"There's something like 30 billion bottles of wine sold each year in the world and I think there's a place for us if we can do it well enough."Wine prices have hit a record low, with some discount stores selling bottles as cheaply as $2. That's great news for consumers but a disaster for growers. There's now a wine glut of more than 900 million litres and growers are selling properties and bulldozing vines like never before. Helen McCombie discovers that, amid the gloom, there's also a bit of a sparkle, especially for "quality" wines.
CHRIS HANCOCK, Oatley Family Wines: There's just too darn much being made, and I think there's going to be in some sectors of the market, there's going to be some cathartic responses
DAVID LOWE, Lowe Family Wine: It's pretty tough, we think, certainly from a New South Wales point of view, we think there's probably a worse year to come. 2007 looks like being tougher than 2006.
HELEN McCOMBIE:The Australian wine industry is in crisis. A massive oversupply has put pressure on prices and profits, with possibly 900 million litres of wine unsold, many grape growers and producers are facing financial ruin.
HANCOCK: I think there's a lot of people are going to have to decide, very shortly, whether they're going to remain in the industry or not. I think it's going to require a lot of people to leave the industry, in fact, to get the industry stabilised.
McCOMBIE: Chris Hancock from Oatley Family Wines says the worst is yet to come.
HANCOCK: It is going to get worse for quite a number of people I would say. I mean we've got a situation now where in ten years the number of vineyards, in the ground in Australia, have grown from about 63,000 hectares to about 160,000 hectares. It's not all going to survive, it simply can't.
McCOMBIE: The wine glut may be hurting producers, but it's been a boon to consumers.
JULIAN IZZILLO, Wildfire Sommelier: All in all, for the value and cost of this wine, not too bad at all, pretty good.
McCOMBIE: Julian Izzillo, sommelier from Wildfire Restaurant in Sydney, is talking about a wine that is terrifying the industry — a chardonnay from Woolworths outlet Dan Murphy's which costs $1.95.
IZZILLO: As I said, it's the kind of wine that I couldn't drink a lot of, but at $2 a bottle, it is pretty good value.
Lordy be, somebody's losing a whole lot of money, and I am almost certain it isn't Dan Murphy and we just hope that they can blow that through as quickly as they can and let's get back to normal because in any sort of business if everybody's not making a buck then it is not a good business to be in.
McCOMBIE: But the two-dollar wine, which is below the cost of production, is going to be around for a while.
SAM TOLLEY, Australian Wine & Brandy Corporation: It could be a year, it could be longer, but it'd be in that sort of vicinity, would be my personal expectation.
McCOMBIE: So it could be around for some time?
TOLLEY: I think so, given that there is a substantial amount of stock already in the system.
McCOMBIE: It doesn't matter who you are, all companies large and small, face the challenge of how to deal with the oversupply. Yellow Tail, the Australian brand that has taken the world by storm in just five years, now selling an astonishing ten million cases a year, is no exception.
JOHN CASELLA, Yellow Tail: There's a big volume of very cheap wine that's making its way to the retail area. Now we've got a premium brand, a brand that sells at a specific price, so there's a lot more new products that are undermining our brand.
McCOMBIE: John Casella has held his nerve and his prices.
CASELLA: It's just that we need to stay away from the discounting end of things and just keep offering better value wine to the consumers that buy our product.
McCOMBIE: Casella did toy with the idea of developing a cheaper wine to take advantage of the oversupply.
CASELLA: We have been. We've looked at what advantages we have in doing that and the disadvantages, and it would be very confusing, both for the consumers and our overseas customers, in that they would obviously have issues knowing which brand they should be selling, which brand they should be promoting.
McCOMBIE: Yellowtail has been a saviour to many grape-growers in Australia. Unlike some wine companies, who have cancelled contracts, the 550 growers supplying Yellowtail, are being supported.
CASELLA: We've consciously gone out and we've had a lot of contracts that ended this year. We've renewed those and will renew those in coming years, even though those grapes are slightly surplus to what our requirements are, I would rather keep supporting those growers, keep them viable, keep them in the industry, because things will turn and whether it is three years or five years, we certainly want them to be there.
McCOMBIE: Other industry players too, are trying to support each other.
MATT COOK, Fosters winemaker: Obviously it's a very challenging time in the industry...
McCOMBIE: Tough times bring people together and today at Mudgee, there's an unusual event. People from six different wine companies looking at the wines of region and how to promote them.
LOWE: It's a bit like in agriculture, if someone has bogged their tractor down the road, there's three or four neighbours come and drag it out. We're all very much trying to work with each other and I guess we are trying to promote excellence.
McCOMBIE: Fosters, Australia's largest wine company, has organised the industry tasting.
LOWE: They appreciate feedback from a production point of view, and I think they also want to find out, what it is, the salient points about the wines so they can also help for their marketing and help bring this message to the public.
McCOMBIE: David Lowe is part of the task-force, looking at the future direction of the industry, he believes quality is the answer.
LOWE: In fact, we have increased some of our prices. We have actually made better wine and been rewarded in the last couple of years internationally and our yields have come down, so our prices have gone up slightly but our quality has risen dramatically, we certainly don't want to be in the cheaper wine business, because we are not as efficient, the infrastructure costs our overheads are very high.
McCOMBIE: Peter Scott, who's developed an on-line business, specialising in small producers from the Mudgee region, also believes quality and difference are what consumers are looking for.
PETER SCOTT, Mudgee Boutique Wines: Whilst there's certainly a market for their cheaper wine, the amount of money that people are spending on wine isn't diminishing, its actually going up and wine consumption is increasing. I think, what people are looking for now is difference. They're looking for something that's new and interesting and they're getting a bit tired of the same old from the big corporate players and that's where Mudgee, I think, sits beautifully in the current scene.
McCOMBIE: And the on-line demand is growing.
SCOTT: It is obviously early days and whilst we haven't retired to our condo in Aspen yet, the results are encouraging enough to keep us going and we're starting to get repeat custom now.
McCOMBIE: While wineries are being sold at bargain basement prices and some vineyards are even being moth-balled, it's not all doom and gloom in the Australian industry. Here at Mudgee in New South Wales, the Oatley family of Rosemount fame, are about to launch a new wine company.
HANCOCK: Bob and Sandy Oatley and Ian Oatley have got together and, I've joined them, to start a new wine company.
McCOMBIE: The Oatley wine from these vineyards is to be launched later this year.
HANCOCK: We'll just have a couple of labels, we'll probably have about five different varieties, we're just going very, very quietly and see how the market accepts us as we go along, I mean, we shouldn't be, we've been in the industry long enough collectively the four of us, I think we account for about two hundred years in the industry, but we still get very nervous I think it is a bit like going on stage for the first time.
McCOMBIE: Chris Hancock acknowledges that many may scratch their heads about the timing of the Oatley's plans.
HANCOCK: People would wonder why on earth you needed another new wine company in this whole world, it probably — I mean it's the glass half full, the view we have is that the industry here is bottoming out in terms of the cycle, and it's going to be nice to have a position in the marketplace as the upswing occurs, it inevitably will. There's something like 30 billion bottles of wine sold each year in the world and I think there's a place for us if we can do it well enough.
McCOMBIE: But for many, the wine industry has become unsustainable, and some difficult decisions will have to made shortly — mothballing of vineyards is coming.
TOLLEY: I think we will see some, I think it is a viable option for some, grape growers need to look at their particular situation, and make an assessment, and I think that assessment needs to be done on a realistic estimation that this problem is not going to have a very quick solution, it will have a solution, but it won't be the next year or two, it will be beyond that.
