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Small wineries are missing out

SMALL wineries may be missing out on a big chunk of revenue that could help them survive in this increasingly competitive sector.

A new study shows that small wineries, which dominate the WA market, could be missing out on vital income from merchandising and other areas ancillary to their main focus of wine sales.

Local commentators believe this issue had been recognised by the WA industry where winery numbers have doubled in 10 years to 220, a figure dominated by smaller producers with 187 of these producing less than 450 tonnes.

The third annual benchmarking study Winning Strategies in the Wine Industry – Benchmarking for Success, released by Deloitte Touche Tohmatsu and the Winemakers Federation of Australia, compared Australia’s wineries with those in the US, finding that our wineries could be missing out on millions of dollars of non-wine

sales.

A similar study in the US found that in 2000 wineries with turnover of $US5 million or less generated 14.4 per cent of their revenue from merchandise sales, a figure that includes everything from t-shirts and wine glasses to paintings and restaurant food.

By comparison, merchandise at Australia’s smallest wineries (those below $5 million in turnover) represented just 0.2 per cent of sales.

“Small Australian wineries need to evaluate their cellar door strategy and consider developing more non-wine sales at the cellar door,” the report says.

“Positioning the cellar door near

a roadside, street signage and restaurant facilities all help to raise awareness and maximise brand value.”

While visitors to WA’s South West might think small wineries have taken this route, there are plenty of new operators that have virtually no presence on the major tourist trails.

The point is being pushed hard by the Deloitte study’s findings because it is clear that Australia’s small wineries are falling behind in profitability.

Australia’s small wineries had an Earnings Before Interest and Tax margin of 9.1 per cent in 2001 against the small US wineries’ 12.2 per cent.

Contrast that to wineries at the next level, between $5 million and $10 million, in Australia which have an EBIT margin of 21.6 per cent and the US wineries turning over between $US5 and $US10 million which make an EBIT margin of 25 per cent.

Deloitte Perth partner Luke Martino said there were some clear messages from the study for those at the bottom and mid-tier levels of this competitive market – even in the areas such as the South West where wineries have long engaged with tourism.

But Mr Martino said he believed wineries were focusing more tightly on merchandising.

“I am certainly seeing some growth in non-wine sales in some of the smaller wineries I am dealing with,” he said.

“You have to have a clear strategy, bulk buying is a good example, joining with others to buy corks and labels and outsourcing wine making, that is the key.”

WA Wine Industry Association CEO Sarah Dent said wine tourism was vital to the viability of smaller wineries.

“Our wineries are paying three and half times the level of tax that cask producers are, we have to look for alternatives,” Ms Dent said.

“The (merchandising) figures from the US are interesting.

“We are striving to get more income from these areas.”

The report says competition in Australia is fierce with the number of small wineries in Australia growing by approximately 300 percent over the past 10 years, from 535 wineries in 1990 to 1440 in 2002. Against that, domestic consumption of wine has only been increased by 30 per cent since 1990.

Wineries in the survey earned more than $2 billion in revenue from the sales of bottled and bulk wine, representing about 50 per cent of total Australian wine industry revenue.

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