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Exclusive Summary – The World Market for Wine

November 17th, 2006

Euromonitor International is pleased to provide e-alert subscribers with the executive summary of our new global wine report – The World Market for Wine.

  • In contrast to 2004, the global wine industry in 2005 was significantly impacted by oversupply issues. Healthy grape crushes in key wine-producing countries, most notably a record harvest in Australia, contributed to a glut of wines on the world market, forcing down prices but simultaneously driving volume sales.
  • Value growth (6%) continued to exceed volume growth (2%) in 2005, according to Euromonitor International; however, the constraint on average unit prices saw value growth fall from double-digits in 2004. Weaker value growth was averted by increasing demand in both developed and developing markets for more expensive, higher quality wines.
  • The shift towards premium, high-quality wines is underpinned by increasing consumer knowledge about the products themselves, fuelled by the international media, wine clubs, sampling and in-store tastings in Western Europe, North America and Australasia. This growing consumer sophistication has been particularly beneficial to premium still red wine, champagne and the growing premium segment of other sparkling wine.
  • Heavy promotion of the purported health benefits, such as reduced risk of heart disease, stroke and cancer, of moderate consumption of red wine succeeded in driving sales among increasingly health-conscious populations in developed markets. Partly as a result, red wine has acquired an increasingly high social status, frequently perceived as more sophisticated than white or rosé wines. Consequently, still red wine was the engine for both volume and value growth in the global wine market throughout the 2000-2005 review period.
  • In developing markets such as Eastern Europe and Asia-Pacific, the appeal of red wine’s status and health benefits led to a strong increase in demand in 2005, aided by the reduction of import taxes, following EU accession (the Czech Republic, Hungary, Poland, Slovakia) and WTO membership (China), on many New and Old World wines.
  • The wine market of 2005 was also notable for a resurgence in still rosé sales as the growing sophistication of wine drinkers provided an opportunity for winemakers to add improved quality, drier rosés to their portfolios and novice wine drinkers sought sweeter blushes to provide a refreshing alternative to FABs and lagers.
  • Sparkling wines continued to fizz in 2005, partly as a consequence of successful strategies to extend consumption occasions beyond key celebrations such as Christmas, weddings and birthdays, and also the successful development of a premium segment in other sparkling wines, which New World wine producers have recognised as an opportunity to introduce sparkling wine at a higher price than their still wine offerings.
  • Manufacturers of fortified wines and vermouth are enjoying little success in their efforts at reinvigorating the old-fashioned image of sherry and port, although heavy promotion by leading brand Martini and “retro” trends in both Germany and Italy have seen vermouth sales show some positive growth.
  • Non-grape wine sales have a limited presence outside Asia-Pacific and there they have suffered competition from more fashionable spirits, such as shochu in Japan, and consumers shifting away from old, but cheap, favourites, such as yakju in South Korea. Alternatively, sake continues to find favour with lovers of Japanese cuisine in North and Latin America.
  • A key characteristic of the wine market in 2005 and over the review period as a whole was the shifting balance of power between Old and New World wine producers. On the one hand, Old World wines from countries such as France and Italy remained popular due to their image of quality and sophistication, but domestic consumption per capita of such products continued to shrink due to changing lifestyles.
  • On the other hand, New World wines from countries such as Australia, the US, South Africa and Chile enjoyed strong growth in demand, in both their own domestic markets and in countries with limited traditions of wine consumption (such as Russia and China). Driving this growth has been the aggressive branding strategies of New World producers, which simplify the purchasing decision and therefore appeal to consumers who are unfamiliar with wine products.
  • Erosion of sales in major markets such as France and Italy may not have damaged Western Europe’s position as the dominant region for wine, but the fact that wine has increasingly become an occasional social drink rather than a daily staple in these markets has restricted regional volume growth to a trickle.
  • Looking at the global picture, wine’s dynamos are now Eastern Europe and Asia-Pacific, where rising affluence and growing middle classes have permitted increasingly health-aware consumers to shun traditional high-alcohol spirits and favour the “healthy-giving” properties of grape wine. Accession to the EU and membership of the WTO have also benefited key markets in these regions allowing New World producers to introduce large quantities of good quality, competitively priced wines.
  • The wine market is now chararcterised by the targeting of specific consumer groups, with packaging and formulation of both still and sparkling wines aimed at disparate audiences. Single-serve packaging featuring colourful graphics and labels is frequently targeted at the important global population of financially independent women, whilst low-alcohol content wines are aimed at older and health-conscious consumers. Increasing acceptance of screw caps and the upmarket shift in bag-in-box wine is also taking the mystique out of wine purchasing for many novice drinkers.
  • Off-trade and on-trade wine sales showed similar growth over the review period, but it was the off-trade that moved ahead in 2005 as at-home consumption of competitively-priced supermarket-bought New World wines took centre stage. Further, more effective attempts to combat drink-driving combined with typically higher prices undermined on-trade consumption.
  • The global wine market was also characterised by greater consolidation in 2005, as regional and national players sought to position themselves as global wine producers and capitalise on growing demand for wine in developed and developing markets. The year saw Australian producer Foster’s Group acquire domestic rival Southcorp Holdings, followed by French manufacturer Pernod Ricard acquiring UK-based Allied Domecq. Foster’s not only consolidated leadership in Australasia but improved its presence in key markets in Asia-Pacific and gained strong brands in the US. On the other hand, Pernod Ricard now has an extensive, balanced portfolio of New World and Old World wines and has become a key player in the high-margin champagne sector.
  • Further acquisitions took place in early 2006, namely global leader Constellation Brands’s acquisition of Canada-based Vincor International and Boizel Chanoine Champagne’s purchase of Groupe Lanson International. This second deal will lead to a particularly consolidated champagne sector with the new company a major force behind leader Moët Hennessy and just ahead of new entrant Pernod Ricard.
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