TKR congratulations to John Angove, Colin Campbell and Wolf Blass for their selection as Winemakers’ Federation of Australia (WFA) life members. There was a complimentary report on ABC Rural on March 24 that said: “When the three winemakers were at the peak of their careers, the dollar was low, Australian wine was an international sensation and vineyards were considered gold mines.”
It reads as if they only saw the good times, but the three men were in the business long before the golden period. The trio offered words of wisdom, but they were hardly new:
- To work more cohesively with grape growers and try harder to lift the image of Australian wine overseas.
This is slightly puzzling. Is it one or two recommendations? There is a great need to work closer with grape growers, but grape growers have little input into exports (though they should take more interest).
Lifting the image of Australian wine is in the hands of producers. But it was producers who lowered the bar and who are responsible for the image that Australian wine has. Angove said:
“Whether we like it or not, we are a commercial product at that end of the market and we need to find the innovation to meet the prices if we’re going to stay there; that will be a challenge.”
That doesn’t sound as if working with grape growers means a better deal for them.
Campbell wants more cohesion among various groups – i.e. the WFA and Wine Grape Growers Australia – when dealing with government.
Blass followed the line about excess grapes and discounting, which he said was “
giving us a terrible bloody reputation and we don’t deserve it”.
Unfortunately, Mr Blass, we do deserve it. Australia led the way in the UK with three bottles for a tenner and discounting in supermarkets. Australian wine is reaping what it sowed. In the US Australia pushed over-sugared critter brands that were dull but appealed to a sector of the market, or overpriced high-alcohol offerings that were brutes but did well in Parker-point fairyland. Well-made quality wine showing character and elegance at reasonable prices lost out.
Lining up the target
“Cask wine should be taxed out of existence, doctors say”.
This was the heading in the Sydney Sunday Telegraph on March 27. The author, Linda Silmalis, wrote:
“Doctors have called for cheap casks of wine, or ‘goon bags’ — the staple of underage drinking in the park — to be taxed out of existence.”
Silmalis’s short and simplistic article was accompanied with large photographs of stacks and shelves of wine casks. Her article, if it can be called that, was based on a report this month by the Royal Australasian College of Physicians (RACP) and the Royal Australian and New Zealand College of Psychiatrists (RANZCP).
The report is an update of their alcohol policy. From reading Silmalis’s article it would be a surprise if she had read the full report. More likely a few points were taken from a media release, i.e:
- The Royal College of Australian Physicians wants wine to be taxed like beer, to stop the health budget being wasted on preventable, alcohol-related ailments.
- Under existing laws, wine is taxed on value rather than volume.
- “This is not about stopping people drinking wine, this is about taxing cheap alcohol, which is abused by young people and those who already have problems,” RACP president Professor Nick Talley said.
- “It has been estimated the social cost of alcohol misuse is $36 billion,” Prof Talley said.
The full report is an 82-page document. The authors put forward nine points that they say should be attended to:
- Putting the right price on alcohol
- Further restricting the physical availability of alcohol
- Penalising breaches of advertising and marketing restrictions on alcohol
- Raising the minimum purchase age for alcohol
- Further reducing the incidence of drink-driving
- Improving prevention of foetal alcohol spectrum disorders
- Providing more effective and accessible alcohol treatment services
- Strengthening data collection and evidence
- Bringing it all together: a comprehensive policy approach to reduce alcohol-related harms
The report says the annual social cost of alcohol misuse in Australia is estimated at between $15 billion and $36 billion. The higher estimates include the harm to those other than just the drinker. The authors point out that the cost significantly exceeds the almost $6 billion in taxation revenue collected from alcohol excise and the wine equalisation tax (WET) in 2013-14 (net of WET rebates).
There is an article in the international section that reads much the same as this one, except it is from the UK. Alcohol is under strong attack and wine will not be spared.
The RACP and RANZCP base their lowest estimate on the paper, The avoidable costs of alcohol abuse in Australia and the potential benefits of effective policies to reduce the social costs of alcohol, by Collins and Lapsley. The paper came out in 2002 and has been quoted extensively since.
The higher estimate of $36 billion is based on papers including an update from Collins and Lapsley in 2008 (The costs of tobacco, alcohol and illicit drug abuse to Australian society in 2004-2005), and a 2010 report from the Melbourne AER Centre for Alcohol Policy Research and Turning Point Alcohol and Drug Centre, Eastern Health: The range and magnitude of alcohol’s harm to others.
The point to note is not in the main report, but buried in the references, where it is stated: “Note however, that it may involve an element of double counting.”
The RACP and RANZCP report covers all the basics that surround excess alcohol consumption:
- A causal factor in more than 200 disease and injury conditions. Single episodes of acute intoxication can lead to interpersonal violence and injuries and result in emotional trauma.
- Chronic medium to high level consumption is associated with liver and cardiovascular disease, mental health disorders and domestic violence.
- Lower level consumption over long periods has been causally linked with a range of cancers.
