Global demand rises despite poor harvests

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

A key concern is that the UK, along with other economically fragile Western nations, risks an acceleration of an already established trend. Wine producers around the globe have become increasingly vocal about maintaining a minimal presence in the UK, while putting their resources, time and sales and marketing budgets into other, often emerging markets, that are delivering growth coupled with sustainable margin.

As Michael Cox, European director at Wines of Chile, points out: “The UK should have built price increases in during the economic good times before the downturn but, regrettably, the opportunity was missed and we may pay the price now.”

WORLD VIEW

It’s worth crunching a few more figures to highlight what is going on globally – and especially in the most keenly followed developing market of China – to help assess what this bargain basement approach means for countries such as the UK.

When Accolade Wines unveiled its Wine Nation report in late 2012 it predicted that the US and Asia would drive growth in global wine consumption by as much as 6% over the next four years. Focusing in on China, the report further predicted that 2012 per capita consumption of two glasses could increase to 1.5 to two bottles over the next two to three years.

Wine-cork-and-bottle“If this is the case, 1.2 billion extra bottles of wine will have to be found to satisfy demand,” concluded the report. Alongside this statement was an idiot- proof graphic highlighting global demand in three simple phrases: “supply down + demand up = pressure on price”.

ASC Wines, a leading mainland China importer and retailer, concurs that strong growth will continue, albeit suggesting more conservative figures than Accolade.

“There is no doubt the wine market in China will continue to grow and we anticipate by 1.5 to two times over the next five years, but it is very difficult to predict as China continues to develop rapidly,” says David Lucas, vice president of brand management and trade marketing at ASC Fine Wines.

China, of course, is only one of many increasingly thirsty emerging wine markets, which include the other BRIC countries, along with the Chinese diaspora and other nations throughout East Asia, plus African countries and the likes of Turkey, Mexico and Indonesia. Upwardly mobile professional and middle classes, for whom wine is a symbol of status and sophistication, are fast growing worldwide.

global-wine-production-2012

OECD figures from 2012 suggest a rise in the “global middle class” from around 1.8m to around 3.2bn by 2020. Put another way, an earlier OECD report (OECD Development Centre Working Paper 285) predicts a shrinking of North America’s share of middle class global purchasing power from 26% in 2009 to 10% in 2030, with Europe’s share dwindling from 38% to 20% over the same period, while Asia Pacific is set to grow from 23% to 59%.

These may be intelligent guestimates, but even allowing for a wide margin of error the inference is clear. Put very simply, Western buying power is diminishing at a time when there is increasing global thirst for limited supplies of wine (and not just the 2012 vintage). It’s against this backdrop that the future of the UK wine trade will play out.

What is also increasingly apparent – this especially pertinent as the 2012 shortfall plays out through 2013 – is that the number of countries or regions not just willing, but also financially able to step into the breach and plug a volume gap on multiples’ shelves has diminished significantly. Few producers can now sustain the deals expected by UK consumers and make any margin.

ON THE SHELVES

In terms of winners and losers on the UK’s shelves, more ample harvests, coupled with an easing of exchange rates, may see countries such as South Africa and Chile gaining some ground, along with California, all of which have delivered reasonable volume vintages. But even here the major players point to inflationary domestic pressures that are continuing to impact on the cost of production. Meanwhile, Australia’s UK- bound exports continue to suffer from the strong Australian dollar making exports to this traditional market less profitable than eagerly sought (and growing) share in new territories such as China.

“I don’t think anyone will walk away from the UK market at the moment and there are opportunities in the mid-to-longer term,” says Garreth Anderson, DGB managing director UK and Ireland. “But inflation in South Africa is very significant, so while currency has eased, perhaps throwing the quality value relationship in the wines into sharper relief, opportunities for sustainable growth are going to come at higher price points.”

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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