"....people in the wine industry have spent a lot of time in the last five years looking hard at their business and how they can do things better ..."
Kim Tyrer from Mount Barker Wine Producers Australia quoted in abc.net.au, May 23rd 2013
1. Exporting in bulk and bottling it in America and,
2. Establishing growing, bottling and distribution operations in America.
Wine lovers will always tell you that it’s what’s in the bottle that counts. So does Australian wine need to be bottled in Australia? Shipping Australian wine in bulk and bottling the product in the US can enable savvy producers to counter the rising dollar. Glass is heavy and if it is not core to the product then it can be added closer to the point of sale. Other Australian companies that produce heavy products have set up manufacturing plants in the US. For example, Boral’s bricks and concrete roof tiles are heavy to ship so Boral bought existing US manufacturing facilities in the 1980’s and has become a dominant player in the US market while also building its operation in Australia. The customer receives the same product as it would if it was produced in Australia but the cost is lower.
While the low value of the American dollar limits the ability of Australian wine makers to export to the US it also makes US wineries cheaper to purchase. Not only is the wine bottled in the US, but the grapes are also grown and processed into wine in the US. That off-shore production pulls in more sales from the American market while also maintaining a manufacturing base in Australia.
The outcome is a globally diversified Australian wine producer that can take advantage of fluctuations in currencies, grape prices, and demand in various markets. A good example of this strategy is the Australian company Treasury Wine Estates which owns Australian brands like Penfolds and Lindemans, and has also purchased the American wineries that produce premium wine brands like Beringer and Stags’ Leap.
Other Australian companies can adopt the wine makers’ ideas about winning business in the US market:
1. Retain your core product and let someone else provide the packaging. You’ve already made the decision to do business outside Australia so go the next step and find foreign sources for packaging and promotion.
2. If your current product configuration is too expensive for the US market then conduct detailed cost analysis to see if you can remove or change some of the cost drivers. Shipping cost is based on weight and volume so if you can decrease the size/weight that has to be shipped then you can increase your profit margin.
3. Manufacturing in the US can provide a natural hedge against exposure to US dollar prices. The increased value of the Australian dollar can make it harder to sell your products in America but it makes acquisition of US assets and capital equipment cheaper.
This is just one story about Australian companies creating new business models to find success in the US. If you want to provide input on other successful Australian companies then comment on this blog or send me a message via email or Twitter: