International wine markets undergo constant change. Traditional European wine markets decrease in importance and producers compete to enter new markets. Guiding this process, ProWein decided to establish an industry barometer to gauge the attractiveness of current and future sales markets and wine origins. In cooperation with Geisenheim University, almost 1,500 wine sector experts from 46 countries were polled in 2017 on international wine markets, marketing trends and the development of wine sales channels. The combination of different perspectives, of the producers on the one hand and the marketers on the other, constitutes a unique barometer of opinions for the sector.
Survey methodology and participants
Two separate online surveys in five different languages were conducted. Approximately three-quarters of the producers who participated in the survey have their company located in France, Italy, Germany and Spain, reflecting the composition of exhibitors at ProWein. Around 70 percent of the interviewed producers are small wineries and 15 percent are large companies that mainly buy wine and focus on bottling and marketing. The majority of marketers are from Germany, from mainly speciality retailers focused on wine. The majority of international marketers, in contrast, are importers, exporters or distributors. One out of two survey participants represent directors or managers within their company and the vast majority of participants have leading roles within their department.
How does the sector view its economic situation?
Participants were asked to evaluate the current and the future situation of their company, and rated their economic situation as satisfactory to good. It is interesting to observe that wine producers generally look to the future more optimistically than wine marketers who are in direct contact with end users.
A potential explanation for this difference could be that export-oriented producers can try their luck on new export markets, while marketers have less opportunity to escape the structural changes of wine sales and increasing competition on their domestic markets.
On the producer side, independent winemakers look to the future with more optimism than cooperatives and large wineries that find themselves amid a strong process of concentration.
International and German speciality retailers focused on wine are the least satisfied and see the future less optimistically than other marketers: this could reflect the ongoing structural change affecting wine sales channels, where food retail and online channels are gaining importance internationally.
The results also reflect significant differences in mentality among countries of origin. German wine producers and marketers look to the future more negatively, while producers primarily from Spain and Italy have very positive expectations. Alongside real economic reasons, these differences in expectations are sure to reflect typical “German caution” and “Mediterranean optimism”.
Attractiveness of international markets
Producers polled count more than 40 markets as belonging to their top five sales markets. Overall, Germany (56 percent of all producers) and the USA (54 percent) are the most important sales markets, followed by Great Britain, Belgium and Switzerland.
Rated as the most attractive sales markets are Hong Kong, Switzerland, South Korea, the Scandinavian countries and the USA. Italy, France, Great Britain, Russia and Brazil are currently perceived as less attractive. Germany’s attractiveness ranks in the lower third that is mainly related to saturation and the high degree of competition.
When it comes to markets that are perceived to become more economically attractive, Russia, Brazil, Hong Kong, Poland, South Korea and China appear. It is clear that export markets outside the traditional European wine countries will be of greater importance for wine producers in the future.
The lowest improvements are expected for Great Britain, France, Austria, Italy and Belgium. In France and Italy, per capita wine consumption is still on a slight decline and in both markets predominantly domestic wine is drunk, which means fewer sales options for exporters. Brexit and constant wine tax rises are the main reasons why wine producers rate Great Britain very low regarding market attractiveness.
Producers see the greatest risk in market development for Russia, Brazil, China, Great Britain and Hong Kong. The growing levels of wine consumption expected for the Asian and South American markets are accompanied by a series of uncertainties. In addition to possible trade restrictions (Russia) and countries’ different sales structures, it is primarily the uncertainty about economic and legal development that will play a role in the years ahead. For Great Britain, the risk primarily concerns the question of whether and how wine imports will be affected by import duties after Brexit and what countries of origin will sign trade deals with Great Britain.
The current and future attractiveness of a market was summarised in the form of a market barometer. By juxtaposing the market barometer (horizontal axis) and the risk (vertical axis) four different market types can be identified. The markets with high attractiveness and low risk in the lower right-hand box include Poland, Australia, Japan, Canada and the Scandinavian countries. These are countries where wine consumption has risen lately or where a coherent local trading structure exists with the monopolies. Germany, the Netherlands, Austria and Belgium build a group of countries with lower attractiveness but low risk. High attractiveness alongside high risk in the upper right-hand box is the case for Russia, Brazil, China and Hong Kong. Markets with low attractiveness and high risk are Great Britain and Italy.
