Australian Wine Index

DIRECTIONS TO 2025WINE AUSTRALIA:

GLOBAL CONSUMER TRENDS

OVERVIEW

Global Consumer Trends-Overview 23/4/07 12:04 PM Page 1

GLOBAL CONSUMER TRENDS

Overview

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Global Consumer Trends

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Consumer trends

“We all know what’s changing in the world of wine and the broader alcoholic market – almost everything: products, channels, whole markets, ownership, regulations etc. The one thing which remains ‘constant’ is the reality that at the other end of all the multitude of offerings is a customer – a customer making choices.”

Michele Levine, Roy Morgan Research, Australia

1 Overview If the Australian wine sector is to influence consumer demand and create new markets, it must understand and start to anticipate global trends in the consumption of all beverages, not just wine. Implicit in that is to understand why decisions are being made, who is influencing those decisions, and how these key people can themselves be influenced.

The wine sector was production-driven until the 1980s, with the winemaker largely dictating what the consumer would buy, but the 1990s saw power swing to consumers. By the year 2000 it had swung again to retailers and distributors – although they, of course, were keeping abreast of consumer interests and expectations.

At the same time, product proliferation throughout the beverage category has made it harder to connect with the consumer. As a consequence, simply putting high-quality, affordable wine onto retail shelves does not guarantee sales; consumers have to choose to take it off the shelves – and to keep choosing to do so in the face of an increasing number of enticing, cleverly developed and well marketed options.

The challenge is to ensure that Australian wine remains relevant to existing wine consumers, wherever they are in the world, and an attractive proposition to new consumers in existing and emerging markets.

Many in the wine sector regard their product as the “natural choice” of educated individuals with disposable income, but this is a risky assumption given the diversity of beverages on offer.

Before promoting specific wine brands, varietals and styles to existing and potential consumers, the wine industry first has to convince them that wine itself is the beverage to choose. And, in the future, it will likely need to convince them on the basis of more than just taste, price and even image.

The Directions consumer trends analysis has combined global research and industry feedback to identify:

• trends influencing beverage production, packaging and marketing decisions medium term and the implications for the wine industry

• potential target groups for wine producers and marketers

• wine consumption trends in key markets.


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2 Global food and beverage trends Historically consumers bought beverages for the basic needs of refreshment, rehydration and nutrition. However, in a global, hi-tech world filled with lifestyle choices there are many more sources of motivation – among them status, contentment, affiliation, release and discernment. A US study talks of 15-20 distinct consumer “need states”.

One consequence of this change is decreased brand loyalty. Whereas a beer drinker 20 years ago might have stuck with his or her favourite brand, that same drinker today might have a “hip nightclub beer”, a “watching TV beer” and a “hot weather refreshment beer”. He or she also will have a number of competing beverage options for each of these activities.

In making choices about what they eat and drink, modern consumers are influenced by three mega-trends – Health, Convenience and Indulgence / Premiumisation – and eight inter-related sub-trends – Wellness, Speeding Up, Demographics, Authenticity, Ethics, Sophistication, Exclusivity and Value.

Each has implications for understanding consumer behaviour and making product and marketing decisions.

The reality is that no matter how real a product’s value may be, it has no value until that value is perceived by the consumer. Wine brands that can incorporate solutions to the 11 mega-trends and sub-trends are likely to have higher perceived value and positioning than those that do not – and with it the ability to charge higher prices.

This thinking has underpinned the development of the Wine Australia marketing strategy built around four sub-brands or personalities.

Brand Champions – convenience, enjoyment and another beverage option (infrequent drinkers; newcomers and simple wine drinkers)

Regional Heroes – adding interest for consumers who want to know more and get more out of wine as their preferred beverage of choice (newcomers; aspirants and connoisseurs)

Generation Next – drinking for social occasion (food; fashion; music; art) and social status (peer group), rather than for wine attribute (infrequent drinkers; newcomers; simple wine drinkers; aspirants)

Landmark Australia – wine for its inherent quality and/or status (aspirants and connoisseurs).


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2.1 Mega-trends

The three mega-trends – Health, Convenience and Indulgence / Premiumisation – are not always complementary (many “indulgent” products can be far from healthy), yet consumers increasingly are seeking products that deliver all three.

At the aggregate level, Health is the trend leading the strongest volume and value growth in the off-trade, for both alcoholic and non-alcoholic beverages (see section 2.3).

Figure 1: Interrelation of 11 key drink trends

Source: www.just-drinks.com and AWBC

Health Health (and nutrition) is the most significant of the mega-trends across the beverage and food industry, driven primarily by rising obesity in Western countries and concerns about binge drinking by young adults, and this expected to continue in the medium term as governments and industry raise awareness about the issue.

The consumer focus on health is highlighted by the growth of products such as dietary supplements, yoghurt and sports drinks. In Australia, dietary supplements and yoghurt recorded the highest growth in grocery sales in 2005-06.

Implications for the wine industry

• In some traditional wine markets, including Spain and France, consumers are turning away from alcoholic beverages, although this is in part driven by other issues such as stringent legislative regimes and rising taxes on alcohol.

• Wine is the best positioned of alcoholic beverages because moderate consumption, particularly of red styles, is associated with a reduced risk of cardiovascular disease and stroke, and this is increasingly well promoted.

• Positive health messages can boost sales. For example, the revival of the distilled beverage Shochu in Japan since 2003, particularly among younger consumers, is attributed in part to publicity about its supposed health benefits, including more rapid renewal of skin cells, prevention of blood clots and reduction of heart attacks and strokes.

• There is momentum in the trade towards lower (as opposed to low) alcohol wines, yet in recent years the average alcohol content in Australia’s main red wine styles – Cabernet, Merlot and Shiraz – has grown from an 12.4% to 14%. Research in the UK suggests consumers are wary of lower alcohol wines, however, although it is thought this is in part driven by value for money concerns rather than stylistic considerations.

Health

Indulgence / PremiumisationConvenience

Authenticity

Exclusivity

Demographics

Speeding up

Ethics

Wellness

Value

Sophistication


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• To maintain self-regulation, alcoholic beverage producers must be proactive, contributing to the process of public policy development tackling alcohol harm and the promotion of responsible drinking.

