gossips and Brass Raza. Milawa, VIC. The company has expanded strongly over the past five years, due in Samuel Smith & Son Pty Limited part to its emphasis on producing wines Estimated market share: 1.5% of an unusually wide range of varieties Samuel Smith & Son Pty Limited is a and styles. The company is one of the locally owned proprietary company, inaugural members of Australia’s First more commonly known as Yalumba. The Family of Wine, an initiative launched in company is based in Sydney and employs 2009 with 11 other privately owned more than 500 people. The company wineries to raise the profile of Australian produces more than 18 different wines wine internationally. WWW.IBISWORLD.COM.AU Wine Production in Australia November 2013 35 Operating Conditions Capital Intensity | Technology & Systems | Revenue Volatility Regulation & Policy | Industry Assistance
Capital Intensity The Wine Production industry in Australia exhibits a medium level of Capital intensity capital intensity. For every $1.00 paid as Capital units per labour unit Level a labour expense, $0.26 is required to be 0.5 The level of capital spent on capital investments. Here intensity is Medium wages represent labour cost and 0.4 depreciation has been used as a proxy 0.3 for capital investment. The level of vertical integration, 0.2 particularly backward integration, affects 0.1 capital intensity. Ownership of vineyards 0.0 tends to increase capital intensity, as Economy Manufacturing Wine Production does ownership of winemaking facilities,
as winemakers have varying reliance on Dotted line shows a high level of capital intensity the use of bulk wine. Bulk wine producers SOURCE: WWW.IBISWORLD.COM.AU tend to have a higher level of capital intensity, due to investment in products, including the fortification of winemaking machinery, lower staff wine, cider making and the manufacture requirements in packing and selling, and of other alcoholic beverages, have lower selling prices. The different contributed to intensification of capital production requirements for industry within the industry.
Tools of the Trade: Growth Strategies for Success
New Age Economy Investment Economy Recreation, Personal Services, Information, Communications, Health and Education. Firms Mining, Finance and Real benefi t from personal wealth so Estate. To increase revenue stable macroeconomic conditions fi rms need superior debt are imperative. Brand awareness management, a stable and niche labour skills are key to macroeconomic environment product differentiation. and a sound investment plan. Capital Intensive
Flour and Grain Mill Product Manufacturing Casinos Labour Intensive Wine Production Hotels and Resorts Traditional Service Economy Fruit and Vegetable Processing Old Economy Wholesale and Retail. Reliant Grape Growing Agriculture and Manufacturing. on labour rather than capital Traded goods can be produced to sell goods. Functions cannot using cheap labour abroad. be outsourced therefore fi rms To expand fi rms must merge must use new technology or acquire others to exploit or improve staff training to economies of scale, or specialise increase revenue growth. in niche, high-value products.
Change in Share of the Economy SOURCE: WWW.IBISWORLD.COM.AU WWW.IBISWORLD.COM.AU Wine Production in Australia November 2013 36
Operating Conditions
Technology & Systems Technological changes affecting the is in wastewater development. As an industry have resulted from improved intensive water user, the industry applies Level knowledge of biotechnology and the a number of principles to conserve water application of this knowledge to provide and reduce the harmful effects of The level of better quality control and greater product wastewater on the environment. These Technology Change consistency. More specifically, principles include segregation of different is Medium technological development in the Wine strength waste streams, reduction in the Production industry takes the form of amount of cleaning agent used in either product or process innovations. washing equipment and cleaning Product innovations include changes chemicals with low sodium levels. The made to the product, including organics and salts are an issue for packaging, while process innovation wastewater. Larger firms such as De refers to changes to the process of Bortoli have switched from sodium producing the wine. cleaning agents to higher-cost potassium- based products, which can be absorbed Product innovation by crops such as hay and barley. An important development in packaging Another change to wine production has been the introductions of a single processes on the horizon is the use of a serve bottle that has a lid that functions new grape inspection platform that can as a cup. The product is aimed at the receive an entire fruit bin and mete out events and food service market, where its contents for inspection. This the convenience of being able to give automates the process of metering out customers a bottle and glass in one grapes for sorting, thereby reducing motion would be of most benefit. labour requirements. The process is also The screw-top lid has gained expected to improve quality, as consistent acceptance in the Australian market delivery of grapes will allow more- place. While screw tops have been efficient inspection for bad grapes and associated with lower quality wines, there other unwanted material. is growing recognition that high-quality Reverse osmosis has been trialled to products can be sold with screw tops, and reduce the effects of smoke taint on wines this will reduce the incidence of cork produced from vineyards exposed to taint in wine. The technology for this smoke. Smoke taint can reduce the innovation is not new, but the uptake has quality of the wine and results in volatile been slow due to resistance from compounds from the smoke being present winemakers and consumers. in the wine. The process of reverse osmosis is not used for this purpose, but Process innovation has been trialled and may be adopted by A key area of technological development wineries in the medium term.
