VinIntell May 2011, Issue 8

WINE EXPORT MARKET SUSTAINABILITY: EU VERSUS ASIA EXPORT MARKET SUSTAINABILITY: 1. Introduction ••• exports have shown a According to a report from Vinexpo, demand EU VERSUS ASIA decrease / flattening in the volume of exports for is exploding, with consump- tion growing 392 percent between 2005 and to major markets like the UK and the rest of 2009. Further growth is expected to rise traditional markets in Europe, while volumes another 56 percent between 2010 and 2014. Welcome to this edition of the quarterly newsletter as a value-added service to members of the to less traditional and new markets like S A Wine Industry. The purpose is to provide you, the decision-maker, with meaningful insight Scandinavia and countries in Asia have ••• into events, trends, opportunities and threats through the analysis of the ever-changing shown an increase. There are various rea- This edition of VinIntell will examine the EU / competitive environment. The analytical approach is a multifaceted, multidisciplinary combination sons behind this development that will be UK vs. the Asian market in terms of growth of scientific and non-scientific processes. discussed in this edition of VinIntell. and decline patterns, unique characteristics We trust that this publication will become part of your strategic thinking, strategic planning and ••• and challenges and opportunities. This edi- decision-making process. You are welcome to send comments and suggestions to the Per capita wine consumption has been falling tion will also seek to provide clarity on the publisher. for decades, especially in southern European question whether wine markets in Asia– countries, where changing consumption Pacific will over time come to substitute the habits (increased outdoor drinking, EU and more specifically and specifically the substitution of other beverages, changing Contents tastes) affect overall demand. UK market from a South African wine export 1. Introduction...... 3 perspective. Similar questions that arise ••• 2. Background...... 3 include whether decline in traditional markets The lucrative nature of the Asian market is not are a trend that will continue and whether the 3. EU market with special reference to wine and characteristics...... 6 a secret and competitors like New Zealand traditional markets will become maintenance 3.1 Consumption patterns in Europe...... 6 and Australia are targeting markets in Asia to markets while real sustainable growth lies 3.2 SA export stats to EU...... 8 grow their exports. An official Chinese wine elsewhere in perhaps Asia and Africa. In delegation visited Australia in April 2011 as addition, does Asia have the capacity going 4. Asian wine market in brief...... 11 exports to the US and Britain take a pounding into the future to substitute the EU market? 4.1 Looking specifically at China...... 13 because of the soaring Australian dollar; a This edition will also look at consumption Wine exports to China...... 14 similar situation to the South African Rand. projections, the export markets in these 4.2 Hong Kong a gateway...... 17 exporters hope to open up regions as well as growth trends and projec- avenues into the Chinese market with those tions. 4.3 The other significant wine markets in Asia...... 18 coming involved in bar management, retail, ...... 18 online trading and senior wine management. Japan...... 19 In the US, the dollar has cut Australian sales 2. Background Indonesia...... 19 by 40 percent. According to the US Foreign Research company, Global Industry Agricultural Service (FAS), South African wine Analysts2, forecasts global consumption of ...... 19 experts believe that the trends in Asia are wine to reach 26.12 billion liters by the year Thailand...... 20 conducive for successful expansion of the 2015, spurred on by substantial global Malaysia...... 20 market for SA . Factors that contribute demand. Presently, the market is still feeling South Korea...... 21 to this are the increasing base of legal drinking under intense price pressures, triggered by age, advancing middle classes, rising urban rising competition and global oversupply. In 5. Key findings...... 22 population and emerging westernisation.1 terms of demand for wine or consumption,

2 3 the global market for wine witnessed a slow- The economic downturn also led to the trend growth in the market. Changing lifestyles in ing stiff competition from new world wine down in growth during the recessionary of consumers readily trading down to cheap- these countries, which mostly mimic Western regions like South Africa China, New Zealand years 2008 and 2009. The economic crisis er wine varieties, shunning the more exclu- lifestyles, is proving to be a major win for the and Australia, which are progressing at a and the subsequent deceleration in con- sive, expensive wines. By product group, the growth in wine consumption. Previously, rapid pace with large-scale production, clev- sumption, which added to the already exist- still wine category completely dominates the interest in wines was confined to middle- er marketing strategies and competitive pric- ing problem of over production, adversely wine market in terms of sheer size. However, aged customers, today a growing base of ing. Regions including the US, Australia, affected the global wine industry. with respect to growth pace the fortified wine younger consumers are exhibiting a marked Chile, New Zealand, South Africa and The sharp decline was primarily attributed to segment is expected to lead the way for the preference for wine over other alcoholic bev- Argentina increased their combined share in a drastic reduction in consumption in the EU, period 2007-2015. Segment wise, Cham­ erages. the world market from 23 percent in 2005 to the largest market for wines worldwide. pagne recorded the highest decline in vol- 30 percent by the end of 2008. With the New players entering the market and greater Domestic EU wine consumption continues to ume as well as value sales in 2009. availability of improved, latest technical focus and investments in facilitating access decline, despite a slight economic recovery. exports declined by 45 percent know-how and equipment the new world and advertising and marketing campaigns Per capita wine consumption has been falling in terms of value and 40 percent in terms of regions are able to consistently produce intensified competition in the market place. for decades, especially in southern European volume during 2009. good quality wines. The market has witnessed an unprecedent- countries, where changing consumption ••• ed increase in wine sales through the Internet Vinexpo expects a 3.6 percent increase in habits (increased outdoor drinking, substitu- US outdrank France to become the largest over the past few years. the world wine market over the next five tion of other beverages, changing tastes) wine-consuming nation in the world in 2010. years (to 2015). Although, these figures are affect overall demand. ••• In terms of wine production, although con- less marked than the 4.8 percent growth ••• Demand has been recovering however. ventional wine producing European countries between 2003-2008 that still beats records Global consumption of wine to reach 26.12 Reasons for the growth in global demand are such as France, Spain and Italy still dominate in most of the groceries and other consumer

