Multinationals Look to Big Brand Wines

Growth in the global wine market continues to be driven by increased consumption of New World wines, whilst traditional producing countries struggle with declining exports. As the international market becomes increasingly consolidated and brand focused, it is established multinationals that are reaping ever higher dividends.

The rise and rise of the brand

Although the underlying decline in exports from France was reversed in 2001, Italian exports continued to decline, and these established wine producers cannot match export growth shown by the likes of the US and Australia. In recent years Australian wine has been the real success story, especially in “showcase” markets, notably the UK, where consumers are less inhibited by tradition.

The basis of this success comes from the strong recognisable brands supportedby focused marketing and advertising campaigns. According to leading global market analyst Euromonitor, the top 10 brands increased volume sales by approximately 30% between 1997 and 2001, outperforming the global market increase of 6%. Such brands include Lindemans and Wolf Blass, and according to Pernod Ricard its Jacob’s Creek brand achieved volume growth of 19% in 2001 alone, boasting a strong presence throughout Europe and North America. This globalisation of wine brands, not only Australian, but also American and South African, reflects the new power base in the wine industry.

Consolidation fuels move towards branding

Multinationals understand the gains to be made from economies of scale and mass marketing, and increasingly non-wine specialists are bringing their marketing expertise to the wine industry. The Australian brewer Foster’s has become an important wine player owning key brands Wolf Blass and Beringer. France’s Pernod Ricard, traditionally focused on spirits, is the owner of Australian labels Jacob’s Creek and Long Mountain. In the face of greater consolidation in the spirits market, major producers are increasingly looking towards wine to drive growth.

Diageo, owner of the Blossom Hill range, gave itself greater access to the profitable branded wine sector by acquiring the Sterling wines label from Seagram in 2001. Already the market leader in spirits it is likely to diversify further into wine, especially given the extra capital it has available following the spin off of Burger King. This follows the spate of acquisitions that Allied Domecq made including Spanish producer Bodegas y Bebidas and New Zealand winemaker Montana.

Branding appeals to new consumer base

As global marketing gives wine greater mass market appeal, and the consumer base broadens, branding will become increasingly important. Consumer preference for instantly recognisable products will mean wine is likely to be marketed in a similar fashion to beer and spirits in terms of brand building and advertising.

There is still great potential for branded wines as major international producers will look to consolidate further. In light of this new regions and brands will be explored. Chile has already tapped into the market, seeing exports increase in 2000 by 14%. It already boasts some international brands, most notably Concha y Toro. It is also likely that other Latin American countries will follow suit. Argentina in particular offers potential considering its production of wine is over double that of Chile, yet its exports are less than a third.

For the time being old wines still account for greatest quantity of exports, but if in the future they are to compete with new world wines and the multinationals, they will have to accept the changing competitive environment and adapt to it accordingly.