Australia at the Crossroad

Yesterday it was the first in our regional Portfolio tastings there was much discussion at the London venue about the impact of the Australian dollar on sales in 2011. Sat at Hong Kong airport for the last few hours, waiting for my connection to Adelaide - one can't help but reflect upon the dire situation that many Australian exporters to the UK now find themselves in.

Let's face it, we've all been telling our producers to hold pricing for the last 3 years as currency went the wrong way and our economy lurched from crisis to crisis. I think we all hoped that currency would reverse at some point but what is now clear is that the good old days of exchange rates north of 2 are gone - perhaps forever. This leaves both exporters and importers dangerously exposed. Some wineries, having not increased pricing in the face of export pressure, will now be under invested as a result of falling margins. Lack of investment in crucial marketing and sales initiatives has resulted in declining brand strength - strength badly needed at a time when retail prices have to go up. For many producers, the combination of having to increase prices plus the exchange rate will see their sales volumes decline, even if margins temporariliy rally.Many importers now face portfolios denuded of anything that can be sold sub £10 on the shelf.... the costs of owning vineyards, running wineries and staff just do not add up and so one has to come to the conclusion that for Australian wine in the UK, the future is very lean business models or exceptional quality and individuality.

Fortunately, we have long seen the writing on the wall and our increasingly polarised sourcing and production strategies now seem more legitimate than ever. Nobody's denying that even for the exceptional, the currency issue is very significant but for those really exceptional, inspiring producers the compelling nature of their story is sure to endure in the face of extreme pressure. At the other end of the market, it is difficult to see how anybody that is not a producer or has direct ties to production, will be able to compete adequately in the UK market. The Australian businesses that survive in the future will see an increasingly integrated production and distribution model as the norm though the cosmetics of these arrangements will look very different to the traditional producer opens UK export office model of old.

The new model, trialled and innovated by businesses such as Alliance is lean, flexible, expert and able to add value at every turn. As the market becomes increasingly open due to the consolidations and sell-offs in the majors, further opportunities will arise and this model will become the establishment.

So what does this mean for the large numbers of mid priced, honest wine produced throughout Australia? Well, should they wish to export to the UK (and this should no longer be a default position)they need to find creative, innovative distributors willing to work closely on co-branding and lean business models. Only by doing this will we maintain Australia in the forefront of the consumer's mind and be in a position to re-build brand equity and long term sustainability.

Wine Australia's A+ policy goes a long way to putting the emphasis on quality, individuality and aspiration ( and though temporariliy challenging the withdrawal of funding by the majors might be just what the initiative needs) but it cannot single-handedly reverse the impact we will all feel this year as a result of the currency shift.

For all that we will need to get leaner, better, more creative and inspiring for the long term sustainability of the category, one cannot help but feel for those producers that have stood side by side with the UK trade for the last two decades and surely we all owe it to ourselves to now stand up and sell those wines more effectively and with more passion than ever before. If we all do this then perhaps we'll enter 2012 with Australia having overcome what is surely its most difficult hurdle yet.