billion liters by the year 2015. increasing adaptation of western lifestyles, the global market (see table 1), they are fac- goods on world markets. 4 ••• rising affluence and sophistication levels and Table 1: Changes in exports for key exporters: 2010 Another important factor is the anti-alcohol consumer shift towards premium alcoholic beverages. Underlying health benefits asso- drinking campaigns, especially aimed at Country Volume change (%) Volume change (%) Period of measure youth, conducted in some countries, primar- ciated with wine consumption is another ily France and Italy, which has made advertis- major factor ensuring sustained growth in the France -6.5 +14.6 Jan - Dec ing wine virtually impossible. In addition, market.3 The health benefits of wine would health concerns and concerns about drink- also enable the segment to encroach the Spain 15.5 10 Jan - Dec ing and driving have pushed local authorities markets of beer and spirit, the other two seg- to implement more stringent legislations, ments. Recent research findings confirm the Italy -10.7 +11.7 Jan - Dec which further dampened alcohol consump- fact that moderate consumption of wine US +3 +24 Jan - Dec tion. Maximum declines were witnessed in prevents heart disease, cancer, Alzheimer’s disease as well as muscular degeneration. Spain and France. Developed markets were South Africa -3 n.a. Feb '10 - Jan '11 more affected than the emerging markets of High publicity received by these findings is Asia-Pacific, Latin America, Eastern Europe spurring consumption of wine at home and in Argentina +10 +18 Jan - Dec and Australasia. During 2009, global grape the hospitality industry, particularly in non- production also fell. wine producing countries. Chile +2 +9 Feb '10 - Jan '11 ••• The growth trend is far more obvious in rap- Australia +2.2 -8.8 Jan - Dec The US shipped nearly 330 million cases of idly emerging markets, where the potential wine in 2010, compared to France's 321 million for future growth is significant. Developing New Zealand +19.7 +6.9 Jan - Dec cases. countries like Russia, China and India, to ••• name a few, are expected to drive future Source: Rabobank Wine Quarterly Q1 2011

4 5 3. EU market with special reference Wine & Spirit Record, predict that the European Many of the results were surprising. wine consumption will fall by 0.7 percent over to wine and characteristics • Almost one-third of respondents in • Across Europe, drinking preferences are the next five years (to 2015 / 2016)5. This is in Western Europe said they never drink changing. In Italy 88 percent of respon- Europe still positions itself as the single larg- contrast to in Asia where wine consumption alcohol. In Italy, 53 percent of those sur- dents over 50 years old said their favourite est consumer and producer of wines, amass- will grow by 25 percent over the next five veyed said they are teetotallers, while in tipple is wine. However, among Italians ing the largest share of the worldwide mar- years, as stacked up against an expected Turkey, a predominantly Muslim country, aged 14 to 29, only 29 percent prefer ket. European countries including France, drop in wine intake in Europe. Spain and Italy capture the majority share of 83 percent said they do not drink at all. wine, while 43 percent say beer is their wine production in the region. favourite drink. Preferences are also 3.1 Consumption patterns in Europe changing in France, another historically • Italy was also among the countries with Overall, however, EU wine consumption is fall- Europe’s relationship with alcohol is changing. wine-producing region. Here, 68 percent the largest group of frequent drinkers, with ing steadily, although sales of quality wines Countries like France and Italy are seeing a of those over 50 say their favourite drink is 16 percent of respondents saying they had been increasing (especially before the cur- surge in beer drinking among young people. In wine, while only 24 percent of those aged drink alcohol at least once a day. The rent economic downturn). In the 10 years to many countries, the traditional glass or two at 14 to 29 gave that response; most French Netherlands led this category, with 17 2008 imports of quality wines grew an average mealtimes is giving way to a new culture of young people (29 percent) chose beer as percent saying they drink at least once a of 10 percent a year. The industry currently binge drinking. In a Wall Street Journal com- their favourite drink. day. In Russia, Poland and Sweden, all faces a variety of challenges including the missioned survey conducted in 2010, market- vodka-making countries, only 1 percent of downturn in the global economy, the rise of research firm GfK polled Europeans about their respondents said they drink at least once concerns about sustainability, health and well- drinking habits. In 13 EU countries, and the • Drinkers generally shift to wine from beer a day. ness, over indulgence and binge drinking, and US, Russia, Turkey and Switzerland, GfK asked as they get older. However, France and the requirement for more information to be more than 17,000 people to describe how Italy, where the overall survey results added onto labels. Figures, compiled by often they drink, what they drink and how alco- • Binge drinking is a worrying trend in several showed wine is still more popular than Vinexpo in partnership with the International hol affects their lives (see table 2). European countries where alcohol-related beer, soon could follow other classical wine regions such as Spain and Portugal, Table 2: Wall Street Journal research findings social and health problems are on the rise. In the UK, alcohol-fuelled problems pushed where beer drinking has overtaken wine the government to strengthen laws against especially among young people. so-called anti-social behaviour. France and the Netherlands are among the European countries that increasingly are worried • In historically beer-making countries, about alcohol abuse among young people. including the UK, Belgium and the Legislators in both countries are weighing Netherlands, drinkers now prefer wine to whether to raise their minimum legal drink- beer, the survey showed. Germany and ing age from 16 to 18. the Czech Republic were among the few countries where the results were true to stereotypes. Respondents in both coun- • Italians are not drinking as much red wine tries, where lagers and pilsners have a as they used to, the survey showed. long tradition, still prefer beer to wine.7

Source: Wall Street Journal online6

6 7 Figure 1 depicts the annual total consumption of wine in the EU and the US. This figure clearly Figure 2: South Africa total natural wines exports: 2003 - 2010 indicated the initial downward trend and then the continued downward trend or growth flattening expected to 2019. In the EU, it seems to be only Germany that shows steady albeit flattened growth.

Figure 1: Annual total consumption of wine: EU and the US, 1960–2005, with projections to 2030

Source: International Organisation of Vine and Wine (OIV), 2010 Note: OIV data shows higher consumption for the US in 2005 than FAO data Projections made using exponential smoothing with a damped trend.

