'First families' take up fight
Australian winemakers are determined to make up lost ground in export markets, writes Eli Greenblat.
Bruce Tyrrell is the kind of straight talker you would hope to find in a fourth-generation tiller of the land, spinning a cheeky turn of phrase probably not suited to that of a diplomat or politician.
"You know, the Chinese were making wine while the French were still swinging in the trees."
Lucky for Tyrrell, and the nation's Foreign Ministry, he is not ensconced in Canberra in a swish leather chair shuffling papers. Rather, he is the patriarch of the family that owns Tyrrell's Wines, where his feet are deeply rooted alongside his century-old vineyards in the the rich soil of the Hunter valley.
His direct style of communication brings into focus the challenges before Australian winemakers today, namely the rise of China, whose appetite for iron ore is equally matched by its thirst for wine, and the slow demise of traditional markets such as Europe, sinking under a wave of recession, riots and restiveness.
"The European Union could be the next Third World, look at it ... everyone laughs when you say that but that could very well be right," Tyrrell says.
Again, a diplomat he is not, but as passionate a champion for the nation's wine industry as you will ever find.
And the Australian wine sector, valued at more than $4 billion, needs its champions these days. The strong dollar has all but destroyed its competitiveness on the overseas stage. At the dizzying heights where the currency was worth more than the US dollar, winemakers such as Tyrrell's found it almost impossible to squeeze out a profit. Many found it hard to stay in the black when the Australian dollar hit US85¢.
"We had an office in Atlanta, US, and had to close it down," Taylors Wines managing director Mitchell Taylor says.
"With the currency, it's just getting pretty tough out there.
"If the dollar moved back in our favour and we got the buzz and excitement back into the Australian wine category, we would love to be back into the US, and start to get the momentum there again."
The currency's rapid rise to parity, and then higher, wiped away decades of hard work building up a presence in the US and Europe, as Australian wine became too expensive compared with offerings from other countries.
Some such as Tyrrell's almost completely pulled out of the US market. Taylors, of South Australia's Clare Valley, closed its only American office and bunkered down for a fight. Yalumba, Australia's oldest family-owned winery, refused to surrender and stayed in the US market but sacrificed a lot of margin.
Others were forced into a terrible decision: either raise prices to compensate for the margins eaten up by the rising dollar (but then lose sales as drinkers switched to cheaper wines) or freeze prices to keep customers but then lose profits.
One answer was to form a support group where they could share their stories, drown their sorrows - in some of the best wine in the country of course - and try to solve the industry's ills.
Founded in 2009, Australia's First Families of Wines (AFFW) became the initiative by family-owned wineries to bolster the sector's overseas appeal by focusing, not on the price of wine, but the history, quality and craft of what they made. They knew they needed to look through the cycle of a high dollar and begin to tell their own stories, of family histories and a sense of place.
AFFW is today made up of 12 family-owned Australian wineries, which together represent 16 regions across four states and have more than 1200 years of winemaking experience. They include wineries such as Tyrrell's, Taylors, Yalumba, Tahbilk, De Bortoli, d'Arenberg, Brown Brothers, Howard Park and Henschke.
Robert Hill Smith is a fifth-generation descendant of Samuel Smith who founded Yalumba in 1849 and which is today the nation's oldest family-owned winery. With 160 years of winemaking behind him, Smith's perch atop the heart of South Australia's Barossa gives him a wonderful view of the economic landscape.
Despite the woes inflicted by the high dollar and recessionary conditions across Europe and the US, he remains positive, even chirpy.
"You don't want to tell them [consumers] Australia has gone from glory to dirt in a decade," he says. "We are making more great wines today than we ever have in our history and at more accessible prices, so why wouldn't you go [overseas] and boast about how good Australia remains?"
Smith has looked through the cycle and believes happy days will return for the wine industry - it will just take time, patience and what he likes to refer to as "keeping the faith".
For Smith, it means no surrender in the US or Europe when it comes to the impact of the high dollar. He kept his family in the US market, even when the dollar stripped 70 per cent of his profit margin, while at the same time raising prices where he could. "Just about every wine we have had in the last five years, we have had to take a little price creep on, but at the same time the margins haven't been preserved.
"But, well, we took 25 years to build a footprint in the US, and now we are in a cycle and cycles are exactly what they mean, so we haven't withdrawn from any market. We have stayed committed and know it's a long-term game."
But he wouldn't mind if the Australian dollar continued its descent. Since January, it has fallen nearly 14 per cent, to crash through parity and now sits about US92¢.
Alister Purbrick is the fourth-generation head of Tahbilk, the oldest family-owned winery in Victoria, and he has steered his tribe through a different course in the US, remaining in the market with a small exposure but not aggressively chasing new sales.
"Our view was we would stay in the US market regardless, without trying to pursue sales, so we don't have to re-establish ourselves when the cycle turns and the Aussie dollar does weaken off again," he says.
"That's our strategy and we will wait and see how it pans out. But with the dollar so high, its almost profitless growth really."
Tahbilk has held its prices since the global financial crisis, meaning plenty of margin has come off the table.
But Purbrick now believes there are the earliest signs of a recovery in consumer spending in the US. It's a slow gathering of strength that, if sustained, should flow through to people spending more at the supermarkets and liquor shops.
"That's reflected in signs American consumers are beginning to purchase a little more than they had been, the housing market over there seems to be starting to recover a little, and as far as the wine sector is concerned from an Australian perspective, there has been a rally in that $13 to $20 retail mark."
Gathering in Brisbane this month for a masterclass wine-tasting and trade show, the AFFW discussed the US market, margins and all the spectres now haunting the sector (a poor domestic economy, the power of the leading supermarkets), but if there was one bright spot, one source of some joy, it was China.
"Every industry recognises China, and for the global wine industry China has got the big 'P' word - potential," Purbrick says as he dreams of the millions of cases of Tahbilk Marsanne he might one day ship into China.
"China is the future, Asia is the future," Tyrrell says.
Such is the importance of the region to the industry that all 12 AFFW chief executives will visit China later this year in their maiden trade mission to the region, and will link up with local wine writers, retailers and government officials to push their cause and of course their wines.
"China is a little like the American market going back some time in that it's a bit fragmented and disjointed," Purbrick says.
"So you have to set your market up province by province. In the early days we had to do it state by state in America. It's challenging to find the right strategic partner by province to be able to do the job for us and for the brands." One thing AFFW believes will work in its favour is the history and generational ownership structure that is the essence of the grouping, with the family structure much respected in Chinese culture.
Taylors Wines has been in China for nearly 20 years and although it still represents less than 1 per cent of sales, it is clocking double-digit growth rates. Later this year, Taylors will be releasing a special vintage aimed at China and Hong Kong, a $200 bottle that will be individually packaged and signed, and feature information about the wine and the winemaker.
Tyrrell sees the same kind of potential in China.
"You have got to be in the UK because that's where the world wine writers are, but outside that I think Asia is where our future lies. We can deliver there in two weeks, and China has an immense history of grape growing and winemaking.
"People say Chinese all want sweet red wine - they actually don't. The gatekeepers say they do, but when you talk to the actual consumers they don't.
"They want to drink the same sort of wines the rest of us want and they see us having a higher standard of living and want to aspire to that, and part of that is the types of wine we drink."
The reporter flew to an event in Brisbane courtesy of AFFW.