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| August 22nd 2007 |
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| High volume, growing value in Germany |
by Richard Grosche and Dr Hermann Pilz
For a generation, Germans have been known for their bargain hunting approach to wine. But now it seems consumers are looking for better quality. Combine that with Germany’s status as the world’s largest importer of wine and you have a wine market that’s worth a closer look.
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Germany ranks fourth in the world in total wine consumption, behind France, Italy and the United States. In imports, however, no other country buys more volume. With a comparatively small domestic production of, on average, 9.5 million hectolitres of wine, and exports of nearly three million, Germany has traditionally had a healthy thirst for foreign products.Some of the key wine importers look back on a hundred or more years in the business, and in spite of a few difficult years at the beginning of this decade, and a recent period of consolidation, they seem healthier than ever. In 2006, Germany imported a total of 13.9m hectolitres of wine worth €1.9 billion (US$ 2.5b). That was 700,000 hectolitres more than in 2005, with an average price rise from €136 to €139 per hectolitre, which – in a compressed buyer’s market - is the first indication of a growing demand for better quality after years where price seemed to be the only criteria on the buyer’s priority list.
What do Germans drink?
About one third of the wine consumed in Germany is grown domestic-ally. The rest is imported, with the traditional wine producing countries France, Italy and Spain leading the ranks. Together they account for 10.8 of the 13.9m hectolitres imported each year. Italy leads the way with 6.3 million hectolitres worth €657m. France is a strong second in value (€588m), but is way behind Italy in volume (2.3m hectolitres) and, at that, only slightly ahead of Spain (€296m, 2.1m hectolitres), which has shown the highest growth rates of all countries over the past few years. Although the United States is the fourth most important source of wine sold on the German wine market, its 550,000 hectolitres worth €66m, with a large part of that generated by Gallo, fall far short of the leading three. Australia, Chile, South Africa, Austria, Portugal, Greece, Hungary and Macedonia round out the top dozen in volume and value. All other exporting countries move less than 100,000 hectolitres and €10m each. Nonetheless, two others should to be mentioned, either because they have regional significance or international pedigree with average prices per hectolitre far above the norm: Switzerland and New Zealand. Both are comparatively small in volume (Switzerland: 9,897 hectolitres, New Zealand: 6,872 hecto-litres), but sell, with €456 and €448 per hectolitre respectively, at remarkably high prices. The reason for this is not only the generally high price level of both producing countries, but also the fact that neither exports much bulk.
Although red wines still dominate the market with a 54% share, that colour’s majority has fallen slightly for the first time in years. In 2005, red wines accounted for 55.5% of the market. Although not yet a return to the roots in a country that, before the advent of the French Paradox, once drank far more white wine than red, the Germans are again showing an increased interest in whites and rosé, with |
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the latter expected to show even further increases in 2007.
When looking at German drinking habits it’s important to look not just at content, but also at the packaging and closure. The Bag-in-Box, despite some occasional sales in the off-trade channels, is still used far less than in Scandinavia. When Bag-in-Box wines are sold, they usually appear in the lower price ranges, mainly with red Vin de Pays d’Oc, Chilean Cabernet or German Dornfelder. Some rosé and a very little white wine can also be found in Bag-in-Box, but better quality wines are still reserved for the bottle. When it comes to closures, consumers also tend to be traditionalists, with a majority not yet accepting alternative closures. Plastic and screwcaps are usually only to be found in the lowest price levels. In the premium segment, natural cork seems to be the only legitimate closure if you want to sell. Some are successful with Vino-Loc, the glass stopper, but only well established producers are able to actually sell the bottles. While in some countries screwcap has become a standard even for red wine, it’s only found on white wine in Germany and, with very few exceptions, only on the basic quality wines that are often sold in one-litre bottles.
