Andreas Clark interview, exports to UK and China

Interview with Andreas Clark CEO Wine Australia

Andreas Clark has recently returned from China where he was taking part in the Australia Week in China (AWIC) promotion. It’s been reported as a great susses for Australia overall. On his return TKR secured a short interview with Clark

Welcome back, it appears the AWIC was a success in many aspects. I was intrigued with the Dairy Australia, Meat and Livestock Australia link up. If I look at it from one aspect it makes sense but there is another side of me is asking why? What can it produce?

AC: We recently commissioned research that showed the correlation between a country’s image and product image. The basic outtake was when consumers see a country and a product as a good ‘fit’, they will see the product as being of high quality, and better than products produced in places where the ‘fit’ is poor. They will also pay more for assumed higher quality, lower risk purchase, assumed expertise and prestige. In short, there is an important link between how Australia is perceived and how the quality of our wine and food is perceived, so we’re seeking to emphasise this in market for the benefits of our respective sectors.

Our three organisations are all highly active in the growing China market and we’re all promoting Australian quality and provenance so it just makes sense for us to work together and share common messaging. There are significant commercial opportunities for Australian agriculture in China and, while we’re seeing great growth in the export figures, all of our competitors want to secure their share too so it’s vital that we have a consistent set of strong messages around quality whenever Australian produce is showcased. This is about differentiating ourselves from competitors and continuing to growing demand for all products of Australian provenance.

Food and wine are already a big part of the wine story and we’ve worked with MLA in the past on promotional events in China showcasing both Australian meat and wine so formalising a collaboration to further promote our sectors is a natural evolution.

Or am I getting a public consumer aspect mixed up with an overall presentation of the quality of Australian wine, meat and dairy?

Put another way, is the program aiming to appeal to consumers or importers?

AC: The messaging is designed to appeal to both trade and the wine consumers but Wine Australia will continue to directly engage predominately with the wine trade in mainland China.

Did the BBQ demonstrations by an on-site chef, cheese tastings and wine tastings really impress those that needed to be impressed? “Dairy Australia Group Manager Trade & Industry Strategy Charles McElhone said the initiative had already received positive traction from key Chinese customers, importers and distributors who worked with the Australian dairy industry.” Any detail on this and has WA had any feedback?  Indeed how far can this go, are the next steps underway or being planned?

AC: Last week was a pilot of the messaging project so now the next step is to evaluate how it all went, the feedback we got and then work together on how we build on it in the future. This isn’t about creating a common ‘brand’ but rather a set of messages that we can all draw on to promote Australia as a producer of fine quality food and wine.

You must be pleased with the latest export report:

AC: It is pleasing to see growth, and growth particularly at higher price points. Exports with an FOB over $10 per litre now make up 24 per cent of our total exports, so it’s moving in the right direction. Needless to say though that a lot of work remains to be done.

I’ve never been really clear why Hong Kong and Mainland China are considered separate markets, is it something to do with import duty?

AC: There are different regulations for each of these markets and from a strategic perspective, there are also some differences in how we approach our activities so that explains why we regard them as separate markets.

I find it disconcerting that China (also the USA volume increase and value) has taken the lead in bottled wine at $2.50 litre and below, apart from the quality aspect does this not indicate the Australian vintage is still too large?

AC: Not at all, China is a growing market with a quickly evolving wine culture. We’re selling in to an expanded market and it’s not surprising to see this growth across all price points.

Are some companies dumping wine on the market and this will do damage down the track?

AC: No, I don’t see examples of dumping wine in the mainland China market, as discussed above we’re seeing growth across all price points, which is consistent with the evolving wine culture.

The other figures are very good, but is it to do with the relaxing of the austerity and gift giving era? Are we and other countries not trying to get the Chinese to buy wine for the table, not to gift it and it sits in a glass fronted cupboard for years?

AC: I don’t see the growth as being a result of relaxed austerity laws but rather a growing middle class and a growing wine culture where wine is starting to play a greater role in more everyday social occasions and entertaining. We’re also seeing an increase in wine tourism by Chinese tourists here in Australia and that translates to an on-going interest in Australian wine when they return home.

Would you have any figures or understanding of the use of cork or cap in China?

AC: We don’t have this data.

I have written before about not rushing into China as we did in the UK and the USA, what is your view on the way wineries and exporters are approaching the China market?

AC: Our recommendation to wineries and exporters is to focus on building long-term relationships in-market, continue to be highly active, make sure you’re getting on the ground over there. We’re not rushing in to it but I’m encouraged to see wineries and exporters capitalising on the opportunities available. There’s a growing number of consumers interested in wine and in particular Australian wine. We’ve got a reputation for quality and product safety, and the trade benefits of CAFTA [China Australia Free Trade Agreement] are another tool in our kit that will help our wineries and exporters tap in to that demand for high quality Australian wine products.

