The Australian Wine industry is comprised of around 2,620 registered wineries (Wine Australia, 2016) and several resellers. The wine industry is an important industry from the point of view of export and employment generation for Australia. The industry provides direct employment to 16,122 people and mostly in semi urban and rural areas. (Poddar, 2015) Wine is produced in all states of the country and sold in the domestic and international market (Wine Australia, 2017). Hence, the demand for the wine industry is not just the domestic consumer but the international wine consumers as well.
Wine is produced in all states of Australia with South Australia is the largest wine producing state in Australia.
On the production side, the wine industry is dominated by large wine brewing companies like Accolade Wines, like multinational companies like Pernot Ricard as well as by large supermarket chains like Coles. (Wine Australia, 2016)
The vast expanse of the country and its various climatic zones makes it possible to produce all kinds of wine in Australia with wine being produced in the hotter climatic zones as well as the cooler climatic zones. (Anderson, 2015)
The wine produced is exported globally and is a source of foreign trade. One of the biggest markets for Australian wine is the UK. (Winemakers’ Federation of Australia, 2014) An emerging market for the Australian Wine is the Asian market, most notably China. The consumption of wine in the Asian market is increasing in leaps and bound. Additionally, consumer spending in these markets is expected to pick given an increase in the per capita income of these countries. (Wine Australia, 2017)
The domestic consumption of alcoholic beverages, in general is declining in Australia. (Hoyer, 2017) However, the millennial generation is driving the growth of wine consumption in the rest of the world, especially the consumption of premium wine.
Figure 1 Some Products of the Wine Industry in Australia (IBIS World, 2017)
The wine industry in Australia has plenty of small and big wine producing groups. There are over 2500 wine produces with over 4000 wineries in Australia that brew wine. (Poddar, 2015) (Wine Australia, 2016). A distinction between these wineries could be made in terms of whether they sell wine on premises (i.e. selling wine on the location of its productions) or sell wine off premises (i.e. sell wine as production at other distribution locations such as supermarkets, restaurants, mom-and-pop shops etc. Major wine producing and retail companies like Coles account for over 77% of wine sold off premises (Poddar, 2015)
Figure 2 Supply Side of Wine Industry in Australia. Source (Winemakers’ Federation of Australia, 2014)
Figure 3 Demand Side of Wine Industry in Australia. Source (Winemakers’ Federation of Australia, 2014)
Over 30,000 types of wine or Stock Keeping Units are produced by wineries in Australia. The revenues of the wine industry are highly unevenly distributed with the top four producers commanding over 40% of the revenue (Poddar, 2015)
The Australian Wine industry is fragmented in several ways. There are a large number of producers and their market share ranges from miniscule to very large. There is a fragmentation in products with a very high number of SKUs. (Poddar, 2015). According to Poddar, (2015) , big retailers in the industry tend to have an advantage simply because of their vertically integrated supply chains, right from supply of grapes to distribution systems to marketing channels. This makes it difficult for small and medium producers. Additionally, there is a constant threat of new retailers entering the market, making the territory more difficult.
(Poddar, 2015)
In the recent times, the Australian Government has increased the import tariffs for imported wine in the country. Hence, there is a slight threat in terms of entry barriers.
(Anderson, 2015)In the recent times there has been a fashion swing in the Australian domestic market as consumer are leaning towards imported wine from countries such as New Zealand. Wine imports in the country increased by 6.4 % from 2014 to 2015 while wine exports out of Australia increased only marginally (less that 0.5 %) during the same period. (Winetitles Media, 2017)
As discussed above, the upstream market of the wine industry is very competitive and thus, the prices of the input (mostly grapes) are determined by supply and demand. Procurement of Winegrapes amount for the largest input costs in the process of production of wine. Winegrapes, or grapes meant to make wine are easily available in Australia as grow in different regions of the country. In fact, the supply of wine grapes has persistently remained higher than the demand. In 2008, two-thirds of all winegrapes were sold in the $400 to $650 per tonne range, but by this declined to an average of $441 for a tone by 2014. (Anderson, 2015)
The prices for winegrapes averaged at $540 for red wine grapes and $340 for white wine grapes. There has been a significant drop in the price of wine grapes. Production in hot regions remains considerably high and remains high. (Anderson, 2015)
Additionally, big retailers can contract grape farmers and negotiate prices. However, given that the demand for wine grapes, is generally, lower than the supply, downstream buyers will have an advantage. (Anderson, 2015)
The, general, tendency of wine producers would be to keep process low and this will keep pushing the prices of grapes downwards. In spite of the low prices of wine grapes, supply of wine grapes has not decreased. (Poddar, 2015) . Hence, it is easy to conclude that the prices of wine grapes may not increase in the visible future.
