Monday, October 09, 2006

Boxed Wine Is No Gimmick

An article in the UK's Sunday Times says "Australia drowns in a lake of wine", and describes a glut of red grapes that is resulting in a crisis for small growers in particular.

In the year to August, Australian wine exports to Britain grew 3%. But the average price wine fetched fell 2% to £1.40 a litre. Worldwide, average prices dropped 8% and that has left many Australian producers drowning in a glut of red grapes. In recent weeks, the casualties among winemakers have increased and some experts fear the industry faces a shake-out in which hundreds of producers will go to the wall, with only the big players surviving. Scores of boutique wineries have already given up, rather than wither on the vine.

Australia drowns in a lake of wine - Sunday Times - Times Online

The article mentions the strategy of directing surplus into boxed products. While the article on the whole seems a sensible analysis, there is one statement that brands boxed wine a "gimmick".

Evans & Tate has pinned its future on sales of premium wines and brands from the Margaret River region in Western Australia. Other wineries hope for growth in the mass market and are trying to mop up the grape surplus with gimmicks such as boxed wine. Cheviot Bridge, a Melbourne company that reported a 94% slump in full-year net profit to A$362,000, has staked its future on boxed wine. “We will certainly get through the downturn because at least we made a profit and lots of other companies didn’t,” said Paul Batchelor, Cheviot’s chairman. But the company’s profits were still down 39%: “It’s a pretty tough world out there,” he added. Despite the company’s confidence that the “environmentally friendly” boxes will be a hit with drinkers, packaging is unlikely to solve the company’s problem. Cheviot’s liabilities exceed its assets. Batchelor has tried to sound confident. “We’re bouncing along the bottom,” he said. “I don’t think it’s going to get worse.”

Well, I guess that's what happens when you get a British business reporter writing about Australian wine in the business section. Packaging strategies may or may not solve a given company's oversupply problem, but the box is hardly a "gimmick". At any rate, we may see a lot of this oversupply of red for some time to come.

The glut is deep, and unlikely to go away soon. According to The 2005 National Wine Grape Crush & Price Report, the grapes Malbec, Cabernet Sauvignon, Grenache, Sangiovese, and Chardonnay are 10%-25% in oversupply. Some 200,000 tonnes of wine grapes were left unsold nationally in the last financial year. That forced many wineries to “mothball” their vineyards. The vines were forced into a kind of seasonal hibernation: pruning and spraying ceased, and the plants were kept alive on the barest trickle of water. Gnarled branches, grapeless and apparently devoid of life, replaced the once healthy rows of vines. The sight is a devastating reminder of the vicissitudes of an industry that has become a victim of its own success. It is difficult to pinpoint the exact source of the problem. Some blame the Winemakers’ Federation of Australia’s Strategy 2025 launched in 1996. This laid out a 30-year plan to capture 6.5% of world wine production by value and create annual sales of A$4.5 billion.

Meanwhile, some vineyards are selling are selling at fire-sale prices.

British would-be winemakers could pick up a small Australian vineyard for about £150,000. Any takers?