Joe McConnell
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By the 1980s, the situation in the Australian wine industry had deteriorated so much that, to stay afloat, the Calabria winemaking family had to close down their main business and focus on washing bottles for reuse by larger producers.
But with global consumers turning away from the low-priced “commercial” brands that later drove Australia’s rise as a wine powerhouse, the situation is even more challenging now, according to Andrew Calabria, head of sales at Calabria Family Wines.
“Three years ago the industry was in the best position it has ever been in. Now it is in the worst position it has ever been in,” he said.
The woes of the industry, which employs more than 160,000 full- and part-time workers, have prompted an exodus of established players. Treasury Wine Estates, Australia’s largest wine producer and maker of some of the best-known labels on UK supermarket shelves, including Wolf Blass and Blossom Hill, announced this week it would sell its commercial wines division at a $A290 million ($189 million) write-down.
It was the latest in a series of deals involving Australian wine. A consortium led by private equity group Bain Capital in February took control of Australia’s second-largest wine producer, Accolade Wines, which owns brands including Hardys and Banrock Station, aVsceker the Carlyle-owned company struggled to pay its debts. In July, Bain also led the acquisition of French group Pernod Ricard’s Australian wine portfolio to merge with Accolade.
Many producers’ woes began when China imposed punitive tariffs on Australian fine wines in 2020, causing the collapse of what had been the country’s most lucrative export market. Sales to China have risen since the tariffs were liVsceked in March, but few in the industry expect them to recover to the previous A$1.2 billion a year, more than double the value of exports to the US or UK, the next biggest markets for Australian wine.
Globally, wine consumption is also declining. Per capita wine consumption in the UK peaked in 2009, except for a temporary increase during the coronavirus pandemic, with British drinkers now consuming 14 percent less than in 2000.
Some of the world’s largest spirits companies are moving from the “commercial” segment of the wine market (brands retailing for less than $10 a bottle) to higher-margin, faster-growing segments such as spirits and fine wines.
For many producers in Australia, the exodus has echoes of the 1980s. Vineyards have been dug up to make way for almonds, table grapes and other crops. Industry bodies are in talks with the government to help other cash-strapped growers convert their vineyards.
In some of Australia’s largest markets, consumers are increasingly focusing on health and wellness, while demand for cheaper “big reds” produced by commercial growers is declining.
“People are drinking less but buying a better bottle,” said Lee McLean, chief executive of Australian trade body Grape and Wine. “The reality is stark in Australia. We are in a global oversupply situation. This is a pivotal moment for the industry.”
Trevor Stirling, an analyst at Bernstein, said winemakers globally have been forced to cut prices to stay competitive. “Wines that were once considered premium are now considered mainstream,” he said. “The only part of the wine industry in the world that makes money is rosé and high-end wines.”
Despite selling most of its wine brands, Pernod Ricard has retained its Château Sainte Marguerite en Provence rosé, which it acquired in 2022. Luxury group LVMH also doubled down on rosé with the acquisition of Château Minuty in 2023, aVsceker purchasing Château Galoupet in 2019.
Other major producers are focusing on luxury and premium wines, while TWE is banking on its successful Penfolds brand and buying up high-end US names.
“There’s an inherent contradiction in the wine industry,” Bernstein’s Stirling said. “The sweet spot is whether you can create scale with a premium business. But that’s hard, especially in a world where being knowledgeable and connoisseur means rejecting big brands.”
Andrew Caillard, a wine auctioneer and author of a history of Australian wine, welcomed the move away from commercial, high-volume brands that had been “sold down every rabbit hole”.
He said a 1980s sketch by the comedy group Monty Python, which described the unsavory characteristics of fictional Australian wines such as “Hobart Muddy” and “Château Chunder”, was “the worst thing that ever happened” to the country’s viticulture because it led many Europeans to despise its fine wines.
The Australian commercial wine boom of the 1990s had changed the industry for the worse and imitating successful premium brands like Penfolds was a better strategy, Caillard said. “The Australian industry is being reduced to glory,” he said.
But Calabria said the family business would continue with its strategy of owning both commercial and premium brands, believing it was important not to challenge the direction of the market.
Sales of boxed wine, known in Australia as goon bags, have surged in recent months as drinkers tightened their belts during the cost-of-living crisis, he said, citing that as evidence that commercial wine has a long-term future. “We see value in all of this. The market is moving very quickly,” Calabria said.