Convenience The demand for quick food and drink options is expected to continue, driven by an ageing population, the growth of single-person households and more women in the workforce. In a recent US survey, for example, 55% of respondents said they prefer to spend less than 30 minutes preparing the day’s main meal, while 9% take less than five minutes. Increasingly consumers also are looking for portability, value and nutritious products as well as speed and food and beverage manufacturers are attuned to this trend.


• There remains room for innovation in convenient packaging, such as the screw cap and soft pack variations, particularly in markets with existing low penetration for soft packs.

• Ageing populations and the growth of single-person households increase the potential for single-serve packs in the medium term. In the US, 187ml bottles have experienced double-digit growth (albeit off a small base) over the past three years. Consumers like the convenience and the perception of zero waste, in spite of higher costs, highlighting the need to straddle a number of consumer motivations to justify higher pricing. Single serves also facilitate trial more readily, which is critical in markets without a wine culture.

• The demand for convenience also is reflected in the investment by multiple grocers in convenience stores and petrol station forecourts – Tesco has bought 1150 UK convenience stores since 2004 and is using this format to enter the US market, for example, while in Australia Woolworths and Coles have developed joint ventures with Caltex and Shell. These outlets tend to skew towards well-known brands.

• Vending machines are not an option in many markets as regulations do not allow alcohol sales through this channel.

Indulgence / Premiumisation Indulgence / Premiumisation is a newer consumer phenomenon and is expected to grow rapidly in the medium term as consumers seek to compensate for feelings of anxiety/insecurity (arising from increased awareness of terrorism) and make use of their rising incomes (assuming no external economic shocks) and increased leisure time (particularly among Baby Boomers).

As show in figure 1 on page 3, Indulgence is affiliated with the sub-trends of Sophistication, Authenticity and Exclusivity.

Wine is better positioned than many other beverages to participate in this trend, but to date hot drinks (coffee and tea) have been the most successful. Coffee has evolved from a staple to a gourmet beverage, assisted by specialty retailers such as Starbucks providing coffee alongside lifestyle branding for the image conscious.


• Non-alcoholic beverages offering additional benefits, such as espresso coffee, herbal teas and organic juices / smoothies, may be perceived as a treat, with consumers willing to pay a purchase premium.

Some table wines, sparkling wines and luxury spirit brands are considered indulgent, although in some instances this is due to the product’s price positioning rather than its inherent values.

The positioning of wine as a beverage to be shared makes it a leading choice for indulgent occasions. However, indulgent needs are often individual, requiring a single-serve offer. Champagne and sparkling wine producers have best captured this trend.


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2.2 Sub-trends

The eight recognised sub-trends are Wellness, Speeding Up, Demographics, Authenticity, Ethics, Sophistication, Exclusivity and Value. The first three of these pose the greatest challenges for the wine sector with respect to new product development.

Wellness The growth of the “wellness” industry reflects a consumer focus on improving life balance. There are increasing numbers of products and services that claim to improve health, reduce stress and help consumers enjoy life – from at-home swimming bays to workplace yoga.

In the food and beverage industry, this trend has assisted the evolution of so-called “functional” beverages such as enriched drinks (juices and waters with added vitamins and minerals), nutraceuticals (products with added ingredients targeted at specific medical or health benefits), sports drinks and energy drinks. Enriched drinks have emerged from health foods shops and pharmacies into mainstream retail outlets.

Most new offerings of enriched drinks or nutraceuticals are non-alcoholic beverages. Brewers and Japanese drink producers appear to be the most proactive in developing alcoholic beverages. Karlsberg, for example, has developed Karla, a low-alcohol (1%) blend of beer, fruit juice and vitamins. The Japanese appear to be leading the way in functional wine beverages; for example, Mercian has started adding gamma-aminobutyric acid (the chief inhibitory neurotransmitter in the vertebrate central nervous system) to table wines to further help drinkers relax.

Most new sports and energy drinks also are non-alcoholic beverages although brewers and alcopop producers, noting an on-trade opportunity, have entered the market. Both Anheuser-Busch and SAB-Miller have introduced caffeine-enhanced beers, containing such additives as ginsent, guarana and taurine, and alcopops such as Red Square Reloaded (vodka, caffeine and taurine) are available.

Our research did not uncover any wine products targeted at the sports or energy segments, but this is not unexpected. It does not fit with wine’s market positioning and such products tread a fine line with respect to social responsibility. Fosters Wine Group recently launched a low alcohol, low calorie sparkling wine in Australia pitched up health-conscious consumers.

Wine fits comfortably with the wellness trend, although positioning may need to be revisited to stimulate ongoing consumer interest. The “clean and green” image of Australian wine remains a significant selling point, and there is potential for organic wine in some overseas markets.

Speeding Up The human obsession with technology and efficiency is creating consumers who expect 24/7 access to goods and services, meals on the run, and products – and people – that can multi-task.

In the food and beverage category this has resulted in the evolution of sports and energy drinks (as highlighted above) and in the growth in online sales as retailers begin to focus on multi-channel retail strategies, particularly the multiple grocers. Retailers are increasingly using the online environment, catalogues and convenience stores as additional channels to connect with the consumer and meet their diverse delivery needs.

In the UK, the grocery multiples, such as Tesco, are using the online channel as a tool to manage their growing wine clubs, for example. Purchases are by the case and a broader product selection is offered, including internet exclusives. This is providing opportunities for producers with smaller (and sometimes higher value) parcels to transact with the grocery channel.

Demographics Two major trends are expected to influence wine industry performance over the next 10 years – the ageing of the population base and the rise in single-person households. These trends are being felt in Australia, in our top 10 export markets, and in emerging markets such as China.

In the period to 2011, Australia’s ageing Baby Boomers should positively impact on wine sales. However, beyond this period growth challenges are likely to present themselves. The 20-


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something age group is flat-lining and this market is not expected to grow for the next 20 years. Pitching alcoholic beverages to this population group will become more competitive and most probably expensive. However, engaging them is critical.

