Australian Wine Lovers Embrace Bordeaux With Aussie at Record High: Retail

Australia’s wine lovers are embracing European bottles as never before, exacerbating a decline in the local industry already suffering from plummeting exports.

With the Australian dollar at record levels against the euro, imported wine has rarely been more affordable. Prices for some labels have dropped by 30 percent. LVMH Moet Hennessy Louis Vuitton SA (MC)’s Moet & Chandon Champagne is now sometimes cheaper than the French company’s locally produced Domaine Chandon sparkling wine.

“It’s absolutely fantastic,” said Jeremy Oliver, a Melbourne-based wine critic. “If you have A$100 ($105) in your pocket, that will get you a top bottle of Australian cabernet or shiraz. Today it also buys you a pretty serious Bordeaux, a very good Italian from any region or a sensational Spanish red.”

The shift is harder on local wine producers. Australia, the world’s largest wine exporter by volume outside of Europe, saw the value of exports decline to their lowest level in a decade in 2011, falling 10 percent from a year earlier to A$1.89 billion, according to government export agency Wine Australia.

At Melbourne-based Treasury Wine Estates (TWE), the world’s second-biggest publicly traded vintner and owner of the Lindemans and Penfolds brands, sales in the U.S., its largest market, fell 15 percent to A$803 million in the year through June. The effect is more pronounced in Europe, where the euro has fallen 7.8 percent over the past three months to make it the worst-performing major currency against the Australian dollar, compared with a 1.4 percent decline in the greenback.

“It’s not just the strength of the dollar, it’s the economic climate in Europe,” said John Ellis, who stopped European sales from his Hanging Rock Winery two years ago to focus on the Asian market. “We’ve basically abandoned that as a market.”

Exporters Struggle

The wine business is a microcosm of the broad effects of the strong dollar on Australia’s industries. The country’s largest steelmaker, BlueScope Steel Ltd., shut its export operations in August, citing the currency’s strength as a major reason. Retailers led by Harvey Norman Holdings Ltd. (HVN) Chairman Gerry Harvey last January called on the government to limit competition from overseas rivals by raising the sales tax on some imports.

Toyota Motor Corp.’s Australian unit, the country’s largest car exporter, today said it will cut more than a tenth of jobs at its manufacturing plant in Victoria state. The company cited gains in the currency and a slump in export sales for the elimination of 350 positions.

“These days, if you’re not at the top of your game, then you’re going to struggle in Australia,” said Stephen Walters, chief economist at JPMorgan Chase & Co. in Sydney.

Competition, Bushfires

Five years ago, Australia’s wine industry was an international sensation. Driven by signature brands such as Yellow Tail and Jacob’s Creek and support from influential critics such as Robert Parker, exports rose more than fourfold in the decade to 2007, when they peaked at 786 million liters. Australia overtook France as the U.K.’s top supplier of imported wine in 2005 and was briefly in 2008 the frontrunner in the U.S.

Then things turned. Competition had for years been increasing from other emerging wine areas such as Argentina, Chile and South Africa. A domestic wine glut prompted complaints from Jacob’s Creek producer Pernod-Ricard SA (RI) that the image of Australian wine was being damaged by too much low-quality product. In 2009, bushfires swept through the wine country of Victoria state, incinerating vineyards and tainting grapes with smoke. Exports have dropped 11 percent over the past four years, to 703 million liters in 2011.

Importers Gain

Alongside the strength of the currency, the high price of labor and land plus the small-scale nature of middle-market wineries in Australia make it hard to compete with imports, said Oliver. “You can get seriously interesting, diverse wines from Europe, South America and South Africa for A$25 a blow retail,” he said. “In Australia today the small guys trying to do the equivalent are finding it very hard to get anything in the bottle for under A$45.”

Every six weeks, John Baker ships a refrigerated container carrying about 10,800 bottles of French wine to his 270 square meter (2,900 square foot) refrigerated warehouse in the Sydney suburb of Artarmon. That represents a doubling of import volumes over five years for his business, Bordeaux Shippers. The Australian dollar is worth 81 euro cents now compared with 54 cents when he started in 2003, transforming the value of imported wines.

