The Global Wine Market

School of Wine and Spirits BusinessMSc Wine Business Programme

A presentation for our distinguished visitors from Universidad de Concepcion

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THE WINE SECTOR'S CHALLENGEThe Wine Market – Lecture 1

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OVERSUPPLYThe Wine Sector's challenge

11 avril 2023

Can't we just focus our passion on educating a love of better quality, higher priced wines?

Let's look at some figures…

Courtesy of the OIV (2012) 7,5 million ha

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This is the telling factor…

Just look at the changesWhat do you see? The different trend is striking What's most revealing is

why these figures exist

Keep your thoughts in mind for the time being…

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PRODUCTION FOCUSOversupply because of a…

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And here's wine production 25 Billion L (OIV 2013)

In 2000

And 2012

The total volume hasn't changed much over that time

The wine is just coming from different sources

Why do you think? How did this happen?

Implications on the wine sector?

Why can't we just focus on producing quality?

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IT'S ALL ABOUT THE WINE…Oversupply because…

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Wine

• An alcohol made from the fermentation of grape juice

• Agricultural Product that is made in commercial quantities

• Packaged and distributed globally

• Sensory qualities from undrinkable, to sublime

• Prices range for the attraction of itinerants, to monarchs

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What do we know about the French Wine Sector?

France produces the best wine!

French wine consumers are the most knowledgeable about wine!

People today are drinking less, but more expensive wines

Yes – Whether it's true or not, it's what everyone thinks (Ma 2008)

False – French are most familiar with their own region only (Wilson et al. 2007, 2009a,b)

False – Less, but better? Yes. But less valuable as well (Euromonitor 2013)

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Wine Prices

The sad truth… In $US- World - Year on Year

World - Current Value

1998 7,2 11,1

2003 7,9 11,3

2007 10 11,2

2014 11,5 11,1

It's not all bad… (Euromonitor 2013)

Real fall of -0,6% in 14 years

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Why this topic?

Wine consumption has fallen from 30 Billion litres to 23 Billion per annum since 1980 (OIV 2011).

But more people are drinking wine than ever before (CBA, OIV 2011)

And there are more products, producers and outlets selling wine than ever before in history (Euromonitor 2013)

Wine producers need to know how to appeal to them

Because discounting is rife

Let's look at wine market size trends (Euromonitor 2013)18

USA +52%

Aus +39%

NZ +33%

Let's look at wine market size trends (Euromonitor 2013)

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In real terms, EU prices are worse today than 98

1 9 9 8 1 9 9 9 2 0 0 0 2 0 0 1 2 0 0 2 2 0 0 3 2 0 0 4 2 0 0 5 2 0 0 6 2 0 0 7 2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 0.0

5 000.0

10 000.0

15 000.0

20 000.0

25 000.0

30 000.0

35 000.0

40 000.0

45 000.0

Retail Sales Value in 2012 currency

Australia New Zealand USA France Italy Spain

NZ+33%

Aus +7%

Italy -21%

Spain -36%

France -13%

USA +51%

What about Chile's Market in Wine?

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What about Chile's Market in Wine?

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The main culprits (Image Source: Wittwer et al. 2010)

The diminishing value of quality (Image Source: France Agrimer 2008)

The Challenge is…

That wine's offer is overly complexThe consumer is presented with more than 200 options in

almost every format in which wine is sought after as a purchase

And that doesn't consider Sales formats Geographical restrictions, or….

Vintage changesSo how can a consumer find any wine they like?

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The Implications?

We're drinking less wine in general

But the figures vary dramatically

The death of Eurocentricity? What about other regions?

What are the reasons behind these trends?

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FRAGMENTATIONThe Wine Sector's challenge

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PRODUCTION SECTORFragmentation in the…

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Graph on sector concentration wine v beer

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An absent concentration in Industry Structure…

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OFFERFragmentation in the…

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That's a respectable level of diversity…

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That's not…

Isn't diversity a good thing?