Do you have any figures or understanding of the sell through situation that is wine getting on the shelf to the consumer and on their table to be consumed? Or is a vast amount sitting in warehouses’?

AC: Due to the nature of the China retail market we don’t have access to data that can answer that question with any accuracy.

Plus and minus

What impressed TKR at first glance at the latest export figures, to the end of March 2016, were not just the increases (we will get to those later and coming weeks), but the overall visual impact of the bottled exports by price point and destination table. There are 41 minus signs across all price brackets (eight columns), and none in the total column.

Go back to 2012 and there were 67 minus signs across six columns, with 12 of them in the total column.

Not deep analysis, and it wouldn’t pass muster in academic circles, but it was good to see.

The big news is that in value terms China has taken over the number two spot from the UK. For the 12 months total Chinese value was $397 million, versus the UK’s $373 million.

It’s good to see another country increasing its share, as the fourth largest export (value) market is Canada, at $188.3 million. If Australia had 10 markets at $200 million each it would spread the risk of losing favour in one. Better still to have 20 markets at $100 million. Currently Australia has five markets (the US, China, the UK, Canada and Hong Kong) accounting for about 75 per cent of wine exports. Twenty-one markets take $10 million or more of wine.

Combine China with Hong Kong, the fifth largest export destination ($128.8 million), and the total is a staggering $526 million. This is good, but as said above, we need to spread the risk.

The total value difference between China and the UK is as yet not that vast. What need looking at are the styles of wine that are going to each country, and whether Australia is heading in the right direction for the long term. Defining long term is difficult in the wine business, as taste and fashion change rapidly, but adopting the old Russian five-year plan might be worth considering. Year two is the start of the next five years. As it’s a rolling five years it never ends.

Long term it’s not practical to think of China as a market for only top-end wines or the UK as bland brand. What is needed is a good selection of the full span of wines Australia has to offer. The latest export figures are:

Figures in millions

Bottled wine Red White Bulk wine Red White
China $355.5 +65% $16.6 +25% China $10.8 +126% $3.4 +208%
UK $95 +12% $60.2 +4% UK $127.5 -4% $83 -1%

As the figures show, the Chinese love Australian red wine, but white is showing respectable increases. It has more than doubled since 2007-08, when it was worth about $7 million. The UK has a better balance, but increased sales of both red and white bottled wine would be welcome.

The UK has long been a devotee for shipping wine in bulk for local bottling. The latest report says the better exchange rate means more wine is being bottled in Australia, which possibly accounts for the slight decrease in bulk shipments. No matter how good the bottled wine shipments to China, should we be concerned with the dramatic increase of bulk shipments? The average price for bulk wine in this period was 87 cents for white and $1.09 for red. Very tight margins there and for some a loss.

Price points per litre, dollars in millions:

Bottled

wine

$2.49

& under

$2.50-

$4.99

$5-

$7.49

$7.50-

$9.99

$10-

$19.99

$20-

$49.99

$50

and above

China $9.5 +155% $116

+46%

$63.5

+39%

$33

+49%

$69

+61%

$41.7

+71%

$48.8

+198%

UK $6

+2%

$98.7

+3%

$23.8

+23%

$11.3

+11%

$14.2

+17%

$5.3

-30%

$2.5

+17%

Global shipments of bottled wine at $2.49 litre or less amount to $33.9 million. In volume it’s 1.76 million nine-litre cases. That’s a lot of wine going out at either a loss or minimum profit. Profit or loss is not so much a concern as is the quality of these wines and what, if any, damage they are doing to the reputation of Australian wines in China and the UK.

The $2.50-$4.99 sector shows the popular price point in both countries. What excites Wine Australia are exports at $5 litre and above. These should not only be profitable but also respectable and present a good image of Australian wine. Both countries show increases, but China is exceptional in percentage growth. The UK is let down in the $20-$49.99 sector, but otherwise not bad.

Last year the California-based Wine Institute published a list of the top 20 countries for wine consumption per capita. Interestingly, only two, Italy and Germany, appear in the top 20 export destinations for Australian wine.

Just five countries account for about half the world’s wine consumption, according to the International Organisation of Vine and Wine:

  • US: 13 per cent
  • France: 11 per cent
  • Germany: 9 per cent
  • Italy: 9 per cent
  • China: 7 per cent

It’s also worth remembering that exports from other countries to China are also on the increase. Australia is not the sole supplier. Also, let’s not forget that China has increased its vineyard capacity and is now ranked the second largest in the world.

Margaret’s Chinese takeaway

More Chinese investment in Australian wine: Hao Hongfeng, chairman of China online alcohol retailer Jiuxian.com, has entered into a partnership agreement with Brygon Reserve Wines to sell two of Brygon’s brands, The Third Wheel and Humming Bird.

Jiuxian has adopted a policy of working direct with wineries, though it also lists Yellow Tail and Penfolds on its site.  One report said Hao Hongfeng was looking to partner with up to 10 WA wineries.

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