Targeting profitable margins for Australian wine

The Gross Margin Ready Reckoner is a free and confidential business planning tool, developed by Wine Australia in partnership with Deloitte, that allows wineries to run different production and market scenario simulations to determine the most relevant price point for their wine in a specific market. 

Wineries can model the impact of changes in product mix, pricing, markets and distribution strategies on their profit margins.

The Gross Margin Ready Reckoner will help our sector to get the most from export opportunities as it provides a benchmark with the most suitable price point in a specific market, based on the individual business needs of a winery.

The tool calculates profitability under different business scenarios across production and the supply chain, using information from the individual winery, as well as benchmark and tax data generated from a number of sources.

The Gross Margin Ready Reckoner has recently been updated to include the latest grape pricing and changes to tariff rates arising from Australia’s free trade agreements.

To create an individual benchmark report, the Gross Margin Ready Reckoner poses specific questions over three steps:

• winegrape origin and variety
• destination market, and
• wine production and storage costs.

Wineries can adjust the inputs on the comparison screens to examine the impacts of changes to input costs such as exchange rates, shipping and route to market.

How does it work?

To highlight how the Gross Margin Ready Reckoner can help Australian wine businesses, we have run an example scenario.

Sal is winemaker and Managing Director at Winerejoice in the King Valley. Sal has recently developed a strategy to grow and diversify her business by exploring export markets. Sal’s flagship wine is a Reserve Sauvignon Blanc which retails in Australia for $40 per bottle. After reading Wine Australia’s Export Report, Sal noticed that Sauvignon Blanc exports above $90 per case to Singapore have grown by 150 per cent in 2016–17 demonstrating healthy demand and an ideal market to target. After additional research into the market through Wine Australia, Austrade and in-market contacts, Sal accesses the Ready Reckoner to examine the economics of the trade.

Information is entered on the type of fruit, destination market, route to market and retail price (assumes SG$46 per bottle). Some information on production such as size of facility, storage, maturation and alcohol content (for taxation calculations) is also required.

The Ready Reckoner calculates this trade will be profitable for her business. The plan is to retail the Reserve Sauvignon Blanc at close to the same price in Singapore as it does in Australia. Sal recognises that a consumer can easily compare prices from anywhere in the world. After all costs are included (taxes, retail margins, distribution margins, freight, sales team, production and wine grape), Sal will make a comfortable gross margin of 72 per cent. This meets the specified 50 per cent^[1] benchmark specified by the tool to ensure sustainability.