“I’ve been selling a 2001 vintage Chateau du Haut Moulin, that’s a 10-year-old wine from Bordeaux, and it’s A$39 retail; that wine really should be A$80,” he said. The price of whites from Chateau Magneau, in France’s Graves region, have fallen 30 percent over the past two years, he said.

China, Hong Kong

Since 2007, import volumes have risen 95 percent, to 73 million liters, or 97 million standard bottles, in the 12 months ended September. French wine imports have risen 58 percent, paralleling a movement of France’s export market to Asia, where increasing wealth is leading more people to drink premium wines.

China overtook Germany last year as the top importer of Bordeaux wines. Hong Kong, which sold $225 million of wine in auctions last year, has displaced New York and London and become the premier center of the global wine trade.

Moet Hennessy is seeing more than 10 percent growth in Australia for all of its premium sparkling wines, from Chandon and Moet & Chandon to expensive Dom Perignon, said Jonathan Coles, marketing director at LVMH’s local unit. Set up by the luxury-goods group in 1986, Domaine Chandon has traditionally offered a more affordable local alternative to imported French Champagne.

Moet & Chandon

Cellarbrations, a wine shop in the inner Sydney suburb of Newtown, sells Moet & Chandon Brut Imperial for A$49.99 in six- bottle cases, compared with A$52 for LVMH’s Chandon Green Point Cuvee 1995, a sparkling wine produced in Australia’s Yarra Valley at Wine House, a Melbourne-based online store.

Franck Moreau, who sets the wine lists for Sydney restaurants Est and Uccello as sommelier for Merivale, a closely held restaurant group, said imported wines now make up half of the offerings, up from 30 percent previously. The biggest discounts are on French wines that haven’t yet become highly popular, such as Chablis and Sancerre, while Italians such as Barolo are as much as 20 percent cheaper than a year ago, he said.

“I see more people importing wine now,” he said. “The value with the dollar is so good, and the Champagne is very good at the moment.”

To contact the reporter on this story: David Fickling in Sydney at dfickling@bloomberg.net

To contact the editors responsible for this story: Stephanie Wong at swong139@bloomberg.net; Frank Longid at flongid@bloomberg.net

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Photographer: Carla Gottgens/Bloomberg

Rows of Shiraz grapes are cultivated at Treasury Wine Estates' Seppelt vineyard in Great Western, Victoria, Australia.

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Photographer: Carla Gottgens/Bloomberg

Rows of Shiraz grapes are cultivated at Treasury Wine Estates' Seppelt vineyard in Great Western, Victoria, Australia. Close

Rows of Shiraz grapes are cultivated at Treasury Wine Estates' Seppelt vineyard in Great Western, Victoria, Australia.

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Moet Hennessy is seeing double-digit growth in Australia for all its premium sparkling wines, from Chandon and Moet & Chandon to the highest-valued Dom Perignon. Close

Moet Hennessy is seeing double-digit growth in Australia for all its premium sparkling wines, from Chandon and Moet ... Read More

Photographer: Carla Gottgens/Bloomberg

Vintner Andrea Hart picks leaves off a bin of freshly harvested Shiraz grapes at Treasury Wine Estates' Seppelt vineyard in Great Western, Australia. Treasury Wine, the world’s second-biggest listed vintner, saw sales in the U.S. fall 15 percent to A$803 million in the year through June. Close

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Photographer: Carla Gottgens/Bloomberg

Freshly harvested grapes sit in a crusher at the fruit receiving area of Treasury Wine Estates' Seppelt vineyard. Five years ago, Australia’s wine industry was an international sensation. Close

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Photographer: Carla Gottgens/Bloomberg

Shiraz grapes reach maturity at Treasury Wine Estates' Seppelt vineyard in Great Western, Australia. The wine business is a microcosm of the broad effects of the strong dollar on Australia’s industries. Close

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Bottles of wine are stored in a private cellar in the Hong Kong Wine Vault. Hong Kong, which sold $225 million of wine in auctions last year, has displaced New York and London and become the premier center of the global wine trade. Close

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