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| October 10th 2006 |
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| Domestic wines make a rebound in Germany |
by Dr. Hermann Pilz
Germany is an enormous market - and this not only for domestic, but also for imported wines. Distributional structures and price points, however, are complicated, so knowledge about the nuts and bolts of the business is essential in order to be successful.
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With 20 million hectolitres of wine consumed per annum Germany is the fourth largest market in the world. Only France, Italy and the Unites States move more volume. The major difference, however, is the impact that domestic wines have on their respective markets. In France, Italy, Spain and most other wine-producing countries, consumption is largely, if not exclusively, domestic. Germany, like the United States, paints a different picture. With approximately 100,000 hectares in production it would be able to supply about half of its inhabitant’s needs; but since German wines are also exported, nearly 60 percent of total domestic consumption comes from abroad. This amounts to an average annual import of 12.5 million hectolitres, making Germany the world’s largest importer of wine. In this light Germany resembles more the United Kingdom or other purely importing markets like Holland, Sweden or Japan than those countries with a large domestic production. Still, there is one significant difference: the German market is completely liberalised. There are no taxes or duties levied on wine, imports are - beyond the regulations of the European common market - in no way restricted and the trade is free to follow its own designs. There is no three tier system, neither importers nor wholesalers have any form of monopoly and it is not necessary to procure a license to either buy or sell wine. Further, there are no limitations on alcohol sale, advertising or consumption; the only exception being the restrictions for minors – the legal drinking age is 16. Under these liberal conditions a dynamic wine market has emerged over the past decades, with import statistics listing more than one hundred countries supplying the German market. The lion’s share of this volume, however, is the haunt of only a few countries. Three major suppliers - Italy, France and Spain - represent together two thirds of total imports. Over the past ten years the six countries of the New World have begun to emerge, but they have been less successful here than in other markets, principally because they have not, or have not wanted to enter the fray at the lower end of price points where most of the volume is generated.
After stagnation over the past several years, the market appears to be in a phase of consolidation with slight growth. According to the Gesellschaft für Konsumforschung (GfK), an independent institute based in Nuremberg doing market research whose statistics cover some 70 percent of the market, consumption in private households grew 1% in volume and 2.4% in value in the first half of 2006. The market share of domestic wines grew for the first time in years: 1% in terms of both volume and value so that they now account for 37.6% of volume, 39.1% of value. This positive trend for local producers is based mainly on the growing demand for white wines, especially Riesling, and to a certain extent Pinot Gris and Pinot Blanc, but the demand for German rosé and red wines has also risen. The rapid growth of red wine plantings |
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that now account for 37% of total vineyard area, up from not quite 9% a generation ago, have temporarily stopped the regression of overall domestic sales that had haunted German producers for years. “Altogether the off-trade, including hard discount, sold 53% reds, 37.8% whites and 9.2% rose wines” writes the German Wine Institute when interpreting the statistics.
Other winners in the volume sector are Italy, up 9.9%, and Spain , up 21.2%, due largely to their low export prices. Italy, with a total market share of 16.1%, still dominates the import charts in volume. With 6.2% Spain comes in third. France, like the New World, has taken some hard blows, losing another 1.9%, but still has a total market share of 13% in volume as well as a much higher average export price and so retains the number one spot in terms of value. The New World as a whole lost, probably again for reasons of pricing, 0.7% and today has a combined share of 8.3%. While those countries with a smaller market share such as South Africa and Argentina were able to increase their exports to Germany slightly, the traditional big players from overseas, California and Australia, saw their exports to Germany decline for the first time in history. The reason for this appears to be the consumers’ partial rejection of wines that have a perceived industrial image. This assumption is reinforced by the continued success of Italian wines. With strong regional character, they are still easy enough to understand, both in labelling and flavour, for the Germans who spend much of their vacation time south of the Alps – and who drink inexpensive Pinot Grigio and Nero d’Avola the way other markets do Chardonnay and Cabernet Sauvignon.
In terms of volume the market is moving in a positive direction. Unfortunately for producers hoping to profit from this situation, this is not true for pricing. For years average prices have dropped as fickle consumers have continually switched to lower priced alternatives. As income shrank, promotions were welcomed and today shopping carts are often full with special offers as aggressive off-traders, especially the hard discounters, sell wine at cutthroat prices. According to A.C. Nielsen, an independent institute for market research based in Frankfurt, 94 percent of all wines are sold for less that four Euros ($ 5) per bottle. Another figure emphasises the price consciousness of the consumers: in 2005 56.5% of all wine sales were in the category below 1.99 Euros ($ 2.50); one year earlier it was only 55.1% - and the category continues to grow. A look at the general structure of the wine trade over the last few years makes it clear that hard discount has become the most important off-trade vector in the wine market. More than 60 percent of all wines sold now pass over the counters of Aldi, Lidl, Penny, Plus, Netto and Norma. The large supermarket chains such as Metro, Edeka and Rewe have not fared as well with their broad product lines. Many customers simply cannot handle the wide range. Price rather |
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than diversity has become the most important criteria in purchase decisions. The sensitivity of consumers to changes in price recently became evident to two sparkling wine brands. Freixenet, which sells over 40 million bottles of Cava on the German market each year, raised the prices for their branded range of products. The aim was to keep the main label Freixenet above a four Euro shelf price. The markup took effect in May 2006. Since then Freixenet has lost 15% in volume. This development, however, had been expected by company officials whose aim was to strengthen the brand name by keeping price levels higher.
In contrast to those losses in volume due to price increases stands the success of prosecco. The Italian grape variety, mainly consumed in form of frizzante, has been one of Germany’s favourites for years. The low retail price in the hard discount of about 1.49 Euros ($ 1.85) a bottle has made it a best seller. Other wines in that price range, like Chianti, or southern French standards were also winners. The New World has essentially ceded this market.
While the off-trade is well-documented by market research institutes, sales in restaurants, in the specialised trade and direct sales from wineries are hardly registered. Insiders, however, believe that the specialised trade – although the segment is small - is growing after years of shrinking market share. Similarly, the restaurant trade, which has continuously lost ground over the past five years, shows renewed signs of life. These are the parts of the market where the better producers would like to see their wines sold. Still many international brands are currently curtailing their investments in Germany, as did Walmart in the retail sector, in order to target markets with better profits.
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