The Australian wine industry is currently enduring one of its toughest periods, with many winemakers likening it to a crisis worse than the downturn experienced in the 1980s. Back then, the Calabria family, now prominent winemakers, had to temporarily halt their main operations and resort to washing bottles for larger producers just to stay afloat. Today, the challenges are even more significant, as global consumers increasingly shun the lower-priced “commercial” wine brands that once propelled Australia’s rise as a global wine powerhouse.
According to Andrew Calabria, head of sales at Calabria Family Wines, the situation has drastically worsened over the past few years. “Three years ago, the industry was in the best position it has ever been in. Now, it’s the worst it’s ever been,” he remarked, highlighting the severity of the current crisis.
The wine sector, which provides employment for over 160,000 workers in Australia, has seen an exodus of well-established players. This week, Treasury Wine Estates, the largest wine producer in Australia and the maker of popular labels like Wolf Blass and Blossom Hill, announced it would sell off its commercial wines division, resulting in a significant A$290 million (US$189 million) writedown. This move follows a series of other sales and acquisitions in the industry, such as the private equity group Bain Capital taking control of Accolade Wines, Australia’s second-largest wine producer, earlier this year.
The troubles facing many Australian winemakers began in 2020 when China imposed punitive tariffs on Australian fine wines, effectively collapsing what had been the country’s most lucrative export market. Although sales to China have rebounded somewhat since the tariffs were lifted in March, few in the industry expect a return to the previous high of A$1.2 billion a year in exports—a figure that dwarfed sales to the US and UK, Australia’s next largest markets.
On a global scale, wine consumption has also been declining, with the UK, one of Australia’s biggest markets, experiencing a significant drop in per capita wine consumption since its peak in 2009. This decline has prompted major alcohol companies to shift focus away from lower-priced wines, typically retailing for under $10 a bottle, towards higher-margin segments like spirits and premium wines.
In Australia, the situation is reminiscent of the challenges faced in the 1980s, with some vineyards being uprooted to make way for more profitable crops like almonds and table grapes. Industry bodies are currently in discussions with the government to assist cash-strapped growers in converting their vineyards to alternative crops.
Consumer trends in major markets like Australia and the UK are also changing, with a growing focus on health and wellness leading to decreased demand for the cheaper, mass-produced “big reds” that have long been the backbone of the commercial wine sector. As Lee McLean, CEO of the Australian Grape and Wine trade body, noted, “People are drinking less but buying a better bottle.” He emphasized the reality that the industry is facing a global oversupply crisis, marking a crucial moment for Australian wine.
Trevor Stirling, an analyst at Bernstein, pointed out that winemakers worldwide have been forced to lower prices to remain competitive. “Wines that were once considered premium are now seen as mainstream,” Stirling said, noting that the only segments in the wine industry currently making money are rosé and high-end wines.
In response to these market shifts, large producers are increasingly focusing on premium and luxury wines. Treasury Wine Estates is honing in on its successful Penfolds brand, while Pernod Ricard and luxury group LVMH are expanding their portfolios of rosé wines, underscoring the growing popularity of this category.
Despite the industry’s challenges, some, like Andrew Calabria, remain committed to maintaining a diverse portfolio that includes both commercial and premium brands. He cited recent increases in sales of boxed wine—often referred to as “goon bags” in Australia—as evidence that there is still a long-term future for commercial wines, especially as consumers look for value during economic downturns.
As the Australian wine industry navigates this turbulent period, the future may see a smaller, more focused sector, with a stronger emphasis on quality over quantity. However, the resilience of established brands and the continued demand for value-priced options suggest that the market will continue to evolve in unexpected ways.
