Analysing your risks as a wine exporter
While there are countless benefits, exporting wine to new markets is neither easy nor cheap. In addition to carefully pricing for profit and solidifying your routes to market, you must also consider various moving parts that can influence the success or failure of your wine exports.
To help you better manage both predictable and unexpected risks, it’s smart to categorise them in a simple format that can be redrafted and updated when additional information arises.
There are two analysis tools that can be beneficial during this process: a SWOT analysis and a risk management plan. Whereas the former sets both pros and cons into a clear framework, the latter helps you understand the consequences of specific risks, which you can then use to define the most appropriate strategy for thwarting them.
Further risks of wine exporting
Before you undertake these tasks, you should already have a firm grasp of the most common benefits and risks of wine exporting. If not, make sure you complete the Are you export ready? Q&A and weigh up your Export benefits and risks.
In addition to the risks you have already examined, there may be additional risks associated with your wine exports, including:
- Exchange-rate risk: Even a minor movement of the dollar can disrupt razor-thin margins for wine exporters.
- Transport delay or damage: Have you factored in the inevitability of shipping delays and damage to your stock?
- Payment risk: The risk of not being paid is heightened once you start working with overseas customers and international legal jurisdictions.
- IP risk (counterfeiting/impersonation): Do you have protections in place in the event that your IP is stolen and/or your branding is misappropriated by an impersonator? It’s equally important you do due diligence to ensure you’re not infringing upon the IP of others in overseas markets, particularly as it pertains to brand names and trademarks. Learn about wine IP here.
- Legal risk of commercial dispute in a foreign jurisdiction: Do you have the legal knowledge (or a network of advisors who are experienced in your chosen market), as well as the capital to engage in potential commercial disputes?
- Business interruption: What contingencies and/or insurance do you have in place to protect your organisation against business interruption? This could include everything from sudden cash-flow issues to a natural disaster destroying your wine stock.
- Protectionism for local producers: Are you aware of any protectionist policies in your chosen market? These are designed to help protect domestic producers from the threat of foreign wine exporters, often coming in the form of tariffs, import quotas and non-tariff barriers.
- Force majeure: Do you have adequate contractual knowledge (including in foreign jurisdictions) and/or the ability to call on legal experts to advise you in the event of serious contract issues?
Fluctuating exchange rates
Exchange-rate variations are the most prevalent risk for wine exporters, and they can have the largest impact on your ability to stay competitive. For example, an adverse movement in the Australian dollar (increase) or in your target market’s currency (decrease) will manifest, in the short term, in a decrease in the AUD FOB export price. Think about trading in Australian Dollars where possible to maintain control here.
You may also need to consider the risks associated with exporting to emerging markets, particularly:
Political risk
Confiscation of assets or business rights, such as licences or trademarks.
Regulation, trade barriers and tax-policy changes.
Legal risk
Unenforceable contracts.
Lack of IP protection.
Economic risk
Economic disruption (e.g. debt default).
If you’re feeling daunted by this list, remember that you are weighing up these risks with the countless opportunities of exporting wine.
SWOT analysis
A SWOT analysis is a strategic tool that business owners can use to define the Strengths, Weaknesses, Opportunities and Threats (SWOT) related to a business venture. In the context of wine exporting, this tool will help you tabulate all the pertinent information into a clear framework, and then give you room to strategise about how you plan to address each of the weaknesses and/or threats.
| STRENGTHS | WEAKNESSES |
|---|---|
e.g. Experience (particularly in new markets) Production capacity People and culture Financial reserves Value proposition Digital channels Price, value, quality Reputation Strong relationships through supply chain | e.g. Gap in capabilities (e.g. stock levels) Limited capacity to scale production Cash flow Low profit margin Suppliers Lack of resources and experience Causes of lost sales Minimal brand awareness New labelling required |
| OPPORTUNITIES | THREATS |
|---|---|
e.g. New customer segments Competitor weakness Industry trends Grants and support programs New wine products New innovations Key partnerships (e.g. importers) | e.g Pandemic Shipping and logistical issues Competitor actions Changing political landscape Environmental effects Loss of key staff Market demand (versus domestic demand) |
Formalise your risk management plan
It’s helpful to list the potential risks – in order of their likelihood – that could affect your wine export business. Use the template below to outline each individual risk, determine its rating, state its potential impact or consequences, and draw up a strategy to overcome that risk.