3.2 SA export stats to EU The UK is still by far South Africa’s largest Judging the figure below, it becomes clear export market for bottled wine, despite the Source: SAWIS, 2011 that over a period of seven years, the EU is recent opening up of new markets in Africa, the still the largest market for South African wine Far East and Eastern Europe (see figure 3) exports but it is also clear that growth has (SAWIS, 2011; WOSA, 2010). British consum- in 2009 compared to 2008 while packaged in 18th, Angola in 19th and Thailand in 20th. become flat especially since 2007. Projections ers make up the biggest segment of the South wine increased by 7 percent over the same South African wines have the biggest market are that this flattening of growth will continue African export market, and drove double-digit period. share in Sweden, where they compete with some of the best-known wines from Western (see figure 2). Of particular significance is the growth in UK sales even amid the crisis condi- Germany was the second largest export mar- sharp decline in exports to the UK where tions of 2008 and 2009. Now, it seems that Europe. According to WOSA, South Africa’s ket between January and October 2010, fol- volumes in 2010 at about 104,000,000 liter- growth is faltering: British sales of South African market share in Sweden was 21.3 percent in lowed by Sweden, the Netherlands, Denmark, sare less that the volumes registered in 2008 wine (by value) fell by 7 percent in the year to the first six months of 2010, compared with and far less than the highest volumes record- October 2010. SA’s wine is exported both the US and Canada. The list includes China in 16.3 percent from Italy, 14.5 percent from ed in 2009 namely about 125,000,000 liters packaged and in bulk form with largest quanti- 13th place, Japan in 15th Kenya in 16th Australia, 12.4 percent from Spain and 8.3 (packaged and bulk). The most significant ties of packaged wine destined for the UK, Nigeria in 17th, the United Arab Emirates (UAE) percent from France.8 growth albeit from a low base, was regis- Sweden, the Netherland and Germany. For tered in exports to Asia while exports to bulk sales the top destinations in Europe are North America have not shown any marked Germany, the UK, Russia, and the Netherlands. growth over the past five years since 2005. Bulk exports volumes dropped by 18 percent

8 9 Figure 3: South African natural wine exports: Bulk and packaged (liters) Table 3: Selected export markets for South African wines: 2003 - 2010

TOTAL PACKAGED BULK COUNTRY LITRES LITRES LITRES CANADA 91 280 358 54 457 877 36 822 481 59.66% 40.34% CHINA 14 989 635 6 421 389 8 568 246 42.84% 57.16% GERMANY 394 103 935 119 922 748 274 181 187 30.43% 69.57% JAPAN 15 280 879 13 321 605 1 959 274 87.18% 12.82% UK 815 469 176 618 840 093 196 629 083 75.89% 24.11%

Source: SAWIS, 2011

••• 4. Asian wine market in brief The UK remains the world’s largest importing Next to Europe, Asia-Pacific (along with the nation both by value and volume. Source: SAWIS, 2011 US) ranks as the other most significant wine ••• consumers and producers worldwide. The wine industry in Asia-Pacific remained buoyant In terms of the UK market, besides the growth Technology is helping as well, allowing South Decanter Magazine says the UK remains the even during the volatile economic recession, challenges, spending patterns in the target African winemakers to ship their product to the world’s largest importing nation both by value and is projected to register the overall fastest market are also shifting. The biggest decline in UK in bulk, and bottle it there at lower cost. and volume. Britons spend more in total on growth both in terms of volume and value the year to October 2010 was in the sub-£3 a Bulk sales rose by 29 percent in the 11 months those styles than the French do: Britain terms through 2015. China is expected to to November 2010. However, while offshore imported 1.77 billion bottles of still and spar- bottle cost bracket, which saw a dramatic fall in show an unprecedented increase in wine con- bottling may be cheaper, Wehring admits, it kling wine in 2010, to a value of ￡8.6 billion. sales of 48.5 percent. Yet there was an sumption and is poised to become a major However, in terms of per capita consumption increase for wines costing more than £5 a can make it harder to safeguard quality and this contender in the global wine industry in 9 bottle, and a bigger one for those over £7. might pose problems going forward. the UK is only tenth in the table. In an anom- future.10 While business in mature markets in On-trade” sales (in bars and restaurants) rose According to SAWIS, the strong exchange aly, Britain consumes more white wine per the mature markets continue to slow, pros- by 23 percent. Jo Wehring of Wines of South rate, the economic downturn in the main mar- capita than any other country: 44 percent of pects are much brighter in Asia’s vibrant Africa (WOSA) sees this as evidence of a posi- kets and the non-profitability of SA wines in key all wine drunk. By contrast, consumption of economies and Asia’s consumers are chang- tive long-term trend. “South Africa has come of markets like the UK as well as the availability of red wine has declined 8 percent over the last ing just as quickly as their economies are, age,” she says, arguing that the industry’s the product are key determining factors in five years and is forecast to decrease more leaving both domestic and foreign companies focus on the lower end of the market was future wine exports. It is therefore difficult to by 2014. At the same time, the British are scrambling to keep up. unsustainable. Now that South African sales in make forecast of market sales. The top five among the world’s most enthusiastic rosé Overall, wine consumption in Asia will rise by a the UK are over £500m a year, about a tenth of countries for South African wines (in order to drinkers: the UK is the fourth largest market quarter by 2015. Asia is now arguably the pri- the British total, it is moving beyond “cheap volumes exported) are the UK, Germany, for rosé, consuming 10 percent of the world’s ority market for driving growth globally. New and cheery” entry-level wines, she says. Canada, Japan and China (see table 3). total production. figures released by Vinexpo11 in early 2011