The market
The total volume of wine consumed annually in Germany has reached a total of nearly 20m hectolitres, which splits roughly into 16.m hectolitres of still and 3.5m hecto-litres of sparkling wine, making the country the largest consumer of bubbly in the world. As much of the wine served in restaurants, hotels and bars is moved by specialised retailers, cash & carry outlets and discounters, or directly from the winery, it is difficult to make a strict distinction between on- and off-trade volumes merely by looking at the statistics since the scanning analyses done by the various market research institutes does not distinguish between the two. For analysts, a realistic number for total on-trade sales is approximately three million hectolitres, which is 18% of the total still wine sector. The off-trade with 82% clearly has a stronger position, amounting to 13.6m hectolitres. About one fifth of that off-trade volume, or 2.7m hectolitres, are direct sales from wineries. Of the remaining 80%, only some 10% passes through specialised retail shops. The vast majority is sold in supermarkets, cash & carry convenience outlets or through discounters, who hold a much strong position here than in most other markets of the world. The German food trade, in fact, is extremely strongly influenced, some would say dominated, by discounters. The seven largest chains of that ilk are: Aldi Nord, Aldi Süd, Lidl, Norma, Netto, Penny and Plus. Between them they have 14,110 outlets, all of which carry wine in their portfolio. Several smaller discount chains account for another 989 stores.
Traditional supermarkets, cash & carry outlets, department stores with a food and wine sector, various drugstore chains and consumer markets |
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boast a total 37,463 shops of different sizes. Despite their number, though, they lack the clout of the discounters in turnover. In addition to these two powerful sales channels, there are about 4,000 individual specialised retailers that place their primary focus on wine and nearly 600 outlets belonging to 17 different wine store chains. Depending on the source, their share of total sales varies from 8.5% to 13% by volume.
More than one in five of every bottle of wine sold in the German off-trade goes over the counter at one of the two discounting Aldis, making it the largest wine retailer in the country. The other discount chains have a combined market share of 23% of the total volume, so that about half of all the bottles, BiBs and TetraPaks sold on the German market are moved by the different players of the discount channel. In value, of course, this picture changes in favour of the direct sales(25.7%) and specialised retailers (15.3%), who sell at much higher average prices. On page 23 we present the ten largest specialised retailers and chains. For a snapshot of the importers who bring a large portion of the wines into the country that are sold in on- and off-trade channels, see Issue 2, 2007 of Wine Business International.
Price segments
Despite the increasing sales of premium quality wines, Germany still is a market with a low average price of €1.77 (US$2.38) per litre in the off-trade in 2006. This is due mainly to the fact that the discount chains, which sell more than half of the total volume, move over 77% of their portfolio at below €1.99 (US$2.68) per bottle. When looking at all trade channels other than direct sales, the category under €2 a bottle has a 74.7% market share. Although nearly a third of that is done at below €1 per bottle, this segment nonetheless suffered a loss in 2006 of 3.4% over the previous year. While the segment €1-1.49 grew only slightly to 26.1% over the same period, the segment €1.50–1.99 proved more robust, up 2% to 24.2%. One fourth of the total volume is sold at above €2 per bottle. However, the major part of this volume is sold at below €2.99. This leaves only 1.2% of all wine sold off-trade at above €5. As all producers target this category, the com-petition to sell at this price point is fierce.
Direct sales, which account for 20% of volume and an estimated 27% of value, have significantly higher average prices. The same is true for the sales in specialised retail outlets, where the average price is estimated at €6.20 per litre.
Brands
When it comes to branded wine, a clear distinction between true brands and soft brands must be made. The most remarkable ‘branding without a brand’ was launched by Aldi several years ago when they made Gran Reserva popular, albeit with ever changing Spanish appellations and producers, by placing those two words prominently on the label where the consumer would normally expect to |
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see either the producer, appellation of grape varietal. Soon, all other discount chains and supermarkets listed a Gran Reserva at a fighting price point as well. Not surprisingly, price pressure mounted, quality fell and the suspicion that more Gran Reserva was being sold than produced made the rounds. Other wine types and appellations, in particular Chablis, Beaujolais and Chianti, have suffered a similar fate.
Among classical brands, the German market shows an interesting mix of international and domestic brands. However, with the exception of Gallo’s Sierra Valley, none of the brands that are so successful in Great Britain or the United States has made a similar impact here. Les Grand Chais de France with Grand Sud and J.P. Chenet sell more volume than any other brand owner. The German shipper Racke has the most successful single brand in terms of value: Blanchet, of which an estimated 10 million bottles are sold annually at €2.99 (US$4). Until 2004, there was only one Blanchet, a white French blend that was on the decline. Today, the range, which now includes a total of eight wines from France, Italy, Spain and Germany, is making a tempered comeback.
