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Australian wine sales hit hard by Chinese austerity drive by Eli Greenblat 31/03/2014  


Australian winemakers might have to wait until 2015 to see a return to growth in China after Pernod Ricard, the world's second-biggest drinks group and owner of Jacob's Creek, warned that beverage sales were flat since the Lunar New Year as an austerity drive and crackdown on luxury gift giving kept glasses empty.


The dour forecast from Pernod Ricard, whose Jacob's Creek label is the second-most imported wine into China, is likely to send shock waves through the local wine industry already suffering from the sting of a strong Australian dollar and downturns in traditional markets through Europe and North America.


Up until 2012, Chinese drinkers had been devouring Australian wine, but Beijing's anti-corruption drive, along with a broader austerity program, has smashed demand for luxury goods, from wine to Ferraris, and pinched local wine exports to the region.


In a much-awaited update from Pernod Ricard, the world's fourth-largest winemaker and owner of top-selling spirits brands Chivas Regal and Martell cognac, the French drinks group said it failed to see any meaningful uptick in sales since the Chinese New Year, also warning that demand in China could remain limp until 2015.


It's a sentiment shared by many Australian wine companies.


''We think the Chinese market won't improve for the next 12 months,'' said Mitchell Taylor, the managing director of Clare Valley winemaker Taylors.


''It certainly hasn't picked up since the Chinese New Year and I'm hearing reports of a lot of stock still in the market,'' he said.


''And I'm also hearing some of the restaurants and the on-premises venues are not as full as they previously had been.''
China has eclipsed traditional markets such as the UK and the US to become the fastest growing export market for Australian wine for several years. However, exports dropped by 7 per cent to 33 million litres in 2013 when austerity measures curbed spending by government bodies on luxury goods such as premium imported wines.


In October, Treasury Wine Estates, the world's largest pure-play winemaker and owner of Penfolds and Wolf Blass, warned shareholders that consumer demand for wine in China had softened in line with souring demand for luxury products ranging from beverages to fashion.


Treasury Wine Estates subsequently reported volume and earnings falls in China, once its biggest growth market, with first-half volumes to the Asian region down 17.6 per cent and pre-tax earnings falling 63.7 per cent to $4.9 million.


The China downturn also contributed a damaging profit downgrade from Treasury Wine Estates as austerity measures imposed on government officials by President Xi Jinping dampened shopping.


Mr Taylor, who is also chairman of Australia's First Families of Wine, a club of 12 multi-generational family-owned wineries, said recent reports confirmed that confidence had not returned to the sector. ''We have noticed it's still a bit patchy in China.''


Bruce Tyrrell, a fourth-generation boss of Hunter valley family wine group Tyrrell's Wines, said the austerity drive had hurt the key gift-giving segment of the Chinese market.


''Gift giving is down, hasn't picked up,'' he said. ''We have certainly seen a steadying off of our standard business through our official business with our importer.''


The ''grey market'', whereby large Chinese companies or wealthy individuals would import their own container of Australian wine had also ''dropped off'', he said.


But Mr Tyrrell remained optimistic that Chinese drinkers would find a path back to Australia's cellar door, despite the decrees from Beijing.


''The Chinese are like Australians: you put a law in front of us and we will find a way to get around it.''


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