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Copyright © Ric Einstein 2009
Trouble at the Top End – Consumer Perspective
Australia used to be seen as two things in both the US and UK markets – sunshine in a bottle and “great value” – but is that still the case?
After writing “Trouble at the Top End” I wanted to get the US consumers perspective on why premium Australian wine sales were no longer the flavour of the month, so I asked the good folk on WCWN Forum for their thoughts. A number of reasons were given; including price, “they all taste the same” and disillusionment with ratings or disappointment with what was found in the bottle.
Clearly the most important reason was “price.” We are still seen as sunshine in a bottle, but the value aspect of Brand Australia” is becoming very questionable at the premium end. The price of Australian wine, and Shiraz in particular, is no longer seen as great value; add to that the emergence of a strengthening local production in quality Shiraz at competitive prices, and its no wonder things are not as good as they were for Australian producers.
This situation has come about for a number of reasons. The first and worst example relates to those in the supply chain gouging customers, in many cases to the long term detriment of the wineries reputation. One great example; a small McLaren Vale producer was awarded 98 points by Parker for his Shiraz. The producer’s US importer, on the strength of this one rating, whacked the retail price up of all the wines from this winery up by 100% and convinced the winery owner it was the right thing to do. The wines from this vintage sold out quickly, but as the subsequent vintages didn’t rate anywhere near as highly, the winery had trouble moving its wines at the new prices for the next four years; until they swallowed the bitter pill and had a substantial price reduction, but by that stage the damage to the label had already been done.
In this WCWN thread, Bruce provided another great example. He said “Since you mention the top end of the Australian wine market, let me mention Exhibit A for bad pricing behaviour--Clarendon Hills. I love many of their wines, but what's happened to the US retail pricing of that portfolio is beyond silly. To take the top end “Astralis”; that's a wine that used to retail in the U.S. for well under $100 not that long ago. Now it regularly retails for $300+. F*** that; the wine didn't get any "better," it just got a great deal more expensive. By contrast, another top-end wine is Penfolds Grange. Even though the 1998 vintage was a consensus winner, it was available on release in the U.S. for under $200. It's built up a reputation over many, many years, and its price increases have been relatively modest from year to year.”
Recently the Two Hands and Branson wineries changed wholesalers. From what I understand, whilst Two Hands isn’t making anymore dollars per bottle, they are guaranteed a certain volume of sales to the US ($6m per annum was the figure I heard from a good source.) The new importer is the one making the dollars, but then Two Hands isn’t exactly starving; they are making their dollars thru sheer volume. The winery should be making a greater return but according to the numbers I saw, it will mean the consumer will being paying from 15% to 50% more for some of these wines. The big question here, and it could and does apply to many other Australian wineries, is how long will it be before consumers start to find the wine no longer representing value and stops buying them?
At least in these three examples, the winery had some input into the process but in many cases of gouging, the winery and end consumer gets done over and the importer makes the profit.
At one time, the general rule of thumb was that if a wine cost Aust $20 in Australia, it would retail for US$20 in the US. If you think about the 43% tax paid on the majority of wine sold in Australia, as well as the exchange rate, the US supply chain, even allowing for the inefficient three tier distribution process, those in the chain were making good money. There are exceptions to this rule: at the bottom end, those producers who manage to sell for less than the same dollar value generally are regarded as QPR killers and move loads of stock in the US. At the other end, those that charge more than the equivalent dollar value may do well for a short time and in the vast majority of cases, it’s on the back of a high rating, but in the long term experience has shown that the brand gets hurt by the supply chain engaging in this practice.
One of the excuses given for the escalation in prices for Australian wine in the US is that the Australian dollar is now worth about 75 cent to the US dollar; but it needs to be remembered that it was in that range for many years, and when it dropped into the low 50 cent range (and lower,) I don’t remember seeing many/any importers dropping their prices of Australian wines. They made hay whilst the sun was shining and that fine, but to use that as an excuse now is not necessarily completely valid; the profit is still there if the importers are not greedy.
The more loyal importers, and there are a few of them around, in many cases have absorbed the vast majority of the exchange rate differential themselves, realising they are in it for the long haul and want to build the brands they carry based on a solid foundation, rather than on the quicksands of exchange rate fluctuations and heroine fixes of high point scores.
Australian wines that are good value can be found in the US, and I am not talking about clearance lines, sales or special deals.
One brand that has taken the US by storm is Thorn-Clarke and it’s no wonder. Their Bordeaux blend that can be found as low as $20 in Australia can be found in the US for $15, making it one of those few wines that is lower dollar for dollar in the US than in Australia, but if Throne-Clarke and others can do it, why are there so few to break the dollar for dollar rule?
