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| December 8th 2006 |
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| Gold Rush in Poland |
by Wojciech Bonkowski and Tomasz Prange-Barczynski
Rapid growth in wine consumption is making Poland an increasingly important target for would be exporters to Eastern Europe; but, although imports have doubled since 2002, so too has competition. A combination of various factors – from a steady 5% annual growth...
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...of the economy to increased competition, a relaxation of regulations and, perhaps most crucially, a broadening of minds after accession to the European community – has contributed to booming sales of imported wine in Poland. Inevitably, it is also leading to major changes in the market.
Wine consumption has risen steadily since Poland became a democracy and free market economy in 1989. Starting at consumption levels of under one litre per capita, growth was taken for granted, but recent years have brought greater increases. With the figures for vodka consumption declining steadily, wine’s major competitor is now beer, which grew steadily in the early 1990s; however, the focus has now switched to wine. Today, the two major factors predicating further growth in wine consumption and appreciation are the notion of a healthier lifestyle combined with a significant increase in disposable income, particularly for the upper middle classes. The last three years have brought the first period of stable long-term growth since 1989. Inflation is low at under 2% per annum, unemployment has fallen from 20% to 15.2% in four years, industrial production, exports and investments boast double digit growth figures - and both 2005 and 2006 are showing real increases in net incomes. In short, most economists believe that the economy is now on firm foundations. The main index of the Warsaw stock exchange has grown by over 50% in the past year alone, with the index for some sectors nearing 90%.
Wine has been gaining ground in bars and restaurants, where more diversity and steadily lower prices allow people to discover new tastes. Cooking programmes on television, including the newly established specialist food channel Kuchnia TV, and the growing number of celebrity chefs, are expected to further raise awareness of wine; but the real sea change concerns the structure of direct consumer sales. The image of the market for over a decade was dictated by a small group of large national importers, focusing on major international brands and building an extensive distribution network, including retail outlets and an army of salesmen that dealt with restaurants. The two largest were Centrum Wina, owned by Ambra, and PWW, owned by CEDC. The result was that anywhere in Poland, your choice at dinner was often only between Conde de Valdemar, Villa Antinori and Mouton Cadet. They were no, or few, true wholesalers or independent distributors: both wholesale and retail sales were handled by the importers. On some occasions, importers worked on contract with a distributor based in Germany, who supplied an entire range of wines from France and Italy to Argentina. On the other hand, due to the complex and expensive red tape involved, very few if any wholesalers, retail shops or restaurants imported wines directly from producing countries.
Although growth in the restaurant sector has increased the 38 million Poles’ awareness of wine, the off-trade still accounts for 77% of the total market. Most of these sales |
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are concentrated in super- and hypermarkets. The largest chains are all in foreign hands, from the French Carrefour, Auchan, Géant, Leclerc and Hypernova to the British Tesco, along with such discounters as the German Lidl and Biedronka, the biggest distribution channel in Poland with 830 shops, belonging to the Portuguese group Jeronimo Martins. When the supermarkets entered Poland in the mid-1990s their wine policy was similar to that in some Western countries: offering a wide choice of wines at every price point. However, due to low demand and the recession from 1999 to 2002, ambitious supermarket wine selections were axed. Today, the focus is on selling similar budget wines to the ones on offer in the major supermarkets’ home markets, with a maximum price per bottle rarely reaching €9,95. This inevitably deepens the gap between ‘supermarket wine’ and ‘fine wine’. In major cities there are also, however, more up market chains such Piotr i Pawel, Alma and Bomi, which sell a range of delicatessen products including a wide selection of wines sourced from various Polish importers.
