Nov 17 2020
From COVID-19 lockdowns to potential tariffs, it has been an eventful year to say the least for operators in the Wine Production and Spirit Manufacturing industries in Australia. Domestically, sales to licensed establishments are anticipated to recover as COVID-19 restrictions are eased and in-home consumption and entertainment increase. Companies that have successfully marketed their ready-to-drink and read-to-serve products are anticipated to benefit from this trend. For example, Diageo Australia has focused on its ready-to-serve products through its gin brands, Tanqueray and Gordon’s, over the last three years. This increased focus has supported the company’s performance over the COVID-19 pandemic, with its industry-specific revenue growth expected to rise at an annualised 3.3% over the five years through 2020-21.
Wine Production in Australia
Exports for the Wine Production industry are expected to grow at an annualised 2.8% over the five years through 2020-21, to account for 40.4% of industry revenue. However, the possibility of China imposing tariffs on Australian wine is creating concern within the industry. In August 2020, the Chinese Government announced an anti-dumping investigation, citing that a number of Australian companies were dumping wine at lower than cost production prices in China. Furthering this concern is that China is the top wine export destination for the industry. Any significant tariffs imposed could make exporting into China unprofitable. However, as of October 2020, no decision has been made.
Wine producers have also had their own domestic problems as well, coming in the form of reduced demand from the Pubs, Bars and Nightclubs industry attributable to COVID-19 lockdown restrictions. However, demand is anticipated to recover in from 2020-21 onwards as lockdown and social distancing restrictions are eased.
The major companies in the Wine Production industry such as Treasury Wine Estates (7.8% market share) and Casella Wines (7.4% market share) have reported falls in demand in the US market due to changing consumer preferences. Additionally, an oversupply of wine and heavy discounting in the US market have constrained demand and revenue for both companies.
Spirit Production in Australia
Revenue for the Spirit Manufacturing industry has been significantly affected by the COVID-19 pandemic, with government restrictions forcing many pubs, bars and other licensed establishments to close. As a result, industry revenue is expected to grow marginally at an annualised 1.2% over the five years through 2020-21, to $2.1 billion. Premiumisation trends have also changed the industry over the past five years. Increased interest in cocktail culture, savvy marketing and rising per capita incomes have supported the premiumisation trend over the period.
Despite the COVID-19 outbreak affecting global demand, industry exports to other countries remained largely stable or increased during 2019-20. For example, exports to the United States (11.0% market share), increased by over 50% to $14.2 million during the year, overtaking China (6.8% market share) as the second largest export destination for Australian spirits, behind New Zealand (29.0% market share). A roll back of COVID-19 restrictions and a recovery in the economy are anticipated to support demand for spirits. Overall, exports are expected to grow at an annualised 5.4% over the five years through 2020-21, to account for 6.5% share of industry revenue.
Imports have also grown over the past five years, and are estimated to account for 32.2% of domestic demand in 2020-21. The top four countries that Australian firms import spirits from are:
- The United Kingdom (34.0%)
- The United States (18.1%)
- France (10.5%)
- Ireland (6.6%)
Diageo Australia has reported that its off-premise sales (sales of products other than in licensed venues) increased as a portion of sales. The demand for more off-premise sales for both wine and spirits can be attributed to changing consumer preferences towards entertaining at home, smoking bans in many venues and concerns regarding drink-driving.
Expansion of the Spirits Manufacturing industry has been aided by boutique distilleries gaining popularity and opening close to city centres, where firms have both production and services in the same establishment. The success of premium Australian spirits will likely encourage a more diverse range of boutique distillers to enter the industry over the next five years. However, external and internal competition is anticipated to intensify, limiting revenue growth over the period.
IBISWorld reports mentioned in this release:
Wine Production industry in Australia
Spirit Manufacturing industry in Australia
Pubs, Bars and Nightclubs industry in Australia
Casella Wines Pty Limited
Diageo Australia Limited
Treasury Wine Estates Limited