The risk rating depends upon the likelihood of an event occurring and the severity of the consequence. For example, the risk rating of an event that’s rare with a minor impact is low. Alternatively, an almost certain event with major consequences has a high risk rating. You’ll see a matrix for this in the download below.
Example risk management plan
| Risk | Rating | Consequences | Management |
|---|---|---|---|
| Australian dollar appreciates against target currency | High | Significant financial risk resulting in loss of profit margin | Negotiate with distributors the terms of exchange-rate fluctuations. This is often settled by sharing the risk. |
| Not doing enough research to fully understand market access, registration and regulatory hurdles | Medium | Failure to understand costs of entry into new markets can blow predicted budget | Conduct due diligence before entering new markets and hire individuals (or train existing staff) with market experience |
| Legal regulations becoming an export issue | Medium | Frequent changing and different import/export laws may cause importation issues | Be fully aware of country import laws and, where necessary, have legal advisor at the ready |
| Delivering goods and not receiving payment | Medium | Debtors are much harder to chase when overseas, resulting in significant product and financial loss | Ensure any contractual agreements are with reliable people. Credit check customers, importers, etc. prior to any engagement |
| Political issues in market region | Variable by country | Product not capable of being imported. Protectionism for local producers. | Be aware of foreign policies and political landscape. Change marketing tactics accordingly and take steps to prevent loss of business and investment. |
| Quoting incorrect Incoterms | Medium | Can lead to further costs and delays while transaction with importer is complete | Fully understand Incoterms in order to avoid expensive mistakes |
| Bribery, graft and corruption causing reputational damage | Variable by country | Brand reputation tarnished by having products imitated and sold in the export market | Ensure all IP and trademark protection is in order and can be in effect within relevant market |
| Claim or penalties for trademark infringement | Medium | Costly legal proceedings or potential damages including seizure, inspection and recall of goods | Do due diligence to ensure you’re not infringing a registered trademark |
| Compliance not being met | Medium | Products can be sent back or disposed of in-country, resulting in financial loss | Keep up to date with relevant regulations (via market guides) and ensure compliance before exporting |
| Country environment making import difficult | Variable by country | Wine is incapable of being imported because of the country’s environment | Conduct analysis of political, legal, social, technological and environmental states when selecting markets |
| Mismanaged transportation and logistics | Low | Risk of theft, damage or goods not arriving at their destination. Product spoilage due to incorrect storage. | Ensure contracts fully underline the circumstances surrounding product manipulation. Always have business insurance. |
Embracing agile exporting
Depending on when you decide to export, which markets you wish to penetrate, and the relevant global and geopolitical events occurring at the time, there will likely be further risks to consider within the context of your wine-exporting journey.
For example, in early 2022 Australian wine exports had decreased significantly (by 30% in value to $2.03 billion, and 17% in volume to 619 million litres) in the year ending December 2021, according to Wine Australia’s Export Report. These figures were reflective of the unprecedentedly tough market conditions over the previous 12 months. Major factors included deposit tariffs imposed on bottled Australian wine imported to mainland China, the continuing impact of the global freight crisis, and a counter-swing in some markets after COVID-19-related stockpiling in 2020.
Unfortunately, an export strategy is never ‘set and forget’. Successful wine exporters are acutely aware of changing market conditions both domestically and abroad. They have a diverse market portfolio and the ability to shift their strategy. So keep a firm eye on social, political and global events as they occur in real-time, have proper insurances in place, and be ready to respond and pivot your priorities in order to minimise any damage.
Related reading
Wine Export Ready has been developed in partnership with Austrade.