10 11 predict that wine and spirits in the Asian mar- and according to Asia Development Bank fig- 4.1 Looking specifically at China International Wine and Spirit Research ket will be worth 6.4 billion U.S. dollars in ures released in December 2010, it was pro- (IWSR), commissioned by Vinexpo, con- For some time now, China has been the fast- 2011; wine consumption specifically growing jected to grow 7.5 percent in 2010 and 5.4 sumption of wine by China and Hong Kong est growing wine market in the world. Global in almost 1.3 million liters between 2009 and percent in 2011. In aggregate, the region increased by over 100 percent between 2005 wine sales were experiencing slow growth 2013 at a rate five times faster than the rest of might not be as large as India or China, but it and 2009, from 46.9 million to 95.9 million because of the financial crisis, but Chinese the world. By comparison as mentioned earli- is growing, dynamic and young. Sixty-three cases. IWSR predicts that this figure will wine sales, especially grape wine sales, kept er, European wine consumption will fall by 0.7 percent of Southeast Asians are younger than increase a further 20 percent by 2014, to booming and saw robust year-on-year percent during the same period. The future of 35, and almost 40 percent are younger than 126.4million cases. growth. Hence, more multinational brands wine in Asia is bright, and the impact is being 20. The average consumer in Southeast Asia are entering the Chinese wine.13 In terms of domestic production of wine, enjoyed by winemakers across the globe.12 purchases nearly twice as many US goods China is set to increase by 77 percent over ••• Asia as a whole is expected to be the driver of than the average Chinese consumer, and the next four years (2011 – 2015), from an Domestic wine production to increase to world wine market growth. Rising consump- nearly nine times as many as the average average 72 million cases to 128 million cases. Indian consumer. The combined GDP of the reach 128 million cases by 2015 (Vinexpo, tion coupled with growing middle class pur- 2011) Those wishing to take advantage of this bur- chasing power, considerations of health ben- 10 countries comprising the Association of geoning market should remember that 90 ••• efits and status symbols have boosted mar- Southeast Asian Nations (ASEAN) today is percent of the wine drunk in China is domes- kets in China, India and South Korea alongside US$1.5 trillion, and when these countries China’s economy grew by 10.3 percent, in tically produced, Vinexpo said. become a single economic community in 2010. This is expected to increase in strength Singapore and the stable, traditionally big In comparison, at 3 billion cases, France, Italy 2015 it is going to be an EU-like area that has along with the Yen, as Asia’s buyers pay more market. All this is making wine and Spain remain the world’s biggest produc- free trade agreements with China and India, in British pounds to acquire wines at no addi- producers around the globe increasingly look ers of wine, accounting for just under half of among others. Together, it will have 600 million tional cost to themselves. Exchange Magazine to Asia. the world’s production. However, by 2014 consumers, who are rapidly coming up the estimates that this phenomenon will cause “a In terms of popularity of wines, French wines these countries’ production is expected to economic scale. rise in fine wine prices of 21 percent a rela- are all the rage in Asia but California wines are decline by between one and seven percent. ••• starting to catch on. The impact of these tively conservative forecast of an appreciation This is due mainly to more efficient manage- Overall, wine consumption in Asia will rise by nations on the wine industry has already been of around the same amount as in 2010.” ment of vineyards, grubbing up of unprofit- a quarter by 2015. Asia is now arguably the Exchange Magazine also believes that a bull significant and it is only just beginning. With priority market for driving growth globally. able vineyards, and concentration on quality scenario of +30 percent to +40 percent is Hong Kong poised to become Asia’s main hub ••• by reduction of yields. The only countries to for the importation of wine and with demand possible once again. However, its report increase production will be Argentina by over for both fine and low cost wines skyrocketing As consumers, Russia, the US and China are emphasises that the ‘China Effect’ does not 13 percent, Chile by 8 percent, South Africa throughout the region, many winemakers are expected to show the most growth over the next apply to all wines but primarily on the top by 7 percent, and China. four years, increasing consumption by 20.7 mil- wines, Chateau Lafite, 2nd Lafite Carruades waiting with anticipation to see what the future In terms of consumption patterns, in 2009, lion cases in China, 27 million cases in the US de Lafite and Lafite’s stablemate Duhart Milon. holds in these markets. The region is seeing 90 percent of the wines drunk in China were and 5.5m cases in Russia. Of the 3 billion cases, For now, it seems that Asian private buyers immense economic success, and the result red. The consumption of white wines, which or 36 billion bottles, produced worldwide, a quar- are prepared to spend as much they need to has helped many winemakers see continued increased less than 1 percent between 2005 ter is exported. Vinexpo estimates that one in collect and consume their favourite rare fine success in the wake of a global economic and 2009, is expected to grow by 32,8 per- downturn. four bottles is drunk in a country in which it was wines. This, combined with the growing num- not made. This figure is expected to increase. cent between 2010 and 2014. The consump- Countries in Asia where wine has more acclaim ber of worldwide billionaires and the predicted tion of rosé wines, which is marginal, should ••• are China, Japan, Thailand, Taiwan, Singapore, strength of the Yen, should lead to further increase uniformly: 32.23 percent growth Consumption of wine by China and Hong world record-breaking wine sales in 2011.14 Malaysia and India. Although the focus is pres- Kong increased by over 100 percent between between 2005 and 2009 and 26 percent ently largely on China, other countries in the 2005 and 2009, from 46.9 million to 95.9 mil- Besides that premium market, China’s wine between 2010 and 2014. While imported region including Thailand, Vietnam, Singapore lion cases; will increase a further 20percent by consumption and wine production are set to wines only represent 14.7 percent of the and Malaysia warrant their attention, too. 2014 to 126.4 million cases (IWSR, 2011). increase exponentially over the next four wines consumed in China, the growth in their Southeast Asia’s economy grew 4.4 percent in ••• years. According to the latest figures from consumption is spectacular: up 392.99 per-

