How to Export Wine in Australia
Exporting wine is considered a challenge particularly in Australia where oversupply of wines for export poses a problem. Competition is stiff in this market. It is believed that exporting wines in Australia has reached a plateau and its lackluster export performance shows that it is no longer as lucrative as it was during the golden years between 1996-2007.
But exporting wine’s potentials cannot be undermined as there are other markets that Australian manufacturers have not penetrated yet. China being one of the emerging most promising markets of all. From out of nowhere, the Chinese logged in no. 7 biggest importers of Australian wine in 2008. India, Russia, Singapore and Korea markets also hold a lot of promise.
The Australian wine exporters just need to develop marketing strategies to be able to penetrate this untap market effectively. For years, Australia has focused on UK and US markets. With the plan to penetrate Asian borders, Australian wine exporters should make use of either brokers or distributors for initial introduction of their products.
Building long-term customer relationships with the retailers should be the main goal not just finding brokers or distributors. Being innovative is another good export plan. This is especially true with the packaging of the product.
Logistic issues need to be addressed. Pertinent legal issues need to be tackled too particularly in the market research, compliance and payment areas since these are the non-core elements that would likely incur some legal problems.
Exporting Australian wines is also made more easier through the help of Export Market Development Grants (EMDG) scheme by the Australian Government that extends financial assistance to those who want to embark on exports.
II. Product Description
Exporting wine is a tricky but highly financially rewarding business. A number of Australian companies have succeeded in selling wines abroad such as to USA and UK. Wine exporting particularly in Australia might be a saturated market now due to oversupply but there are a number of emerging new, untapped markets that a wine exporter could focus into (Dynamic Business, 2007).
These markets such as China, India, Singapore, Russia and Korea. These places have grown tremendously in the economic arena in the past few years. The ‘newly rich’ coming from these areas are therefore eager to try out new luxuries that their money can buy. Wine is definitely one of these luxuries. Companies that can produce wines that cater to these emerging markets would definitely have a distinct advantage (Dynamic Business, 2007).
For one, these markets are growing and largely untapped. To be able to harness them to the fullest would take years. Also, being one of the the first wine companies to penetrate those markets would certainly be a great advantage. It would position the wine manufacturer at the top of the ladder. That is why, deciding to export wine now is a critical step because timing is everything. Entry to the market while the demand is still new and rising would certainly spur demand for the product and therefore, spur sales (Dynamic Business, 2007).
For the company to be ‘export ready’, it needs to honestly assess its capacity and commitment to the project. The company should look into these critical factors before making a decision to export wine:
Investment. In exporting wine it is important to realize beforehand that investment is required, which could be a sizable one, in order to export wines to international markets. One needs to spend for market research, credit checks or even in hiring staffs to set up an export department. Government agencies often extend help to first-time exporters. The company should make use of this resource (Harder-Toolar, 2003).
Commitment. Commitment to the project is an important part of its success. Exporting wine is a full-time and long-term job. It takes some time before the efforts show so committing to the cause should be number one on the list. Without it, once obstacles come in, it would be hard to go on. One needs a reason, a goal to attain in order to be clear on what on what to achieve, when, where to go and how to go about it. Commitment to exporting wine should be considered thoroughly before resources are allocated for such purpose (Harder-Toolar, 2003).
Reasons vary which could be:
- The reputation of taking part in an international market
- Increase in total case sales
- Increase market for distribution
- Grow future sales
- Selling wine products beyond the Australian market needs
- Combining business with the pleasure of international travel
- Fulfillment of seeing your wine on a wine list
All these reasons would be more than enough to motivate any wine company to venture to wine exporting.
Allocating time and resources. Time and resources are another important consideration when exporting wine. It takes time and resources to succeed in the international market. It is important to build category and brand to be able to penetrate the export market. This will take longer time to do compared to the local markets so be prepared to commit time and ample resources.
It takes time to reap the financial rewards of the investment but it would be all worth it in the end. A number of Australia wineries could attest to the fact that exporting rakes in increased sales and profits (Thach, 2005).
III. Export Potential of Wine
Wine’s export potential is enormous. From 1996 to 2007, exports of Australian wines flourished immensely. Great strides have been achieved in wine exporting during these golden years. A lot of foreign investors came to inject necessary investments in wine production. Australia companies likewise extended their reach by investing in wineries in other countries like France and Chile (Australian Government Department of Foreign Affairs and Trade, 2008).
What makes Australia’s wine attractive is the fact that it comes from one of the oldest grapevines. Europe’s vineyards suffered massive destruction due to diseases in the 1800s. Europeans however brought vines to Australia before that, making the ones in Australia the last surviving species of the oldest grapevines. Australian viticulturalists developed ways to preserve the vines. Australians also come up with innovative ways to use lesser chemicals in wines (Australian Government Department of Foreign Affairs and Trade, 2008).
