Demand challenges Flashcards
consumption decline
Global
Global Wine Oversupply: *Greg Livengood, CEO of Ciatti reported an oversupply in the market, the first since the mid-1990s, primarily due to a drop in consumer demand
Oversupply
In 2023, global wine production was estimated at ** 244 million hectoliters (60 years low),** outstripping consumption by 12 million hectoliters. In other words, even in a much-reduced vintage, there’s a glut of wine. **Oversupply **at present almost **equivalent to the entire UK wine market at 13.3m **hl (1.7bn bottles)
Consumption decline UK
UK
While still wine volumes have consistently fallen over the past five years, the regular wine drinker population has increased from 10% in 2022.-
Portman Group found that 24% of British drinkers are keen to cut back on booze (NHS)
Consumption decline US
Wine sales by volume in the US have dropped by around 3%, while turnover has remained flat. Predictions suggest a continued contraction in wine sales into early 2024.
2023 will mark the third year of negative volume growth for the wine category and the first time in 45 years that the spirits market will surpass the wine market in total volume sales.
The annual Silicon Valley Bank wine industry report highlights near 0% value growth and anticipates an increase in flash sales and discounts in the US.
US
Resons to drink less:
41.7% beverage preference.
26.5% health
23.0% budget.
The decline in consumption in the wine category can’t be put neatly into one variable
Appealing affordable alternatives such as RTDs, spirits, cannabis or have been abstaining all together. Large COVID stocks in houses
Consumption Decline china
China Imports = 60%.
Jim Boyce - publisher of Grape Wall of China China is consuming around a third in volume and value vs 2018
Consumption decline France
France
wine consumption decreased from 150 liters per person per year in 1950 to 40 liters in 2022
Increased interest in NOLO- moderate drinking
Global
IWSR estimates will increase by** 1/3 by 2026. **
UK:
Portman Group found that 24% of British drinkers are keen to cut back on booze. Also interest in other berverages: 62% of beverages volume is beer vs 19% wine.
USA
grew NOLO by +31% 2021.
Appealing affordable alternatives such as RTDs, spirits, cannabis or have been abstaining all together.
GE is one of the largest no/low-alcohol markets in the world and a considerable share of older no/low consumers. This level of maturity and a lack of product innovation means that *category recruitment is low, with only 6% of no-alcohol consumers joining in 2022.
***France **
has the highest number of new recruits, with 25% of no-alcohol drinkers joining the category in 2022
**Opportunities: **
More quality
“AUSTRALIA ‘Advancement of Australian Lifestyle Wines’.The 3MM Audolar grant from the Australian government’s funding scheme will be used to drive further innovation and improve standards within the no/low category.
US Recent wine launches include: Kendall Jackson Avant (Jackson Family Wines), BABE 100 (AB InBev), Cupcake Light Hearted (The Wine) premiunization
trending categories
Prosecco and Cava have introduced alcohol-free versions, catering to the growing demand for healthier lifestyle choices.
Pricing - taxes
**UK duties ** -on hold
excise duty rates will be frozen - at least until August 2024 UK
Steve Finlan, CEO of the Wine Society, “After the biggest rise in duty in 50 years, implemented in August, the Government is now proposing a further rise this month of up to 8.8%. This would mean a 30% hike in wine duty since 31st July 2023.”
**Netherlands: **
an increase in excise taxes by 8.4% on still and sparkling wines from 2024, for products with an alcohol content of more than 8.5% abv,WHO advocates for it.
**Opportunities = Lifts
**China lifted the 218% taxt for AU. Some say it might take 2 years to go through stock but Treasury plans to increase their workforce 67% by next June.
New Zealand from may 2024 wines will benefit from tariff-free entry into the European Union under the new NZ-EU Free Trade Agreement.
EAU
Following the decriminalization of alcohol in 2020, Dubai scrapped a 30% alcohol tax last year and eliminated the license fee required to buy alcohol in January. Ranked top 10 globally by value. India Luxury market.
Other:
India Taxes from 150% to 75%. - + 14% import over the past five years,
Thailand new goverment to cut excise duty on wine from 10% to 5%
US
risks tight to Trump
Pricing increase- inflation
**Record Global Inflation Rates: **
6.8% in 2022.
The OIV = average wine-export price rose 2% to €3.62/ litre, the highest ever.IWSR
This might temper the ongoing premiumisation trend in the wine market.
Pricing increase-supply chain disruption
The war in Ukraine and lockdowns in China have caused significant disruptions in international trade, leading to cost increases and raw material shortages. This has benefited regionalism, a trend that has strengthened since the pandemic began
Pricing US- overstocks
Overproduction+ covid = inventory excess is pulling lower level wines to discount.
Increases discounting and price reductions.
High-production wineries will find inflation and price increases more difficult to stablish
Wine demand under $12 is dicreasing turned negative, pulling the entire category down.
Opportunities
Wine volume sales above $12 have remained positive.
A survey by SVB highlighted that Napa prices have risen to an average of US$108 per bottle.
Champagne rpice rose by 10-12% in 2023-inflation from producers
Opportunities vs consumption decline
**Counter argument:
**
Product: sparkling wine which is expected to see a CAGR of +1% from 2022 to 2027. IWSR.
Place: Emerging markets EUA 10 th in value - reducing taxes and promoting tourim.
The African wine market revenue was $8.29 billion in 2022, expected to grow at a CAGR of 14.26% by 2025.
SA growth in Sambia. MMI Tanzania.
Price: Consumers are adopting a ‘less but better’ purchasing dynamic, spending more within this context. IWSR
Tourism decline during COVID
“Direct-to-consumer volume and value sales were lower in 2023 and tasting room visitation dropped for the second straight year.
Still, small wineries continue to increase their direct sales, which now average almost 70% of total sales. SVB highlighted that Napa prices have risen to an average of US$108 per bottle.
US wineries have become over-dependent on tasting rooms, prompting a recommendation to open a second tasting room in a satellite area to boost sales.”
Attractiveness of Wine Markets IWSR
The US remains the most attractive market for wine.
Japan and China are now in the top 10 due to their potential for future growth.
Southern European markets are benefiting from normalizing social activities and tourism.
However, Eastern European markets are declining due to economic pressures like high energy prices.
entry level wines pricing struggle
Germany
price structure in the German market remains his core issue.
More exports are one answer, as it is not possible in Germany to charge enough to cover production costs. A “renaissance of quality viticulture” is necessary; “cheaper and more” would backfire on the industry. It must be “recognized that appellations deliver different qualities, from top wines to simple table wine.” The profile of any wine from entry-level to the top must be clearly understandable to consumers, even in New York or Tokyo, said Christmann.
At Weinbörse, the VDP also launched its latest advertising campaign: The focus is on young talent. A public auction of these wines raised around €60,000 which is to be used for scholarships, among other things, said Christmann.