12 13 cent between 2005 and 2009 with expected percent between 2009 and 2014. The total event location was deliberate; a Vinexpo Wine Quarterly Q1 2011 (see figure 4). A further growth of 56 percent from 2010 to sales turnover of wine increased by 156 per- study by the International Wine and Spirits sharp rise was registered in 2010 to nearly 2014. cent between 2005 and 2009, one and a half Record (ISWR) showed that even though 140 million liters after the decline in 2009 that ••• times faster than the growth in volumes China is only the eighth largest consumer of saw an imported bulk volume of 80 million • Total sales turnover of wine increased by consumed, which was 104 percent. This wine in the world at present, Chinese wine liters. The widespread practice among 156 percent between 2005 and 2009, one and rate of growth should continue from 2010 to consumption is projected to rise by roughly Chinese wine companies to bend imported a half times faster than the growth in volumes 2014; a 31.5 percent increase in value and a third by 2013. bulk wine into domestic products has driven consumed, which was 104 percent. 19.63 percent in volume are expected. The Exports to China and Hong Kong are increas- the flow of bulk wine into China. It is esti- • This rate of growth should continue from total wine sales figure by the end of the ing despite a stuttering global economy. Bulk mated that only about 10 percent of China’s 2010 to 2014; a 31.5 percent increase in value period should reach US$6 billion. 450,000 hectares vineyard estate is dedi- and 19.63 percent in volume are expected. shipments are rising because some of China is also developing an increasing taste China’s vineyards are not mature enough to cated to vinifera varietals. Chile and Australia • Total wine sales figure by the end of 2014 are the traditional suppliers of bulk wine but should reach US$6 billion. for champagne, according to Salon presi- produce “first-class wines,” says Charles dent Didier Depond. Depond told the drinks Johnston, a Napa Valley winemaker who sits Italy and Spain met the market in 2010. ••• business in March 2011: “I think the Chinese on the board of a Sino-American venture that Between 2005 and 2009, Consumer appreciation of wine is still at an are coming round to the idea of cham- ships wine to China. This statement is con- imports to China practically increased six- elementary level according to the Rabobank pagne, the market is where Japan was 30 firmed by figures published in the Rabobank fold and French wines have about 50 percent Wine Quarterly Q1 2011. Consumers buy on years ago. Japan is our number one market, Figure 4: Chinese bulk wine imports perceived value and wine is used for custom- but China is a completely new prospect for ary entertainment and gift-giving occasions. us. We (the French) only sold one million Chinese buyers are inclined to go for a safe bottles in China in 2010, which is a drop in buy and more often than not, this means the ocean compared to the UK.”15 French. Chinese wine companies that often have ties with leading French companies Wine exports to China have reinforced this perception of French The Chinese market for imported wine wines as the epitome of wine. While Chinese developed seemingly overnight, and both wines are steadily improving in quality, they fine and low cost wines are flooding super- have a long way to go. Up until a few years markets and stores throughout the nation. ago, the country’s producers saw wine as a Chinese buyers account for a great deal of beverage along with milk and Coca-Cola. wine purchases from major auctions, and Yet, as China’s economy developed, income red wine sales have seen nothing short of levels rose and cars increasingly replaced explosive growth within the country in the bikes, solving this logistical problem. The past few years. According to the China country’s wine industry also got a boost as Wines Information Website, an authoritative the government encouraged Chinese to Chinese wine industry portal, sales of wine drink alcohol made from grapes rather than in China have been growing by 15 to 20 grain so the latter could be used for food percent annually since 1999 and Hong production. As grain based alcohol continues Kong in particular is showing increased to wane in popularity in the region, wine cer- popularity in wine. One of the key global Source: Rabobank Wine Quarterly Q1 2011 and China Customs, 2011 tainly seems to be stepping in to fill the void events for wine producers and buyers is it is leaving behind. Vinexpo. The fourth Asia-Pacific Vinexpo Consumption of wines priced more than brought exhibitors from 35 countries to US$10 per bottle is expected to grow by 104 Hong Kong in May 2011. The choice of

14 15 market share. In 2009, they accounted for French export volumes to China and Hong Figure 5: Chinese bottled wine imports by country, 2010 41.8 percent of the total volume of wine Kong and with Chinese wine companies imported into the country. China today is supporting the French wine example, France therefore one of the top 10 importers of has been able to continue growing export French wines, although back in 2004 it was market share in China (see table 4). not even in the top 20. According to the lat- Australia is the second largest supplier of est figures from the Board wines to the Chinese market with about 15 (CIVB), in 2010 China together with Hong percent market share, ahead of Chile (9 per- Kong became the largest customer in value cent), Italy (8 percent), the US (7 percent) and for Bordeaux wines, spending a total of €333 Spain (6 percent). Between 2005 and 2009, million and topping the historical customers these exporters increased their consign- UK, Belgium and Germany. However, ments by 416 percent and 284 percent Germany still remains Bordeaux winegrow- respectively. Although Argentina increased its ers’ biggest customer in terms of volume, exports to China the most by accomplishing having purchased 25,500,000 litres com- a massive 799 percent increase, it is still only Table 4: French wine exports to China / Hong Kong Bubble size represents category size by volume, Chile equals 10.5 million liters 2009 2010 Source: Rabobank Wine Quarterly Q1 2011 and China Customs, 2011

