Aussie wine producers forced to innovate in engaging new customers

Boutique Australian wineries whose products have become popular in the US are having to find new ways to reach their customers with COVID-19 decimating in-store sales in that important market.

Australian wine sales in the United States were hammered in the second quarter of 2020, with the latest Rabobank Wine Quarterly report revealing an estimated US$47 billion, year-on-year reduction in total sales in US foodservice and drinking establishment channels. And, with the report indicating operations and revenues of restaurants and bars not likely to return to 2019 levels until after 2021, wine producers will need to find new ways to engage with potential customers in the US market.

The report also noted that dining and drinking establishments in the US saw their total sales fall to an estimated US$68 billion during the first four months of 2020, a 22 per cent drop on the corresponding period last year. Rabobank senior wine analyst, Hayden Higgins, said that the hit to sales for wine specifically would be even higher as they rely more heavily on full-service bars and restaurants – a sector that performed saw even bigger hits to revenue than limited-service restaurants.

Higgins emphasised the importance of in-store sales for Australian produces.

“The on-premise channel typically accounts for less than 20 per cent of annual wine sales in the United States, but it’s extremely important, particularly for small, premium wine brands which sell a greater proportion of their product into restaurants and bars,” Higgins said.

Australian wine export figures reflect the fact that Aussie winemakers are targeting the premium end of the market in the US – while exports to the US for the year ended March 2020 were down 11 per cent by volume, Wine Australia reported that the average price per litre rose to the highest levels since August 2009.

More trouble ahead

Higgins said that the US foodservice industry was unlikely to get back to 2019 levels until after 2021, and that the recovery would be led by

limited-service restaurants and take-out/delivery – sectors that involve lower sales of premium wines. He also pointed out that the structure of the retail market in the US presented challengers for small producers.

“The US alcoholic beverage market operates under a three-tier system made up of manufacturers in the first tier, a second tier comprised of importers, distributors or wholesalers who purchase the product from the manufacturer, and a third tier of retailers,” Higgins said.

“Under this system, producers are unable to sell directly to US consumers. It is, therefore, essential brands work closely with their US distributors – who are in regular dialogue with retailers – so they can better understand changes in the way US consumers are purchasing wine.”

The way forward

The issues in US bricks-and-mortar retail mean that Aussie winemakers will need to innovate to maintain sales, with digital capability now a key to success.

“While the on-premise sales are currently facing monumental challenges, the growth in e-commerce has been well-documented, and will provide an important opportunity for wineries seeking alternative growth strategies – both in the US, Australia and other markets,” Higgins said.

“We’re already seeing this process well underway in Australia, as wineries try to offset the decline in tasting room sales with e-commerce. Beverage companies are finding new, innovative ways to connect with consumers wherever they are, in a digital environment and to help drive sales across channels.”

Higgins cited the example set by Chinese beer brand Tsingtao as a model for used e-commerce to increase sales.

“Tsingtao used lockdown measures in China as an opportunity to further create a network of ‘community distributors’ – essentially social media influencers working on commission – that has been extremely successful by a number of measures,” Higgins explained.

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