The reports from companies in the German wine industry, gathered as part of the first year quarterly economic survey conducted by Geisenheim University, show evidence of continued growth in the country’s wine business in both volume and value terms. In 2013, wine consumption rose further, as demonstrated by both the wine market balance sheet and the surveys of household panels by the GfK Group, a market research company, and the trade panels IRI and Nielsen.
Consumption patterns
With total wine consumption of 20.2m hl during the 2012/13 financial year, Germany remains in fourth place among the world’s largest wine-consuming countries after France, the USA and Italy. If we were to add on the imports not recorded due to the existing exemption limits for statistical reporting applicable to small businesses and households, it is likely there would be a recording deficit of approximately 1m to 2m hL. Including this estimate would give Germany a total wine consumption of around 22m hL, moving it up the rankings into third place above Italy.
As well as being ranked as the top wine-importing country in the world – 16m hL in 2013, including sparkling wine, Champagne, Port, Sherry and vermouth – Germany leads the way internationally for its trade and consumption rather than for its production, which was 9.2m hL over the same period. The wine sector is proving to be a small, yet attractive industry among young people and in society in Germany, as demonstrated not least by the large intake of students into wine business degree courses at Heilbronn University of Applied Sciences, Ludwigshafen/Neustadt University of Applied Sciences and Geisenheim University. The growth in imports, which totaled 16m hL in 2013, and exports, which totaled 4.5m hL in the same period, reflects the increasing global integration of the German wine industry. Within the EU, German retail groups – primarily the discounters Aldi and Lidl, which are bottling more and more wines in Germany for their outlets abroad – are part of this network of major wine bottlers in Germany. For many years, imports therefore increased faster than domestic consumption, although in the last two years, due to the shortage and large price increases of basic wines, imports of still wines fell slightly.
Among still wine imports, a structural change has been taking place for several years. This has been due to changes in the legally defined wine categories from quality to table wine or, according to the new EU definition, from protected designations of origin to protected geographical indications, varietal wines and simple base wines with a country of origin. This involves imports both from neighbouring European countries and from overseas.
This goes hand in hand with the continuing fall in imports of bottled wine. It is still unclear whether they are actually decreasing or whether the apparent decline is the result of changes in reporting: exemption limits for statistical reporting to the regional statistical offices have increased to an import value of €500,000.00 per year per company. In contrast, bulk wine imports are continuing to increase, as these are undertaken predominantly by the large companies whose imports are worth far more than the exemption limit for statistical reporting. With regard to bulk wine imports, the rapid growth in imported white wines is especially notable, despite the fact that winegrowers in Germany see themselves as white wine specialists.
The fall in exports of quality white wine from Germany shows that German white wines are performing well on the domestic market despite their higher bulk wine prices, and that the decrease in wine production over recent years is having the effect of reducing exports.
Imports of Champagne decreased sharply again in the last two years. In recent years, smaller German sparkling wine producers have increasingly been introducing excellent qualities with a ‘brut’ flavour, made from German base wines, onto the market. These have been popular with consumers and are usually less expensive than simple and unknown Champagnes. Due to the generally positive consumer mood, this fall in Champagne imports cannot be explained by general economic problems stifling the party spirit of the wealthy upper class, as happened in 1993, 2001 and 2009.
Rising exports of red table wine demonstrate the previously noted restructuring of Germany’s wine exports, from German wines to the re-export of bulk wines bottled in Germany; no such inexpensive red wines are produced in Germany. However, the re-export of white wines bottled in Germany, including those that originate from outside Europe, is also increasing, resulting in a further increase in exported table wines.
Wine production in Germany has been falling for many years, although the area of vineyards in production remains largely constant. The reductions on the steep slopes of the Mosel and the Middle Rhine are barely noticeable.
Despite high bulk wine prices, there is no evidence of a trend towards a general increase in yields per hectare. Possible reasons for this include the weather conditions of recent years, with frost and hail damage, dropping of the flowers and early rot in the autumn, as well as the widely varying commitment to quality evident among winegrowers in Germany. The development and widespread use of mechanical methods for thinning also help winegrowers to cost-effectively control grape yields, thus preventing high yields if the fruit set is too good.
Low-cost market?
Germany is known and feared as a low-cost country dominated by the discounters. This raises the question of whether German wine consumers really have so little awareness of quality and such a marked low-cost orientation as the commercial market researchers at GfK and other institutions always indicate in their surveys. In Geisenheim, we have addressed this question using a newly developed measuring method and are arriving at quite different and, as we see it, more realistic results regarding the quantitative importance of the various retail outlets for wine in Germany.
Based on a total still wine consumption in Germany of 17.7m hL, out-of-home consumption – estimated at 3.1m hL (18%) – is deducted, to arrive at a wine consumption at home of 14.6m hL. Overall wine consumption at home and outside the home is probably higher than this, because the figures do not include unrecorded imports.
