28 minute read
ALTERNATIVE VARIETIES
Peppery and elegant Schioppettino
By Jo Marsh, Winemaker/Director, Billy Button Wines, Alpine Valleys, Victoria
To produce its range of wines, Billy Button Wines works with a number of local growers in Victoria’s Alpine Valleys, one of whom made the decision to plant Schioppettino vines which yielded their first semicommercial crop in 2015.
The Schioppettino vines that provide the fruit for Billy Button Wines varietal. The vines were initially set up for spur pruning but it was felt this resulted in inconsistent cropping. They’ve since been reworked for arched cane pruning which has provided better consistency.
What drove a Welshman to plant Schioppettino in Victoria’s Alpine Valleys? Brian (Bri) and Linda Lewis bought the ‘old Bailey’ vineyard in 2006. At the time, demand for Alpine Valleys fruit was nearly non-existent, so Bri decided to change things up and take a punt on some unusual varieties.
Alongside Fiano, Tempranillo and Pinotage (his personal passion project), he decided to try a couple of rows each of the Friulian pair Schioppettino and Refosco (dal Peduncolo Rosso) after being given a bottle of Bressan Schioppettino by Mark Walpole.
The Merriang South vineyard is at 260m elevation on red clay loam soils with some underlying rock. Grafted rootlings on 101-14 rootstock were purchased through Chalmers Nursery in 2013 and the first (semi) commercial crop was harvested in 2015. The 365 vines are planted in three-metre rows with a north-south orientation. Initially, the vines were set up for spur pruning, however we found this gave quite inconsistent cropping, so this has since been re-worked to arched cane which has provided better consistency.
Schioppettino is the last variety to flower (January here) and usually starts varaison after we start harvesting Chardonnay from the same vineyard. Several times, we have almost given up on our chances of ripening it in a season, but it always manages to achieve ripeness. Fruit-set is easily the biggest challenge with the variety as any cold, windy and/or rainy weather around flowering results in very poor fruit-set. Changing the pruning to arched cane appears to have lowered the incidence of aborted berries and provided a more consistent fruit-set and crop.
The variety seems to be very resistant to mildew with no incidence of downy or powdery mildew observed yet, despite some very cool, wet vintages lately. As it is such a late-ripening variety, low levels of botrytis have occurred in the wetter years.
I remember a pre-vintage BBQ at Bri’s house in January 2015 where he had organised some Italian examples of Schioppettino and Refosco for tasting. “I don’t have the time or resources to do both this year, so I’m going to focus on the Refosco and not bother picking the Schioppettino,” he said. Well, you can imagine my response. Needless to say, the
Husband and wife Glenn James and Jo Marsh, co-owners of Billy Button Wines and senior winemaker and chief winemaker, respectively.
Schioppettino was definitely picked. The last fruit of the vintage, 950kg arrived at the winery and, at the time, we had basically no idea about the variety – we could not even pronounce it properly! We opted for whole berry, natural, open ferment and within a few days, as the fermentation kicked off, the winery was filled with the aromas of black pepper. It was at this point our excitement in the variety really kicked in. That wine, from the first crop, still looks fabulous.
We haven’t changed our winemaking too much since this original vintage. We continue to ferment with whole berries but now like to precede this with a three-to-four-day cold soak and non-inoculated fermentations. We have not undertaken whole bunch inclusion as we feel the variety naturally has enough perfume, and the peppery character may become overwhelming if whole bunch was utilised. It would be great if we had enough volume to experiment and create more options, but with only 0.5-2 tonnes per year we cannot afford this luxury. Our fermentation regime just involves open small fermenters with a twice-daily hand plunge. When the fruit finally comes in, the weather is usually quite cool to cold, so our ferments do not generally get over 25°C. We leave the wine on skins for a further two to three weeks maceration until we feel the tannin structure is where we like it to be. Harvest Baumes have ranged from 12.4-13.9 across vintages with final alcohols 13.4-14.2 %. Schioppettino is such an elegant variety with beautiful red fruit and perfume characters with fine tannins; we want to try and preserve this so we avoid oak (both new and old) and prefer to store the wine in Flexcubes as they allow the wines to respectfully mature with a small increase of oxygen. This form of maturation is key to much of our winemaking. Bottling takes place after nine months and the wine is released after another 12 months. We think peak drinking for this variety (or our version of it) is between five to 10 years.