Penfolds also do it with Bin 389 (available at $16-$20) which is priced at the same price as Bin 128, 28, 407 etc, (which does not impress us in Oz where we pay twice the price for 389.) Wynns Black Label Cabernet is also pitched at the same price point as their Shiraz in the US, once again substantially less than it is in Oz on the dollar for dollar rule.
There are many good value deals from reputable importers that still offer excellent value for money in the US. This list from Southernstarz shows that it’s still possible to pick up very drinkable wines for less than $20.
Tait Ball Buster Shiraz $17,
Water Wheel Memsie $14 and Shiraz $17
Bleasdale Cab and Shiraz both $17 and their Shiraz/Cab blend sells for $14
St.Mary’s Bells & Whistles $17
Craneford Allyson Parsons Shiraz and Cabernet both $17
Discounters would sell the $17 wines for closer to $12.99 while stores that make more traditional mark ups will sell them for $16.99. There is no shortage of stores that carry these wines for $2 less than suggested.
At the discounted $12.99 price, you won’t find most of these wines on special in Oz that low, so there are some good deals to be found that represent not just good value, but great value, but buyers have to look for them.
According to Michael Opdahl of Joshua Tree Imports, some of the wines he represents equal real value in the US too. For example:
Razor’s Edge at $10.00 retail for a 100% McLaren Vale Shiraz
All of Chapel Hill's wines at $15-18
Rolf Binder's Hales & Halliwell <$20
Dutschke Old Codger Port <$20 for a true solera NV port.
All these sell for same or less than they do in Australia. That is especially true of the Chapel Hill whose reds range from $20 to $46 direct from the winery (and apparently the new Chapel Hill wines will cost less.)
Unfortunately, whilst the low-end Yellow Tail style wines are seen as extremely price competitive, many of the Oz premiums are no longer seen as great value any longer, and that’s hurting sales.
They All Taste The Same
Of the other main reasons for the decline is that “they all the same” and to some extent, this comment has validity and there are a number of underlying causes that are worth exploring. When OZ Shiraz started becoming fashionable with the 1998 vintage, many of the wines that were being promoted were sweet (some have noticeable residual sugar levels;) super-ripe blackberry and vanillin flavours were the norm. As time progressed, the super-ripe blackberry remained but the oak treatment has been moving away from strong vanillin American oak characters to oak toasting levels that exude strong coffee flavours. Its formula winemaking! And whilst the US loved it initially, as their palates have gained experience, they are looking for more variety. In Australia, it’s easy for us to find cooler climate Shiraz that do not have these characters, but in the US, consumers don’t look to different Australian regions, which are often hard to find, they look to different countries.
The US wine industry used to be famous for their Cabernet Sauvignon but over time their Shiraz has become increasingly competitive and attractive to local consumers. Other southern hemisphere countries have improved the quality of their wine over recent years and they are becoming more competitive too.
Another cause stated by US wine lovers for the disillusionment can be summed up in one word; “expectations”. Initially, a high percentage of the premium Australian wine was bought on trust, especially by those who were new to Australian wine; specifically the trust and high points rating by certain reviewers, Robert Parker being the most influential. The wines received high points and people went out and bought them thinking they must be good to have been awarded those points. Now the problem is, just because a wine is highly rated (by anyone,) does not mean that the purchaser will like the style, or even the way the wine will develop. Many people cellared those 98’s and are now pulling them out of their cellar to find the wines are “not their thing.”
Some people are not keen on these wines because their taste has changed; others because they preferred the fruit forward characters that were found in these wines in their youth, rather than the aged, more integrated and subtle characters of aged wines.
According to Michael Opdahl “The impact that Parker & The Wine Spectator have had on the high-end Aussie market cannot be overstated, but it is a dual edged sword. When Robert Parker gives Sparky’s Molllydooker wines 92-95 points for $20 and under wines, or Steinman giving 96 points for Schild Estate 2004 Barossa Valley Shiraz, the demand in the marketplace for more expensive Aussie Shiraz is severely lessened. I can’t think of any other producing country getting better scores for their less expensive wines than Australia.”
The explosion of “critter wine” brands has also not helped the reputation of Australian premium wines; sure it’s good for the industry in general but it does nothing positive for those premium producers. The fight for the bottom end of the market seemingly intensifies daily and Australia is doing well with brands like Yellow Tail, but the down side for premium producers is that the low end success is so powerful that it is now becoming “brand Australia” and it overshadows and detracts from the image the premium producers are trying to establish. The premium producers face the likelihood of being tarred with the same brush as the critter wines.
The value and sunshine in a bottle image is alive and well, but the problem is the price point it applies to has plummeted, resulting in a disconnect with the higher priced Australian wines.
Copyright © Ric Einstein 2006