The global wine market faces challenges of oversupply, fragmentation, and changing consumer behavior. Global wine production has increased from 25 billion liters in 2000 to the same level in 2012, coming from more sources. The wine industry is fragmented with no concentration in production or offerings. Consumer behavior is also fragmented, with more people drinking less alcohol. Opportunities exist in emerging markets, online sales, and on-premise consumption. The wine industry must adapt to growing diversity in global consumption trends.

1. The Global Wine Market
School of Wine and Spirits Business
MSc Wine Business Programme
A presentation for our distinguished visitors from Universidad de Concepcion

2. 2
THE WINE SECTOR'S CHALLENGE
The Wine Market – Lecture 1

3. 6
OVERSUPPLY
The Wine Sector's challenge
12 juin 2014

4. Can't we just focus our passion
on educating a love of better
quality, higher priced wines?
Let's look at some figures…

5. Courtesy of the OIV (2012) 7,5 million ha

6. 9
This is the telling factor…
Just look at the changes
What do you see?
 The different trend is
striking
 What's most revealing is
why these figures exist
Keep your thoughts in
mind for the time
being…
12 juin 2014

7. 10
PRODUCTION FOCUS
Oversupply because of a…
12 juin 2014

8. 11
And here's wine production 25 Billion L (OIV 2013)
In 2000
And 2012
The total volume hasn't
changed much over
that time
The wine is just coming
from different sources
 Why do you think?
 How did this happen?
Implications on the wine
sector?
Why can't we just focus
on producing quality?
12 juin 2014

9. 12
IT'S ALL ABOUT THE WINE…
Oversupply because…
12

10. 13
Wine
• An alcohol made from the
fermentation of grape juice
• Agricultural Product that is
made in commercial
quantities
• Packaged and distributed
globally
• Sensory qualities from
undrinkable, to sublime
• Prices range for the
attraction of itinerants, to
monarchs
13

11. 14
What do we know about the French Wine Sector?
France produces the best
wine!
French wine consumers
are the most
knowledgeable about
wine!
People today are drinking
less, but more
expensive wines
Yes – Whether it's true or
not, it's what everyone
thinks (Ma 2008)
False – French are most
familiar with their own
region only (Wilson et al.
2007, 2009a,b)
False – Less, but better?
Yes. But less valuable as
well (Euromonitor 2013)
12
14

12. 15
Wine Prices
The sad truth… In $US- World - Year on
Year
World - Current
Value
1998 7,2 11,1
2003 7,9 11,3
2007 10 11,2
2014 11,5 11,1
15

13. It's not all bad… (Euromonitor 2013)
Real fall of -0,6%
in 14 years

14. 17
Why this topic?
Wine consumption has fallen
from 30 Billion litres to 23
Billion per annum since
1980 (OIV 2011).
But more people are drinking
wine than ever before
(CBA, OIV 2011)
And there are more products,
producers and outlets
selling wine than ever
before in history
(Euromonitor 2013)
Wine producers need to know
how to appeal to them
Because discounting is rife

15. Let's look at wine market size trends (Euromonitor 2013)
18
USA +52%
Aus +39%
NZ +33%

16. Let's look at wine market size trends (Euromonitor 2013)
19

17. In real terms, EU prices are worse today than 98
0.0
5 000.0
10 000.0
15 000.0
20 000.0
25 000.0
30 000.0
35 000.0
40 000.0
45 000.0
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2 0 0 8 2009 2010 2011 2012
RETAIL SALES VALUE IN 2012 CURRENCY
Australia New Zealand USA France Italy Spain
NZ+33%
Aus +7%
Italy -21%
Spain -36%
France -13%
USA +51%

18. What about Chile's Market in Wine?
2112

19. What about Chile's Market in Wine?
2212

20. The main culprits (Image Source: Wittwer et al. 2010)

21. The diminishing value of quality (Image Source: France
Agrimer 2008)

22. The Challenge is…
That wine's offer is overly complex
The consumer is presented with more than 200 options in
almost every format in which wine is sought after as a
purchase
And that doesn't consider
 Sales formats
 Geographical restrictions, or….
Vintage changes
So how can a consumer find any wine they like?

23. 26
The Implications?
We're drinking less wine
in general
But the figures vary
dramatically
 The death of Eurocentricity?
 What about other regions?
What are the reasons
behind these trends?