What we love about the variety is the very high natural rotundone levels — you actually can taste it in the fruit. It has much higher levels than Shiraz from the same region in the same vintage. As with Shiraz, peppery characters are dependent on vintage conditions and much less apparent in warm years. We find the tannin structure to be elegant and, even compared to Refosco, we feel it has more layers and a tannin structure that provides extended ageing potential, although to be honest, both are downright delicious.
We think the variety is well suited to cooler climates as it does not have high levels of acid like other Italian varieties (e.g., Sangiovese, Nero d’Avola). Having said that, acid/pH balance is always much better than Shiraz! In cool years it can be challenging to ripen as it is always one of the last in the winery, however we’ve found we can make lovely balanced wines at 12-12.5 Baume in cooler years.
It would probably also go well in moderate climates, perhaps making a slightly richer wine but may not have the hallmark pepper characteristics of the variety. WVJ
Schioppettino
By Peter Dry, Emeritus Fellow, The Australian Wine Research Institute
BACKGROUND
Schioppettino (skee-op-eh-tee-no) was first mentioned in the late 19th century in Friuli (near Udine) in Italy as ‘Ribolla Nero’. DNA analysis has since revealed that it is not actually a black variant of Ribolla. The variety had almost disappeared by the early 20th century after Friuli was hit by phylloxera but was revived in the 1970s due to interest in indigenous varieties in the region. It was included in the list of authorised varieties for the Udine province in 1981 and achieved DOC status in 1987. In 2016 there were just 87 hectares plated in Italy, entirely restricted to Udine. Schioppettino is used in the DOCs of both Colli Orientali del Friuli and Friuli Isonzo where it may be blended with Refosco dal Peduncolo Rosso. It is also used in IGT Venezia Giulia. Schioppettino has almost disappeared in neighbouring Slovenia where it is known as Pocalza or Pokalza. It is a recent import to Australia with just three known producers in the Heathcote and Alpine Valleys regions.
VITICULTURE
Maturity is mid to late. Bunches are medium to large and well-filled with medium berries. Yield is moderate. It is reported to have average susceptibility to fungal diseases but is prone to poor set and sunburn.
WINE
Schioppettino wines are generally mediumbodied with good colour, firm tannins and fresh acidity. Descriptors include perfume, fruity, spicy and peppery. Like Shiraz, this variety is naturally high in rotundone.
For further information on this and other emerging varieties, contact Marcel Essling at the AWRI (marcel.essling@awri.com.au or 08 8313 6600) to arrange the presentation of the Alternative Varieties Research to Practice program in your region.
Supporting winegrape growers in their transition to a low carbon economy
By Julie Rynski, Executive - Regional & Agribusiness, Australia, National Australia Bank
Just like sustainability issues are influencing decision-making in the wine industry, capital is also becoming ‘carbon conscious’ in the finance industry. There is now greater scrutiny around banks’ approach to climate change, with regulators evaluating how banks manage climate change financial risks while investors are setting more stringent emissions thresholds for their investments. Following her colleague Drew Bradford’s presentation to the 2022 Australian Wine Industry Technical Conference, Julie highlights the role the finance industry is having in encouraging agribusinesses to help decarbonise the world.
The Australian wine industry is an important part of Australia’s agricultural production as well as our hospitality and tourism industries. Like any part of the agricultural sector, it’s also not immune to challenges. From droughts, floods, fires, and labour shortages to China’s decision to impose large tariffs on bottled Australian wine imports in 2021, the industry knows how to pivot and innovate.
One of the biggest shifts and opportunities is the transition to a lower carbon economy and building resilience to climate change. We know sustainability and climate change is top of mind for many of our customers, our people, our stakeholders and the communities in which we operate.
It matters and it matters to us at NAB that we lead by example.
