Australia's wine lovers are embracing European bottles as never before, worsening a decline in their local industry, already suffering from plummeting exports.
The Australian dollar is at record levels against the euro, and imported wine has rarely been more affordable. Prices for some labels have dropped by 30 per cent. LVMH Moet Hennessy Louis Vuitton SA's Moet & Chandon champagne is now sometimes cheaper than the French company's locally produced Domaine Chandon sparkling wine.
"It's absolutely fantastic," said Jeremy Oliver, a Melbourne-based wine critic. "If you have A$100 ($129) in your pocket, that will get you a top bottle of Australian cabernet or shiraz. Today it also buys you a pretty serious Bordeaux, a very good Italian from any region or a sensational Spanish red."
The shift is harder on local wine producers. Australia, the world's largest wine exporter by volume outside of Europe, saw the value of exports decline to their lowest level in a decade last year, falling 10 per cent from a year earlier to A$1.89 billion, said government export agency Wine Australia.
At Melbourne-based Treasury Wine Estates (TWE), the world's second-biggest publicly traded vintner and owner of the Lindemans and Penfolds brands, sales in the US, its largest market, fell 15 per cent to A$803 million in the year through June.
The effect is more pronounced in Europe, where the euro has fallen 7.8 per cent over the past three months to make it the worst-performing major currency against the Australian dollar, compared with a 1.4 per cent decline in the greenback.
"It's not just the strength of the dollar, it's the economic climate in Europe," said John Ellis, who stopped European sales from his Hanging Rock Winery two years ago to focus on the Asian market. "We've basically abandoned that as a market."
The wine business is a microcosm of the broad effects of the strong dollar on Australia's industries.
The country's largest steelmaker, BlueScope Steel, shut its export operations in August, citing the currency's strength as a major reason.
Retailers, led by Harvey Norman Holdings chairman Gerry Harvey, in January last year called on the Government to limit competition by raising the sales tax on some imports.
Five years ago, Australia's wine industry was an international sensation. Exports rose more than fourfold in the decade to 2007, when they peaked at 786 million litres. Australia overtook France as the UK's top supplier of imported wine in 2005 and was briefly in 2008 the frontrunner in the US.
Then things turned. Competition had for years been increasing from wine areas such as Argentina, Chile and South Africa. A domestic wine glut prompted complaints from Jacob's Creek producer Pernod-Ricard SA that the image of Australian wine was being damaged by too much low-quality product. In 2009, bushfires swept through Victoria, incinerating vineyards and tainting grapes. Exports dropped 11 per cent in the past four years, to 703 million litres last year.
The high price of labour and land, plus the small-scale nature of middle-market wineries in Australia also make it hard to compete with imports, said Oliver. "You can get seriously interesting, diverse wines from Europe, South America and South Africa for A$25," he said.
"In Australia today the small guys trying to do the equivalent are finding it very hard to get anything in the bottle for under A$45."
Moet Hennessy is seeing more than 10 per cent growth in Australia for all of its premium sparkling wines, from Chandon and Moet & Chandon to expensive Dom Perignon, said Jonathan Coles, marketing director at LVMH's local unit.
Set up by the luxury-goods group in 1986, Domaine Chandon has traditionally offered a more affordable local alternative to imported French champagne.
- BloombergBy David Fickling