Revenue Volatility The Wine Production industry exhibits are the growing popularity of cider and high levels of revenue volatility. A high sparkling wines that have provided a focus on exports prior to the oversupply buffer against falling demand for Level and global financial crisis largely affected Australian wines over the past five years. The level of revenue volatility. In the five years through Production and prices are affected by Volatility is High 2013-14, exports have fallen from more the supply of grapes, which is affected by than 43% of industry revenue to 34.5%, weather and soil conditions, disease and reflecting the significant decline in plagues. Earnings fluctuate due to industry revenue. Domestic demand, on changing input prices, changes in supply the other hand, has grown at an annualised of grapes and restructuring costs. As 0.8% over the five years through 2013-14. concentration increases, larger producers However, offsetting these volatility trends are expected to increase in market power, WWW.IBISWORLD.COM.AU Wine Production in Australia November 2013 37
Operating Conditions
Revenue Volatility bargaining for secure industry supply uncertainty and hampering growth of continued contracts, especially with the supply to domestic demand. Furthermore, domestic retailers via private labels. unpredictable fluctuations of exchange Strong competition for retail sales is rates and changes in consumer tastes forcing Australian winemakers to reduce affect export wine prices and general prices, which is adding to revenue consumption of wine.
A higher level of revenue Volatility vs Growth volatility implies greater industry risk. Volatility can 1000 Hazardous Rollercoaster negatively affect long-term strategic decisions, such as 100 the time frame for capital investment. 10 Wine Production When a fi rm makes poor investment decisions it may face underutilised 1
capacity if demand (%) volatility* Revenue suddenly falls, or capacity 0.1 Stagnant Blue Chip constraints if it rises –30 –10 10 30 50 70 quickly. Five year annualised revenue growth (%)
* Axis is in logarithmic scale SOURCE: WWW.IBISWORLD.COM.AU
Regulation & Policy Wine producers are required to follow a Furthermore, Australia has a number of number of regulations. In broad terms, wine trading agreements and the AWBC these include labelling issues, export is charged with ensuring that Australian Level & Trend regulations and food standards legislation. wine exports comply. The level of The two most significant areas of The AWBC runs a label integrity Regulation is regulation relate to exports and labelling. program to check that labelling claims are Medium and the Wine producers wishing to export have correct. Labelling must be truthful in trend is Steady to obtain an export licence from the terms of what varieties of gapes are used Australian Wine and Brandy Corporation and what regional zones are referred to on (AWBC), which is responsible for the label. It maintains graphical regulating exports to maintain the quality indicators, which are used by producers in of wine exported from Australia. The their labelling. For a wine to be labelled as AWBC defines geographical boundaries being from a particular geographical area, to be used in labelling to further establish 85% of the fruit that goes into making the the reputation of wine regions in wine must be from