Factors that Influence the Demand for Wine Flashcards
Define supply
The amount of a good or service available for sale
Define demand
Willingness of consumers/business to buy a good or service
Give 2 examples how weather influenced supply and demand
- 2013- Castilla la Mancha- high spring and summer rainfall= increased vol of wine to 45.3 million hectoliters
- 2017- Europe- spring frosts = lowest produced vol of production for 50 years
What happens when supply exceeds demand?
-prices decrease
-greater choice of cheaper alternatives
-producers may need to lower their prices to remain competitive (reduces profits)
What happens when demand exceeds supply?
-prices increase
-consumers may be willing to pay higher prices for some wines (if perceive no alternative available)
-others won’t be willing to pay more- may switch to other wine/diff category altogether)
What is demand for wine in general affected by?
Social, economic, legislative and political factors
What happened to global wine consumption in first parts of the 2000s?
Increased rapidly
What happened to wine consumption in 2008?
Decreased- financial crash
What has happened to rose and sparkling consumption in the last decade?
Increased significantly
- eg sparkling increased by 3% annually between 2002 and 2018
What were the top 5 countries for wine consumption 2003-2019?
USA
France
Italy
Germany
China
What type of countries are decreasing their wine consumotion?
Traditional WM countries
What type of countries are increasing their wine consumption?
Where drinking not been major part of their culture
Why has the USA become the largest country for wine consumption?
-increasing globalisation of food and drinks industry
-growth of multi national corporations increased ability to export products across national boarders
-consumers more able and willing to embrace new tasks
-increases and improvements in wine production in domestic market
Why has consumption in China increased over the last 20 years?
-growing middle class- show improved wealth and status with wine
-has domestic production, but many aspire to drink imported wine
-first, French, now Australia and Chile-benefit from bilateral trade agreement
What are the 4 reasons why wine consumption is falling
- Younger people drinking less wine
- Health concerns
- Changes in Lifestyle
- Reduced availability of cheap wine
Why are younger people drinking less wine?
-‘old fashioned’
-turned to other drinks, eg gin in Spain
-UK- younger people spending less time in bars, preferring to contact their friends through social media
What significantly impacts health concerns with consumers?
Government campaigns/policies
eg . Loi Evan in France= signif drop in consumption there
What are the changes in lifestyle causing a decrease in wine consumption?
-busy, modern lifestyles= less time for longer meals with wine
-tradition of drinking wine at lunch, alcohol during day= forbidden by employers/not socially acceptable
Why is there reduced availability of cheap wine?
-steps taken to reduce over production (vine pull schemes)
-instead of consumers buying more expensive wine, some switched to other cheaper drinks
Give a couple of examples of how consumer preferences have changed over time
-rose v popular in USA
-prosecco v popular in USA and UK
What happens if supply doesn’t increase to reach demand?
-Prices will rise
-However increase in area covered by Prosecco DOC= increased supply and limited price rises
Due to health issues, what is there more of a demand of?
-lower alcohol wines
-staying away from fortified wines
-also staying away from medium-sweet German wines
What do changes in reputation do for producers?
-good reviews eg Wine Spectator USA/Jancis Robinson= valuable for producers, encourage them to increase their prices for subsequent vintages
-presence of wine in popular culture- eg films, tV, music lyrics etc- invaluable
-loss of reputation can have opposite effect- though takes several years to have an impact on price
What are the categories social factors that affect demand for wine?
-Changes in consumption habits
-Changing consumer preferences
-Changes in reputation
-Changes in spending patterns
What are 2 examples of price sensitive markets and what are they unwilling to pay?
Examples of other markets?
-UK and Germany
-Unwilling to pay more than lowest price possible
-USA- other markets, willing to pay above min to buy wine they perceive to be of better quality than cheaper options
What type of market has fierce competition?
Price sensitive markets
Why do price sensitive markets have fierce competiton?
-producers competing within reduced price range
=lower prices for consumers
=but unprofitable for some producers
In price sensitive markets, what are producers reluctant to do?
