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Wednesday 23 July 2014

Supply shortages demand structural change

30th January, 2013 by Gabriel Savage - This article is over multiple pages: 1 2

A new report has called on the global drinks industry to adapt its raw material sourcing strategies in order to survive an impending global supply shortage.

grapesWhile drawing attention to a number of supply pressures for the beer and spirit sectors, the latest Rabobank Global Beverage Outlook report highlighted the particular adjustment needed for the wine industry as years of oversupply come to an end.

With increased consumption in emerging wine markets outweighing declines in traditional markets, as well as a small European harvest in 2012, the report noted: “global inventories now appear to be at their lowest point in many years.”

Stressing that the current situation was more of a “necessary correction” than a shortage, Rabobank nevertheless pointed to “significant consequences” as grape and bulk wine prices rise in many parts of the world in an industry that has become “structured around cheap supply.”

According to the report, a number of major producers have already moved to secure future grape supplies, either by “aggressively acquiring vineyards”, expanding their sourcing focus into “less traditional” regions or, in the case of E&J Gallo, “offering new contracts to growers at attractive prices.”

Global wine production

However producers choose to react, Rabobank commented: “With tightening inventories, it now seems that those companies that have more control over their supply are in a more advantageous position.”

Despite the challenges posed by this shift, especially against a backdrop of European “economic malaise”, the report argued: “The elimination of the oversupply challenge in the global wine market should generally be viewed as a positive development for branded wine companies.”

In particular, Rabobank suggested that the current situation could present an opportunity for countries struggling with strong currencies, such as Chile, Australia and New Zealand.

Observing that “the tighter supply environment may allow for some moderate opportunities to restore margins,” the report pointed out that these price hikes could well have a less damaging effect on volume sales if they were to occur at a time when cheaper competitors are also forced to raise prices.

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