that area. This protects Australia. Furthermore, it undertakes the reputation of wine producing regions some negotiation on behalf of Australian from harmful claims that a low-quality growers to reduce barriers to trade with products may be produced in that area. other countries. The regulation of wine This system was introduced in response to exports is primarily to ensure the quality the agreement to cease using European of Australian product marketed overseas place names in product labels in return for and is justified on the basis that greater market access in Europe. As a improved perception of Australian wine result, winemakers are required to stimulates demand, the positive effects of maintain records attesting to the integrity which can be felt across the industry. of the vintage. WWW.IBISWORLD.COM.AU Wine Production in Australia November 2013 38
Operating Conditions
Industry Assistance The Wine Production industry receives a Development Corporation (GWRDC) are medium level of industry assistance. two Australian Government bodies While the industry receives a lower established to assist industry growth and Level & Trend amount of direct government assistance, international competitiveness. The level of Industry numerous associations and industry The Winemakers Federation of Assistance is bodies help promote Australia’s image as Australia (WFA) is the peak body of the Medium and the a wine producing country. Wine Production industry. It represents trend is Steady Tariffs on wines have fallen since 1988. the interests of wine producers, provides All tariffs on wine are now set at 5.0% advocacy for producers and promotes the (except for a concession rate of 4.0% for industry to government and financial developing countries). For some communities. The WFA, established in varieties, there is also a flat charge per 1990, represents winemakers both litre, which varies according to the type domestically and overseas and is funded of wine and its alcoholic content. In by voluntary levies. addition to tariff protection, a number of Further assistance is available to industry bodies assist producers or producers through various state-based facilitate the operation of the industry. industry associations. Additionally, the As wine is the country’s 12th-largest Australian Trade Commission provides exporting industry, there is substantial assistance to businesses looking to export support from government. The Australian through its New Exporter Development Wine and Brandy Corporation (AWBC) Program and through export development and the Grape and Wine Research and grants for existing and new exporters. WWW.IBISWORLD.COM.AU Wine Production in Australia November 2013 39 Key Statistics
Industry Data Industry Domestic Revenue Value Added Exports Imports Wages Demand ($m) ($m) Establishments Enterprises Employment ($m) ($m) ($m) ($m) 2004-05 7,769.1 2,234.9 1,949 1,690 15,980 3,611.8 284.6 983.1 4,441.9 2005-06 7,147.4 1,726.0 1,970 1,708 15,600 3,493.2 333.8 951.7 3,988.0 2006-07 7,556.8 1,759.8 1,998 1,756 15,233 3,507.6 423.4 964.0 4,472.6 2007-08 6,030.7 1,556.5 1,959 1,735 14,875 3,124.1 539.8 851.6 3,446.4 2008-09 6,289.1 1,247.9 1,989 1,742 15,499 2,750.0 571.8 932.7 4,110.9 2009-10 6,292.5 1,518.9 2,058 1,848 16,707 2,384.7 554.3 903.7 4,462.1 2010-11 5,311.0 1,321.1 2,042 1,868 16,113 2,067.6 544.8 848.2 3,788.2 2011-12 5,602.2 