That’s why we’re working closely with our customers to understand where they’re currently at and what support they need to transition. There are opportunities for producers in the agricultural sector to set sustainability goals and demonstrate their credentials to capture new markets, and we’re here to help. Our focus is on supporting our customers to transition to a more sustainable and resilient future, with long-term profitability and success. We’re partnering with key industry organisations that strengthen our sustainability capabilities and understanding, because we know solving complex societal problems means working together.
In July, we commissioned new research revealing the economic opportunity in Australia’s transition to a net-zero economy by 2050. The research, ‘All Systems Go’ by Deloitte Access Economics, found around $20 trillion will be invested in Australia’s economy out to 2050, regardless of whether we transition to net zero. However, to achieve our targets, this $20 trillion will need to be spent differently and the Australian economy must be structurally different to ensure we are best placed to emerge as a standout economy in a low emissions world.
‘All Systems Go’ pinpointed four economic systems that must become low emissions for a successful transition: energy, mobility, raw material manufacturing, and food and land use. Today, they represent around 90% of Australia’s emissions. This research reiterates that transformation to net zero is one that Australia can afford and the clear commercial opportunity for Australian businesses.
We’ve also partnered with research organisations like CSIRO and various Cooperative Research Corporations and universities.
To help winegrape growers make better business decisions, NAB (along with the Australian Wine Research Institute and the Queensland University of Technology) supported the Food Agility Cooperative Research Centre to develop an industryspecific Resource Intensity Score to link sustainable farming practices, including water use, energy use and carbon emissions, to financial performance.
Our partnership with Melbourne Business School (MBS) is about upskilling our people so they can have more informed customer conversations. All our agribusiness bankers will undergo climate training in a new course NAB developed in partnership with MBS. So far, 50 agribusiness bankers have completed the training and we’re aiming to have them all trained by the end of 2022. We want our bankers to be knowledgeable so they can support our customers and communities to make well informed decisions about investments that will drive the right financial and Environmental Social and Governance (ESG) outcomes.
While there are risks that can be managed, there are also many opportunities emerging that our customers are looking to capitalise on. A good example of using finance to pursue ESG goals is the bank’s Agri Green Loan pilot. The projects that are eligible for this loan type must drive improved environmental
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outcomes like building climate resilience, decarbonising farm production, or increasing sequestration which, in turn, increases productivity and profitability.
A NAB Agri Green Loan can help agribusiness customers invest in a range of eligible on-farm practices and projects, and implement sustainable on-farm practices and technologies to build resilience to climate related risks.
Among the customers in the wine industry who we’re working with to help lower emissions is Tahbilk Winery, Victoria’s oldest family-owned winery. Tahbilk is an industry leader when it comes to environmental protection and sustainability. Now in its fifth generation under the Purbrick family, Tahbilk was one of the first Australian wineries to be certified carbon neutral at both an organisation and product level.
With the help of three NAB Agri Green Loans (under the pilot), Tahbilk is continuing to build on its sustainability credentials. One of its biggest projects is the installation of 300kW of solar panels across three sites to reduce grid energy consumption by 39% and reduce its bills in the process.
Carbon initiatives are a huge component of Tahbilk’s sustainability credentials, with the winery certified carbon neutral in 2013, and it continues to reduce its reliance on offsets through projects like the solar panel installations.
Land and property management techniques play a role too; reducing the use of pesticides is a cost-saver, but it also minimises Tahbilk’s carbon footprint by cutting out the emissions used in producing, transporting and using the pesticides.
Key to enabling the reduced use of pesticides, Tahbilk is cultivating different species of flowering plants in and around vine blocks. Other initiatives include establishing wildlife corridors and protecting wetlands.
We’re also investing in market-leading technology — we’ve partnered with DownForce Technologies to remotely measure the historical and potential soil organic carbon levels across several of our customers farms. This type of technology has the potential for our customers to be more targeted in farmland management activities and interventions to improve soil organic carbon, to increase their productivity and resilience to drought, but also potentially participate more safely in the carbon markets when they better understand their historical low levels of carbon and future potential top levels.
We know innovation in this space is critical, so we’re funding customers who have developed innovative technologies that help to address climate change. For example, agricultural firm and NAB customer Agrimix has developed a new legume pasture with researchers from James Cook University. The drought-resistant pasture can help greenhouse gas mitigation by drawing more carbon out of the atmosphere and storing it in the ground. Research also suggests it can reduce the methane production from cattle, sheep and goats.