In 2006–07 alone, Australian wine garnered a total of estimated 1.23 billion litres in sales. Of these total, 449 million litres were sold locally or 36% of total sales and 786 million litres were sold abroad. Australian wine exports is estimated to be $2.87 billion or a 4.4 per cent surged of sales compared to the past year. (Australian Government Department of Foreign Affairs and Trade, 2008).
The largest export market for Australia wine in 2006–07 were United Kingdom (269 million litres valued at $977 million), United States (215 million litres $856 million value). Canada, Germany and New Zealand round up the top 5 leading export markets for Australia wine (Australian Government Department of Foreign Affairs and Trade, 2008; Australian Government Australian Wine and Brandy Corporation, 2008).
Tourism is also another aspect of Australia wine as it attracts both local and international travellers to the country thereby increasing its export earnings.
IV. Export Plan
A. Target Market
Choosing a target market for the wines is essential. The market(s) chosen for our wine exports must reflect the style, image and price point of the wines. This way it is easy to be competitive.
The target market for our wine export would be largely Asian markets – China, India, Singapore and Korea. Wines that are being made to these niche markets would include Table wines, sparkling wines and fortified wines (Dynamic Business, 2007).
United States wine market would also be considered since it is consistently growing at 5 percent per year. UK wine market however has levelled off. But China market is gaining a lot of momentum. While India and Russia are considered wine markets with very huge potentials in the near future. The sheer size and number of these markets combined, if harnessed, would make Australia wine a very formidable player in the wine industry (Dynamic Business, 2007).
B. Initial Steps to Exporting Wine
To be sure that exporting wine would be a successful venture, one need to consider some salient points. Questions don’t have to be addressed all at one time but should be considered as one move along.
1. Choosing a Sales Structure
There are three best sales structure to choose from for a first-time exporter: broker, distributor, direct sales. Choosing one that is best for the type of wine company would be crucial and integral part of business. Assigning a broker or distributor could help address what is necessary (Agricultural Marketing Resource Center, 2009) .
- It is advisable to use a broker when
i. you don’t want the hassles of learning the market or controlling the marketing
ii. you want one person or company to deal with the markets
Using a broker is the easiest way to begin exporting. The drawback, however, is that it limits your control on how your wine gets distributed to the market.
- An importer could be assigned directly when
i. you have the time to go see the market
ii. you want to have control on the marketing done by the agent
Getting an importer allows you more power; it also demands time and effort from
- Making direct sales
i. to get rid of stages of profit-taking
ii. when brand building is not necessary
Direct sales are usually for your single outlet in the market.
The sales structure to be used for this wine company would be assigning a distributor or importer. This way the company will have control over how the wine is being distributed in the market. Also, it will have a chance to come in contact with its prospective buyers.
Stephen Strachan, chief executive for the Winemakers Federation of Australia (WFA), says that the "best operators, and typically those who’ve been around for a while and have seen this type of thing before, are spending a lot of time in planes. Whether it’s in the Australian market or offshore markets, making sure their wines are front and centre in terms of their buyers and their consumers" (Dynamic Business, 2007).
Choosing a broker would be good option too because not like the distributors, brokers do not buy the wines but rather just acts as sales representative of your company. They are oftentimes more credible than creating a local sales force because brokers have a ready mix of services available for the manufacturer such as authorizing deals, knowledge of the clients or retailers, can create a marketing program, spearhead promotional campaigns and provide other pertinent services (Doolan, 2009).
Whether using a distributor or broker, one thing that the Australian company must keep in mind is that they should develop direct relationships with retailers and not just rely totally on their brokers or distributors (Doolan, 2009).
Gaining the trust and developing good relationship with targeted retailers in Asia for instance instead of focusing on the broker or distributor would give the Australian manufacturer the exporting edge it needs. Getting involved in the discussions between the broker and his customers or calling on customers in your accounts would establish bonds with these retailers. This way, the Australian manufacturer can identify the areas where they need to improve by listening to suggestions of its customers (Doolan, 2009).
2. Making use of Innovative Packaging. Packaging is an important selling point in Asia. That is why wine in cans are gaining popularity there. Wine-in-cans is an innovation introduced by Australian Barokes Wines (Dynamic Business, 2007).
Knowing and addressing consumer needs and global trends are important part of market targeting. It is not enough to create a quality product. Being creative and fulfilling the customers’ needs would be the foremost consideration.