Similarly, the percentage of traditional households in Australia (mum, dad and kids) is expected to fall from more than 40% in 1991 to 25% by 2011, and beyond that single-person households are expected to become dominant (over 30% of households). There is also an expectation that these will be dominated by females, many elderly. Assuming this portion of the population continue to consume alcohol, in particular wine, this may require packaging alternatives that are lighter (easier to carry) and offer single serve options.

Figure 2: Australian household composition, 1991–2026

Australian households 1991 2001 2011 2021

Single 20 25 28 29

Couples 24 26 28 30 One-parent 10 11 12 12 Couple familiies with children 41 34 28 26 Other family & group households 5 4 4 4

Total households 6,450 7,368 8,706 9,915 Source: ABS Catalogue 3236.0, series II projections

Authenticity Modern consumers are overwhelmed with information and choice. For many, the response is a greater interest in authenticity and real products and experiences. This is reflected in the rise of farmers’ markets in Australia and the UK.

Wine is well positioned to exploit this trend given its strong agricultural base, plethora of small producers and proximity of viticultural areas to major metropolitan regions – and a number of producers already are doing so.

This trend is expected to be sustained medium term. It ties in with growing consumer sophistication and health, and is a key theme underpinning the Corporation’s positioning of Australia’s Regional and Landmark wine producers in its Wine Australia marketing strategy. From a marketing perspective it demands a return of the winemaker as hero.

Ethics Ethics is inter-related with all three mega-trends and closely aligned with the demand for authenticity. Consumers increasingly want reassurance with respect to environmental and social responsibility / accountability. A tangible reflection of this is the growth of FAIRTRADE goods (see www.fairtrade.org.uk). This movement is turning mainstream, with Nestle recently launching a FAIRTRADE Nescafe variant.

From a wine perspective, South Africa, Chile and Argentina are best placed to take advantage of this trend.

This sub-trend is driving a number of changes within the wine industry such as:

• Considerations about whether to package in the country of origin and potential re-engineering of supply chains (for example, the UK WRAP initiative is focusing on educating the trade with respect to the economic benefits of lightweight bottles and bulk importing to reduce the volume of non-recyclable green glass in the UK market).

• Greater adoption of bag-in-box and tetra-brik packaging formats, which are perceived to be more environmentally friendly.

• Brand marketing programs with a commitment to environmental programs.


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Sophistication Sophistication is a part of indulgence, and in the case of beverages and food this is provided in part by the use of exotic and premium ingredients and flavours. This is clearly seen in the growth in the gourmet and specialty food and drinks markets. A recent Business Insights report shows that 28.5% of new alcoholic drinks launches in 2006 were targeted at gourmet or specialty markets – more than double the share in 2001.

In the wine category, the quest for sophistication is revealed in developing consumer interest in new wine styles and new regions. For instance, in Australia and the UK interest in aromatic light white styles such as Sauvignon Blanc, Pinot Grigio/Gris and Viognier has been a leading driver of growth. New Zealand has successfully leveraged this trend with Sauvignon Blanc.

Sophistication is positioned as one of the more accessible sub-trends for the wine sector. However, from an Australian perspective leveraging the sophistication sub-trend may require a realignment of international consumer perceptions of Australia. Research by Tourism Australia in the early 2000s highlights that international consumers have a narrow view of the country, dominated by the Rock, the Reef and the Opera House. Australia is not perceived as a dynamic, predominately urban nation with a sophisticated food and beverage culture – until it is visited. This has implications for the purchase of high-value Australian goods in international markets.

Australian wine producers are less able to leverage off a luxury goods culture that those in France and Italy. For instance, France has the Comité Colbert which has a membership of 68 houses of luxury (including nine wine and brandy houses) whose object is to collectively promote their shared values internationally.

Perhaps the wine sector needs to undertake alliances with Australian futurists and style leaders in food, fashion and the arts to ensure international target markets are appropriately engaged.

Exclusivity Running parallel to the wealth creation trend that has taken place through the 1990s and 2000s is the concept of mass prestige / luxury goods. As defined in book Trading up: the New American Luxury by Michael Silverstein and Neil Fiske, these products “are not always the most expensive items in the category, nor are they always the top of the line for the brand. They always sell at a premium to conventional goods, but are always affordable by the middle-market consumer”.

However, as luxury becomes more accessible – the target market is now perhaps the top 20% of consumers rather than the top 2% – higher income consumers are seeking to set themselves apart again. This is leading at one end of the spectrum to bespoke (personalised) product offerings by the high-end luxury goods manufacturers, and at the other to mass customisation.

Bespoke drinks are not a new phenomenon. They have been increasingly available in specialty coffee outlets and juice / smoothie operators such as Boost Juice. Consumers appear willing to pay a premium for drinks that are tailor-made to their specifications.

Although wine seems well positioned to leverage from the exclusivity trend, it is proving difficult to execute, for brand owners and retailers alike. This may be attributable to price being the key marketing tool currently used by the trade. The US is the standout market where wine has benefited from this trend. Notably it is the market where Foster’s Group launched the Penfolds Grange VIP Club, a 24/7 members-only concierge service that includes access to exclusive evenings with contemporary wine raconteurs. Initiatives such as these assist in reinforcing the brand ladder.

Value The thirst for premium products and services is creating a convergence of expectations with respect to value – consumers are demanding value across the pricing spectrum. This has been reinforced by leading grocery retailers lowering operating cost structures over the past 15 years in order to enable Every Day Low Pricing (EDLP). The growing power of the multiple grocers in liquor retailing internationally (where legislation permits) has seen such pricing strategies impact on wine retailing and marketing. There is a danger that wine could become regarded as a ‘commodity’, damaging its quality reputation.


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Figure 3: Power shift to retail—leading retailer market shares, 1995–05

Grocery chains 1995 2000 2005

Australia Top 2 22% 30% 48%

United Kingdom Top 5 59% 69% 80%

United States Top 2 26% 36% 42%

Source: Constellation Brands, Analyst Presentation Nov 2006

Over the past 15 years, leading retailers have combined state-of-the art information technology with distribution efficiencies to drive down costs as a percentage of sales. Internationally, Wal-Mart and Tesco Stores have led this global trend, while Woolworths and Coles Myer are the leading proponents in Australia. Figure 4 highlights the gains Woolworths has achieved over the past seven years via its cost initiatives which have delivered a cumulative saving of $5.2bn for the group. As evidence by Woolworths declining gross profit margin, 75% of these savings have been returned to consumers in lower prices.

