Taylors Wines boss Mitchell Taylor warns on five year wine glut

The boss of Taylors Wines, which recently scored a perfect 100 points for its $20 shiraz, fears the wine glut could last as long as five years to make it almost impossible to lift prices to cover rising costs.

Taylors Wines boss Mitchell Taylor fears the oversupply of wine in Australia, especially among red varietals, could last for as long as five years, making it almost impossible for many winemakers to lift prices to claw back rising business costs.

And while the hopeful reopening of China next year if crippling 200 per cent-plus tariffs are removed on Australian wine will help take some of the surplus wine now sloshing around in the local market, the slowing Chinese economy meant it would unlikely absorb the same amount of volumes that once made it our biggest export market.

Mr Taylor, whose $20 Clare Valley shiraz recently shocked the wine world with a perfect 100 points to take home the International Champion Trophy at the prestigious VINUS International Wine & Spirits Competition in Argentina, said business costs and inflation were still “sticky” at a time when competition in the sector remained intense.

“The sector is still pretty tough out there, and you’ve still got rising costs which certainly hit our numbers last year and those cost pressures are quite sticky at the moment,” Mr Taylor told The Australian.

“There’s interest rates, power, all the freight costs aren’t back to where they were before, and so people are passing on costs where they can and being in the wine market we are in a very competitive market, there is still oversupply from our inventory levels, they are at all-time record highs, so we are getting squeezed in that regard with all the additional costs coming through.”

The $20 Taylors Heritage Label Shiraz 2022 has taken home a perfect score and international champion trophy.

The oversupply of wine, particularly red wine, and the power of the key wine retailers combined to make it incredibly tough to lift prices for drinkers.

“It is such a competitive market out there, because there is so much oversupply in the system and particularly with the way the retail market is dominated by the (retail) duopoly it makes it quite difficult to pass on a lot of our costs that are hitting the business.”

Latest financial results for Taylors Wines showed a small lift in revenue of 4.7 per cent to $67.82m, while net profit slumped almost 23 per cent to $3.348m as rising costs eroded margins. Taylors Wines also continues to wear the bruises of the lost China market, where before the tariffs were imposed it exported around 20 per cent of its production and specifically its portfolio of premium and luxury wines that sold at very high profit margins.

Mr Taylor said he feared the wine glut could last many years, to place a ceiling on the ability of many wine producers to lift prices at a time when rising business costs are eating away at profitability.

“I was looking at the industry figures, and it really does look like it (oversupply) will be around for quite some time, particularly in reds, which are at a record high. I would estimate a lot of that is on an 18 month to two-year cycle, and it will probably be three to five years before it really starts to get that trend under control.”

Mitchell Taylor, managing director and winemaker for Taylors Wines, at the firm’s new cellar door in the Clare Valley, South Australia.

Mr Taylor didn’t believe China could easily or quickly absorb that oversupply if a deal is done to take down the tariffs.

“And while we are hopeful of China opening up, there still is a five-month tariffs review in place, and it certainly will not be a ‘quick fix’ for the industry in regards to oversupply.

“The amount of wine consumption has dropped considerably in China and their economy too is having big macro-economic impacts from the amount of growth they are getting there and there will need to be a lot of work to be done to rebuild the Australian wine brand in China.”

Mr Taylor said the “market has moved on” too in terms of the way wine is distributed in China and the product is put into the hands of drinkers, with Australian winemakers and wine industry officials needing to do a lot of homework and rebuilding of relationships to resurrect what once was a $1.3bn export market.