One of the major problems in analysing the Polish wine market is the lack of reliable import and consumption data. Depending on the source, wine consumption figures vary from one to even five litres per capita, based on whether related products such as fruit wine and vermouth are included in the equation. This ambiguity applies to wine imports. So, for example, although almost no Croatian wine is on sale in Poland, Croatia has for years featured on official statistics as a major exporter to Poland due to the import of bulk wine used in domestically manufactured vermouths and liqueurs such as the bestselling Nalewka Babuni, which account for almost 40% of what is locally described as the „wine market“. Another problem for analysts is the private wine imports that are particularly widespread in western and southern Poland. Since joining the European community it is legal for Polish citizens to bring home up to 90 litres of wine tax free from any EU country, provided it is for personal use. Given the often high margins of many wine shops and importers, it is often more economical to drive to eastern Germany or the Czech Republic to buy a few cases.
Until recently, a lack of true competition and general stagnation of the market contributed to very high prices. Importers blamed bureaucracy and high transport costs, but these are not significant for medium and higher priced wines. The current excise tax works at a flat rate of 1.60 PLN (€0.40) per litre. For all shipping done by land it is easy to keep transport costs so low that these two factors need only add €0.60 to the price of bottle. Hence, the major influence on shelf pricing was the margin employed by both importers and retailers. The average importer margin once exceeded 60%, rising in some cases to 150%. A similar margin would be used by a retailer. Restaurant prices vary widely, but to see a bottle offered at less |
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than twice its retail price is rare.
For example, a bottle of non-vintage Champagne that retails for around €20 in Western Europe costs 200 PLN (€52.50) in Poland, both in supermarkets and specialist wine shops. A Rioja selling for 3 to 4 Euro ex-cellar would typically end up at 12 to 16 Euro retail. Prices had not been falling as quickly as expected after EU entry, but change is underway, mostly due to the emergence of new small importers, who see lower margins as one of their points of difference. For newly established smaller companies specializing in regional Italian or Eastern European wine, retail prices are around 50% higher than in the country of production; but only a few shops have managed to offer wines at prices comparable to those in Italy or Germany. However, a newly established Italian wine importer, plans retail prices that are to be only 200% the ex-cellar price. Such an approach from the new players on the market will bring a major change in pricing policy.
There are clearly two distinctive levels of wines sales in Poland. Everyday wines are generally bought from supermarkets, grocery stores or specialist wine shops at prices between 10 and 30 PLN (€2.63-7.90). For many, 25-30 PLN is the limit for a bottle consumed at home; but statistics show that the overwhelming majority of wines still sell for far less than that. The other important section of the market is fine wine, purchased by wine lovers from specialist shops, some of which are internet-based. Here the upper price limit is less clearly defined, but most consumers would agree that few can afford to go beyond 100 PLN (€26.30). Thus, the crucial price bracket for quality estate wine remains 30-60 PLN (8-15 €). Due to higher margins and operational costs, it is difficult to expect the lower price bracket to develop much in specialist shops. Although their offers leave much to be desired, supermarkets have huge growth potential here. There have so far been few price promotions, and even less effort to educate consumers. Selling semi-dry and semi-sweet brands from Bulgaria, Spain and France seems to satisfy demand.
The majority of these wines retail for less than 20 PLN – with a large proportion at less than 15. The top brand – Bulgarian Sophia – is sold in supermarkets and grocery stores for around 8 PLN (€2). In fact, it is not a real brand, but since the early 1980s an umbrella name for export quality Bulgarian wine that has no legal owner; wines so labeled are produced by all major Bulgarian companies. Its leading position on the Polish market is a result of high name recognition and low price. E&J Gallo’s Carlo Rossi is the major marketing success over the recent years on the Polish wine scene; its position is even more interesting given the fact that it retails for around 17-20 PLN (€4.25-5). Italian Fresco is a typical table wine brand created especially for the Polish taste, meaning semi-sweet. It belongs to one of the biggest players on the market, the |
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Ambra group, owner of the bestselling sparkling wine brands Dorato and Cin-Cin, who currently controls approximately 5% of the market.