EDLP is now taken as a given by consumers and they often want more. As a consequence, retailers not only seek to improve internal cost efficiencies, they also require improved pricing and margins from suppliers. Price differentials are a major driver of store choice for consumers globally and, as a consequence, this focus on pricing pressure is not expected to abate. The focus on lower pricing is also spreading to some on-trade environments, such as the UK pub chains.

Figure 4: Woolworths’ CODB / sales ratio declines 3.9 percentage points

24.4%

23.6%

22.7%22.3%

21.7%21.1%

20.8%20.5%

18.0%

19.0%

20.0%

21.0%

22.0%

23.0%

24.0%

25.0%

1999 2000 2001 2002 2003 2004 2005AIFRS

2006AIFRS

Perc

enta

ge

Reductions +$141m +$343m +$486m +$707m +$906m +$1,130m +$1,466mBase year = $5.2bn

75% of cost reductions reinvested in price


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2.3 How are these trends impacting growth? At the aggregate level, in the off-trade, Health is the trend leading the strongest volume and value growth across both non-alcoholic and alcoholic beverages, as evidenced in the UK data below (Figures 5 and 6) and the global beverage market (Figure 7).

Figure 5: Trends in 2006 UK non-alcoholic beverage consumption, off-trade

-5% 0% 5% 10% 15% 20% 25% 30%

Coffee

Tea

Soft drinks

Cola

Fruit juice

Water (unflavoured)

Water (flavoured)

Energy Drinks

Yoghurt (drinking)

Sports drinks

Milk (flavoured)

Volume growth (MAT Oct 2006)

All related to Health and Wellness

consumer trends

Source: AC Nielsen

Figure 6: Trends in 2006 UK alcoholic beverage consumption, off-trade

0% 2% 4% 6% 8% 10% 12%

Total liquor

Light wine

Beer

Spirits

Cider / Perry

Sparkling wine

Volume growth (MAT October 2006)

Indulgence

Authenticity

Source: AC Nielsen


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In the UK market total liquor growth is currently travelling below that of soft drinks, notably dragged down by the lacklustre growth in the still wine category. This trend is echoed in the Australian market, where the wine category has been underperforming beer and spirits for the past 12 months.

This suggests that despite the ongoing opportunity for still table wine the category may need to reconsider the positioning of still table wine to increase the probability that it remains a leading consumer preference when choosing a Healthy, Convenient or Indulgent alcoholic beverage.

Unlike still table wine, sparkling wine is experiencing strong growth in the UK and Australia and is strongly aligned with the Indulgent, Sophistication and Exclusivity trends.

Figure 7: Global beverage market growth by volume, 2001–05

Category 2000–01 2001–02 2002–03 2003–04 2004–05 Bottled water 9.9 11.5 9.4 6.6 6.5 Carbonated soft drinks

1.9 1.8 0.1 0.8 0.1

Coffee 2.2 1.6 -0.6 0.2 1.0 Fruit beverages 1.3 1.4 1.5 1.2 2.5 Milk 1.7 3.2 1.6 0.5 1.1 Tea 5.2 1.7 2.7 2.2 2.2 Beer 1.8 1.4 3.6 4.8 3.1 Distilled spirits 0.0 -1.7 -5.1 2.1 -0.7 Wine 0.6 2.0 0.5 1.6 1.3 Subtotal 3.2 3.0 2.3 2.2 2.1 Others1 0.6 0.5 0.8 0.9 0.6

Total 1.3 1.2 1.2 1.2 1.0

(1) Includes all beverages, commercial and non-commercial such as tap water

Source: Beverage Marketing Corporation


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3 Consumer targets Directions research has identified three consumer groups of growing influence that should be considered, and addressed, to ensure long term industry viability:

1. There is a large pool of consumers of all ages who like the taste of wine but drink it infrequently because they are intimidated by the idea of choosing and buying it and/or see wine as a drink for special occasions only.

2. There is a similarly large pool of young consumers who are attracted to wine but want it to be fun to buy, to fit with their lifestyle and to meet their desire to always be seen with what’s new and trendy.

3. An increasing number of women, particularly younger women, are drinking wine and making purchasing decisions.

The common thread is that many of these consumers see wine as just one of the numerous appealing alcoholic beverages available to them.

The twin challenge for the Australian wine sector (individually and collectively) is to determine what opportunities these consumer trends offer in terms of market and product development, while also being aware of the threats they pose to existing markets, products and expectations, and to the marketability of the Wine Australia brand.

3.1 Infrequent consumers Research carried out on behalf of the AWBC’s Domestic Promotions Taskforce in late 2003 by the University of South Australia shows that, despite the ready availability of product and promotion that would be the envy of other consumer product industries, an estimated 9.8 million Australians (65% of the adult population) are “infrequent wine drinkers” who generally like the taste of wine but drink it only once a week or less. In Australia’s largest export market, the UK, more than a quarter of the 31 million wine drinkers drink wine less than one a month (according to the research firm Wine Intelligence).

Market research subsequently commissioned by the AWBC in 2005 indicates that many infrequent consumers would choose wine more often if they did not feel so intimidated by what they see as the hard work required to understand it and make the right choices without embarrassment. Many infrequent consumers say they feel disenfranchised by current wine promotions, which are perceived to be aimed at a more knowledgeable target audience. They say they want clear information, not formal education. [The report Domestic Promotion Strategy: Qualitative Research is available at www.awbc.com.au].

The vast majority of consumers want to be able to easily and consistently identify the wines they will enjoy without having to ask for help – and with an estimated 20,000-plus wine brands available in Australia, the confusion is understandable. Despite this, a 2004 survey by Roy Morgan International shows that 37% of Australian wine drinkers often ask the retailer for a recommendation. The goal for wine producers and marketers must be to make wine easier to buy without losing the mystique associated with being able to try a variety of different styles and brands.