1,724.7 2,020 1,827 16,437 1,935.9 625.1 933.2 4,291.4 2012-13 5,669.1 1,757.3 2,030 1,831 16,055 1,970.3 566.0 975.7 4,264.8 2013-14 5,708.6 1,768.4 2,042 1,867 16,122 1,969.3 542.9 984.6 4,282.2 2014-15 5,766.4 1,785.3 2,023 1,852 16,186 2,014.6 556.0 1,025.4 4,307.8 2015-16 5,884.7 1,826.7 1,957 1,812 16,175 2,068.1 568.9 1,063.9 4,385.5 2016-17 5,912.2 1,836.9 2,010 1,848 16,389 2,119.6 579.1 1,029.2 4,371.7 2017-18 6,204.9 1,879.2 1,981 1,826 16,354 2,194.9 593.4 992.4 4,603.4 2018-19 6,312.3 1,910.3 1,989 1,844 16,403 2,235.6 616.8 1,015.8 4,693.5 Sector Rank 15/164 11/164 11/164 11/164 10/164 9/153 70/153 12/164 34/152 Economy Rank 186/664 191/664 237/664 208/663 198/664 24/210 81/203 186/664 53/200
Annual Change Industry Domestic Revenue Value Added Establishments Enterprises Employment Exports Imports Wages Demand (%) (%) (%) (%) (%) (%) (%) (%) (%) 2005-06 -8.0 -22.8 1.1 1.1 -2.4 -3.3 17.3 -3.2 -10.2 2006-07 5.7 2.0 1.4 2.8 -2.4 0.4 26.8 1.3 12.2 2007-08 -20.2 -11.6 -2.0 -1.2 -2.4 -10.9 27.5 -11.7 -22.9 2008-09 4.3 -19.8 1.5 0.4 4.2 -12.0 5.9 9.5 19.3 2009-10 0.1 21.7 3.5 6.1 7.8 -13.3 -3.1 -3.1 8.5 2010-11 -15.6 -13.0 -0.8 1.1 -3.6 -13.3 -1.7 -6.1 -15.1 2011-12 5.5 30.6 -1.1 -2.2 2.0 -6.4 14.7 10.0 13.3 2012-13 1.2 1.9 0.5 0.2 -2.3 1.8 -9.5 4.6 -0.6 2013-14 0.7 0.6 0.6 2.0 0.4 -0.1 -4.1 0.9 0.4 2014-15 1.0 1.0 -0.9 -0.8 0.4 2.3 2.4 4.1 0.6 2015-16 2.1 2.3 -3.3 -2.2 -0.1 2.7 2.3 3.8 1.8 2016-17 0.5 0.6 2.7 2.0 1.3 2.5 1.8 -3.3 -0.3 2017-18 5.0 2.3 -1.4 -1.2 -0.2 3.6 2.5 -3.6 5.3 2018-19 1.7 1.7 0.4 1.0 0.3 1.9 3.9 2.4 2.0 Sector Rank 102/164 81/164 64/164 31/164 64/164 95/153 142/153 66/164 111/152 Economy Rank 511/664 441/664 338/664 149/663 408/664 134/210 183/203 401/664 144/200
Key Ratios Revenue per Share of the IVA/Revenue Imports/Demand Exports/Revenue Employee Wages/Revenue Employees Average Wage Economy (%) (%) (%) ($’000) (%) per Est. ($) (%) 2004-05 28.77 6.41 46.49 486.18 12.65 8.20 61,520.65 0.19 2005-06 24.15 8.37 48.87 458.17 13.32 7.92 61,006.41 0.14 2006-07 23.29 9.47 46.42 496.08 12.76 7.62 63,283.66 0.14 2007-08 25.81 15.66 51.80 405.43 14.12 7.59 57,250.42 0.12 2008-09 19.84 13.91 43.73 405.77 14.83 7.79 60,178.08 0.09 2009-10 24.14 12.42 37.90 376.64 14.36 8.12 54,091.10 0.11 2010-11 24.87 14.38 38.93 329.61 15.97 7.89 52,640.72 0.09 2011-12 30.79 14.57 34.56 340.83 16.66 8.14 56,774.35 0.12 2012-13 31.00 13.27 34.76 353.10 17.21 7.91 60,772.35 0.12 2013-14 30.98 12.68 34.50 354.09 17.25 7.90 61,071.83 0.12 2014-15 30.96 12.91 34.94 356.26 17.78 8.00 63,351.04 0.11 2015-16 31.04 12.97 35.14 363.81 18.08 8.27 65,774.34 0.11 2016-17 31.07 13.25 35.85 360.74 17.41 8.15 62,798.22 0.11 2017-18 30.29 12.89 35.37 379.41 15.99 8.26 60,682.40 0.11 2018-19 30.26 13.14 35.42 384.83 16.09 8.25 61,927.70 0.11 Sector Rank 61/164 100/152 28/153 88/164 74/164 111/164 85/164 11/164 Economy Rank 378/664 114/200 46/210 283/664 359/664 294/664 303/664 191/664
Figures are inflation-adjusted 2014 dollars. Rank refers to 2014 data. SOURCE: WWW.IBISWORLD.COM.AU WWW.IBISWORLD.COM.AU Wine Production in Australia November 2013 40
Jargon & Glossary
Industry Jargon BULK WINE Wine produced and packed in containers holding over 20 litres. CSIRO Commonwealth Scientific and Industrial Research Organisation. WINE EQUALISATION TAX (WET) A value-based tax, applied from 1 July 2000 when the 41% wholesale tax on wine was abolished.