Vol./Val. EUR/l Vol./Val. EUR/l ••• 4.2 Hong Kong a gateway Bordeaux -13.7 / -23.2 8.37 +14.2 / +16.9 8.56 Chinese market for imported bottle wine has Among all Asian regions and countries, Hong - To China +97.0 / +40.0 5.40 +71.0 / +98.0* 6.58 been growing at over 60 percent per year over Kong’s per capita consumption of table wine the past five years and now totals 146.3 mil- is the highest in Asia. Hong Kong is a leading - To HK +24.0 / 46.0 25.95 +65.0 / +126.0* 34.10 lion liters or about 10 percent of the overall wine market (Rabobank, 2011) hub for the import of wine. As the first major All regions 82.0 / 18.8 4.47 +6.5 / +14.6 4.77 economy in the entire world to impose no ••• - To China +87.0 / +54.3 3.10 +57.9 / +53.3 3.68 taxes or duties on wine, it offers appeal and Whilst the Chinese market for table wine has its geographic position makes it the idea - To HK +34.1 / +41.4 14.18 +53.3 / +17.0 20.05 grown more than 20 percent per year over distribution point for the transport of wine the five past years (to around 1,480 million onto the Chinese mainland. Wine investors Volume / value figures represent annual percent change liters in 2010), the market for imported bot- from Hong Kong and China now make up *12 months: November 2009 to October 2010 tled wine has been growing at over triple that Source: Rabobank Wine Quarterly Q1 2011, FEVS, BIVB, CIVB, 2011 about 40 percent of the wine investment in rate and now totals 146.3 million liters or the UK, and imports are still increasing in pared to the 25,100,000 liters imported by in 7th place amongst the country’s suppliers about 10 percent of the overall wine market rapid numbers. China and Hong Kong make China and Hong Kong together, as reported at less than 5 percent market share. Of all the according to Chinese Customs (2011). up a vast majority of the Asian wine market. in a CIVB press release concerning the exporting countries, it is clearly Australia that The Standard Bank Group says that China is Between the two nations, they currently exports achieved between November 2009 has managed to position itself ahead of oth- set to become the seventh largest consumer comprise about 60 percent of the market. If and October 2010.16 ers and command relatively high average of wine by 2012, and has encouraged South Hong Kong indeed becomes the hub of While Chinese wines largely populate the prices (see figure 5) at US$5 while others like African wine producers to look at increasing import for fine wines and the two markets lower end of the market, wine styles, pack- the US, Chile, Italy and Spain are more in the exports to China. According to SAWIS statis- join as one, it will be the eighth largest market aging and branding all closely follow the US$3.50 and lower price range. France on tics, South Africa exported 4 million liters of in the world. Increased demand and the Bordeaux example in an idea to convey qual- the other hand also commands space in the wine in 2010 (out of a total export of about growing popularity of wine in the region could ity. Bordeaux supplies about 30 percent of US$5 to US$5.50 price range. 390 million litres of wine) to China.17 push the market even higher on the list.

16 17 Figure 6: Map of Asia dessert wine, sparkling wines, cask and bulk pitch will help them to differentiate the wine in wine for local bottling and the hospitality a positive way. Key to selling quality wine in industry. Japan is finding the right distributors and Although currently the Vietnam import tax for offering them strong support as well as build- wine remains high, upcoming import tax cuts ing a strong marketing story. Producers who as part of Vietnam’s commitment to the World will succeed in Japan are those who under- Trade Organisation (WTO) are expected to stand the level of support that is needed by benefit domestic consumers, giving them a demanding Japanese importers and are will- wider choice of reasonably priced imported ing to provide it.21 goods. Australian wines account for 15 per- French wines used to be the most prominent cent of total wine imports into Vietnam, rank- followed by ones from Australia, New Zealand, ing second only to French wine. and Argentina and Italy. Wine from Spain, Chile, and the US are gaining in popularity and Japan increased pricing competition is expected. In Japan is a nation of beer drinkers who instinc- 2010, the US held a 7.8 percent value share tively look to France and Italy for wine but of the US$772 million imported bottled wine increasingly favour product from the New market. This was an increase from the 6.8 World. Wine consumption has been trending percent share in 2009 and the 7.0 percent upward since the 1960’s experiencing several share in 2008. While France carries the stron- Source: Lonely Planet boom and bust cycles over the last three gest image for wine in Japan, market share Because of these factors, catering to the 87 million consumers and retail sales up 20 decades. The last major boom occurred in continues to decline due primarily to competi- Asian wine market has become even more percent year on year, is an attractive export 1998 following a series of reports about the tion from new world wines. While volumes are important for wine manufacturers. Breaking market with increasing opportunities for health benefits of red wine that led to con- still small, 27 thousand hectoliters, Japanese into the market has proven difficult at best, exporters to get their products onto sumption doubling during the two-year period imports of South African wine continued to but for those who have found entry, the Vietnamese shelves. Until recent years, major following 1996. Excessive growth in invento- increase in 2010. After a nearly 40 percent results have been quite lucrative. consumers of wine in Vietnam were Western ries led to a 25 percent decrease in import increase in CY 2009, imported volume jumped expatriates and tourists; however, the real volume in 1999 with consumption hovering again 23 percent. The increase was attributed 4.3 The other significant wine mar- long-term growth of the around that level for the past decade. Most to interest in South African products due to kets in Asia industry lies in the local population. The cul- market observers remain confident however the soccer World Cup in 2010.22 that future growth in the wine market will out- Looking at select other individual Asian wine ture is rapidly moving towards Western-style cuisine and as Vietnam’s standard of living pace that of the overall alcoholic beverages Indonesia markets in South East and East Asia, the fol- market. Some of the best recent opportunities lowing key characteristics become apparent: continues to improve, there has been unprec- There has been a rapid rise in interest in wine edented growth in the demand for imported include wine by the glass and restaurant among Indonesians in recent times. Local wine. Market trends in Vietnam also indicate based promotions.20 Vietnam consumers are incorporating wine into their that wine consumption is likely to increase. Although the consumption of sake is decreas- lifestyles in response to globalisation and as a Consumption of wine saw stable growth over Despite the price of a bottle of wine being ing year by year especially among young result of mixing with foreigners and incorporat- the review period as most of the products higher than that of a carton of beer, more afflu- generation where wines are more commonly ing Western elements into Indonesian urban were either mature and very familiar to many ent local consumers are changing their prefer- consumed, it is still the number one com- lifestyles.23 consumers, such as local non-grape wine, or ences, with shifts in consumer behaviour monly consumed alcohol beverages. Although were still niche and had not gained enough apparent in large urban centres such as Ho cost is now increasingly important to the popularity, such as and still light Chi Minh city, and Danang. According Japanese, emphasising the quality and unique Philippines grape.18 19 to the Australian Trade Commission’s latest story of the wine allows buyers to focus on the The emerging market contin- Vietnam has experienced remarkable eco- update, opportunity areas in the Vietnam wine product rather than the price. Being able to ues to expand, with sales reaching US$15.6 nomic growth over the last decade and, with industry include white and red wines, rosé, provide the buyers and retailers with a unique million and a volume of 14 million liters in