These findings are mirrored in other markets. In the US for example – where wine sales are booming but 12.5% of the drinking-age population accounts for 86% of consumption and 43% drinks no wine – researchers watching consumer behaviour noticed that shoppers often appear confused during the wine selection process (University of Bologna working paper A Country-Level Analysis of Competitive Advantage in the Wine Industry, May 2006).

The situation is exacerbated in emerging wine markets which lack a developed wine culture. Japan is a case in point. When the AWBC’s Tokyo office asked consumers and importers where wine is heading, the common theme in the responses was that the “hurdle to trial” is too high. New wine drinkers want a clearer idea of what they are buying and what it will taste like, and the opportunity to purchase wine in something other than full-sized traditional bottles with corks.


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Even wine closures can prove a barrier: corkscrews are a rare item in Japanese kitchens yet much imported wine into Japan is sealed with cork.

In Australia, the Domestic Promotions Taskforce followed up its research with a series of focus groups and a trial advertising / promotional campaign that targeted infrequent wine consumers in the 25-to-29 year age group. The feedback was very positive, suggesting there is potential to quickly and appropriately inform a new generation of wine drinkers. This was seen as a key age group, but there is every reason to believe that older infrequent wine consumers might also be attracted by more accessible communication. The objective is not to increase alcohol consumption, but to increase wine consumption at the expense of other alcoholic beverages.

3.2 Next generation consumers As discussed earlier, Baby Boomers (ages 42 to 60 in 2006) are expected to drive continued wine consumption growth to 2011, but they are not a renewable resource and spending priorities are likely to change as they age. Research indicates the Millennial generation (people born 1977-99) have the potential to support continued uplift in wine consumption beyond 2011, particularly in the US. As a demographic group they are larger in size than Generation X.

Recent research by the US Wine Market Council suggests that the Millennials who are reaching drinking age are adopting wine as a preferred beverage—drinking at core wine levels (two to three times per month). They like the taste of wine and associate it with fun times in a casual context, but also perceive it as a sophisticated beverage. Focus groups run in Australia, as part of AWBC’s infrequent consumer research, reveal a similar situation.

Datamonitor research suggests there is also room for optimism in Europe, where young adults are turning to wine because they perceive it as more sophisticated than Alcopops. Wine sales are strongest in countries with a wine culture, but even in countries where beer and spirits have traditionally been the on-premise drink of choice among the 18-25 demographic (eg the UK and the Netherlands) there has been an explosion in stylish bars and a demand for premium quality drinks, including wine. Rosé and sparkling wine have been major beneficiaries of this trend.

These new consumers are not loyal to brands or even country of origin but they will pay a premium for their alcoholic beverages. Wine brand owners will have to work hard to maintain their interest, however, as they are spoilt for choice. Although growth in Alcopops has slowed, the explosion of offerings continues. New product development in both the spirits and beer categories appears to be accelerating faster than for wine.

3.3 Female consumers Women are drinking more wine and are making or influencing more purchasing decisions. A 2005 US wine consumption survey indicated that women now comprise 60% of weekly US wine drinkers and buy 80% of all wine. In the UK, Mintel research indicates that a slightly higher percentage of women than men drink wine – 68.5% compared with 62%.

Key drivers of this trend include increased female participation in the workforce, greater disposable income and a rise in the age of first marriages. Over the past 15 years, female employment in Australia has grown by 32%, almost double the figure for males, and female labour participation is approaching 60%. The average age an Australian woman married in 2005 was 28 years, compared with 23 years in 1985. These trends are unlikely to be reversed.

In spite of the above statistics, traditional wine marketing has until recently ignored female consumers (male and female decision making criteria differ). This is perhaps because, as highlighted in Figure 3, women are interested in wine without being passionate about it.

Wine Intelligence research also suggests women generally are less confident in their knowledge, relying heavily on price as a risk reducer. Other outcomes of risk reduction in women’s purchase process include: less experimentation; dominance of Brand Champions in individual consumer beverage portfolios; and increased dependence on packaging and labelling cues.


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Just as car manufacturers now target selling communications for both genders, some wine producers are seeking to incorporate packaging and branding tactics that are more commonplace in marketing for other female-oriented products such as cosmetics, perfume and lingerie. These tactics are most evident in the sparkling wine / Champagne category.

Figure 8: UK wine involvement by gender

21%

58%

21%

32%

57%

11%

0%

10%

20%

30%

40%

50%

60%

70%

Low involved Medium involved High involved

% o

f res

pond

ents

Male Female

Survey undertaken Feb 2006, UK regular wine consumers—1,300 respondents Source: Wine Intelligence briefing, May 2006

In Australia, sparkling wine is the fastest growing wine segment – growing at 5% in the year to June 2006, versus an overall flat market – and women are fuelling the growth. The Yellowglen “Seriously Bubbly” campaign identifies with the sense of fun associated with sparkling wine, the product adding energy to an event at any time of the day. It also links with women’s desire to connect socially.

Women also have driven the growth of Rosé sales, with many seeing it as an entry point into the wine category. The AWBC’s Wine Australia offices report that Rosé’s popularity continues to grow in the UK (7.2% of the light wine market and annual growth of 34%), Europe (up to 10% of the wine market in countries such as the Netherlands) and North America. In some markets Rosé is portrayed as a distinct brand and given its own sections in supermarkets. The success of blush/ Rosé is seen as a driving force behind the huge success of Californian wine in the UK in the past three years.

In Australia, older women also are buying more wine, according to a recent study of 25,000 women quoted in the May 2006 Euromonitor report Alcoholic Drinks in Australia. In many cases they have switched preferences from flavoured alcoholic beverages. Women also have been behind the growth of stylish bars serving premium wine in parts of Europe and Asia.

3.4 Changing perceptions Retail consolidation has permanently changed the shape, scale and demands of commercial engagement and consumer exposure to wine. Wine is now firmly established as a fast-moving-consumer-good (FMCG) and sold with similar promotion-driven dynamics to other FMCG goods.

Traditionally, FMCG markets offer a small number of dominant brands which capture a large percentage of the market and generate a high degree of repeat purchase.