-pass on increases of production costs to consumers for fear of losing sales to competitors
-some producers hope to avoid that by building up brand loyalty
In terms of spending, what trend is in the USA?
-Premiumisation
-Even in price sensitive markets such as UK- means willing to pay more for individual bottles of wine instead of volume
What are the economic factors that influence demand for wine?
- Strength of the economy
- Fluctuation in currency exchange
- Changes to the market
What happens when disposable income falls and give an example
People buy cheaper wines/switch to other less expensive alcoholic drinks (beer/cider)
- eg 2008 recession- champagne demand shrank, other sparkling grew
What happens when an increase in disposable income and give an example
-willing to buy more expensive wine
-eg China- BDX and burg
If a wine exporting country’s currency gains value compared to importing country the producer can either…
- Keep prices stable, therefore risk losing sales as product represents less value for money in importing market
- Or decrease price of the wine and lose profit
If a wine exporting country’s currency loses value compared to importing country the producer can either…
- Keep the price the same= boost sales as product represents better value for money in importing market
- Or increase price improvements for future investment
If a product disappears from particular market, supply decreases. Which means what for who?
-opportunities for competitors
-=increase their sales on a v simple level
- eg if supermarket runs out of Echo falls white zin, demand may increase for Blossom Hill
If supply is limited, it is possible to raise prices. However, an introduction of a new lower priced/better value wine could do what?
Cause a fall in demand for other similar products and may force producers to lower their prices to remain competitive or look at alternative markets
Which countries tightly control sale of alcohol?
-Sweden, Norway, Canada (monopolies)
-USA- (3 Tier System)
What is the campaign in France called that greatly reduced the advertising of alcohol?
Loi Evan- 1991
-significantly reduced wine consumption
How has the government in Scotland reduced alcohol consumption?
-minimum unit pricing- reduce availability of cheap alcohol
What have NZ and Scotland reduced the blood alcohol concentration from and to?
-from 80mg/100 to 50mg/100
-(tightening on DD laws reduced alcohol consumption)
What 2 benefits does taxation have to the government?
-reduced alcohol consumption
-major revenue generator
The level of duty varies between diff categories of drink= influences demand. Give an example with sparkling wine of where this has happened
N.Ireland- large difference between excise duty on still (3.19 euros/bottle) and sparkling (6.37 euros/bottle)= greatly reduced demand for sparkling wine
Government somtimes reduce duty to make more competitive. Give an example of where this has happened
2008- HK abolished excise duty on wine altogether- aim= ‘wine trading up of Asia’.
-result= massive increase in auction sales of fine wine through HK
Why might a country impose custom duties (trade tariffs) on imported goods?
-revenue generation
-protectionism policy to encourage sale of domestic rather than imported goods
Which non member states of the EU have entered into trade agreements with the EU and what does it mean for them?
-South Africa and Chile
-tariff free/reduced tariff trade= competitive edge over (Australia)
Now that the UK has left the EU, what could this mean?
-can negotiate free trade agreements with other countries, eg Australia= Australian wine cheaper than EU wine.
-could change buying habits of British public
What did the government impose in Argentina in early 2010s?
-trade restrictions on wine, and winery equipment eg barrels, cork and yeast.
-= significantly increased wine production cost
- gov also imposed restrictions on foreign ownership of land= significantly slowing down foreign investment that had played important role in it’s rapid growth.
What is an embargo?
-extreme form of protection when country bans imports from or exports to a particular country
-for political/economic reasons
-eg Russia
How do GIs influence demand?
-consumers have enjoyed wine from there before
-strong reputation
Why are PDOs limiting?
-In Europe- rules v strict, limiting grape varieties, methods of production, maturation periods
-outside of EU, free to react more quickly to changes in consumers preferences and maintain demand for their wine
Give an example of a wine law that has changed suddenly and had a significant effect.
-China 2021- Xi Jinping- stopped ‘lavish gifting’
-anti- extravagance campaign launched= demand for those wines (Bdx Prem Cru Classe, GC Burg) dropped immediately
-although increase in sales of less expensive wines, as middle class want to enjoy wine and show status