There’s a lot of exciting work happening across the industry. This is an ever-evolving space where we’re all continuing to learn and grow. It’s vital we continue working together to identify and support the opportunities that emerge so we’re ensuring the long-term success of Australia’s agriculture sector.
To read more about National Australia Bank’s ‘All Systems Go’ report visit news.nab.com.au/news/climate-action-everyones-job WVJ
A marketing framework for achieving sustainable NOLO growth
By Justin Cohen, Senior Marketing Scientist, Ehrenberg-Bass Institute for Marketing Science, University of South Australia
The growth in no and low alcohol products presents an opportunity for the Australian wine industry. But where do wineries start in terms of deciding what to offer drinkers interested in purchasing wine in this category? Justin offers some guidance.
No and low alcohol (NOLO) is an emerging subcategory getting a lot of attention in the wine industry and the broader alcohol category. This is being driven by technical advancements, perceived consumer demand and a desire for businesses to unlock growth. For an emerging area, there is a lot of great work emanating from Australia. Dolan (2021) provides a great synopsis on research for motivations for and barriers to NOLO wines. Looking at the broader alcohol category and from a global perspective, Distill Ventures (2022) released a report that aggregates several statistics and forecasts about the value of the NOLO subcategory in the US, Germany and Japan suggesting there is also a potential opportunity in export markets as well.
Wine Australia, the Australian Wine Research Institute (AWRI), South Australia’s Department of Primary Industries (PIRSA), other industry bodies, wine researchers and industry stakeholders are gearing up to conduct R&D that will support the Australian wine industry’s technical, regulatory and market development capabilities in the NOLO subcategory. The outcomes of these efforts will provide welcome knowledge to those thinking of creating NOLO wines and support brands already operating in this space.
This article uses my experience working with brands on their growth from a marketing perspective and, as always, is based on the framework for sustainable growth of the Ehrenberg-Bass Institute for Marketing Science (Sharp 2010, Romaniuk and Sharp 2016).
SUCCESS OF THE NOLO SUBCATEGORY IS PREDICATED ON INCREASING THE NUMBER OF BUYERS
Marketeers with more traditional, nonevidence-based training tend to favour strategies that focus on loyalty and targeting
Whilst there is a demand for NOLO products, the opportunity for scalable growth comes from orientating NOLO wines to current wine buyers and alcohol category buyers rather than just those who do not consume alcohol or require lower alcohol products.
specific segments deemed to be of the greatest value. These decisions can be based on maths that work out, but the reality is that achieving those sales are not plausible. Growth will rather come through increasing penetration (the number of buyers). Cohen and Dawes (2022) illustrate key growth principles in the Australian alcohol retailing context for those interested in a short, contextspecific illustration.
For large-scale wine brands that already have high penetration, embarking on a NOLO strategy can make sense as it creates an opportunity to expand their customer base if they are already maxing out their penetration among wine buyers. However, there is a more significant opportunity to orientate an existing wine portfolio to the broader alcohol market before moving onto the development of NOLO stock keeping units (SKUs). It is important to understand that most people buy from a repertoire. This is also evident when looking at the buyer behaviour of alcohol subcategories. Distill Ventures (2022) highlight that 83% of consumers switch between alcoholic and non-alcoholic beverages. Whilst China is not currently a viable market for Australia, research conducted there proves this point well. Cohen et al. (2018) showed that a typical alcohol drinker consumes about 2.5 types of alcohol a year. Therefore, whilst there is a demand for NOLO products, the opportunity for scaleable growth comes from trying to orientate NOLO wines to current wine buyers and, more broadly, alcohol category buyers rather than just those who do not consume alcohol or require lower alcohol products. We need to develop strategies to get NOLO wine into all buyers’ repertoires and this will be predicated on how successful brands and the broader industry are in building relevant memory structures associating NOLO with key purchase and consumption occasions.