The upside of this is increased potential for a larger, more accessible consumer franchise, targeted through coordinated retail platforms that enjoy greater economies of scale, supply chain efficiencies and positive consumer impact. The downside is that the enormous concentration of


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buying power and control of consumer access comes at a margin demand that is increasingly difficult to sustain for many companies.

Undoubtedly, competitive advantage can come from an improved understanding of consumer behaviour in the wine category, which in turn can be leveraged to advantage in the distribution stakes. Adopting a brand and/or category leadership position with regard to consumer insight will benefit sales strategy in all key markets. This will involve a new kind of segmentation built on the consumers’ relationship with wine, rather than by demographics, and by understanding how those segments contribute different rates of profit and volume to businesses.

The real challenge for Australia – as it is for every successful category – is to ensure that we continuously displace or renew our entry point wines with fresh, varied and interesting brands. Consumers need to be reminded why they first chose Australia, so that that the “loyalist” can confidently assert that, “Australian wine affordably meets my wine needs and comfortably and dependably suits my lifestyle – why should I look elsewhere?”

The logical conclusion of this mutually supportive relationship between accessibility, mid-tier interest and ultimate pursuit of wine quality is a dominant and successful wine category, with at least something for every occasion if not something for everybody. In order to do this, the Australian wine sector must present clear and relevant consumer propositions, sustain interest through new product development and maintain aspirational cues by educating consumers about wine regions and our landmark wines.

This is the rationale behind the current Wine Australia market programs, which are structured around four sub brands or themes that reflect new market and channel opportunities and seek to champion quality and excitement at all price points.

3.5 Is ‘trading up’ the answer? Many in the Australian wine sector argue that the key to success is that wine consumers can naturally be encouraged to “trade up” to higher priced wines. The rationale is that they will automatically want more once it is explained to them what more there is to have, but the mechanism is ill-defined and the supporting evidence is lacking.

While it may work with powerful and well-established brands, it is unlikely to work as a general proposition, especially as modern winemakers are adept at making low cost wine taste good. There is a less obvious “next stage” than in the past when cheaper wines were more obviously lesser wines.

A significant part of the issue is the huge diversity in the perception of wine quality. Numerous studies have failed to find an agreed and meaningful definition that is relevant to consumers, wine producers and wine professionals (including critics, retailers and sommeliers). Even among consumers, low-involvement consumers have quite different perceptions about wine quality to high-involvement consumers (“it tastes good” versus “good balance and structure”).

Elements of how wine quality can be determined include scientific analysis, reviews by wine critics and recommendations by sommeliers and retailers, wine show medals, regionality and price. However, for many consumers, perceptions of quality also are affected by the occasion or environment in which a wine is consumed.

Even influential wine writers like Tim Atkin MW admit to shifting definitions of wine quality. In The Observer newspaper in August 2006, Atkin wrote: “My perception of quality has changed over the past decade. I used to be impressed by wines with power, concentration and a load of fruit, but nowadays they bore me. I am increasingly drawn to wines that are enjoyable with a meal, rather than a meal themselves, that leave you wanting more rather than less.”

From a marketing and communication perspective, research suggests there is nothing to lose by increasing the awareness about the enjoyment of responsible wine consumption. Increasing sales of higher priced wines (which is the ultimate objective of the “trading up” proposition) are more likely to be achieved through better targeting of niche market opportunities based on a clearer understanding of consumer trends and more focussed efforts to profitable distribution channels.


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3.6 The appeal of quality While “trading up” may not be a given, there is a growing demand for premium quality wine – and other goods. It is interesting to note, however, that general research into consumer choices suggests the motivation for choosing premium products is moving away from status to indulgence – a reward for leading a busy life.

In Europe, Datamonitors forecasts that the 50-plus age bracket will be drinking more wine by 2010 (switching from beer and spirits for health reasons) and will buy higher-priced wines, adopting a “less but best” approach. Euromonitor notes a similar trend in Australia: “the increase of consumer disposable income led to many consumers switching their preference of alcoholic drinks to premium labels,” its report says.

To this end, a finding from a recent AC Nielsen survey in Australia is relevant. When asked what steps they take to stay within budget when the cost of living is rising rapidly, respondents rated buying cheaper brands of alcohol 13th out of 14 responses with just 12% – lower than seemingly more onerous options such as looking for better home loan rates or credit card deals. On the other hand, cutting down on take-away meals and home entertainment topped the list at 67% and 61% respectively. Clearly, the consumption of alcoholic beverages of choice is an important part of the Australian lifestyle.


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4 Global consumption trends As illustrated in Figure 9, Euromonitor International anticipates continued growth in the global still table wine market to 2010, rising to 3.1 billion nine-litre cases (or 1.8% growth per annum). However, wine is not anticipated to grow as fast as beer (+3% per annum), cider (+4.2% per annum) or flavoured alcoholic beverages (+4.9% per annum) over the period.

Figure 9: Growth in alcoholic beverage volumes, 2005–2010

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Beer Cider / perry FABs Wine Spirits

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Wine drinking is increasing in Australia, in most of our 10 main export markets, and in a number of key emerging markets, but decreasing in many of our wine producing competitors (most of which, like us, have a current oversupply).The distinction is quite marked. Wine consumption per person and wine’s share of the total alcohol market are rising in the UK, the US, Canada, New Zealand, Ireland, Denmark, the Netherlands and Sweden, but falling in France, Italy, Spain, Portugal, Chile and Argentina. France and Portugal have shown the largest rates of decline, with Italy likely to soon pass France as the world’s largest wine consumer per person.

Ireland and Japan are the fastest movers in the other direction (Ireland has been the leader in per person wine consumption growth since 1994), but just as significant in terms of the volumes involved are compound annual growth rates of 5% and 4% in the UK and the US respectively.

Emerging consumer markets such as Russia, China and South Korea are anticipated to grow above global trend rates (see page 26). These markets are evolving rapidly from a consumer goods perspective, and the complexity of consumer beverage needs varies by region and income levels. As such, each should be addressed on an individual basis. The AWBC’s Export Market Guides are a valuable source of information, and Austrade can provide guidance with respect to cultural cues.