Big retailers have a lager bargaining power. This has prompted several super market chain like Coles and Woolsworth to produce and sell their own wine. (Bagwell, 2015)
Australian wine receives competition from wine all over the world, in the domestic and international market. Poddar (2015) described the Australian wine market as an Oligopsony i.e there are a large number of sellers and fewer buyers. Oligopsony, buyers have a large bargaining power. According to Poddar, (2015), the store brought category of wine sales are increasing as consumers simply seek less expensive wine. This gives an edge to big retailers as they can , with their vertically integrated supply chain make possible distribution of wine at low prices across the country.
An increase in the inventory build due to low domestic demand, the balance will shift in favour of buyers (both retail customers as well as bulk importers and resellers) and increase their bargaining power since wine producers would be looking to off load some inventory.
Conclusion
The above mentioned analysis describes the Australian wine industry from the Porter’s Model. However, there are some other factors that affect the wine industry of Australia such as exchange rates and taxes. (Wine Australia, 2016)
A problem for Australian wine is the taxation of wine in the country. Australia ranks very high among OECD countries in terms of taxation on wine. (Anderson, 2015)
Other factors that greatly affect the wine market are the exchange rates for Australian dollar Depreciation in the Australian Dollar would imply lower prices of Australian Wine in the international market. (Wine Australia, 2016)
Consumption of Wine is another factor that affects the industry. The consumption of wine is static in the Europe and is showing a downward trend in South America while the consumption is increasing in China (Wine Australia, 2016)
The production of wine grapes in Australia continues to exceed demand. (Anderson, 2015) This implies that the Australian wine producers need to establish bigger markets or through advertising and research lead the consumers to consume more wine.
Anderson, K. (2015). Growth and Cycles in Australia’s Wine Industry: A Statistical Compedium 1843-2013. Adelaide: University of Adelaide.
Bagwell, S. (2015, October 30). Wine makers cry foul as Coles and Woolworths become major wine producers in their own right. Retrieved September 19, 2017, from ABC News: www.abc.net.au/radionational/programs/breakfast/wine-makers…coles…/6898132
Foster, M., & Spencer, D. (2002). World Wine Market: Barriers to Increasing Trade. Canberra: Australian Bureau of Agricultural and Resource Economics.
Hoyer, H. (2017, August 08). Millenials Think Before They Drink: Fewer Rounds, Less Carbs , More Variety. Retrieved September 19, 2017, from Neilsen Consumer and Media View: www.nielsen.com/au/en/insights/newa.html
IBIS World. (2017, July). Wine Production in Australia. Retrieved September 18, 2017, from IBIS World: https://www.ibisworld.com.au/industry-trends/market-research-reports/manufacturing/beverage-tobacco-product/wine-production.html
Poddar, A. (2015). Inquiry into The Australian Grape and Wine Industry. Adelaide: Accolade Wines.
Volkofsky, A. (2017 , September 5). Australian wine reputation grows as export value climbs by 10 per cent. Retrieved September 18, 2017, from ABC News: https://www.abc.net.au/news/rural/2017-07-19/wine-exports-increase-australia-reputation-grows/8724818
Wine Australia. (2017, January 27). Australia’s Finest Wines Achieve Record Value in 2016. Retrieved September 23, 2017, from Australia Wine and Grape Authority: https://wineaustraliacom/new/media-releases/december-2016-export-report
Wine Australia. (2016). State of Australian Wine. Melbourne: Wine Australia.
Wine Intelligence; Intellima. (2013). Australian wine tourism: a unique connection with consumers. Wine Intelligence.
Winemakers’ Federation of Australia. (2014). Australian Wine. Coles; Winemakers’ Federation of Australia.
Winetitles Media. (2017). Wine Industry Statistics. Retrieved September 19, 2017, from Winetitles Media: https://winetitles.com.au/statistics/default.asp
Essay Writing Service Features
Our Experience
No matter how complex your assignment is, we can find the right professional for your specific task. Contact Essay is an essay writing company that hires only the smartest minds to help you with your projects. Our expertise allows us to provide students with high-quality academic writing, editing & proofreading services.
Free Features
Free revision policy
$10Free bibliography & reference
$8Free title page
$8Free formatting
$8How Our Essay Writing Service Works
First, you will need to complete an order form. It's not difficult but, in case there is anything you find not to be clear, you may always call us so that we can guide you through it. On the order form, you will need to include some basic information concerning your order: subject, topic, number of pages, etc. We also encourage our clients to upload any relevant information or sources that will help.
Complete the order form
Once we have all the information and instructions that we need, we select the most suitable writer for your assignment. While everything seems to be clear, the writer, who has complete knowledge of the subject, may need clarification from you. It is at that point that you would receive a call or email from us.
Writer’s assignment
As soon as the writer has finished, it will be delivered both to the website and to your email address so that you will not miss it. If your deadline is close at hand, we will place a call to you to make sure that you receive the paper on time.
Completing the order and download