24. 27
FRAGMENTATION
The Wine Sector's challenge
12 juin 2014

25. 28
PRODUCTION SECTOR
Fragmentation in the…
28

26. Graph on sector concentration wine v beer
29

27. An absent concentration in Industry Structure…
30

28. 31
OFFER
Fragmentation in the…
31

29. That's a respectable level of diversity…
32

30. That's not…
33

31. Isn't diversity a good thing?
1. Yes. Within reason
2. Balance choice with being overwhelmed
1. Consumers are intimidated by choice
2. Is it just that the offer is not clear to the consumer?
3. Wine producers not developing products in an area of latent need?
3. Sales media and buying formats
4. Communications media and mobility
5. Cultural creep
12 juin 2014

32. 35
CONSUMER'S BEHAVIOUR
Fragmentation in the…
35

33. More people
drinking less
alcohol
Source: Selvanathan² 2009

34. Australian per capita alcohol consumption
Source: Selvanathan² 2009

35. Looking at Chile's example…
38
Graph on wine consumption in Chile
0.0
50,000.0
100,000.0
150,000.0
200,000.0
250,000.0
300,000.0
350,000.0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
295 783,3

36. 39
OPPORTUNITIES
The Global Wine Market

37. Export Markets were forced due to declining domestic consumption
(Wittwer 2010)
40

38. Chile is looking to move with the wine consumption trends (Wittwer
2010)
41

39. Value is growing…. Albeit slowly… (Euromonitor 2012)
42

40. Should be focusing on US, UK, China and Germany (Wittwer 2010)
43

41. 44
ON-PREMISE OPPORTUNITIES
The Global Wine Market
44

42. Global, On v. Off-premise wine trends (Euromonitor 2013)
70,000.0
80,000.0
90,000.0
100,000.0
110,000.0
120,000.0
130,000.0
140,000.0
150,000.0
160,000.0
170,000.0
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
On vs. Off-premise sales trends
World - Off-trade Value RSP Wine World - On-trade Value RSP Wine

43. Let's look at wine market size trends (Euromonitor 2013)
46
0.0
20,000.0
40,000.0
60,000.0
80,000.0
100,000.0
120,000.0
140,000.0
160,000.0
180,000.0
200,000.0
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
On-premise retail price sales trends by country in home currency
Wine - On-trade Value RSP - RMB mn China Wine - On-trade Value RSP - A$ mn Australia
Wine - On-trade Value RSP - R$ mn Brazil Wine - On-trade Value RSP - US$ mn USA
Wine - On-trade Value RSP - € mn France Wine - On-trade Value RSP - € mn Germany
Wine - On-trade Value RSP - € mn Italy Wine - On-trade Value RSP - £ mn United Kingdom

44. And off-premise… (Euromonitor 2013)
47
0.0
10,000.0
20,000.0
30,000.0
40,000.0
50,000.0
60,000.0
70,000.0
80,000.0
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Off-premise retail wine sales by year
Wine - Off-trade Value RSP - RMB mn China Wine - Off-trade Value RSP - A$ mn Australia
Wine - Off-trade Value RSP - R$ mn Brazil Wine - Off-trade Value RSP - US$ mn USA
Wine - Off-trade Value RSP - € mn France Wine - Off-trade Value RSP - € mn Germany
Wine - Off-trade Value RSP - € mn Italy Wine - Off-trade Value RSP - £ mn United Kingdom

45. On-premise is very lucrative
The US is the only major market where off-premise sales exceed
on-premise by retail value
But managing that channel is problematic
Wineries have to rely on their position in the mind of the trade,
and their consumers
The consumer now drinks wine in various outlets for various
reasons
Traditional consumption was with a meal
How many of those on-premise sales in China are matched to
food?
Wine needs to be priced by consumption motivation and
service!

46. 49
Dining on-premise
• Ceremonial-based
consumption
• In conjunction with food
• Assisted sales process
• Limited cues to buy
• Need to have faith in the
person selling the wine
Non-dining on-premise
• Product-based consumption
• Independent of the ceremony
• Feature-based purchasing
• Buying cues based on
familiarity
• Need to know what you like
and how it's expressed
Usage variations in on-premise consumption
49
Which is difficult because this is the reality …

47. The reality is that this is what we're facing…
50

48. Communicate in the consumer's way!
The wine sector is in crisis, and producers blame
retailers and consumers instead of themselves
Off-premise requires volume, or producer-driven
value to be profitable
Consumers look for advice, recommendations,
and responses to help them buy wine
These are easily obtained through friends in the
real, and/or virtual world
51

49. The consumer conundrum…
• Wine producers sell wine instead of attracting consumers
• Most modern wine businesses started with the wine, then
looked for a market
• Quality is now a sunk cost of doing wine business
• Alcohol consumption trends are heterogeneous, globally
• New media present an opportunity to escape the retail
discounting trap
• Change is inevitable, and must be embraced
• Adapt to the needs of each market, at the level where
economies of service can be made
52

50. 53
To Conclude
The Wine Market is
difficult because of
1. Its production focus
2. Increase in competition
3. Commercial, and media
fragmentation
4. Yet increase in # of new
consumers, drinking less
wine
Most of this problem is
the fault of the wine
sector
A lack of wine consumer
knowledge is the root of
the problem
1. Growing numbers of
consumers mean market
potential
2. Comprehending the life-
cycle of wine consumption
would help
3. Emerging media and
distribution methods present
extensive opportunities
A desire to adapt is required
53

51. 54
REFERENCES
The Global Wine Market

52. References
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53. References
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54. References
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