1. Yes. Within reason2. Balance choice with being overwhelmed

1. Consumers are intimidated by choice2. Is it just that the offer is not clear to the consumer?3. Wine producers not developing products in an area of latent need?

3. Sales media and buying formats4. Communications media and mobility5. Cultural creep

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CONSUMER'S BEHAVIOURFragmentation in the…

More people drinking less

alcohol

Source: Selvanathan² 2009

Australian per capita alcohol consumption

Source: Selvanathan² 2009

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Looking at Chile's example…

Graph on wine consumption in Chile

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 20130.0

50,000.0

100,000.0

150,000.0

200,000.0

250,000.0

300,000.0

350,000.0

295 783,3

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OPPORTUNITIESThe Global Wine Market

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Export Markets were forced due to declining domestic consumption (Wittwer 2010)

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Chile is looking to move with the wine consumption trends (Wittwer 2010)

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Value is growing…. Albeit slowly… (Euromonitor 2012)

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Should be focusing on US, UK, China and Germany (Wittwer 2010)

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ON-PREMISE OPPORTUNITIESThe Global Wine Market

Global, On v. Off-premise wine trends (Euromonitor 2013)

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 201270,000.0

80,000.0

90,000.0

100,000.0

110,000.0

120,000.0

130,000.0

140,000.0

150,000.0

160,000.0

170,000.0

On vs. Off-premise sales trends

World - Off-trade Value RSP Wine World - On-trade Value RSP Wine

Let's look at wine market size trends (Euromonitor 2013)46

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 20120.0

20,000.0

40,000.0

60,000.0

80,000.0

100,000.0

120,000.0

140,000.0

160,000.0

180,000.0

200,000.0

On-premise retail price sales trends by country in home currency

Wine - On-trade Value RSP - RMB mn China Wine - On-trade Value RSP - A$ mn Australia Wine - On-trade Value RSP - R$ mn Brazil Wine - On-trade Value RSP - US$ mn USA Wine - On-trade Value RSP - € mn France Wine - On-trade Value RSP - € mn Germany Wine - On-trade Value RSP - € mn Italy Wine - On-trade Value RSP - £ mn United Kingdom

And off-premise… (Euromonitor 2013)

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1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 20120.0

10,000.0

20,000.0

30,000.0

40,000.0

50,000.0

60,000.0

70,000.0

80,000.0

Off-premise retail wine sales by year

Wine - Off-trade Value RSP - RMB mn China Wine - Off-trade Value RSP - A$ mn Australia Wine - Off-trade Value RSP - R$ mn Brazil Wine - Off-trade Value RSP - US$ mn USA Wine - Off-trade Value RSP - € mn France Wine - Off-trade Value RSP - € mn Germany Wine - Off-trade Value RSP - € mn Italy Wine - Off-trade Value RSP - £ mn United Kingdom

On-premise is very lucrative

The US is the only major market where off-premise sales exceed on-premise by retail value

But managing that channel is problematicWineries have to rely on their position in the mind of the trade,

and their consumersThe consumer now drinks wine in various outlets for various

reasonsTraditional consumption was with a meal

How many of those on-premise sales in China are matched to food?

Wine needs to be priced by consumption motivation and service!

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Dining on-premise• Ceremonial-based

consumption• In conjunction with food

• Assisted sales process• Limited cues to buy• Need to have faith in the

person selling the wine

Non-dining on-premise• Product-based consumption• Independent of the ceremony

• Feature-based purchasing• Buying cues based on

familiarity• Need to know what you like

and how it's expressed

Usage variations in on-premise consumption

Which is difficult because this is the reality …

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The reality is that this is what we're facing…

Communicate in the consumer's way!