Australian wines sold at low or mid-prices but at great quality also bolstered their bid to enter the hard-to-crack Asian market. Since Australian wines are reasonably-priced compared to other wines, they would most likely attract the budget-conscious Asian buyers.
Hotels and restaurants in Asia are also good target markets for the wines since these places are most likely to demand wine products (Dynamic Business, 2007).
- Find one or two reliable freight forwarders.
- Learn the proper way to make shipping documents for export.
- Know how the wine is handled the moment it leaves the winery until it arrived at the selected market, particularly the temperatures it is stored and the kinds of vessels and warehousing used.
- Know the person responsible for risks and insurance at various freight points (Thach, 2005).
D. Legal Issues or Challenges Relating to this Target Market (either for the company or for its product?)
1. Market Research
a. Know the Asian market share in the target market(s).
b. Understand the import tariffs and mark-up structure and the retail price point the wines will sell.
c. Know the legal structure of the distribution system.
d. Know the useful division of wine sales through several channels and the end-users of the wines.
e. Develop a marketing plan that caters to the target market(s) (Thach, 2005).
a. Being familiar with the requirements for labels, packaging and shipping documents are essential.
b. Being acquainted with the regulations on oenological practices and what proof is also required.
c. It is important to learn how to report appropriately export sales for income tax purposes (Thach, 2005).
a. Agree when and how the company will be paid and when and how to compensate brokers and distributors.
b. If payment is from a foreign entity, know the credit risk and how to insure in case of bad credit or non-payment.
c. Consider the exchange rates and risks that come with them (Thach, 2005).
E. Meet the Needs of Standards or Quality Control Issues
1. Competent Staffs
Persons must be assigned to handle every step of the exporting process at the winery such as: packaging, logistics, sales & marketing, accounting. Surveys reveal that those companies who designate personnel to overlook the export process have greater chances of attaining success (Thach, 2005).
2. Enforcing Regulation, structure and research
Australian government imposes national standards for wine through the able administration of each state and territory governments. Federal regulations are concern with quality control of the wines. The Australian federal government makes the trade environment more hospitable to the wine industry such as removing trade barriers and developing local economic environment. Issuance of policies are made by the Australian Government Department of Agriculture, Fisheries and Forestry.
The Australian Wine and Brandy Corporation looks after the regulating and implementing laws on the export of wine and brandy.
The Grape and Wine Research and Development Corporation is assigned on grape and wine research and development to help promote the Australian wine industry and community.
Research and development play a huge role in the technological advancements introduced to Australian wines. With the able help of the main representative of Australian winemakers the Winemakers’ Federation of Australia, policies and programs are made to enhance Australian winemakers’ interests. These bodies are responsible for enforcing and implementing laws that would make Australian wines truly world-class (Australian Government Department of Foreign Affairs and Trade, 2008).
Challenges to the Wine Industry
Challenges to the wine industry are varied and multiple. For instance, drought could affect the grape supply, in turn, directly affecting the wine supply. Frost, the opposite of drought also causes devastation to the wine industry (Dynamic Business, 2005).
F. Support from the Australian Government
The Export Market Development Grants (EMDG) scheme by the Australian Government extends financial help for those who want to go into export (Austrade, 2009).
The EMDG scheme:
- funds small and medium-sized Australian businesses so they can expand to export markets
- pays back to 50 per cent of expenses beyond $10,000 related to export promotion
- each eligible applicants can apply to a maximum of eight grants
First-time applicants must spend $10,000
for two-year period on qualified expenses on export marketing.
What can you claim?
There are nine valid marketing activities that can be claimed. These expenses must be incurred within the last two years.
1. Overseas representatives – costs associated with overseas representative to promote the product. Maximum allowable amount to be claimed is $200,000.
2. Marketing consultants – costs associated with hiring a consultant for marketing activities. Maximum allowable amount to be claimed is $50,000.
3. Marketing visits – travel costs for marketing activities (maximum of 65% for first class airfares). A $300 daily allowance for living expenses is allowed.
4. Communications – claims for actual communication expenses to market the product.
5. Free samples – claims for free samples of the product.
6. Trade fairs, seminars, in-store promotions – costs of participating fairs and other related activities.
7. Promotional literature & advertising – claims for promotional materials distributed or created such as websites.
8. Overseas buyers – costs associated with flying potential clients to Australia. Maximum allowable amount to be claimed is $7,500 per buyer per visit and $45,000 per application
9. Registration and/or insurance of eligible intellectual property – patent, trademark, registration, insurance for protection against infringement and other expenses related to intellectual property.
Individual or businesses with:
- less than $50 million income during the year the grant is applied
- have paid at least $10,000 export expenses
- main owner of the business