The report also contests the evidence that modest alcohol consumption can lead to some health benefits, citing Alcohol’s evaporating health benefits, a paper by Professor Mike Daube of health sciences research and graduate studies at Curtin University, published in the British Medical Journal in 2015.
There are powerful arguments against alcohol, but where does wine fit in? Is wine, as we in the business think, a special case?
In their mission to beat the evil of alcohol, the authors use the work of Dr Josh Byrnes, senior research fellow health economics in the Centre for Applied Health Economics, School of Medicine, Griffith University: Cost-effectiveness of volumetric alcohol taxation in Australia 2012. Plus another paper that Byrnes wrote with Doran C et al: Estimated impacts of alternative Australian alcohol taxation structures on consumption, public health and government revenues, published 2013.
One of the taxation structures involves replacing the WET with a volumetric tax. The other involves the introduction of a two-tiered volumetric tax. With the RACP and RANZCP report also referencing a World Health Report from 2010, its arguments are strong.
There are aspects of the RACP and RANZCP report that the wine industry could pick up on. One sentence says:
“Ideally, this tax system should also incorporate differentiated rates contingent on the evidence of harm associated with particular beverage types.”
The Telegraph lead, we assume, was Silmalis’s fancy. What evidence has she for penning these words: “the staple of underage drinking in the park”? There is no evidence in the report to back this outrageous statement other than in what we assume was said in the media release, “about taxing cheap alcohol, which is abused by young people”.
In our opinion, the report is contradictory when it states alcohol types should be sorted out to see which is causing what damage, then cites the following:
The Living With Alcohol program, implemented in the Northern Territory in 1992, introduced a levy of five cents per standard drink on all alcoholic drinks of greater than 3 per cent strength, with an extra levy of 35 cents per litre on cask wine.
It then says:
Though the effects of this levy were not disaggregated from the effects of other measures in the program, an evaluation to the end of 1996 found that it led to reductions in:
- Apparent per capita alcohol consumption of 22 per cent.
“Apparent” is not fact, but we have to accept the following:
- Alcohol-related road deaths (34.5 per cent) and hospitalisations (23.4 per cent).
- Deaths (19 per cent) and hospitalisations (2 per cent) from acute alcohol-related conditions other than road crashes (e.g. other injuries, alcohol withdrawal) and hospitalisations (66 per cent) for chronic alcohol-related conditions (e.g. dependence, cirrhosis, various cancers).
These statistics lack information on different alcohol types. What damage was due to wine, cask or otherwise, beer or spirits? Also, isn’t 1992 a long time ago?
In the report’s estimation, for every 10 per cent increase in price there is a 4.4 per cent reduction in alcohol consumption. It offers various case studies to back an increase:
- The 2009 increase in alcohol taxes in Illinois in the US was associated with a 26 per cent reduction in fatal alcohol-related motor vehicle crashes, with drivers younger than 30 showing larger declines.
- The reduction in alcohol tax in Finland in 2004 by approximately one-third, as well as the abolition of duty-free allowances for travellers from the European Union, led to a significant reduction in alcohol prices. During this period, the chronic (total) hospitalisation rate for Finnish men increased by 22 per cent among those aged 50-69 years, 11 per cent for 40-49 year olds and 16 per cent for 15-39 year olds.
- The ‘alcopops tax’ introduced in Australia in 2008, which increased the taxation rate on ready to-drink spirit beverages (RTDs) by 70 per cent, led to a 30 per cent reduction in RTD consumption. Despite some evidence of drinkers switching to other alcoholic products, total sales of alcohol one year after its introduction fell by 1.5 per cent net. Research also shows that that the introduction of the tax was associated with a statistically significant decrease in ED presentations in NSW, particularly of younger people and more so for 18-24-year-old females.
“Some evidence.” TK had teenagers at the time and knows full well they and their friends switched to buying full bottles of spirits and mixing drinks themselves. The parental worry was that were they mixing drinks stronger than RTDs.
Wine faces a tough battle, and TKR thinks the wine industry is not as prepared for it as it should be.
What a state
Wine Australia (WA) has released its State of Australian Wine report. It is, WA says, the “Results of the 2015 Wine Production, Inventory and Domestic Sales Survey”.
What is disappointing is the number of survey responses: it was sent to 2620 wineries, with responses received from 202 of those.
The whingeing of the industry about taxation, lack of government support, supermarket dominance, the Winemakers’ Federation of Australia, Wine Australia and the myth of the level playing field is huge. Yet the majority cannot be bothered to contribute. It’s along the lines of: don’t complain about the government if you don’t vote.
WA says despite the low response the survey collected the bulk of the total volume of production (84 per cent) and domestic sales (82 per cent). It also says:
“The inventory statistics collected in 2015 Production, Inventory and Domestic Sales Survey alone are not enough to accurately represent an industry wide inventory figure as the survey did not collect bulk wine transfers between wineries.”
There wasn’t a great deal of change between 2014 and 2015. Total wine production in litres increased 0.4 per cent from 1.186 billion litres to 1.191 billion litres. Red wine remained almost the same, while white was up 2.7 per cent. Rosé was the surprise, down 23 per cent, and fortified continued its descent, down 20 per cent.
