The Simple Truth about Australian Wine

The head of U.S. operations for Southcorp Wines doesn't see any mystery in Americans' growing taste for a fruity drop from Down Under

Never heard of Southcorp Wines? Perhaps you recogonize its three major brands, Rosemount, Penfolds, and Lindemans, all Australian vintages that are now staples of U.S. supermarket and wine-store shelves. Recently, Moveable Feast columnist Thane Peterson caught up with Tom Burnet, the California-based CEO of Southcorp's U.S. unit. Burnet, who previously headed the wine unit of Louisville (Ky.)-based Brown-Foreman, joined Southcorp late in 2002. Here are edited excerpts of their conversation:

Q: It looks like Australian wine producers will pass the French this year and become the second-biggest exporters to the U.S. (see BW Online, 1/22/03, "Enough to Drive a Vintner to Drink"). Is that true?


Depending on the reporting period and reporting person you talk to, we have either passed them already or are about to. We [Australian producers] accounted for on the order of 23% of U.S. [wine] imports last year, and we're close to 40% now. Anyway you cut it, with 50% growth, we're the fastest [expanding] segment of the wine market.

Q: I've talked to a number of retailers around the U.S. who expect California wine producers to cut prices substantially this year. Do you see that, too?


I think they already have taken some reasonably strong price cuts in the past year or 18 months. The last time I looked at A.C. Nielsen data [on U.S. supermarket sales of wine], about 16 of the top 20 brands had lower effective prices than they did the prior year. You see some fairly heavy discounting for brands like Fetzer, Meridian, and Kendall Jackson. [But] there have been some complaints -- I would say legitimate complaints -- about restaurant wine prices not coming down.

Q: What are the basic reasons for the success of Australian wines?


Australians have generally been credited with listening to consumers around the world and making a "fruit forward" kind of wine that's easily approachable. Australia also has great grapes grown on inexpensive land, relative to world prices. But I don't think the cost advantage would mean anything if the wine wasn't consumer-friendly.

The other part of the success is the shiraz grape. It's not heavy as some reds. [It's successful] for some of the reasons merlot has had such great success in the last 10 years.

Q: You're also focused on grape-as-brand marketing with merlot, chardonnay, and other grapes Americans like. That's an advantage over the convoluted historical system the French and Italians use, and which Americans find confusing, no?


Australians have always been into simplicity. The labels are cleaner-looking. And the fact that they're in English doesn't hurt.

Q: Have average Australian wine prices been coming down? I saw some Nielsen statistics that seem to indicate they have.


A couple of things are going on. First, an increasing percentage of Australian [sales] are in large 1.5-liter bottles. Typically, there's a bit of a price bend on bigger bottles. Also, one of the fastest-growing Australian brands is [Southcorp rival] Yellow Tail, which is priced a little bit below the average for Australian wines. Some of our brands have gone down in price a little bit in the last year, though most have stayed steady.

Q: Is there a wine glut in the U.S. or the world?


It's very regional. In Australia, because of growth in sales has been so healthy, we feel like we have a tight supply in chardonnay and shiraz, which are the keys for us. In California, the excesses in cabernet and chardonnay are well documented. Most people believe they'll persist for two more years. In Italy, pinot grigio is very tight. Generally speaking, the supply excess appears to be focused in California.

Q: Do you expect California producers to lose market share or to respond somehow?


My view is that California wineries will continue to respond with aggressive pricing. How aggressive? I don't know -- but keeping prices at least steady will be the order of the day for the next two years. It will be great for consumers.

Q: Is what's happening in Britain, where Australian wines are now No. 1 in the market, an indication of what might happen in the U.S. over the long haul?


No. I'm confident Australia will become the No. 1 [wine] importer into the U.S. and sustain that position. I believe Australia now has a 6% share of the U.S. wine business, and I'm very confident that will rise. But there's no question that California wine is of tremendous quality and is well seated in this country. I see Australia gaining share, but I don't see them ever becoming the leader in the U.S.

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