WHILST THERE ARE PERCEPTUAL ISSUES, THE BIGGEST IMPEDIMENT IS THAT BUYERS DON’T THINK ABOUT NOLO
Corsi et al. (2022) qualitatively investigated attitudes towards NOLO in the Australian market. Their work will be very useful in guiding the efforts the broader industry aims to focus on in improving Australia’s capability in the NOLO subcategory. Whilst I agree there are perceptual problems that need to be worked on, over time, technical improvements and production experience
will ameliorate these issues. In my opinion, the bigger marketing issue is that beverage buyers simply don’t think about NOLO as a subcategory when they have a potential category need. Therefore, adopting the Mental Availability framework (Romaniuk and Sharp, 2016) is critical for growing the NOLO subcategory.
Research must be done to identify what the key buying and consumption occasions that resonate with the largest buyer bases in Australia and key export markets. This work has previously been done in China, supported by Wine Australia (Cohen et al. 2019, 2020). The work has been mainly reported at a Country-of-Origin (COO) level, but it was also validated for application at the subcategory level.
It is critical that we obtain a behavioural understanding of what consumption/purchase occasions will have the highest penetration and prioritise communications strategies around connecting NOLO with these buying occasions. Working on fixing the perceptual issues matter but shifting perceptions will take time and it’s likely those with initial NOLO experience are from a smaller base of the heavier buyers. The biggest opportunity will come from getting thought of more often by the many more lighter buyers which illustrates how the principles of the laws of growth underpin mental availability.
THERE ARE OPPORTUNITIES TO EXPAND DISTRIBUTION, BUT PLANNING IS REQUIRED TO GET THE MOST OUT OF YOUR LOCATION IN STORE/ONLINE
Cohen (2021c) is a summary of the key principles of Physical Availability. There should be opportunity to range NOLO, or at least the no alcohol range of wines, in an expanded number of sales channels within Australia and export markets if the regulatory environment can be satisfied. This is an opportunity to reach a wider buyer base. Another interesting question that needs investigation is where NOLO products should be placed in a wine or alcohol retailer. I would suggest that rather than, or in addition to, having a NOLO aisle/corner, NOLO products could be placed within their competitive full alcohol landscape. This gives them a greater chance of getting noticed and purchased by those who may trial a NOLO product with the strategic goal of adding NOLO to their repertoire. A buyer on a specific shopper mission to buy a NOLO product may seek out the NOLO section, but there is a much more scaleable opportunity present where buyers of alcoholic versions of those products will be shopping. Brands should also be mindful of the damaging impact of price promotions and should not see this is a sustainable tool for growing the adoption of NOLO wines (Cohen 2021b).
BEING DISTINCTIVE IS THE KEY TO GETTING NOTICED
Distinctive Assets (Romaniuk, 2018), the non-brand name elements that help your brand stand out, are a critical piece that ties together your communication and distribution efforts. For more specific examples of how these can be used in wine, please refer to Cohen (2020, 2021a). Brands will have a greater chance of NOLO success if they launch brand extensions with a focus on retaining the distinctiveness of their alcoholic versions whilst clearly demarcating that these new products are NOLO. Strategies to create new brands will have an even bigger challenge as there will be additional costs in managing and marketing a new brand that has no awareness in the market. Whilst this may be seen as a risk reduction strategy to avoid negative spillover from perceptual issues, the fact that NOLO is not being thought of is a far greater impediment to growth than the perceptual issue. The wine category can learn from the success of other zero alcohol brand extensions that have retained the distinctive assets of their alcoholic versions.
BRINGING IT ALL TOGETHER
Innovation in NOLO will be led by advancements in technical capability and the success of the production outcomes. However, varietals and styles should be driven by what has mass appeal to buyers. This means that success will be predicated on launching NOLO SKUs that will appeal to occasional and infrequent buyers. Brands need to understand what the higher penetration varietals and styles are in their markets of focus and try and align their NOLO development with these. Whilst the NOLO category looks attractive in terms of its rapid growth, it is starting from a small base. Brands should not ignore their top selling, full alcohol SKUs. If the building blocks of your business start to falter it will be challenging to allocate investment to develop and build the NOLO subcategory.
