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VinPro(SA) Bulletin
October 2001
Wine not among world's top brands
Business Week recently published the rankings of the world's most valuable brands, with interesting results as far as beverages are concerned.
Not only is Coca-Cola the top beverage brand out of 13 who made the list, it is also the world's most valuable brand with a value of US$ 68,95 billion. The Coke giant is followed by Nescafé in position number 23, Budweiser (26), Pepsi (44), Bacardi (75), Smirnoff (78), Moet & Chandon (79), Heineken (82), Johnnie Walker (89), Jack Daniel's (90), Absolut (93), and Guinness and Carlsberg in number 97, with a value of US$ 1,08 billion.
It is interesting that a range of beverages, from soft drinks to beer, rum, vodka, champagne, scotch, whisky and stout are all represented on the list and that many brands have increased in value, regardless of how the particular category fared over the past year. It was found, for example, that Johnnie Walker grew in value by 7%, despite a sluggish scotch market, while the value of Guinness increased by 11%, despite weak growth in the beer market.
This phenomenon emphasises that liquor brands have increasing power to dominate their categories and that a large marketing budget is a prerequisite for success.
It is also interesting that wine (except champagne) shines in its absence from the list. Despite the fact that wine was the industry favourite over the past 12 months, it still failed to generate anything that remotely resembles a global brand.
The fragmented nature of the wine world, the traditionally low margins and the lack of economies of scale as far as any of the companies or brands are concerned, all aggravated this situation. Despite efforts by companies such as BRL Hardy, Kendall-Jackson and Gallo to establish a global brand, none of them has been successful to date.
However, with ongoing consolidation in the industry, this is sure to change in the foreseeable future, and it seems inevitable that the first global brand will come from one of the New World wine countries. As one of the world's most developed wine markets, the UK is a good barometer of how wine business might grow globally. In a recent survey wine had two entries on the list of the UK's top 50 grocery brands. However, there were four wine brands among the top twenty growing brands and wine was the fastest growing grocery category in the country, up in value by 26,9%.
With large companies such as Allied Domecq and Diageo now focussing their efforts on the wine industry, it is a case of when rather than whether a wine brand will finally outgrow its own category to establish itself among brands such as Guinness and Absolut.
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Wine exports still sluggish
The figure below indicates the export trends for the 12 month period from June 2000 to May 2001, compared to the corresponding period the previous year. The sluggishness in exports throughout the spectrum is noticeable, except for bottled exports of Shiraz and other red wine and bulk exports of Pinotage, all of which are trending positively.
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New trends among European consumers
Yvette van der Merwe of SAWIS attended a meeting of the OIV specialist groups earlier this year and returned with the following message about the European consumer's preferences.
The German wine market
The consumption of red wine was found to have increased with young people getting exposure to wine in the course of their travels and then continuing to consume it once they return home. Wine has also become a drink for social occasions, to be enjoyed over lunch or when visiting friends.
In 2000 consumption was highest of German wine (49%), followed by French wine (17%), Italian wine (12%) and other countries (22%). New World wines represented 7% of consumption. A very obvious shift from white to red wine is noticeable from 1996 (40%) to 2000 (48%). Sales of German red wine also increased from 21% to 28% in the same period. The surface planted to red grapes also increased from 10% to 25% of total wine grapes planted over this period.
As far as packaging is concerned, the presentation of the bottle was found to be very important. Furthermore internet sales increased from 0,1% in 1999 to 0,5% in 2000, although it was found that this increase occurred only because of the new method of distribution and does not represent a new market.
The Swedish market
Sweden maintains a retail monopoly, trading in 350 spirits brands, 1 800 wine brands and 25 strong beer brands. There is a very noticeable increase in red wine consumption and a slight increase in white wine consumption. Although strong growth is experienced in the foil bag category, the biggest growth in sales has been occurring in the higher price category.
The market share of restaurant sales increased from 8% in 1995 to approximately 14% at present. Legislation with regard to imports by restaurants is currently being considered and if approved, the market share of this segment might even double.
The Swedish consumer is fickle, well-educated and informed and buys more expensive wine throughout. Moreover, there is growing interest in the combination of wine and food, especially among the younger generation. Ethical issues such as concern for the environment is becoming increasingly important to young people. This is reflected in their decision regarding which specific product/wine to purchase.