According to surveys by GfK on behalf of the German Wine Institute (DWI), only 47% of the wine consumed by private households was bought at the discount stores. This corresponds to a volume of 6.7m hL of bottled wine or nearly 840m bottles, averaging out the 1-litre and 0.75-litre bottles to give an average content of 0.8 L. This means that over 1,000 bottles of wine would have to be sold by each discount outlet per week on average for all outlets. Thus, the discounter’s outlets with strong sales would have to sell more than 2,000 bottles per week on average over the year, while the outlets with weak sales only sell 500 bottles per week. These considerations alone make it clear that with this data, the quantitative importance of discounters is greatly overestimated.
On the other hand, direct purchases from wineries and wine cooperatives, at 2.3m hL, and from specialist retailers, at 1.0m hL, are widely underestimated. The highly dynamic specialist wine trade, with its constantly changing forms of stationary retail outlets, from wine shop to delis, and the increasing volume of mail-order business via the Internet, is of far greater significance in Germany than the previously measured sales volume of 1m hL indicates.
The food retail sector, with its supermarkets and hypermarkets, which are now more quality- and service-oriented, also represents a very important retail outlet for the sale of wine. New results from IfBM (Institute of Management and Marketing) indicate that the discount retail outlets and the rest of the food retailing sector each have a share of 30% or 4.4m hL of wine purchases by private households. Specialist retailers have a share of 13% or 1.9m hL. These retail outlet figures differ significantly from the DWI/GfK figures. The reader is now faced with the question: which of the two sources and underlying methods better depicts the actual situation?
Significance of premium
The particular structure of wine consumers, who are more broadly and strongly represented in the upper classes, tends to favour the results from Geisenheim (IfBM), which were obtained via a representative survey and a newly developed quantitative and value model, while the DWI/GfK data comes from household panels. Household panels are primarily concerned with everyday essentials and not with discretionary goods, including luxury goods. In significant parts of upper income households, however, wine is a discretionary product and not so much an everyday essential. However, representative surveys are more likely to reach the upper income groups than the household panels, which are very time-consuming.
The ‘new IfBM’ results indicate a very high proportion of direct purchasing from producers – at least 3.9m hL, or a share of 27%. It should be noted that purchases from producers abroad alone, at approximately 0.6m hL, make up 4% of the total. The DWI/GfK data also includes purchases made abroad. If one considers that sparkling wine, mulled wine and other products are also incorporated into the purchasing proportions by the consumers surveyed, the large volume of 3.9m hL becomes more understandable. If the estimated 2% to 3% of internal consumption by the wine-growing families and their immediate environment is included as well, the 3.9m hL seems realistic. The same proportions for the rest of the food retailing sector (supermarkets and hypermarkets) and the discount trade also seem more realistic. Thus, the importance of the discounters to the purchase of wine is not diminished, but is put into perspective.
With a market share of 13% and 1.9m hL, the specialist wine trade maintains a reasonable position, especially considering its large internal differentiation. The significance of the premium retail outlets of wineries/wine cooperatives and specialist wine retailers increases when the analysis is broadened to include value figures. An average purchasing value of €6.00 per litre of wine gives €4.50 per 0.75-litre bottle, which is not too high an average value.
According to the value-based structuring of retail outlets, there is an even greater shift of the overall wine market towards the premium retail outlets. According to this, 32% or €2.2bn of consumer spending on wine in Germany flows directly into the coffers of producers, mainly within the country. Thus, households spend twice as much money on wine from producers as they do at discount outlets. Specialist retailers, at 30% or €1.9bn also account for more consumer spending on wine than the discounters. Even the food retail sector, at 23% and €1.6bn, is more important in value terms as a wine retailer than the discounters.
With this value-based structuring, the German wine market is becoming more strongly oriented towards premium wines and less oriented towards low-cost wines. The most important wine fair in the world, ProWein in Germany, is a testament to the very important place of the premium segment in the German wine market.
The findings summarized
The German wine market is very well integrated globally, and is therefore subject to highly dynamic forces. The increase in overall consumption benefits imported wines because wine production in Germany is decreasing steadily.
The transition from the bottled-wine to the bulk-wine trade makes Germany an important bottling location and is leading to a rapid increase in re-exports of imported wines. The export of German white wines is also falling steadily.
The new results presented here with regard to the structure and significance of retail outlets in terms of wine consumed by private households show a much more significant premium market, involving the retail outlets of wineries/wine cooperatives and specialist wine retailers, and a much smaller volume and value share of the supply to wine-consuming households for the discounters. With the dynamic environment inherent in today’s wine sector, the basic notion that wine is a business segment strongly characterised by tradition must now be set aside.
