Recessionary headwinds have accelerated underlying trends and reversed established drivers of the global wine industry. As the slow and uncertain ascent out of the fiscal maelstrom begins, Euromonitor International’s latest briefing, ‘Global Wine: Challenges and Opportunities Facing the Wine Industry’, provides the analysis and the tools necessary to navigate the highly fragmented and increasingly competitive international wine market. Alcoholic drinks analyst Spiros Malandrakis investigates.

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Winners and losers

While the unprecedented financial contraction of 2008/2009 appears to have bottomed out, the nature of the global economy’s recovery is fragile by default and will be primarily based on the resurgence of emerging nations. Mirroring the conflicting signs coming from Western and developing markets, the performance of the global wine industry is fittingly polarised.

According to Euromonitor International, Western Europe continues to hold the reins of wine consumption, accounting for almost half of both global volume and value sales, although an ageing demographic, uniform consumer retrenchment and overwhelming maturity are hindering its growth potential. Conversely, Asia-Pacific’s exemplary financial resilience and undiluted buoyancy are rapidly changing the global wine arena, making it the fastest growing region and main locomotive of consumption globally.

Winners and losers are not only to be found in opposing regional performances, however. The end of the era of conspicuous consumption signalled a sharp drop in sales of Champagne, which could not escape paying the price for its generic identification with the years of celebratory excess that preceded the Great Recession. On the other hand, while a shift to other sparkling wine – namely cava and prosecco variants – provided an alternative for cash-strapped audiences in a number of markets, a uniform shift has failed to materialise as yet.

Furthermore, non-grape wine in both Asia-Pacific (rice wine) and Eastern Europe (fruit-based wine) is falling victim to its outdated positioning while remaining mired in stagnation as younger consumers opt for other types of alcoholic drinks. However, the recession granted a temporary boost to the category which capitalised on the enforced return to local specialities across the board.

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Channel discrepancies

The off-trade has historically been wine’s stronghold; 71% of global wine sales by volume can be accounted for by the off-trade – a level that has remained fairly stable since 2004 when the channel’s share was 70%.

Although the off-trade is dominant in all regions, this is most pronounced in the Eastern European countries of Belarus, Poland and Russia, where the channel accounts for over 90% of total wine volumes due to lack of tradition. There are, of course, exceptions. In Spain and Greece, for example, the on-trade accounts for almost 60% of total volumes, supported by centuries-old cultural traditions and the domestic drinking culture.

While the previously similar bullish growth rates of both the on- and the off-trade have taken a hit, there is no doubt that the on-trade bore the brunt as cash-strapped audiences were forced to limit their outings and avoid the significantly higher margins of bars, clubs and restaurants.

According to Euromonitor International, supermarkets/hypermarkets and discounters clearly retained their steadily advancing penetration rates as they took advantage of the dawn of the new era of thrift to capitalise on frugality-driven consumption and bargain hunting.

Internet retailing secured solid growth in 2009, although from a much lower base than other retail channels, providing a glimpse of what the future holds for the off-trade. Gathering momentum and demonstrating remarkable resilience even in the midst of the economic downturn, the channel’s potential is also leading to dramatic developments in marketing, promotional techniques and advertising. On the other hand, the small grocery retailers channel has continued its uninspiring performance as consumers increasingly opt to buy in bulk, forsaking convenience in favour of economising.

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Identifying the key trends

While significant fiscal concerns continue to dot the horizon, identifying the trends impacting the wine category will also provide opportunities moving forward. Simplified offerings, value-for-money products and a shift in focus towards sustainability and eco-credentials are only some of the key trends identified by Euromonitor International.

In this context, wine will primarily advance on the back of lower-end, casual offerings, with New World varietals re-writing the rulebook and Old World countries eventually having to follow – at the very least by replicating their successful marketing approach.

Additionally, polarisation will increasingly replace premiumisation as the new buzzword. Premium offerings will continue to leverage their aspirational packaging and heritage credentials, while smaller pack sizes and alternative packaging formats will continue to spearhead the economy segment’s revival.

Furthermore, “green spin” will take centre stage as the environmental debate rages on. Alternative packaging formats present both pitfalls and opportunities, while offering huge potential in terms of increasing profit margins and cementing loyal audiences.

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Asia-Pacific – a bastion of dynamism

Taking into account the issue of the category’s highly fragmented nature, as well as the resultant room for consolidation, and regardless of the largely disappointing performance of 2009, the future for the category still looks bright. Euromonitor International expects that wine will gain further traction, driven by the budding segment of young urbanites, a renewed interest in home consumption, the resurgence of domestic specialities and the gradual embrace of Western drinking habits in the steadily advancing emerging markets.

In the meantime, Asia-Pacific will take the role of the ‘El Dorado of the East’. The solid westernisation trend and a consistent focus on health claims – more specifically the allegedly positive cardiovascular properties of still red light grape varietals – will secure consistent growth in the region. Provided that wine can overcome its inherent shortcomings, the industry can raise a toast to good times ahead. www.just-drinks.com