18 19 2008, up by 20 percent from the year before. Thailand ing 2010. Australia overtook France as the Korean government and the EU. Some esti- 27 This represents a 100 percent increase over Thailand has a population of 67 million of market leader in the Malaysian wine. Brands mates are that wine consumption is expected sales in 2002 and a 200 percent increase over which about 10 percent drinks wine. This like Lindemans and Jacob’s Creek from to grow substantially (nearly 50%) between Australia lead overall volume sales. Traditionally, 2010 and 2014.29 sales in 1998. The US overtook France in accounts for 3 percent of the alcohol bever- 2000 as the largest exporter of wines to the brandy has been the most popular alcoholic age market. Even though wine has a much Studies have projected that wine consump- Philippines and still holds that position today. beverage in Malaysia, followed by whisky and smaller market share compared to beer and tion growth will mainly benefit still light wines, Valued at US$5.4 million in 2008, US wine wine. Currently, cheap range wines (retailing spirits, there are strong developments in the especially reds, while the consumption of local exports to the Philippines marked a significant between RM35.00–RM50.00 or between level of consumer awareness and apprecia- wines, which are often blends of fruit-based 25 percent increase over the previous year, US$11 and US$15.) is dominated by New tion of wines. Wine consumption is increasing products with grape-based wines, should with volumes accounting for 4.6 million liters. World wine selections originating from and still light red and white wines are often continue to diminish. South Korea is the third The US is the top supplier, accounting for Australia, Argentina, Chile and South Africa. considered and positioned as beverages with largest consumer of wine in Asia behind China one-third of total volume, followed by Spain superior health benefits.25 Wine is linked to Mid-price wines (RM60.00–RM110.00 or and Japan. Competition is strong in the South (2.3 million liters) and Australia (1.6 million fashionable lifestyles, particularly in urban US$60 to US$36) is dominated by imported Korean wine market as more and more liters). areas, due to its high-quality image. Australian and Chilean wines but there is a Koreans adopt a Westernised diet or con- Value-priced wines led by large-scale produc- trend shifting towards South African wines, as sume wine for its perceived health benefits. Due to the economic slowdown, a number of ers such as E & J Gallo, have an 18 percent they offer good value varieties within this price Chile noted a major boost in wine exports to Thai consumers are increasingly price-sensi- share of the total still grape wine category and range. Premium price wines (RM110.00 and South Korea after the FTA was signed. tive and price is a major determinant in their continue to fuel growth in the market. This is above or US$36+) are mainly dominated by Australia, currently negotiating an FTA, will buying decision. As a result, economical alco- mainly due to the market’s familiarity with the Old World producers and few selected wines hope to drive its own wine exports to South hol beverages continue to enjoy the strongest brand, affordable pricing and extensive from Australia and Chile. Australian exporters Korea. In 2009, South Korea and the EU expansion in each product category, across national distribution network. Meanwhile, trad- have difficulty penetrating this segment as it is signed what has been described as the sec- beer, wine and spirits. For instance, New ers report growing interest in premium prod- a segment mainly dominated by mature drink- ond largest FTA in history, behind NAFTA. It is World wines retail at a 20-30 percent discount ucts as consumer awareness in these wines ers. Mature drinkers tend to shift towards Old expected that European wine imports will rise to Old World wines and have gained signifi- grow and preferences become more and World wines once they have acquired the substantially as tariffs are lifted at the FTA’s cant ground along with beer. more sophisticated. Continued double-digit taste of New World wines.28 entry into force.30 Australia is Thailand’s leading wine importer annual growth in both premium and valued- Similarly, driven by a bilateral trade agreement with 35% of the market. Australian priced wines is foreseen due to growing inter- South Korea between the two nations, especially with wine flourishes in Thailand because of the est in wine and further penetration into the In addition to the traditional wine market of regard to tax, the volumes of Chilean wines ongoing reduced tax and tariff rates resulting mass market, perceived health benefits of red Japan and the Chinese market, South Korea imported into Korea doubled between 2005 from the Free Trade Agreement these two wine, expansion in the market to include sig- is emerging as another important destination and 2009. In the same period, French wines, countries since January of 2005.26 nificant volumes of New World wines, and for wine. Global business information provider traditionally the market leader in South Korea stepped up promotions. Wine importers are Datamonitor notes that the overall market for lost 16.6 percent of their share. This situation building on the growth and working to encour- Malaysia wine in South Korea registered an increase of should however evolve in the coming years as age consumers to try mid-range and premium The market for wine in Malaysia increased at a over 20 percent for every year between 2002 the agreement between the EU and Korea varietals through sampling and education.24 compound annual growth rate of 8.6% and 2007. Over that period, wine consump- takes effect. In comparing the economic indi- Red wines used to be more popular mainly between 2004 and 2009. The still wine cate- tion in the country doubled. Between 2005 cators of some of the Asian economies dis- because Filipino consumers in the earlier part gory led the wine market in Malaysia, account- and 2009, wine consumption in South Korea cussed earlier with some of the EU markets, it of the decade were still unfamiliar with wine ing for a share of 85.6%. The leading players increased by 12.23 percent. A Vinexpo / is clear from sheer numbers that China, colour and varietals. Because of the increase in the Malaysian wine market include Pernod IWSR study projects that by 2013, growth in Indonesia and Japan have large populations in wine familiarity, the shift toward more whites Ricard, E. & J. Gallo Winery and Louis Vuitton Korean wine consumption will have reached but that GDP per capita generally lags behind and rosés is evident. Consumers are now Moet Hennessy SA. Cheaper new world 83 percent, one of the largest increases pro- those of EU countries. Another significant discovering that sparkling wines from the New wines continue to grow in popularity in jected globally. This is ascribed to the eco- observation from a wine consumption percep- World regions are affordable and an accept- Malaysia, with products from Australia, New nomic recovery in South Korea and partly due tive, (see table 5) is that besides China, the able replacement for Champagne. Zealand, Chile, and the US leading sales dur- to bilateral trade agreements signed by the countries have largely urbanised populations.

