Summary: The Australian wine industry is hardly a youngster, and yet in the last couple of decades it has rewritten the rule book about the global wine trade. In achieving this, it has introduced millions of new customers globally to the interest and fascination in wine as a beverage. Along that path, older industry players, regional innovators and more recent adventurers have contributed to the challenge of working with a wide range of environments, grape varieties and approaches to winemaking. There is no better example than WA to support an illustration of taking an old and wild type plant, the grapevine, and seeking to get it to grow and understand its performance across environments that had more of a history with general grazing agriculture. The other feature of wine, that has strongly differentiated it from much of agriculture, is that it really has only one end point, a glass in front of the consumer. This may come in a variety of labels and brands, but requires a strong team effort by a quite complex value chain to really deliver.
…and how did that first sip taste again?
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A reminder of how individual the response to this fascinating beverage is!
Opinion is the lifeblood of conversation
Inspired by Richard Huntington
My caveats
Predicting is difficult especially if it concerns the future.
Anthony Burgmans, Chairman Unilever 2007
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As a public lecture, there will be sufficient data to build the presentation. But it was also Friday afternoon so it was important not to be too dry.
General order of presentation
• a bit about diversity• a bit about the business and factorials• a bit about finding the consumer• a bit about the changing environment
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Modelling & simulation; some WA & UWA branding & a great early learning experience for the wine value chain
MIDASStella / iThink
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WA – both the University and the Department of Agriculture and Food have strong history of modelling complex systems. The aim is to understand optimisation and also to build strong extension and communications platforms to share new knowledge and opportunities. Stella – a general simulation program / language MIDAS – econometric model for system analysis of dryland farming This background for the author provided a great platform when considering the complexities of the wine industry value chain.
About diversity
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A quick note on markets – 100+ countries
~300m l
Domestic Export
<100m l
~450m l ~790m l
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General stats about the current scale of the Australian wine industry; followed by some discussion about where to next.
Scale influences grape and wine questions
Property
National
Catchment
Markets
Block
(Graphics derived from Prof D Pannell)
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Depending on the nature of the operation from small and local, to international, all those in the wine industry share an interest in working across a wide range of scales. In considering priorities, it will be important to recognise these scale effects, and the type of data that might be appropriate when considering the industry across its full scope.
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Australian grapes - bearing area by variety (ha); total about 165,000 ha
Shiraz
Chardonnay
Cabernet sauvignon
Merlot
The grapes we grow
Semillon
Top 5 about 70% of production
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Data from ABS Bulletin 1329.0 AUSTRALIAN WINE AND GRAPE INDUSTRY, January 2008 While this data is on area, note made of the fact that because of yields, chardonnay is has the greatest production.
Bearing Area(ha)
Yield (t) Avg yield (t/ha)
litres (million) as 9l cases (m) Millions of consumers if avg = 20l/hd
2007 12,200 68,252 5.9 46 5.2 2.3
2006 11,375 60,840 5.7 41 4.6 2.1
2005 11,747 79,948 7.2 54 6.0 2.7
2004 11,068 87,523 8.3 60 6.6 3.0
2003 10,730 62,683 6.3 43 4.7 2.1
A quick note on WA
The grapes The wine
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WA data for perspective. Data under wine are estimates provided for discussion and emphasis again on just how many consumers enjoy WA wine.
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Moondah Brook
Giaconnda
Jacobs CreekLeeuwin Estate
Tyrells
Lilleydale
Bannockburn
Kooyong
Hanwood Estate
Stefano Lubiana
Tapanappa Tiers
Bin 65
Pierro
Chardonnay – about 25% of fruit
Eileen Hardy
After Brand Tao - Slideshare
CHARDONNAYAshbrook
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How do we consider a variety such as chardonnay that covers an immense range of styles and prices points? A reminder of the fact(s) that: Chardonnay was not commercially produced in Australia until about 1968 and during the late 80’s and 90’s it become part of the “backbone” of Australian exports. Australia should be proud of, and communicate more strongly, its experience with using chardonnay to meet the demands and expectations of a huge number of consumers. That chardonnay grows across the full range of Australian environments.
Age of vines plus experience – an 8 year journey to best performance?
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Known areaActual area
About 106,000 ha planted from 1994 to 2005
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The “know area” curve is to illustrate the time lag from planting fruit to really understanding the potential of the area for wine production, and delivering wine in the style that suits your target market. 8 years probably more generalisable to whites; suggestion of longer for reds (may 15-20 years). CONCLUSION: Australian wine has continuously improved and will continue to do so.
Business & factorials
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The wine business – how we would like to see it
I’ve got a great idea.
$I’m making
money
10+ year adventure path
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A reminder of the decision points in a wine business enterprise (simple summary)
The wine business – how it can be!
I’ve got a great idea.
$I’m NOT making money
10+ year adventure path
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What happens if someone gets it wrong and perhaps doesn’t plan for all production and market demands.
The wine business for company X– a high order factorial
Producing wine (about 10% of 2008 crush)
• 156,000 tonnes • 35 varieties • 33 areas • 520 growers • 3123 harvest units • for 104 unique
wines
Finding consumers
• 109 m litres wine• 12 m cases• 4.4 m consumers*
* At 25 l/ person/yr16
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Just an example of the challenges in optimising and managing a diverse crop – and again what it means in terms of the consumer.
Changing analytical needs along the chain
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The demands for R&D / knowledge will vary along the value chain – more technical associated with production end through to social and economic research associated with the market and policy for beverage alcohol.
Finding the consumer
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Connecting with consumers… some market lessons
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Don’t make assumptions! We know France has suffered in both its domestic and export markets. But let’s learn the lessons, as they have, and not take consumers for granted. Wine is discretionary.
