Western Australian Wineries Argue Price War With South American Producers Counterproductive
With wine consumption continuing to surge in China — rising some 75 percent between 2005-2010, according to Euromonitor International — wineries from around the world have poured into the market, fighting to position their products in the “sweet spot” above more inexpensive domestic wines and astronomically priced top-tier bottles. Of the countries currently turning to the China market as a key wine export destination, few have been as motivated as Australia. According to WineBiz, China is currently Australia’s fourth-largest wine export market, with Aussie winemakers shipping some 55 million liters of wine to thirsty Chinese drinkers in 2010, a 36 percent rise over 2009.
Although exports to China are an increasingly reliable source of revenue for Australian winemakers, simply flooding the market with moderately priced bottles is both unsustainable and unwise. With the quality of domestic Chinese wines produced at smaller boutique wineries growing year by year, and with more Chinese investors buying French châteaux and setting their sights on vineyards in Australia, Europe and South America, competition is becoming incredibly fierce for such a young market. To avoid a price war with lower-quality South American producers and maintain strong sales margins, winemakers Peter Fogarty and Jeff Burch told the Australian this week, it’s time to stop viewing China as a dumping ground for more inexpensive wines. With Chinese wine drinkers becoming increasingly knowledgeable and, perhaps more importantly, willing to pay for quality, Fogarty and Burch said, “China deserves better”.
From the Australian:
Peter Fogarty, who owns Millbrook and Deep Woods, and Jeff Burch, of Howard Park and Mad Fish, say the market in China is changing and becoming more sophisticated.
Mr Fogarty said selling wines for $30 and $40 a case into China was unsustainable and lumped Australian wine into the same bracket as a lot of poor quality wine that was coming from South America in particular.
He said the Chinese were increasingly looking at investment opportunities in Australian vineyards, which was a strong indication they were seeking to develop channels for premium Australian wine.
Mr Burch said maintaining brand integrity and reputation was fundamental to success in China.
“There is clearly an opportunity to capitalise on the increasing prestige and image of wine in China, which is why the French continue to be successful,” he said.
Burch and Fogarty are smart to catch these trends now. As they told the Australian, when Chinese wine drinkers and domestic winemakers want premium wine (or land), they’ll search for it and pay dearly for it. Simply seeing China as a vast market (which it is) and trying to sell as much product there as possible at a low price means competing on price with massive domestic winemakers, who will always win. What Burch and Fogarty said about Western Australian wine — that it should exploit the lucrative mid-range premium wine niche, which will only grow along with China’s middle class — should go for producers from any country. If they don’t sell wines in this segment, and choose to compete at the lower-end or fight with giants like Château Lafite at the high end, they shouldn’t be surprised to see Chinese investors buying up land to do it themselves.