The Spanish market
A consumer survey of 1 400 young people in the Spanish market in the age categories 18-25 and 25-34, found that very few knew what is signified by "la denominacion de origin".
In addition, consumers were found to be readily accepting of foreign wines. Furthermore, the survey revealed that 71% of wine drinking habits were acquired before the age of 25 years, 30% of which before the age of 20, and 41% between 20 and 25. No obvious stand is taken with regard to wine and health in Spain and attitudes range from positive to negative.
A study conducted in the EU concluded that young people decide whether they are going to have a beer, wine, spirits or "ecstasy" evening. Young people tend to view drugs in the same category as wine and other alcoholic products.
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Millions of litres of Aussie red wine available by 2010
In a similar exercise to the South African Vision 2020, the Australian wine industry set itself a goal in 1996 of what was to be achieved on the world wine stage by 2025. This vision is documented in their Strategy 2025.
The aim of Strategy 2025 was to see the Australian wine industry grow into the world's most influential and profitable supplier of branded wines. To put the industry on its course, plans were made to establish 40 000 hectares of new vineyards, chiefly in the earlier part of the 30 year period. Four years after the implementation of the vision, this goal has already been achieved and suddenly it has become clear that the projected plantings in Strategy 2025 appear to be conservative.
Lawrie Stanford, Manager: Information and Analysis of the AWBC (Australian Wine and Brandy Corporation), did an analysis of the projected production and sales until 2010 and came up with significant findings. Included in the study are high and low yield scenarios to accommodate the problem of projected yields per hectare.
Expectations are that between 1999/00 and 2009/10, Australia's wine production is likely to increase from 765 million litres to between 1 152 (low yield) and 1 228 (high yield) million litres per annum. Taking into consideration expected domestic sales and stock levels, wine available for export is expected to increase from 288 million litres per annum in 1999/00 to between 676 (low yield) and 748 (high yield) million litres per annum in 2009/10. An increase of between 388 and 460 million litres in annual exports is foreseen.
To cope with this large quantity of wine available for exports, each of the next few years will have to show growth in sales similar to the exceptional 1999/00 year, when the growth in Australian wine exports amounted to 71 million litres, compared to the previous year.
According to the analysis, the red wine available for export will increase from 145 million litres in 1999/00 to between 358 (low yield) and 413 (high yield) million litres in 2009/10, therefore an increase of between 213 and 268 million litres per annum.
When asked how the Australian wine industry would be approaching this huge challenge, Stephen Strachan, chairman of the WFA (Wine Federation of Australia), highlighted the following three approaches:
- Greater commitment to marketing.
- Better quality.
- The assurance that the industry would be well-informed.
Projected Australian white and red wine available for export from 1999/00 to 2009/10
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Agricultural business confidence remains positive
The Agricultural Chamber of Commerce (ACC), releasing its business confidence index for the second quarter of the year, still indicates neutral to slightly positive business confidence, 50,45 being the weighted index point.
However, Agri businesses expect increased exports, bigger turnovers and better economic growth, possibly indicating increased business confidence for the future. The three key factors that impact negatively on the business confidence index are employment problems, weak new investment and an expected increase in new debt.
Goals of Financing Forum in line with Vision 2020
A Financing Forum, representing all noteworthy bodies with financing exposure in the wine industry, was founded towards the end of 2000, in collaboration with Winetech Vision 2020. VinPro (SA) also enjoys representation on the forum and provides the necessary linkage between the industry and the forum.
The main goal of the forum is to make a co-ordinated contribution to the transformation of the wine industry from a production driven to a market driven industry, as described in the Vision 2020 ten point plan.
Key areas covered at the forum's bi-monthly meetings, include, inter alia:
- Co-ordination of market information.
- Identification of opportunities.
- Financial discipline and skills.
- Improved communication among various financing bodies.
The forum has the following goals for 2002:
- Collaboration with local government bodies.
- Closer collaboration with Vision 2020.
- Financial representation at industry level.
The Forum is represented by the following bodies: ABSA, BOE Bank, FNB, IDC, Land Bank, Nedbank, NOBO, Standard Bank, VinPro (SA) and WPK.
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