REFERENCES
Cohen, J.; Driesener, C.; Huang, A.; Corsi, A.M. and Sbalchiero, F. (2018) We need to be thinking about all alcohol drinkers in China. Wine & Viticulture Journal 33(2):60-61.
Cohen, J.; Driesener, C.; Huang, A.; Lockshin, L.; Corsi, A.M.; Bruwer, J. and Lee, R. (2019) What brings a Chinese alcohol drinker into the category. Wine & Viticulture Journal 34(1):67-68.
Cohen, J.; Driesener, C.; Huang, A.; Lockshin, L.; Corsi, A.M.; Bruwer, J. and Lee, R. (2020) The mental availability of different countries of origin in China. Wine & Viticulture Journal 35(1):68-69.
Cohen, J. (2020) Change isn’t always a good thing: using distinctive assets to improve marketing strategy. Wine & Viticulture Journal 35(4):62-63.
Cohen, J. (2021a) The challenge of making your wine label distinctive. Wine & Viticulture Journal 36(2):64-66.
Cohen, J. (2021b) Avoid marketing pitfalls so you can invest in sustainable growth. Wine & Viticulture Journal 36(1):73-74.
Cohen, J. (2021c) There is more to sales strategy than just distribution. Wine & Viticulture Journal 36(3):71-72.
Cohen, J. and Dawes, J. (2022) Marketing is fundamental for SA businesses. Business SA https://business-sa.com/about-business-sa/mediacentre/a-fundamental-of-growth-for-south-australianbusinesses
Corsi, A.M.; Dolan, R.; Goodman, S. and Pearson, W. (2022) Exploring the attitudes and expectations of Australian drinkers and non-drinkers towards Low and No-Alcohol (NOLO) wines. Wine & Viticulture Journal 37(4):70-72.
Distill Ventures (2022) One for every occasion. Distill Ventures Spotlight Report https://distillventures-uploads.s3.eu-west-1.amazonaws.com/ dv-spotlight-doc.pdf
Dolan, R. (2021) Health, wellness, mindfulness, Dry July, or just a fad? What’s motivating us to try NOLO wines. Wine Communicators of Australia Newsletter, August, pp1-3.
Romaniuk, J. (2018) Building Distinctive Brand Assets. Melbourne, Oxford University Press.
Romaniuk, J. and Sharp, B. (2016) How brands grow: Part 2. Melbourne, Oxford University Press.
Sharp, B. (2010) How brands grow. Melbourne, Oxford University Press. WVJ
How will the current economic climate influence wine consumption?
By Angelica Crabb, Senior Analyst, Wine Australia
The extreme and rapid negative impact of the COVID-19 pandemic on the global economy in 2020 has been well documented. Economies around the world were hit with high unemployment rates as whole industries were shut down over night. As a result, many governments implemented stimulus packages to weather the storm and help their citizens to, at least financially, survive the pandemic. These vast economic movements — first decline, then swift rebound — has meant that world economies have had a hard time adjusting to unprecedented and quickly changing conditions.
CURRENT STATE OF AFFAIRS IN KEY MARKETS
This yo-yo of economic performance has caused inflation to rise steeply in many markets, as consumers spent their funds on goods rather than services, and the cost of those goods has increased due to the global shipping issues and the conflict in Eastern Europe. Figure 1 (see page 74) shows how inflation has reached levels of at least 6 per cent in all four of the key markets analysed (which represent 80% of Australian wine sales). In addition, annual GDP growth is much less than inflation and is on a downward trend. One of the positive factors is unemployment which remains low at around 3.5% in Australia, the UK and the US.
One method to temper inflation is for central banks to raise interest rates. Raising interest rates can cool down an overheated economy by making saving look more attractive, loans less so, and decreasing disposable income — thus bringing down demand for goods and services. During COVID-19, and the most recent years before it, interest rates were at historical lows in key markets. The response by central banks in the markets shown in Figure 1 has been fairly unified, quickly raising interest rates (to an average of 2.8% across the four markets, as at October 2022) in order to bring down inflation as quickly as possible.
HOW DOES INFLATION AFFECT THE PRICE OF WINE?