New markets
Nine out of 10 leading international wine producers plan to extend their exports to new markets by 2020. Among wine exporters from the large European producer countries — Italy, Spain and France — which have a high production surplus coupled with export marketing subsidies, this proportion stands at almost 100 percent. In Germany, which exports less, it stands at 55 percent. Those countries that producers most often say they want to export to are the USA, Germany, Great Britain and China. It is predominantly China, Hong Kong, Russia, Japan, Australia, South Korea and Brazil that are named as new export destinations with the most disproportionate frequency relative to their currently low importance.
In demand wine origins
Two-thirds of international marketers attending ProWein wish to include wines from new countries of origin in their portfolio. Among German marketers, this proportion is only one-third, which is not surprising given that the wine range in Germany is already very international.
International marketers are most interested in European countries such as Germany, Spain, Italy, Portugal and France. On the other hand, German marketers show the greatest interest in the countries of origin Austria, Portugal, Italy and Germany, followed by France, Spain and South Africa. What is surprising here is that Austria and Portugal rank at the top of the German list, which might reveal some new market trends. Interest in Italy, France and Spain is less surprising as these are the main import countries on the German wine market. Among the New World countries, South Africa leads the pack.
Purchasing and sourcing channels
There is a clear trend towards shortening wine procurement channels. Marketers are striving to source their wine direct from a small wine-growing estate or, to a lesser extent, directly from a large winery. By comparison, procurement via sales agents — importers, distributors, wholesalers or wine agencies — is expected to decline considerably among marketers by 2020. For sales agents this means more difficult times lie ahead, which is somewhat indicated in their less optimistic outlook on the future. Increasing competition implies a trend towards larger business units that can afford sufficient sales personnel. Small wine-growing estates, on the other hand, will need to rise to new challenges of coping, administratively and logistically, with the increasing direct enquiries from marketers.
Changes in the importance of sales channels from producer perspective were analysed for the German and the US wine markets. Producers whose main sales market is Germany currently value speciality wine retail, gastronomy and ex-cellar sales as their most important sales channels. For the future, departing from the current low basis, a strong increase in online sales via wineries’ own online stores and external online retailers as well as food retailers is expected. For speciality wine retail, on the other hand, another stronger decline is expected which is less pronounced for gastronomy.
A similar tendency can be observed also on the US wine market, with some exceptions. Unlike in Germany, where ex-cellar sales from small wine-growing estates are stable, this trend is anticipated to rise strongly in the USA. This specific development reflects two current trends in the USA: the number of small wine-growing estates is currently growing at a rate of four percent and “direct-to-consumer” sales from winemakers to end consumers is booming with double-digit growth rates. Gastronomy is probably less affected; within the next three years, only marginal changes will be found in this sales channel, both in Germany and in the US.
Marketing philosophy
In the wine world, competition between marketing via a wine’s origin (also terroir) or its brand has taken off. Who will be seen as the winner in future? The majority of both marketers and producers agree that in future, wine will be marketed most successfully via its origin. Surprisingly, the significance of the brand will in future be greater from the producers’ perspective than it is from the marketer’s. Among wine producers, there are great differences that are culturally driven. First, the Mediterranean countries — France, Italy and Spain — focus much more on origin, while in Germany the personality of the winemaker plays a greater role in marketing. Secondly, it is not surprising that winemakers focus more strongly on personality than cooperatives or large wineries.
Conclusion
The wine sector is facing changes that are also reflected in the different future outlooks of the various market participants. Producers are increasingly looking to new distant wine markets and marketers are facing structural changes in the sale of wine where primarily sales via traditional wine merchants will decline. By contrast, buying wine via food retail and online will continue to rise. The wine trade between producers and marketers will change and supply chains will become even shorter.
The study was conducted on behalf of ProWein by Geisenheim University’s Department of Business Administration and Market Research headed by Prof. Dr. Simone Loose and Heinz Küsters, Director of Market Research at Messe Düsseldorf, and their teams. Industry experts will be asked again in April 2019 to participate in the second survey wave and will receive the next edition of the report in September 2018. This will provide the opportunity to check whether current expectations prove correct in future and see what currently unexpected changes will arise. Thank you in advance for your support and participation. The complete ProWein Business Report 2017 can be obtained free of charge. Please contact Simone.Loose@hs-gm.de
