Managing the benefits and risks of wine exporting
Wine exporting can bring major opportunities and benefits to your business, but it also presents challenges you need to be aware of before starting out.
Wine exporting can bring major opportunities and benefits to your business, but it also presents challenges you need to be aware of before starting out.
Success comes from making the most of those benefits while carefully managing – and mitigating – the risks. Think about how they apply to you and your business:
- Do you have the necessary resources to manage both international and domestic risks?
- Do you have the means and relevant market knowledge to explore new opportunities as they arise?
To help get you started on your wine-exporting journey, here’s an overview of some critical benefits and risks. Use your export plan and risk management matrix to further assess how these may impact your business.
Planning for the future
The potential benefits of exporting wine will differ depending on your long-term strategy. Here are some of the most common objectives for wine exporters:
- Grow sales volume beyond the limitations of the domestic market
- Improve performance and/or distribution security in export markets
- Meet requests from third parties for private label (OEM) wines
- To catch up vintages, reduce working capital or generate cash flow
- Sell excess inventory of branded wine
- Penetrate new markets to accommodate a production expansion or diversification
- Optimise markets/portfolio for profitability, sustainability and risk factors
- Fulfil unsolicited sales orders
- Lifestyle reasons, such as travel
It may help to create a Statement of Intent (SOI) that you can refer back to as you build your export strategy. These SOI examples may be similar to your reasons for wanting to export wine:
- Domestic market plateau: ‘We believe our domestic market growth is levelling and would like to take our wines to new markets to continue our business growth based on our high-value wines. We intend to explore two to three markets where we can obtain long-term sustainable growth from a modest base of 200 cases in the first year.’
- OEM wines: ‘We currently sell wine to third-party OEM wineries and want to improve our margin by taking our own brand to new international markets, increasing profitability and sustainability. We will not be entering the same market as our OEM to maintain the relationship.’
- Unsolicited orders: ‘We currently have unsolicited orders from international parties and want to spread the risk of our brand by diversifying the portfolio into these particular export markets.’
- Lifestyle: ‘We have a passion for Japan, frequently travel to Japan for leisure and would like to export to this market to enable us to travel for business purposes and leisure in the same journey, matching our wine and travel passions. We wish to slowly build a recognisable brand and currently believe that getting a foothold in restaurants is the place to start.’
- Excess stock: ‘We currently need to clear excess stock from past vintages and need to produce more to reach production capacity. Building our brand internationally will allow us to produce more without generating excess back-dated stock. We will do this with a mix of fast unbranded sales to get initial market experience and develop the understanding we need to launch our local brands.’
Top benefits of wine exporting
Whatever your goals and overall strategy, the potential benefits will be tied directly to your objectives. Here are a few benefits to consider.
Greater profits from new sales channels
Many winemakers and exporters look to new markets because of the potential to generate more money. However, it can also be a smart strategy to sell off extra stock or, importantly, sell your wine products at a different price point than in the local market – whether higher or lower. Make sure you factor in these strategies when setting export prices. This can also establish your brand as a respected presence in the global wine market.
Prestige of having a global brand
Beyond just selling wine, penetrating international wine markets presents a global prestige factor. If you aren’t in some of the biggest wine markets in the world, such as throughout North America, Europe and/or Asia Pacific, it is difficult to lay claim to having a truly ‘global brand’. Achieving that global recognition through exporting is a motivator in itself for many winemakers.Additionally, in order to be reviewed by many of the top-tier publications such as Wine Spectator and Decanter, you must have distribution in the representative country in which the publication is published.
Diversification can minimise risks
Selling your wine in different markets can help reduce your dependency on domestic sales. But more excitingly, it can help you grow your sales volumes beyond the limitations of the domestic market. Diversification is at the heart of most successful business strategies – you want to maximise the value of your wines by making them available to as many markets as possible, thereby spreading the risk and reducing the impact of potential local issues.