Both China and South Korea have existing social and cultural roles for alcohol, and China has a tradition of grape wine consumption, but in both countries traditional alcoholic beverages dominate consumption. For instance beer and baijiu (fermented rice beverage) are the most popular in China, while South Korean consumers charge their glasses with beer and soju (distilled rice beverage).

Despite the lack of a traditional wine culture in these markets, the current significant economic and social change provides a real opportunity for wine penetration. As a ‘new’ drink wine has the opportunity to be associated with ‘modern’ lifestyles and values—a different positioning than traditional European perceptions. The execution, however, needs to be appropriate as the consumption or rejection of a national traditional beverage is often an emotive issue.


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In a number of global markets, the beer category is experiencing off-trade growth rates ahead of wine. In mature Western beverage markets a dichotomy in beer category growth exists. The major volume mainstream and value beer brands are generally experiencing flat to declining growth, however the premium and light/low-calorie beers are experiencing growth. Consumers are switching to these segments as they reflect the Indulgence / Premiumisation and Health motivations.

In emerging markets, beer is experiencing strong growth. This trend is evidenced by the merger and consolidation activity that is occurring, particularly across the BRIC (Brazil, Russia, India and China) regions. The disparities between the established and emerging beer markets provide room for growth in the global beer business.

While the fad for flavoured alcoholic beverages has passed in Western Europe and North America, the category is expected to continue to outpace other alcoholic beverages in Eastern Europe, Latin America and Australasia. Taxation changes put the breaks on growth in Western Europe, however, industry participants, such as Diageo, are continuing new product development and launches in Western Europe. The new offers incorporate the Health mega-trend; for example, Diageo launched Quinn’s, a fruit ferment blended drink “where everything, even the alcohol, is made from 100% fruit”, in the UK 12 months ago.

4.1 Wine consumption trends in key markets Consumer trends in Australia’s domestic and key export markets (existing and emerging) are briefly reviewed below.

Australia Average wine consumption in Australia is increasing and in 2006 the average Australian consumed about 22 litres of wine per year. In 2005-06, Australians consumed about 430 million litres of wine with a retail value of around $A2.7 billion.

Domestic sales of Australian wine have grown steadily over the past decade with annual growth varying between 1% and 6%. Beer and spirits consumption has been declining.

Of note, however, are:

• the continuing growth of RTDs (up 10% in 2006 according to Liquor Merchants of Australia) and their increasing acceptance by younger males – this is likely to be significant as the wine industry targets younger infrequent consumers; and

• the 22% increase in sales of imported wine in 2005-06 (to 27 million litres), driven primarily by white wine and sparkling wine from France and Italy. More than half of all imports come from New Zealand.

White still wine was the major contributor to growth in 2005-06, followed by sparkling wine. Sales of red wine and fortified wine fell. Soft pack sales fell for the second successive year.

Industry observers are noting and predicting increased consumer interest in new grape varieties and wine styles, including traditional European strains such as Sangiovese, Tempranillo and Pinot Grigio. Marketers argue that Australian consumers are becoming more market and brand savvy and are increasingly interested in experimentation and experiences when buying consumer products – including alcoholic beverages.

United Kingdom and Ireland The UK has transformed from a traditional beer and spirit drinking country into a major wine market as is expected to be the largest importer of wine by 2010 – overtaking Germany. Per person consumption increased from 12.6 litres in 1994 to 21.1 litres in 2004. With a total consumption of 1.2 billion litres, the UK is the eighth largest wine consuming country in total volume terms – and Australia’s biggest export market. New World wines excel in the UK, with around 55% share of total wine consumption.


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The major driver of increased consumption has been affluent middle-aged consumers rather than an insurgence of younger consumers. The 35-to-54 age group represents the biggest wine consuming segment. There are three main factors influencing UK consumer’s purchasing decisions and these include: wine style; price; and promotional offers.

Other factors include recommendation by friends or family and brand familiarity. Australia has not performed as well in the under-25 category; there is an inexplicable under-representation of Australian wine consumers in this age group. This segmentation of the population is unlikely to have developed any bias or country preferences and as such represent a good opportunity.

In the total alcoholic beverage market the on-trade channel still holds a greater volume share than off-trade channels, but this picture is skewed in the wine market. Off-trade sales of wine account for approximately 79% of the market by volume while on-trade volume sales represent 21%. Retail consolidation has driven more and more power into the hands of multiple grocers. Total alcohol consumption in the UK fell slightly in 2005, the first fall for six years.

In Ireland, wine now represents 16.3% of the alcoholic beverage markets – one of only two sectors (the other being cider) to show growth in recent years. Annual per capita consumption of 17.4 litres remains one of the lowest in Europe, however. Australia has been the leading provider for the past four years. As in the UK, the dominance of the supermarket sector continues to grow.

United States Wine is booming in the US, with both domestic production and imports increasing and per capita consumption at an all-time high after increasing for 11 straight years (though still low by global standards at 9.8 litres). This is expected to continue, with the US tipped to lead the continuing growth in wine consumption. Contributing factors include highly evolved marketing campaigns by major brands, publicity about wine’s health benefits and the number of young people choosing wine ahead of other alcoholic beverages.

Recent research shows more Americans are choosing wine first when they decide to drink an alcoholic beverage and the “twenty-something” set are emerging as core rather than marginal consumers. The total market is still quite small, however, with just 12.5% of the drinking-age population (over the age of 21) accounting for 86% of total consumption, and 43% drinking no wine at all. Most wine drinkers live in the cities, and imports have greatest appeal among sophisticated, higher-income consumers on the east coast.

Off-premise sales dominate by volume at 78%, but this falls to 54% by value. Supermarkets and liquor stores are the preferred distribution channels. Imports have risen to 27.3% of the market, with reds accounting for 58% of sales. Imports compete well in the US$4.26-$10 category, but US wines generally dominate the lower and higher price categories.

Chardonnay and Zinfadel top awareness measures but several varietals are widely known and no grape dominates consumer preferences. The success of the movie Sideways has seen demand for Pinot Noir skyrocket.