The Racke portfolio also includes several other established brands: Viala, Amselkeller, Rosiere Amselfelder as well as the international joint ventures Golden Kaan with South Africa’s KWV and Lamberti with Gruppo Italiano Vini. The shipper Langguth Erben is primarily successful with German wines, but its French Medinet brand is still faring well. While Freixenet developed a stand alone range of Spanish still wines for the German market, Mederaño, the recent relaunch has the mother brand Freixenet appearing in larger letters on the label. Similarly , Binderer is widely distributed with its Le Filou brand as is ZGM with their varietal range Michel Schneider.
Restaurants
Wine has always been an integral part of dining in the 13 different wine growing regions of Germany - but only there. Outside those wine enclaves, it has traditionally been easier to find a good beer than a decent wine. However, over the past decade wine has become fashionable and ever more wine bars can be found all over the country. Following this trend, even normal pubs and restaurants have also started to offer at least a small selection of wines by the glass. Here, too, it is often a mix of domestic and imported wines, depending on the location and style of the business, in particular the ethnic background. Ethnic cuisine has a tremendous impact on wine consumption, which is one of the main reasons why Italy has gained such a foothold on the German market. No other country has such a tightly woven network of ethnic restaurants. Every Italian restaurant offers a choice of Italian wines; every pizza service has at least one red, one white and a Prosecco on the menu. It could be said that Italian wine has been brought to even the smallest villages by the Italians themselves.
On-trade pricing is a sticky topic, |
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and undoubtedly one of the reasons why many restaurants sell less than they could. Outside the wine growing regions, where local wines dominate, it is hard to find a bottle of wine below €15 – and even then the quality often bears no relation to the price. Restaurants generally multiply the retail price by four, which makes the premium segment exorbitantly expensive. Wines by the glass are often cheaper, but seldom of quality. Again, wine bars, especially in the wine growing regions, provide a better proposition, but that does little to change the consumer perspective.
The restaurant trade in Germany is currently undergoing a period of consolidation. Following the millennial boom, 2001 began on a sour note with the introduction of the Euro. The new currency made consumers cautious and a period of so called “cocooning” ensued, where people stayed at home instead of going out to eat. This weakened on-trade consumption and pushed the sales of wine into supermarkets and discounters, who before accounted for only about a third of off-trade sales. The “stinginess in cool” mentality was the attribute of this period, which now seems to have come to an end. Importers see a rising demand for better quality wines and restaurants are stocking again. This should have an effect on the wine market. After all, Germany has more than 188,000 registered restaurants.
In addition, there are over 45,000 hotels, bed & breakfast and about 10,000 caterers, all of whom are potential on-trade customers.
Wine is fashionable
While the average price per bottle does not portray any growing enthusiasm for wine in Germany, public perception does. Wine can be found everywhere in increasingly better qualities and, perhaps more importantly for the image of the product, wine is discussed widely, especially amongst 30 to 50 year old consumers. Most magazines and newspapers have at least an occasional or often even regular wine column and in all cooking programmes on television wine plays an integral part. While years ago, many consumer might have thought that a sommelier was a specialist for dairy products, fur or solar energy, most now know that he is responsible for wine service.
The growing number of modern wine bars are frequented by customers in their mid to late 20s, for whom visits to wineries and chats with winemakers have become common place. This trend is enhanced by a broad choice of wine seminars, be it from wine academies or specialised retailers, evening schools, restaurants or even florists.
For the moment, everybody seems to have an interest in wine and wine education. Four popular magazines cover the world wine: Weinwelt, a bi-monthly magazine for consumers, Vinum, which is published ten times a year, Wein Gourmet and Selection, each with four annual issues. For the trade there are two magazines of importance, Weinwirtschaft, Germany’s leading wine business publication with 26 issues each year, and Wein & Markt, a monthly wine business magazine. Furthermore, various food magazines include wine in their coverage. Noticeabley absent is a local journalist with the impact of a Robert Parker on his market.
The outlook
After years that were marked by pessimism and insecurity, Germany is recovering. Unemployment has fallen below five million, and the increased value added taxes, dreaded by many as the potential end of the upswing, have been digested without doing harm to the general momentum. The positive consumer sentiment will surely have an effect on the wine trade as well. Producers in Italy, France and Spain comment that for the first time in years, quality has again become an issue, not just the price. The large volumes that Germany will always need, combined with better qualities, will surely make the world’s largest importer more interesting than ever.
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