Improve your operations and processes
Wine exporting can show you new ways of doing business and teach you management and marketing techniques to boost your business. Moreover, expanding your operations globally is an opportunity to make your production more efficient and potentially generate long-term savings
Top risks of wine exporting
Legalities and compliance issues
In addition to the tyranny of distance, which makes logistics and supply chains more complicated for Australian wine exporters, there are legalities and compliance issues to manage. Laws from new regions, particularly non-English-speaking, can make the exporting process seem overwhelming. Elsewhere, such as in the United States, every state’s alcohol regulations are different following the repeal of Prohibition. So compliance in California is different from compliance in Texas. Stay up to date with our Export Market Guides to ensure your product is meeting market compliance before exporting.
If you are concerned, you can engage the services of a legal professional in your chosen market, or a local professional who has experience navigating the export challenges of that particular region. In the worst-case scenario, when compliance is not met, your wine products may be sent back or even disposed of at great financial cost to you.
Highly competitive
Not only are you competing against your Australian peers for domestic share, you are also competing against winemakers from countless other countries around the world. Then there are the domestic winemakers in your chosen export markets, which already have an established presence. You need to understand your export capability and define your strategy through a robust market evaluation framework.
You must also acknowledge that from a pricing perspective, you are competing not only across Australia, but globally. You should be acutely aware of pricing, for example, of Rosé from Provence, Pinot Grigio from Italy, Cabernet Sauvignon from California, etc.
Less time spent on your domestic output
It’s easy to get excited about exporting wine, but if you put all your efforts into a new market you may lose focus of your home market and existing customers. This can result in reduced domestic profits which may not be covered by a burgeoning export business. Also remember that you will likely have less control of an overseas market compared to at home, and your customers’ reasons for buying your wine may be different.
Additional costs
From production and manufacturing, to documentation, regulatory fees, freight, distribution, risk management, market research and marketing, there are many costs to consider before exporting your wine. The good news is there are tools such as the FOB to Retail Calculator to help you determine your profitability and the ideal price point for your wine.
Complex payment terms
International payments and transactions are typically slower and more complex than what you experience here in Australia. International customers might want credit terms, so you need to factor that into your cash flow. Additionally, there is always the risk of not getting paid – particularly if you haven’t yet built a relationship of trust and you don't have any formal agreements in place. This is even more complex once you begin working with overseas customers and international legal jurisdictions.
Also don’t forget about additional risk factors like fluctuations in the exchange rate (e.g. the Australian dollar appreciating against your target market’s currency). The FOB to Retail Calculator includes an exchange rate sensitivity calculator, which assists in determining how your FOB will change depending on the exchange rate.
Unforeseen external factors
From political unrest to supply-chain issues caused by a global pandemic, there are untold factors that can contribute to exporting difficulties. While they may also impact the domestic market, they have the capacity to hamstring burgeoning wine exporters who may not have established supply chains in place. As of 2022, the pandemic is still disrupting the on-trade, while global issues continue to cause major shipping delays and increased freight costs.
Mitigating risks
While there will always be risks to exporting wine – just as there’s a wealth of benefits – you can pre-plan and implement mitigation strategies.
Below are some common risks that wine exporters face, as well as some ways to best manage them:
- Australian dollar appreciates against target currency: Negotiate with distributors the terms of exchange-rate fluctuation. This is often settled by sharing the risk. Think about trading in Australian Dollars where possible to maintain control here.
- Delivering the goods and not receiving payment: Ensure that any contractual agreements are with reliable people. Credit-check any customers prior to engagement.
- Compliance not being met: Keep up to date with country compliance and ensure your product meets market compliance before exporting.
- Transportation and logistics tarnishing the product quality: Ensure contracts fully underline the circumstances surrounding product manipulation. Always have business insurance.
- Country environment making import difficult: An analysis of the country’s political, legal, social, technological and environmental states should be completed before exports begin.
To work through more export risks and mitigation strategies, learn how to create a risk management plan.
