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Wine exports from Australia may be in a downward spiral, with double-digit losses in the segment’s key markets, but the industry has dusted itself off and is busy embracing new opportunities.
The past four years have been difficult for the Australian wine industry. Like everyone else, producers have had to cope with a punishing combination of the pandemic, spiralling inflation and rising costs, the latter covering everything from energy to labour, raw materials and logistics.
As if that weren’t bad enough, the country’s wine industry has lost its largest export market by far: China. Beijing’s imposition in late 2020 of eyewatering import tariffs as part of a political spat with Canberra has placed this billion-dollar market out of bounds for all Australian wine.
There are signs that relations between the two countries are finally thawing, but there’s still a way to go until business is as usual.
The impact of these multiple pressures, coupled with the effects of the cost of living crisis on consumer sentiment, is evident in the 2022 export figures issued by Wine Australia. Last year, the value of shipments dipped below the AUD2bn [US$1.3bn] barrier, with double-digit losses in key markets.
“The export statistics were unsurprising,” says Australian Grape & Wine CEO Lee McLean, “driven largely by a slowdown in exports to the UK after two years of elevated exports and a move by some businesses to export in bulk, possibly partly driven by the supply-and-demand imbalance we’re seeing in some Australian wine regions, particularly in red wine grape varietals.
“It’s a difficult time for the Australian sector, but there are some positive signs in certain markets. Strong growth in South-East Asia and Canada across the board was good to see. Also, while major red wine varieties exported reduced by value, white wine varieties, such as Chardonnay and Pinot Gris/Grigio, saw good growth.”
Malaysia, Vietnam, the Philippines, India – Who will replace China?
The loss of China has sent producers scrambling to replace it with new destinations, particularly in South-East Asia. The region is the fastest-growing for De Bortoli Wines, but off a small base, says executive director Victor De Bortoli. “We’re seeing opportunities in South-East Asian countries, although they’re still relatively small markets at the moment.”
Pernod Ricard Winemakers’ business acceleration director, Darryn Hakof, describes South-East Asia as “a dynamic long-term opportunity for our Australian wine business”. He explains: “While some of the markets remain small-scale in the context of the Chinese market, Vietnam, Malaysia and the Philippines are dynamic and offer strong opportunities for growth. We’re also seeing a bounceback in Thailand, with tourism returning following the pandemic.”
Then there’s India, a market characterised by a dynamic economy, but notoriously difficult trading conditions. “The potential of the Indian market is immense, but the tariff and regulatory environment remain challenging,” says McLean. “As an industry association, we are working with our members, the Australian Government and India’s wine industry to explore opportunities and build relationships over the long term.”
Hakof adds: “India remains the most exciting opportunity in the region. Jacob’s Creek has been present in the market for many years and is already the leading imported wine brand in India. Our focus remains on building for the long term by expanding our portfolio and delivering education to build wine knowledge and engagement among the emerging consumer base, particularly female drinkers who have been increasingly embracing wine as their beverage of choice.”
CADA & TWE – The beginning of a beautiful friendship?
The company hardest hit by China’s disappearance has been Treasury Wine Estates, more specifically its Penfolds brand. The group deserves praise, however, for its retention of interest in Penfolds’ key export market as well as an innovative pivot to weather the subsequent storm. In February, Penfolds MD Tom King joined winemaker Matt Woo on a visit to the country, including customer and staff meetings, and discussions with the China Alcoholic Drinks Association [CADA] on their long-term collaboration.
Last year, TWE’s Penfolds business division announced a partnership with CADA to coincide with the launch of the brand’s first China-made wine, part of the ‘One by Penfolds’ range of wines from three winemaking regions – France, the US and China. “The strategic cooperation agreement will see TWE and CADA work together to build China’s wine industry, sharing technical expertise and brand support to develop world-class quality, integrity and valuation systems for Chinese grapes and wine,” says a group spokesperson.
Optimism, however, is tinged with pragmatism. “We will not speculate how much and how fast the Chinese market will return,” says De Bortoli. “Instead, we will focus on other export markets, as well as our domestic market, in the short to medium term. If it opens up again, we venture in again.”
Doom and gloom in the UK; the US remains challenging
China’s travails would be easier to bear if trends were more positive in other key markets, such as the UK and the US. “The cost of living crisis has caused some consumers [in the UK] to leave the category, impacting sales of wines in the entry-level pricing tier,” says Penfolds’ EMEA sales director, Gregory Joos de ter Beerst. “However, strong growth in the GBP8–GBP10 [US$10–$12] price band is reflected by the significant growth in sales and distribution for the Penfolds Koonunga Hill range, which is currently growing 54% in volume [Nielsen MAT figures to 31 December 2022],”
Future hopes are pinned on the strong underlying awareness of – and appreciation for – Australian wines among UK consumers. “The quality of wines from Australia is excellent,” says Paul Braydon, head of buying at UK-based Kingsland Drinks Group, which handles importation duties for the likes of Andrew Peace Wines in Australia. “They represent exceptional value for money and have always been much loved by UK consumers. We have seen success with wines from cooler-climate regions, including [South Australia’s] Limestone Coast, [Western Australia’s] Great Southern, and Tasmania. Some truly world-class wines are produced here.”
As for the US, Hakof describes the country as “one of the most important premium wine markets in the world”, but admits that it remains a challenge for Australia. “Like many markets around the world, growth in the US is being driven by premium-plus segments, and Australian wine needs to position itself to capitalise on these premium opportunities,” he says.
As Australia’s wine industry struggles to overhaul its export priorities, it is also combatting the highest domestic interest rates seen in 11 years, as well as rising labour and energy costs. Producers can’t just put up prices to counteract this, warns De Bortoli. “Although one may think pricing would be an obvious defence to maintain margins, consumers are already facing rising cost of living pressures,” he points out. “It’s almost impossible to pass the cost down the value chain.
“We will need to be more creative in addressing these margin pressures, potentially through operational efficiency, especially by improving our internal processes to increase productivity and reduce wastage of resources in all aspects of our business.”
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