Egri Bikavér, Bull’s Blood, is probably the strangest „brand“ in Poland, for it is viewed as such. This classical dry Hungarian red became a synonym of cheap red wine in Communist times. Today, the schizophrenia continues: while the real Bikavér produced by prestigious winemakers such as Tibor Gál or St. Andrea continues its ascent on the fine wine scene, a similarly named red wine marketed by large industrial companies reigns in the supermarket sector thanks to its very low price of 8 to 10 PLN (€2 to 2.50)
One of the major weaknesses of the Polish wine market has been an almost total lack of promotional activities. Restrictive legislation on alcohol publicity is to blame. For although the specialized press is exempt, it is illegal to advertise any alcoholic beverage other than beer in the media. Yet the general feeling is that more could be done even within this framework. Trade tastings and similar events have been more common, but the success of the few consumer events shows that Poles desperately seek more opportunities to taste and discuss wine. Austria and Portugal are the only countries that show any significant interest in promoting there wares and, not surprisingly, this has resulted in the growing popularity of their wines, followed by Spain and Italy. California holds a popular annual event in Warsaw and Cracow, but the limited availability of its wines has slowed progress. On the other hand, countries such as Hungary and Germany could be doing more. French producers have been receiving support from Sopexa, but again the patchy availability of better French wines has also resulted in lost opportunities. While promotional activities have mostly been limited to Warsaw and Cracow, there is undoubted dormant potential – due to high population and an increasingly lively restaurant scene – in cities like Wroclaw, Poznan, Lódz, Gdansk, and Szczecin.
The most startling development of the recent years on the Polish market has been the explosion of new importers, most small and specialized. In 1999 there were around 50 wine importers; now there are over 700 - and growing. It has not been infrequent to find hobby companies that are essentially one man shows trading from their homes and importing excellent single estate wines from Italy or Germany. An example is Kawa- Wino-Czekolada in Sucha Beskidzka, that started bringing Friulan wines from two estates „basically for our own consumption and for friends“, says owner Bogdan Falowski. Now they have snapped up the Best Red Wine and Best Value for Money Red award from leading wine magazine WINO.
This is also the story of Manuel Rebelo Maioral, a Portuguese national who came to Poland on a government programme to work for Jeronimo Martins Distribution. In 2001 he created his own small wine import company, Atlantika, which can |
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be single-handedly credited for raising the awareness of Portuguese wines in Poland from zero to its current position as one of the fine wine market leaders. He now sells over 200 labels including blue chips such as Niepoort and Luis Pato, owns a Portuguese restaurant and wine depot in Warsaw, and organizes a yearly festival of Portuguese wines. According to recent GUS statistics, Portuguese wine imports to Poland rose 350% over the past three years.
This phenomenon of regionalization of wine imports has been particularly intense in the border areas. Some of these companies trade only locally, but the trend can be expected to grow, with the south of the country, and Cracow in particular, already becoming a centre for the import of Eastern European wines.
The biggest change in the recent years has been the growth of direct sales. With the spectacular rise of new importers and the availability of wines from so many countries, it is significant that the number of retail outlets in the major cities has remained fairly stable. Exorbitant rents in the better locations are one of the reasons. Growing price competition has also made it less viable economically for large importers to sell their wines through third party shops. The success of wine depots like Robert Mielzynski’s in Warsaw might well pave the way for the future. Importers can easily sell their wines directly, even from a peripheral outlet, if they add a wine bar and bistro to the experience. The other possibility is internet sales. Two years ago there were only three internet wine shops in Poland. Now there are a few dozen. Some consumers are certainly becoming more knowledgeable and more selective. They know their wines and know how much they should cost. Paying more than necessary is no longer an option when a direct order through an importer’s website can be delivered to your door in 24 hours. The development of internet culture has also helped independent internet shops that offer a large selection of wines from several importers, sometimes adding a splash of their own imported wines, and they have become a welcome contributor to the growing diversity of the Polish market.
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