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Saturday 22 November 2014

Global demand rises despite poor harvests

6th February, 2013 by Andrew Catchpole - This article is over multiple pages: 1 2 3

Cox, speaking generically for Chile, takes a similar line, suggesting that while 2012 was modestly up in terms of volume, this came on the back of below- average harvests in the previous two years. “This has eased the situation, but there is still upward price pressure for bulk wine because of rising labour, transport and dry goods costs, while Chile is also realigning itself to greater production of premium wines,” he says.

Andrew Shaw, head of buying at Bibendum, predicted that on-shelf UK retail prices for the cheapest offerings from Spain, Italy and France will increase by 10%, ameliorated to a degree by an easing of the euro/sterling exchange rate, but tempered by a consumer that will bear very little in the way of price hikes. He also suggested that there will be an increase of “lookalike” brands replacing key lines such as Pinot Grigio (predicting a 20% fall in lower-end sales) and Rioja, where price increases on the back of shortages will force the cheaper offerings off the shelves.

“The New World will play an increasingly large part in entry-level products and the promotional mix. South Africa will fuel much of this business, and a return to Australia and Chile will feature to a lesser extent,” concludes Shaw.

bottle-opening-wine-dripIn terms of the hardest hit categories, Jeremy Howard, Slurp CEO, highlights the following: “Sauvignon Blanc from New Zealand will probably see one of the highest relative price increases at around 18% across all varieties, and Burgundy has been widely predicted to rise as much as 30% in cost over the 2011 vintage, while Italian Pinot Grigio at a price point consumers expect is becoming an increasingly difficult proposition.”

FLIGHT TO QUALITY

Elsewhere, others have suggested that Europe’s recent rebound against the New World will continue in the UK, but this will be increasingly driven by higher- priced offerings rather than predicated primarily on low-priced volume.

Shaw’s colleague, Bibendum director Simon Farr, suggests that consumers will increasingly be forced to spend more, delivering a change of purchasing behaviour, playing to the strengths of independent merchants’ lists and, at mid-to higher prices, Old World wines.

“Given that £5 no longer pays for any wine in the bottle and it’s only at £7 and above that anyone can really make any money down the supply line, the customer in this climate will not want some ‘Château Kiss-Me-Quick’ created in an office,” says Farr.

“Instead, in addition to quality and price, they will buy into other reassuring factors such as heritage, prestige and tradition, and in most instances this favours the Old World and the lists of independent merchants.”

Insights and predictions
  • “For the first time in a long while global demand will exceed supply and the natural outcome of that economic equation is that prices will rise,” thinks Simon Thorpe, managing director, Negociants UK.
  • According to the OIV, estimated total global output fell from 264.2 million hectoliters in 2011 to 248.4m hl in 2012, representing the lowest level since figures were first collated in 1975.
  • Projected final global consumption for 2012 is between 235.7m and 249.4m hl, with 30m hl of this wine absorbed by industrial usage, says the OIV.
  • Accolade’s Trends Report 2012 predicts that the US and Asia will drive growth in global wine consumption by as much as 6% over the next four years.
  • China’s consumption is predicted to rise from two glasses of wine per capita to 1.5 bottles per capita in the next two to three years, meaning 1.2 billion extra bottles will be required to meet demand, adds Accolade’s report.
  • The “global middle class” will grow from around 1.8 million to around 3.2 billion by 2020, states the OECD.

UK importers such as Matt Douglas, managing director at Stevens Garnier, agree. “In part the Old World resurgence has been driven by the currency exchange rates making the New World wines significantly more expensive, along with the Australian production reduction, and this, combined with the ‘cleaning up’ and flavour profile changes from countries like Spain will ensure the Old World increase will be here for some time,” he says. “The movement back to the Old World is more structural, although it is susceptible to a sum of effects, which could change in a short period.”

Farr may also be correct in stating that independent merchants will fare better than their multiple rivals, although times are tough in this sector too, says Cambridge Wines managing director Hal Wilson. “With higher-than-inflation duty and price increases, as with all independents, we have had to reduce our cost base and margins have been squeezed, and if we push through 15% price increases, we are not going to sell wine,” he states.

“Prices are likely to rise across the board, but the real pressure will be on lower quality wines, so this may be more of a crisis for supermarkets. However, even retailers like Cambridge sell a majority of wines at the more modest prices so rises will have an impact on sales, but we can explain to customers why price rises are happening.” Perhaps a final word should go to Tesco’s Jago, who preaches a good line while presiding over a wine retail operation that many would suggest has helped deliver the bargain basement mentality of British wine buyers.

“Price is the biggest issue, especially with brands, in that few give much rationale as to why consumers should spend more,” says Jago. “The wine industry needs to look hard at how to convince consumers that wine should cost more than an entry-level price by giving them reasons to spend more money.”

On the back of the 2012 vintage, this seems an increasingly likely necessity for the health of the UK wine trade. Quality, not quantity, is clearly the message for the future. Otherwise we may all be tweeting “OMG!!”

One Response to “Global demand rises despite poor harvests”

  1. Matt says:

    I love statistics, 249.4mhL per year equates to over 68 million L of wine being consumed around the world every day! Thats almost 50000L of wine being consumed per second! Brilliant!

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