The difficulties of Australian wine producers

Global oversupply is arguably the industry's biggest challenge, triggering low prices, which then have a detrimental impact on producer profitability, pushing many vintners to the point of bankruptcy

by S. C.

Australia's wine producers have continued to struggle this quarter with the challenges of market maturity, excess supplies, unfavourable climatic factors and exchange rates. However, oversupply is arguably the industry's biggest challenge, triggering low prices, which then have a detrimental impact on producer profitability, pushing many vintners to the point of bankruptcy. The latest victim facing such an ordeal is Australia-based wine manufacturer Cockatoo Ridge Wines, who announced in January 2010 that it anticipates going into insolvency during the current third quarter. However, despite the challenging industry conditions the news is not all bad; in February, Australian Vintage (AV) announced that it had returned to profitability in H110 and was expecting to double its annual underlying profit during FY10. This performance achieved in a tough economic climate leaves AV well positioned to take advantage of a forecast increase in wine volume sales of 3.9% to 2014.

Elsewhere, the mass grocery retail sector continued to receive attention from the Australian Competition and Consumer Commission (ACCC) in Q1-Q210. Attempting to contain the dominance of the country's two largest supermarket chains - Coles and Woolworths, who control approximately 70% of the market between them, Australia's Federal Government amended the Trade Practices Act to give more authority to the ACCC authorising it to prevent large companies from acquiring smaller rivals. While such legislation will hinder the expansionary activities of the market leaders it will go some way to leveling the playing field for smaller retailers and help ensure the Australian market remains competitive. Also keen to ensure healthy competition in the sector is Australia-based food consumer group CHOICE who has recently recommended the establishment of a supermarket ombudsman to act as a single point of reference for supermarket related disputes. In recent years the potential for a new market entrant in Australia has been virtually eliminated, yet if a supermarket ombudsman is established this may all change.