IBISWorld Glossary BARRIERS TO ENTRY High barriers to entry mean that INDUSTRY REVENUE The total sales of industry goods new companies struggle to enter an industry, while low and services (exclusive of excise and sales tax); subsidies barriers mean it is easy for new companies to enter an on production; all other operating income from outside industry. the firm (such as commission income, repair and service CAPITAL INTENSITY Compares the amount of money income, and rent, leasing and hiring income); and spent on capital (plant, machinery and equipment) with capital work done by rental or lease. Receipts from that spent on labour. IBISWorld uses the ratio of interest royalties, dividends and the sale of fixed depreciation to wages as a proxy for capital intensity. tangible assets are excluded. High capital intensity is more than $0.333 of capital to INDUSTRY VALUE ADDED (IVA) The market value of $1 of labour; medium is $0.125 to $0.333 of capital to goods and services produced by the industry minus the $1 of labour; low is less than $0.125 of capital for every cost of goods and services used in production. IVA is $1 of labour. also described as the industry’s contribution to GDP, or CONSTANT PRICES The dollar figures in the Key profit plus wages and depreciation. Statistics table, including forecasts, are adjusted for INTERNATIONAL TRADE The level of international inflation using the current year (i.e. year published) as trade is determined by ratios of exports to revenue and the base year. This removes the impact of changes in imports to domestic demand. For exports/revenue: low is the purchasing power of the dollar, leaving only the less than 5%; medium is 5% to 20%; and high is more ‘real’ growth or decline in industry metrics. The inflation than 20%. Imports/domestic demand: low is less than adjustments in IBISWorld’s reports are made using the 5%; medium is 5% to 35%; and high is more than Australian Bureau of Statistics’ implicit GDP price 35%. deflator. LIFE CYCLE All industries go through periods of growth, DOMESTIC DEMAND Spending on industry goods and maturity and decline. IBISWorld determines an services within Australia, regardless of their country of industry’s life cycle by considering its growth rate origin. It is derived by adding imports to industry (measured by IVA) compared with GDP; the growth rate revenue, and then subtracting exports. of the number of establishments; the amount of change EMPLOYMENT The number of permanent, part-time, the industry’s products are undergoing; the rate of temporary and casual employees, working proprietors, technological change; and the level of customer partners, managers and executives within the industry. acceptance of industry products and services. ENTERPRISE A division that is separately managed and NONEMPLOYING ESTABLISHMENT Businesses with keeps management accounts. Each enterprise consists no paid employment or payroll, also known as of one or more establishments that are under common nonemployers. These are mostly set up by self-employed ownership or control. individuals. ESTABLISHMENT The smallest type of accounting unit PROFIT IBISWorld uses earnings before interest and tax within an enterprise, an establishment is a single (EBIT) as an indicator of a company’s profitability. It is physical location where business is conducted or where calculated as revenue minus expenses, excluding services or industrial operations are performed. Multiple interest and tax. establishments under common control make up an VOLATILITY The level of volatility is determined by enterprise. averaging the absolute change in revenue in each of the EXPORTS Total value of industry goods and services sold past five years. Volatility levels: very high is more than by Australian companies to customers abroad. ±20%; high volatility is ±10% to ±20%; moderate volatility is ±3% to ±10%; and low volatility is less than IMPORTS Total value of industry goods and services ±3%. brought in from foreign countries to be sold in Australia. WAGES The gross total wages and salaries of all INDUSTRY CONCENTRATION An indicator of the employees in the industry. Benefits and on-costs are dominance of the top four players in an industry. included in this figure. Concentration is considered high if the top players account for more than 70% of industry revenue. Medium is 40% to 70% of industry revenue. Low is less than 40%. www.ibisworld.com.au | (03) 9655 3881 | [email protected]
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