One hopes the downward trend in fortified is at the lower end, and that quality muscat, ports and sherry styles are holding their own. Then again, domestic sales were up, so it must be that exports are down, and it was the better wines that were exported. Rosé wine is getting plenty of positive media, yet consumption is down. The other disappointment was that sparkling wine (fermented) was down 14.4 per cent, yet carbonated was up 44.6 per cent. Compare this to the increase in champagne imports: our quality sparkling wine brands are not getting local support.
“The total value of sales increased by 3.8 per cent to $2.78 billion while the volume declined by 0.6 per cent to 456 million litres.”
Good news or not? At first glance it’s good news: more money for less wine. But was the profit margin there? The other point is that none or little of this extra cash made its way down the chain to the grape growers. The chart below shows the domestic volume growth/decline by wine style:
Direct sales to consumers are not yet huge, but they are increasing. In 2014-15 they went up 1.5 per cent to 42.1 million litres. These cannot be taken as new sales, as sales to retailers were down 0.8 per cent to 414 million litres.
Woolworth owned Dan Murphy’s has also reported an increase in its on-line presence. TKR did ask for some fact plus more in depth detail and received the following from Dan Murphy’s General Manager Campbell Stott:
“It’s about convenience – the majority of our customers like to visit the store and wander the aisles while others prefer to shop online and have their purchases delivered right to their door. We are committed to supporting the ways our customers want to shop with us and making sure both shopping experiences are high quality.
“Our online business is agile and we continue to enhance our online offer to keep up with international trends and, in some cases, get ahead of them.
“For instance, Dan Murphy’s Connections links the customer directly with the producer and this relationship delivers benefits to both groups. The customer has access to rare, boutique products which can’t be found in our physical stores and the producer has a bigger audience and broader platform from which to sell their products.
“We have a broad demographic when it comes to our online customers. Dan Murphy’s has something for everyone, whether you are a wine enthusiast, whisky expert, a lover of craft beer or someone branching out to try something new, like rose, for the first time.”
Most wineries recorded an increase in sales direct to the consumer. Of the 196 responses, 102 recorded increasing sales, 55 recorded a decline and 39 did not respond to this section of the survey. All size ranges of wineries reported success in selling direct to consumers.
The stocks to sales ratio in 2014-15 moved from 1.08 to 1.10 for white wine. This, WA says, is “considered a normal level. This leaves enough wine in stock to cover growing sales but does not push the market into large oversupply.” For red wine it was 1.66, averaging out at 1.39.
Historic supply and demand balance:
- 2005-06: 1.65
- 2006-07: 1.23
- 2007-08: 1.47
- 2008-09: 1.40
- 2009-10: 1.24
- 2010-11: 1.25
- 2011-12: 1.30
- 2012-13: 1.40
- 2014-15: 1.41
- 2014-15: 1.39
Exports are dealt with, but TKR is waiting on the next set or figures, due out in April. Moving in the right direction is good news, but there’s not yet enough good news to start the celebrations.
We want you to buy
There was an interesting article in AdNews on March 24 (Full article):
The article compares Coles and Woolworths top 10 advertising campaigns. Overall, Woolworths spends more, but Coles spends its money on its insurance and financial services businesses.
|Top 10 Coles marketing campaigns:|
|Shows share of voice of Coles’ marketing efforts between April 2015 and March 2016. Represents total ads in market across Television, Newspapers, Magazines, Radio, Out of Home, Web Video and Digital Display.|
|If you’re 30 or over and switch (Car insurance)||8.79|
|Dettol Profresh Shower Gel: Just Showered Freshness For Longer (Product)||6.14|
|It’s Time To Save (Car insurance)||5.98|
|Coles Fresh (Supermarket)||5.01|
|Coles Fresh (Supermarket)||4.88|
|Price Beat Guarantee (Life insurance)||4.8|
|No Annual Fee. Ever. With Coles No Annual Fee Mastercard. (Credit cards)||4.07|
|Price Freeze (Insurance)||3.24|
|A Little Better Every Day (Supermarket)||3.21|
|Everyday At Coles (Supermarket)||3.02|
|Source: Big Datr|
|Top 10 Woolworths marketing campaigns:|
|Shows share of voice of Woolworths marketing efforts between April 2015 and March 2016. Represents ads in market across Television, Newspapers, Magazines, Radio, Out of Home, Web Video and Digital Display.|
|Shop Online Today Get 10% Off Plus Free Delivery (Supermarket)|
|Make Your Christmas Famous (Supermarket)|
|Cheap Cheap (Supermarket)|
|Disney Movie Stars (Supermarket)|
|On Special At Woolworths (Supermarket)|
|Simply Summer (Supermarket)|
|Look Out For Pink (Supermarket)|
|Red Spot Specials (Supermarket)|
|Low Price Always (Supermarket)|
|Three Shades Whiter Whites (Product)|
|Source: Big Datr|