20 21 Table 5: Economic indicators: Comparative analysis: European and Asian countries Endnotes

) 1 www.calwinexport.com/files/Winepercent20Annual_ 13 www.euromonitor.com/wine?id=4&sortby=1­ 2 )

2 Pretoria_Southpercent20Africapercent20-percent20R &pagesizes=10 epublicpercent20of_3-9-2010.pdf

(km 14 www.paulfrasercollectibles.com/section.asp?catid=21 percent percent Literacy (US$ bn) (Millions) (US $ bn) Land Area Land Area (total km Population 2 The research report titled “Wine: A Global Strategic 1&docid=6280&n=w160311 Urbanisation Irrigated Land GDP total (PPP) GDP Per Capita Business Report” announced by Global Industry 15 www.topwinechina.com/visitors/visitorsframe.htm Analysts, Inc., provides a comprehensive review of 16 www.topwinechina.com/visitors/visitorsframe.htm Belgium 30,528 10.4 381 3t,600 400 97 99 industry overview, current market/lifestyle trends, 17 www.mbendi.com/land/as/cj/p0065.htm China 9,596,961 1,330.1 8,791 6,500 545,960 43 90.9 product overview, major markets and producers, product innovations, recent industry activity and pro- 18 www.reportlinker.com/ci02017/Wine.html/coverage/ France 551,500 64 2,110 32,800 26,000 77 99 files of market players worldwide. Analysis and over- Asia/mode/premium/publisher/Euromonitor_Internat­ Germany 3,621 82.2 2,811 34,100 4,850 74 99 view is provided for major geographic markets such as ional#ixzz1HMFzJrRh United States, Canada, Japan, Europe (France, 19 www.marketresearch.com/browse.asp?categoryid Hong Kong 1,104 7 301.3 42,700 20 100 93.5 Germany, Italy, UK, Spain, Russia and Rest of Europe), =477 Asia-Pacific (China, Australia, New Zealand and Rest Indonesia 1,904,069 242.9 969.2 4,000 45,000 52 90.4 20 www.reportlinker.com/ci02017/Wine.html/coverage/ of Asia-Pacific), Latin America (Argentina, Brazil, Chile, Asia/mode/premium/publisher/Euromonitor_Internat­ Italy 301,340 58 1,760 30,300 27,500 68 98.4 Mexico, and Rest of Latin America) and Rest of World. ional#ixzz1HMGIDgF3 Japan 377,915 127 4,137 32,600 25,920 66 99 Market analytics are provided in volume (liters) terms for product groups/segments including Still Wine (Still 21 www.asianz.org.nz/our-work/action-asia-business/ Netherlands 41,543 16.7 654.9 39,200 5,650 82 99 Red, Still White, and Still Rose), Sparkling Wine, action-asia-insights/japan-wine-market Fortified Wine, and Vermouth. Spain 505,370 40.5 1,368 33,700 37,800 77 97.9 22 http://static.globaltrade.net/files/pdf/20110318143 3 http://salewine.wordpress.com/2011/02/14/ 128470.pdf UK 243,610 61.2 2,149 35,200 1,700 90 99 4 http://new.excelenciasgourmet.com/en/noticia/wine- 23 www.reportlinker.com/ci02017/Wine.html/coverage/ Asia/mode/premium/publisher/Euromonitor_Internat­ Source; CIA World Factbook, 2009 intake-grow-25-asian-markets ional#ixzz1HMGYu5Ja 5 http://new.excelenciasgourmet.com/en/noticia/wine- intake-grow-25-asian-markets 24 www.calwinexport.com/files/Wine%20Product%20 Brief_Manila_Philippines_7-14-2009.doc.pdf 5. Key findings 6 http://online.wsj.com/public/resources/documents/ • Some niche growth markets are present • Traditional wine exporting countries like Here’s_looking_at_you.pdf 25 www.usdathailand.org/upload/TH9124_Wine%20 Market%20in%20Thailand_Bangkok_ Thailand _8-21- in the EU e.g. Sweden and Russia, the Italy are looking at BRIC countries for 7 http://online.wsj.com/articleSB1228426796227 2009.pdf third largest wine market in Europe, with export growth. All leading wine exporting 80557.html increasing wealth and with limited domes- countries are exploring growth opportuni- 26 www.euromonitor.com/wine tic wine producing capability, hold great ties in new markets that include Asia. 8 www.iol.co.za/business/business-news/cape-wine- 27 www.wearelava.com/2010/03/09/the-wine-market- potential. Germany shows continued wins-award-in-sweden-1.876466 • As regards the Asian markets, obtaining in-malaysia/ steady albeit slow growth. market intelligence will be an important 9 http://blogs.ft.com/beyond-brics/2010/12/23/britons- 28 http://www.datamonitor.com/store/Product/wine_in_ • Growth will flatten in traditional markets preparatory action step. This intelligence change-their-taste-for-s-african-wine/ malaysia_to_2014?productid=DBCM7191 whilst it will surge in emerging Asian mar- should include amongst others research 10 http://winemarketer.com/wine-consumption-to- kets. into non-tariff barriers. exceed-262-billion-liters.html 29 www.vinexpo.com/en/actualites/news/wine-korea- growth-wine/ • Traditional markets’ consumption growth • Competitor actions within the EU will 11 http://new.excelenciasgourmet.com/en/noticia/wine- will still be notable but could perhaps be become more aggressive and in Asia with intake-grow-25-asian-markets 30 www.asianz.org.nz/our-work/knowledge-and- research/research-features/asian-wine-markets regarded as maintenance markets while Latin American and Australian and New 12 www.articlesbase.com/wines-and-spirits-articles/chi- growth markets are to be explored in the Zealand wines targeting these markets na-and-hong-kong-are-making-a-major-impact-on- Far East. aggressively. wine-sales-4024049.html

22 23 vrg raphics_4702

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