Canada Canada’s wine market is mature and sophisticated, with growth being driven by higher priced wine. The sector grew 6% by volume (to 358 million litres) and 10% by value in 2005. Reds account for 53% of sales but are expected to drive continuing growth. About 75% of reds are imported and 50% of whites.

Australia is the number two provider nation behind France, having recently overtaken Italy. There is a clear regional variation, however. Consumers in French-speaking Quebec (where per person consumption is 18 litres compared with the national average of 11.3) prefer Old World wines, but Australia outsells France three-to-one on the west coast, particularly in British Columbia. Reds account for up to 70% of total sales in Quebec.

Reports suggest young professionals are drinking more wine than their parents did, but wine is still considered a special occasion rather than everyday drink in Canada and this, coupled with increasing disposable incomes, has seen drinkers focus on quality ahead of price. The highest selling segment is the $C12-14.99 category, with reds commanding higher price points than whites.


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Single varietal wines are increasing in popularity at the expense of blends. Grape variety and origin are a major focus for many consumers. Cabernet Sauvignon is the most popular red varietal followed by Merlot and Shiraz, although Shiraz has been a success story in recent years, driven largely by Australian imports. Chardonnay and Sauvignon Blanc are the most popular white varieties.

The off-trade channel accounts for 85% of total sales, due in the main to government liquor control boards restricting alcohol sales to their own specialty stores. The relaxation of these restrictions in some provinces should lead to growth in supermarket sales.

Continental Europe Continental Europe includes a number of key export markets for Australian wine, including Germany, Denmark, the Netherlands and Sweden. Total wine consumption is 14,919 million litres with consumption per person per country varying between five and 35 litres. In 2005, Australian wine exports accounted for 112 million litres and an export value of $315 million. Australia’s market share within continental Europe is just under 1%.

Europe is a large wine market providing steady growth for New World wine at the expense of the Old World. Consumers are relatively open-minded towards innovation and new products so there is a promising future for Australian wines. Consumers are generally price-sensitive and are driven towards their own (non-English) culture. There is also increasing competition from South Africa, Chile and California. There is an untapped potential for Australian wine within the large on-trade segment, estimated at 500 million litres in our four key countries.

Key markets

Germany: Germans have one of the highest per capita wine consumption rates in the world at 23.6 litres. Wine represents around 30% of total alcohol consumption. Germans are renowned for their frugality and for being price-conscious. Much of the wine sold in Germany is from EU countries, but New World wines are slowly increasing market share. German consumers are recognising the price-to-quality ratio provided by Australian wines. Germany is Australia’s fourth largest export market.

Denmark: The growing wealth in Denmark combined with the lowering of taxes has seen a shift in consumer trends towards wine – though it remains predominately a beer drinking nation. Danes prefer red wine. Unlike other Scandinavian countries, cask wine has an insignificant share of the market.

The Netherlands: Wine consumption has been increasing steadily over the past decade, helped by the 2003 increase in excise duties on spirits and a shift in consumer focus to a more moderate and healthy lifestyle The market is still dominated by European wines, led in particular by France, but there has been strong growth in sales of New World wines, particularly from South Africa.

Sweden: The high duty on alcoholic beverages in Sweden encourages consumers to cross into neighbouring countries to buy wine. Despite this, wine sales increased during 2005 after falling during 2004. Much of the Swedish wine market is supplied by the traditional Old World nations such as Spain, Italy and France. The largest New World supplier is South Africa. There is a large market in Sweden for soft packs or bag-in-box wines.

Other markets

Norway: Rising disposable incomes in Norway have increased spending on luxury items, including wine. The partial relaxation of government controls on the wine market has meant a more open market with a greater selection and more affordable wines. Increasingly, Norwegians are matching wine with food and are seeking advice on the best styles to accompany their meals.

Austria: Austrian consumers are extremely loyal to their own wine industry. An ACNielson survey of consumer preferences and perceptions placed Austrian wine significantly higher than any other wine in terms of quality and price. Even French wine was considered of lesser quality.

Belgium: Belgians are traditionally beer drinkers but wine consumption is increasing. The southern, French-speaking region of Walloon tends to favour wines from France but the Flemish


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speakers in the Flanders region are more brand conscious and willing to try wines from around the world.

Emerging Markets The AWBC’s new three-year plan for emerging markets highlights Russia, China and South Korea as key growth opportunities, with Brazil, the Czech Republic and the Philippines also falling into that category. Singapore, India and Hong Kong are smaller niche markets where Australian wine has seen success, and thus require a defensive strategy. The same applies to Taiwan, Malaysia and Thailand. Japan also remains a focus.

Russia is one of the fastest growing wine markets in the world (driven largely by affluent young people making the switch from vodka) and government initiatives are supporting this. A number of analysts predict Russia and the countries of Eastern Europe to show significant growth in the next five years. Both red and white wine are popular in Russia.

The Chinese market has been gradually expanding, assisted by increasing disposable incomes, publicity about wine’s health benefits and a government campaign against grain-based alcoholic drinks. Reduced import tariffs also have made the market more accessible, and Australia’s bottled wine exports to China are expected to exceed those to Japan in 2008. Red wine currently dominates in China but increasing Westernisation and more wine education offer potential to promote white wines.

Alcohol plays a large part in South Korean society and consumers are increasingly interested in, and better educated about, wine. Sparkling wine is still seen as a drink for special occasions only, but this is slowly changing with regard to table wine. New World wines are becoming more popular thanks to their perceived price-to-quality ratio and consumers are very attracted to wine’s healthy image and the fact that it has less alcohol than other beverages. Australia’s “clean and green” image is valuable.

In Japan the developing wine market is dominated by France, but Australia is becoming more prominent and was the shining light in 2005 with a growth rate of 24% in an otherwise static market. Beer is the preferred alcoholic beverage in Japan, and in general alcohol consumption has been in decline for some years. Nevertheless there is a growing market for wine amongst women in their late 20s and early 30s who increasingly perceive wine as a sophisticated beverage of moderate alcohol content.

"We used to market wine to people like ourselves, who loved it and knew a lot about wine. Now, we're trying to learn what people want, what drives them to buy certain wines."

Karla McKee, Trinchero Family Estates, California

Documents

Australian Wine Index