The recent weakening of the Australian dollar against the American dollar is leading to a drop in retail prices for Australian wine in the US.
Kangaroo down – Australian wine prices are being slashed in the US. Credit: Matt Turner
According to Bloomberg, a bumper grape crop this year is threatening to encourage further price cutting that could damage Australia’s quality image abroad.
“I’m genuinely fearful of what will happen,” Melbourne-based wine critic Jeremy Oliver told the news agency.
“There is a double whammy of a change in the dollar and a large vintage that could do a lot of damage to our export reputation,” he added.
At 90 US cents, the Australian dollar is currently trading at 10% below its $1 level at the start of 2013, leading wine companies to compete in the US by dropping their prices.
Yalumba’s Y Series has seen a 300% uplift in sales after dropping its price from $12 to $10 in the US
Yalumba has experienced a 300% sales lift in America by lowering the price of its Y Series from $12 a bottle to $10.
Hinting at further reductions, Yalumba’s export director Benton Fry told Bloomberg: “There’s something very psychological about being able to get under the $10 level.”
Yellow Tail, which sells 75% of its wines in the US, looks set to gain from the weakening of the Australian dollar against the US dollar, having struggled over the past three years to turn a profit in the US due to the soaring Aussie dollar.
In a bid to push “premium” Australian wines abroad, a new range from the Barossa Valley soon to be released by Yellow Tail’s makers Casella, is set to be priced at 25% above Yellow Tail.
“Australia’s not in any position to start dropping prices now. If anything, we should be moving up,” Casella’s managing director John Casella told Bloomberg.
This January, Casella, Australia’s largest family-owned winery, held crisis talks with its lender, National Australia Bank, after recording its first loss in 20 years.
“It is very, very tough. Provided we have the support of our financiers, we can make little or no money for a year or two,” Casella told the AFR at the time.
With falling exports, in recent years Australian winemakers have looked to produce smaller amounts of wine at a higher quality level and increased price point.
Penfolds owner Treasury Wine Estate cut its sales volumes in Europe by 31% in the two years to December 2012.
Last month , the company destroyed AU$35m (£21.4m) of old and aged commercial stock in the US due to declining sales in the American market.
In addition, Treasury has earmarked a further AU$40m for discounts, designed to speed up the sale of its surplus vintage wines currently floating around the US.
The company anticipates shipments to the US to fall by up to 2m cases in its 2014 financial year.