Can we expect the same price increases in wine as other goods? The data from Australia so far points to ‘no’. Figure 2 (see page 74) shows the percentage increase compared to the same quarter in the previous year of wine, beer, spirits and ‘all goods’ sold in Australia. While there is a lot of variation, the change in price has stayed within a predictable level, except for spirits in 2008 (as a result of the introduction of the alcopop tax), and ‘all goods’ in the most recent quarters. Importantly, it seems that the alcoholic categories have not risen in price along with the rest of the goods in the economy.
This may not always be the case; price increases could just be delayed in wine compared to other goods as there is only one grape intake per year. The cost of producing wine is growing as the cost of inputs — labour, packaging, energy — increases, and some of this cost may eventually be passed on to the consumer.
Multiple studies are showing that lowincome consumers are disproportionally trading down as prices rise. IRI reports that in the United States FMCG stores in low-income areas are seeing more consumers trading out of ‘indulgence’ categories, such as candy, seafood and energy drinks.
Another study, also from the US and conducted in July 2022, stated that 20% of those earning more than $100,000 per year said they drank more alcohol in the past month, while only 12% of those earning less than $50,000 reported doing the same. In fact, 37% of those in the lower income bracket drank less alcohol. The study also presents the view that the continued strong spending by high income earners is so far masking the decline in consumption by low-income earners. But if the financial well-being of all consumers keeps declining, premium categories will also start to be affected.
In the US on-premise, a quarter of consumers have reported going out less often than usual in the past three months, with the primary reason for doing so being cost of living increases and higher prices. Seven in 10 consumers have noticed price increases in bars/restaurants and a third of these consumers have been purchasing less drinks and visiting the on-premise less often (CGA).
WHAT IF A GLOBAL RECESSION DEVELOPS?
As central banks increase interest rates, the danger is that demand will be suppressed so far as to throw economies into recession. In Australia, it has been 22 years since these levels of interest rate increases have been experienced, hitting the bank accounts of homeowners very hard and pushing down consumer confidence (IRI MarketEdge). In the US, they have already had two quarters of negative economic growth. The World Bank has released a study indicating that central banks are expected to raise interest rates to 4% by 2023, and yet inflation is only expected
Figure 1. Annual GDP growth, inflation, interest, and unemployment rates in key markets. Source: TradingEconomics, as at October 2022.
Figure 3. Year-on-year growth rates of US wine consumption by volume and value. Source: IWSR
Figure 5. Retail USD per bottle. Source: IWSR Figure 4. Year-on-year growth rates of premium and commercial wine in the US. Source: IWSR
Figure 2. Consumer Price Index, Australia – alcoholic drink categories versus all goods. Source: Australia Bureau of Statistics
to be curtailed to 5% by these moves. In order to bring inflation back to an ideal level, an additional increase of two percentage points could be needed — and they project that this will dampen global GDP growth to just 0.5% in 2023.
So how isolated is wine consumption from the effects of a recession? Looking at IWSR data for US wine consumption during the 2008-09 Global Financial Crisis (GFC) could give some clues.
Figure 3 reveals that during 2008 the volume of wine consumption in the US grew by 1.1%, while value declined by 1.5%. However, value made a strong rebound in the subsequent years, growing by 8% in 2011, while volume made a more gradual recovery.
The decline in the value of wine consumption was driven by a sudden drop in the growth of premium wine (US$10 per bottle and above). In 2007, before the GFC hit, the volume of premium wine consumed grew by 9%; this fell to a decline of 1% in the next year (see Figure 4). However, the growth of premium wine recovered relatively quickly, growing by 13% in 2011, nearly as much as it grew in 2006. This indicates that, while premiumisation might take a temporary hit, it tends to recover quite quickly once the recession has passed.
In contrast, the growth rates of commercial wine hardly changed during this period. IWSR reports that commercial wine tends to stay on its growth trajectory during recessions. What remains to be seen is how commercial wine will grow during any potential recessions in 2022-23 as it has been on a downward trajectory, declining by 2% on average per annum in the past five years.
One positive outcome from all this economic turmoil is that the Australian dollar has fallen in value compared to the US dollar, and this is good news for Australian wine exporters. A lower exchange rate means that Australian wine will be more competitive in overseas markets.
