Friday, 20 March 2020

Light at the end of the tunnel for Australian wine producers?


The news is not all bad for Australian wineries, many of which have been hit by a triple whammy of bush fires/smoke taint and the global impact of the coronavirus.

Many producers are ramping up online sales to combat dwindling cellar door revenues - which means there are some bargains around for canny wine buyers.

With domestic sales down and parts of China and Europe under lockdown, wineries are having to be leaner and smarter.

The timing of the initial COVID-19 outbreak in China just days before Lunar New Year celebrations means there are still large amounts of unsold Australian wine in warehouses and with distributors in China.

This means it could be several months after things return to normal.

China is the biggest market for McLaren Vale and Adelaide Hills company Wines by Geoff Hardy.

CEO Richard Dolan, pictured above with wife Bec Hardy and Geoff Hardy, said sales this year were down 60 to 70% on the same time last year but “green shoots” were starting to appear in China including a “six-figure dollar value order” this week.

“We’ve had seven or eight smaller orders from China over the last four to six weeks and this latest one adds up to about the same as the previous ones combined,” he said.

“There are some encouraging signs of positivity in China and we’re lucky to have some great distributors over there who are just starting to get back into it.

“We don’t have a lot of exposure in Europe or the US, but I’d imagine those markets are a bit like our own domestic market at the moment.”

The company’s second-biggest market is Australia for its brands including Pertaringa and K1. Dolan said cellar door sales had been down in recent weeks despite the introduction of additional measures such as cashless sales, increased cleaning and safe social distancing.

“We did an email campaign earlier this week and within a day we were sending out a few hundred dozen so we’ll keep going with that as long as we possibly can,” Dolan said.

“People are probably starting to look beyond toilet paper, rice and pasta now and thinking that if they get locked down, they might need a good bottle of McLaren Vale red to go with all the pasta meals they’re rustling up.

“People are trying to do the right thing and reduce social contact and rather than going into a liquor store, they’re ordering online and allowing the delivery driver to drop it at their door.

“I’d also like to think that people are looking to small and local family producers in an effort to keep them going through the downturn.”

Wines by Geoff Hardy’s volumes have grown 10-fold since 2012, largely thanks to success in China, which has also helped it secure several export awards.

Vintage is in full swing across many of South Australia’s key wine region including the Barossa and McLaren Vale. A tough season has yields down by up to 25% and Dolan said that rather than buying in additional grapes to make up the shortfall this year, his company would reduce the amount it produced in the hope that a softening of supply would go close to matching the reduced demand.

He said wine companies with solid brands that were well-capitalised with low debt-levels would be well positioned to recover from the coronavirus crisis.

“It’s a twofold challenge, it’s coping with the here and now, while preparing for what’s ahead and the bounce back,” he said.

“It’s about re-forecasting the business for the rest of this financial year, monitoring cashflows, checking our debtor and creditor statuses, and looking to remodel our FY21 forecasts.”

Adelaide-based Vinternational is a global sales, marketing and wine distribution business specialising in South Australian wines.

CEO Hamish Baldwinson said a number of large Chinese orders that were put on hold during the lockdown had begun moving again.

“China is gradually opening up," he said. "The orders we had before the outbreak will be going out this month and next month so that’s encouraging.

“I believe we’ve got some green shoots but it’s not going to be an overnight turnaround back to where we were, it could take 12 months to get there.

“As an industry we’ve been talking about our reliance on China for a while but no one predicted a virus would bring it undone.”

SA Wine Industry Association chief executive Brian Smedley said local wine companies were starting to become concerned about reduced sales with some considering closing cellar doors.

But he said the current vintage was provide a welcome distraction, allowing wineries to focus on production.

“The issue that we’ll see is a time lag of when they’ll be able to get back on a plane to get back into market,” Smedley said.

“If it’s six months as the Prime Minister has suggested then that will have a huge impact because it will rely on established relationships and people remembering what they look like so that’s going to have unknown consequences from our end.

“It’s very important that wine companies keep informed, get some facts, recognise what it means for their business and act accordingly.”

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