The wine sector is in crisis, and producers blame retailers and consumers instead of themselves

Off-premise requires volume, or producer-driven value to be profitable

Consumers look for advice, recommendations, and responses to help them buy wine

These are easily obtained through friends in the real, and/or virtual world

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The consumer conundrum…

• Wine producers sell wine instead of attracting consumers• Most modern wine businesses started with the wine, then

looked for a market• Quality is now a sunk cost of doing wine business• Alcohol consumption trends are heterogeneous, globally• New media present an opportunity to escape the retail

discounting trap• Change is inevitable, and must be embraced• Adapt to the needs of each market, at the level where

economies of service can be made

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To Conclude

The Wine Market is difficult because of

1. Its production focus2. Increase in competition3. Commercial, and media

fragmentation4. Yet increase in # of new

consumers, drinking less wine

Most of this problem is the fault of the wine sector

A lack of wine consumer knowledge is the root of the problem

1. Growing numbers of consumers mean market potential

2. Comprehending the life-cycle of wine consumption would help

3. Emerging media and distribution methods present extensive opportunities

A desire to adapt is required

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REFERENCESThe Global Wine Market

References

Charters, S., & Pettigrew, S. (2008). Why Do People Drink Wine? A Consumer-Focused Exploration. Journal of Food Products Marketing, 14(3), 13–32. doi:10.1080/10454440801985894

Euromonitor. (2013). Euromonitor International - Statistics. Market sizes and historic/forecasts. Retrieved February 17, 2013, from http://www.portal.euromonitor.com/Portal/Pages/Statistics/Statistics.aspx

Gioacchino, P., Giuseppe, D. V., & Mario, D. (2012). Profitability of Wine Grape Growing in the European Union: An Empirical Analysis. China-USA Business Review, 11(6), 729–738.

Groves, R., Charters, S., & Reynolds, C. (2000). Imbibing, Inscribing, Integrating and Imparting: A Taxonomy of Wine Consumption Practices. Journal of Wine Research, 11(3), 209–222. doi:10.1080/09571260020018676

Holbrook, M. B. (1996). Customer Value -- A Framework For Analysis and Research. Advances in Consumer Research, 23(1), 138–142

References

Lockshin, L., Jarvis, W., d’ Hauteville, F., & Perrouty, J. (2006). Using simulations from discrete choice experiments to measure consumer sensitivity to brand, region, price, and awards in wine choice. Food Quality and Preference, 17(3-4), 166–178

Muñiz Jr., A. M., & Schau, H. J. (2011). How to inspire value-laden collaborative consumer-generated content. Business Horizons, 54(3), 209–217. doi:10.1016/j.bushor.2011.01.002

Piskorski, M. J. (2011). Social Strategies That Work. Harvard Business Review, 89(11), 116–122.

Quester, P. G., & Smart, J. (1996). Product Involvement in Consumer Wine Purchases: Its Demographic Determinants and Influence on Consumer Choice. International Journal of Wine Marketing, 8, 37–53.

Thach, L. (2009), “Wine 2.0—The Next Phase of Wine Marketing? Exploring US Winery Adoption of Wine 2.0 Components,” Journal of Wine Research, Vol. 20 No.2 , pp. 143-157.

References

Wilson, D., & Quinton, S. (2012). Let’s talk about wine: Does Twitter have value? International Journal of Wine Business Research, 24(4), 271–286. doi:http://dx.doi.org/10.1108/17511061211280329

WineIntelligence. (2013a). Wine tourism – Australia’s model investment « Wine Intelligence. Wine tourism – Australia’s model investment. Retrieved June 13, 2013, from http://www.wineintelligence.com/2013/04/11/wine-tourism-%e2%80%93-australia%e2%80%99s-model-investment/

WineIntelligence. (2013b). What do Chinese wine consumers really think? « Wine Intelligence. What do Chinese wine consumers really think? Retrieved June 13, 2013, from http://www.wineintelligence.com/2013/05/02/what-do-chinese-wine-consumers-really-think/

Wittwer, G., 2010. The Global Wine Market in the decade to 2015 with a focus on Australia and Chile (No. General Working Paper G-166). Centre of Policy Studies, Monash University.