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6/2009 NEW YORK TIMES STORY ON AUSTRALIAN WINE INDUSTRY

6/2009 NEW YORK TIMES STORY ON AUSTRALIAN WINE INDUSTRY
This is an interesting story on the Australian wine industry. Is it in trouble? Well, yes, its exports did fall by 9% this past year after many years of breakneck growth.

But it does not seem to us that the problem is Australia over-marketing Shiraz or selling too many bargain bottles. Talk of “repositioning” Australia’s wines seems a bit silly.

Why? Simple: The macro economic factors are HUGE and their effects are unlikely to be countered by an advertising campaign.

(1) Australia’s currency has strengthened vis-a-vis that of buyer nations, making its wines much more costly to consumers. As the author notes, “[T]he Australian dollar … went from about 50 cents to the U.S. dollar in 2002 to near parity last year.”

(2) Breakneck growth cannot go on forever; at some point, expansion must slow to a crawl. This is how capitalist economies correct themselves. So, there is nothing weird about a 9% slide after years of tremendous jumps in exports.

(3) There is a worldwide economic slide, which likely has cut into demand. Had Australia been able to keep its wines cheaply priced, we might have seen sales increases as consumers trade down from more expensive bottles.

Anyhoo, Australian wine producers would be wise to reign in production a bit. The last thing it needs is for a Franzia-like negociant to start buying up excess grapes and pumping out an Aussie version of Two Buck Chuck, thereby cannibalizing more profitable wine sales.

Source: Meraiah Foley, “A Grim Morning After for Australian Wines, New York Times, June 22, 2009.

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