The US is increasingly seen as a land of immense opportunity for many Western Australian wineries looking to grow exports profitably.
The US is increasingly seen as a land of immense opportunity for many Western Australian wineries looking to grow exports profitably.
But increasing rationalisation of America’s wine distributors and an appreciating Australian dollar are making the path to success all the more difficult and presenting significant challenges for local producers.
Howard Park Wines has exported its wine to the US for more than a decade, in some years selling up to 25 per cent of its wine production there.
It now sells about 15 per cent of its wine to the US.
Howard Park owner Jeff Burch said the winery had recently been stung by a bout of rationalisation in the wine distribution sector.
To sell wine into America, foreign wineries need to enlist a wine distributor in each US state. That distributor registers the winery’s brand in the market, making it legal for the wine to be sold.
“The bigger guys are getting bigger and bigger and you don’t have any leverage,” Mr Burch said.
“You could be doing really well in a particular state and then, lo and behold, your distributor sells to someone else. The new distributor tells you that they only stock certain brands and as of next week they won’t sell your wine anymore.
“That situation has happened to us and unless you are a big guy like a Southcorp they won’t distribute the wine.”
Mr Burch said there was still promise in the US market but WA wineries had to work closely with the boutique distributors.
“We have to work with the smaller guys and hope they don’t get bought out,” he said.
The average price of WA wine exports to the US has remained relatively high compared with the state’s biggest export market, the UK.
The average price per litre WA wineries attract in the US is $8.98, compared with $5.97/L in the UK market.
The average price of wine sold into the US has also held up fairly well compared with the UK. While the average price per litre has dropped $1.19 in the UK market over the past three years, the average price of wine exported to the US has slipped just 56 cents per litre.
Not surprisingly, therefore, it is a market the Wine Industry Association of WA has been keen to attack.
The WIAWA wants to lift wine exports to the US, which have fallen from 1.6 million litres in 2003-04 to 1.2ML in 2005-06.
Its members have invested heavily promoting WA wines to the US in the past two years, including flying American wine journalists to the state on familiarisation tours.
WIAWA president John Griffiths said the industry needed to grow its export markets in order to overcome an oversupply of WA fruit.
“The long-term issue for us is growing our markets and until we do that growers will not receive the prices they need to be profitable,” Mr Griffiths said.
Agribusiness Research and Management managing director Neil Delroy said 14 per cent of Australia’s production was exported at $56 case.
“But we [WA wine producers] produce 38 per cent of Australia’s cool climate fruit and need to be achieving more than $56 a case for it,” Mr Delroy said.
“Basically, the oversupply in the fine wine sector is much worse than other areas. We have to get rid of vines or find more export markets.”
Mr Burch said the US market remained attractive, despite the current hurdles.
“There is growth in the US market,” he said. “The average consumption per head is low compared to Western countries.
“It is a wealthy, educated market and they are in love with Australia. There is growth at the price point that we are good at, which is $US12 to $US18 a bottle. There is definitely upside there.”
But he said the increasing value of the Australian dollar against the US dollar had added another challenge.
“With the Aussie dollar at 50 cents it was very profitable to operate in the States but now with the dollar at about 82 cents the margin just isn’t there,” he said.
“But you can’t run a business on weekly exchange rates, you have to take a long-term view and, over the long term, the US is a key market.”