Just some speculations about how many loyal consumers Australian wine now has in over 100 countries around the world.
Clamoring for space – EU retail
Consumers: 160,000,000Customers: 89,000,000
Outlets: 170,000
Supermarket formats: 600
Buying desks: 110
Manufacturers: 8,600Semi-manufacturers: 80,000
Suppliers: 160,000
Farmers/producers: 3,200,000
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The issue in any value chain is one of sharing the value and obtaining appropriate signals that can contribute to the continuous improvement of the industry. Its tough out there, its increasingly global, and the large supermarket chains occupy the “buying desk” position so we need excellent communications.
Wine is successful but can it learn from other stories. Eg. Water – enormous number of brands for something that ostensibly has no taste or smell! Yoghurt – wide range of product development areas, especially in the area of starter cultures and the science behind these.
These categories have
• Been highly innovative• Tapped into changing lifestyles• Changed consumers’ views• Driven consumers upmarket• Generated profits
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Its about constant improvement and recognising opportunity in changing consumer markets.
What Consumers Want
Flavor
EmotionValue
determinant
80% of your guests want:• Pleasing wine flavors• Range of price points• Approachable wine list• Approachable servers
Increasing interest in wine
20% of Experts want:• Large number of selections• Rare finds, high scores• To be left alone with the list
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The wine industry will always deal with people across a range from those who wish and enjoyable, non-challenging beverage, to those who find the whole wine story fascinating and engaging and may also have “very deep pockets”. Let’s always be careful not to generalise – quality is about fitness for purpose (how individuals will value your brand) and not just about expense.
Some messages & data quite simple -can they still read your label?
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Do you still wish to put the history of the universe on your label? We are an aging community so there will be changes (test yourself: do you need assistance (specs) to read labels; do you find it difficult to read a label in a softly lit restaurant?) Its part of the staying connected with consumer reality challenge.
The simple elegance of consumer education
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If they can’t read it the first time - tell them again! 1000’s of SKU’s all looking for a place – do we make it easy for an interested but rushed potential wine consumer? (P&G estimates for a busy shopper indicate 3-7 seconds to make a product decision; how long did you take when you last confronted a wine shop or supermarket style display?)
Of frog wines & frowning watches: Semantic priming, perceptual fluency, and brand evaluation
(Title from: Labroo et al, J Consumer Research, 2008)
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2 Key consumer decisions; That interests me (yes critter brands do work) The wine was very nice so I will become a repeat customer & the critter is easily identified. Very recent research (title of paper given) has just tested why and to what extent some of this label impact works for consumers.
The domestic consumer polygraph(sales in millions litres per month)
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white (1000 l)red (1000 l)
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Wine is seasonal. Wine sales are seasonal. Wine advertising and display recognises this. Big challenge in this type of environment for small producers to establish and secure their identity, & major competitive point for large companies who have large marketing budgets.
The real market – US example where about 50% of sales = 28 brands ( = no of brands in each category; yellow marker in large group ~ 14%)
Impact data, 2005
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The “long-tail” effect; data should be presented as log functions but this illustration a reminder of how many producers and brands “clamouring” for space. US 2005 data (small yellow dot is about percentage of market for <100k cases operators) brands /mean cases / market share 28 4957142 50% 20 1499000 11% 47 697446 12% 60 338166 7% 114 153508 6% 7000 5644 14%
Segmentation…
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A small Friday pm interlude
Brand personalities… a bit more to learn and describe
accessibilityBrand Champions
innovationGeneration Next
.interest
Regional Heroes
aspirationLandmark Australia
AWBC 2007
∫
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The development beyond Wine Australia as part of improving the opportunity for the diversity of Australian wine to be better understood in the market and by consumers.
The changing environment
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Market change
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Where will all the impacts come from the rapid change occurring in markets e.g. BRICs (Brazil, Russia, India, China)? Consumer expectations and range of products that they access has always increased with wealth. Australia has some advantages especially with China due to proximity and extensive trade activity.
Climate change
34D.B. Lobell et al. (2006)
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(D.B. Lobell et al. (2006) Impacts of future climate change on California perennial crop yields: Model projections with climate and crop uncertainties. Agricultural and Forest Meteorology 141:208–218) We need to keep a whole of industry, whole of chain view to impacts of climate change. Eg. It could be energy costs, fuel costs that become limiters ahead of viticultural pursuits. This US data (from central Valley in California) a reminder that in fact grapes might be a pretty robust perennial, and that one challenge might be people making the decision to grow them as the challenges for other crops increase more rapidly. (again this is where whole system modeling becomes increasingly important)
It works – consumer & commercial
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Solar power on winery in south of France (Montpellier, Domain Clavel)
Social change
…the leader is the one who doesn’t drink (France 2004)
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Drinking and alcohol are contentious in many environments. This leads to an enormous array of policy positions that can and do impact the wine industry. It remains crucial for the industry to give full recognition to such challenges and make its contribution to community responsibility. (slides from French campaign that included major billboards on autoroutes etc)
Wine as a unique beverage
I am from the wide open spaces of Australia
Look up flavonoids on Google
I would like to join you with your meal
Nature FoodHealth
(Inspired from Leo Burnett)
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Wine is unique and can be differentiated from other beverage alcohol through its focus on nature, health and food. We need to remember this balance as part of the social responsibility issues. Health claims: these are not permitted but a wide range of food and nutrition related studies indicate that modest consumption of wine can be beneficial. However key message is that in drinking wine with food, the aim is always moderation and balance.
Conclusion – we might have a level of maturity but hang on for the continuing ride
