Global Wine Consumption Inches Ahead
The big potential profits for wine companies lie in Asia, and in mergers and consolidation
The global wine industry is growing, but slowly. Wine consumption around the world increased a mere 0.5 percent by volume in 2007, according to the current edition of The Global Drinks Market: Impact Databank Review and Forecast. Consumption has increased 10 percent by volume in the past 10 years, but that pales in comparison with 35 percent growth for the global beer market since 1997.
While wine consumption has surged in China and other developing nations, larger, more mature markets such as the United States, Canada, South Africa, Australia and Chile have enjoyed more steady growth. But in the Old World countries of France, Italy and Spain, wine consumption has continued a big decline. Annual gains of only 0.4 percent each year are projected for world wine volume through the end of the decade.
China is now the largest wine market in Asia and the only Asian country among the top 20 wine-consuming nations, at 74 million cases in 2007 (a gain of 35 percent from 2006). But the Chinese drink less than a bottle per person annually, compared with almost 6 cases per person in France, so huge opportunities still abound, especially for large international wine companies. Over the past three years, China has accounted for two-thirds of global wine growth, according to the 761-page report, but only about 6 percent of wine consumed in China in 2007 (fewer than 5 million cases) was bottled, imported wine. The rest was either domestic wine or imported bulk wine. So China’s boom hasn’t been of great benefit to most big multinational wine companies yet. Elsewhere in Asia, Japan remains the region’s largest wine market in dollar terms, even though it consumes less than half the volume that the Chinese do.
Some analysts believe that the only way to expand in a slow-growing industry is to obtain volume through mergers and acquisitions, and Constellation Wines remains the industry leader with its recent purchase of Clos du Bois and other wine labels from Fortune Brands. This acquisition came on the heels of its purchase of Canada’s Vincor in 2006 and the Robert Mondavi acquisition in 2004, which resulted in Constellation’s ascent as the world’s largest wine marketer.
Pernod Ricard’s recent deal to acquire Sweden’s V&S Wine added nearly 10 million cases to its global volume, and followed its 2005 purchase of high-volume wine assets from Allied Domecq. In spite of the consolidation trend, wine remains a highly fragmented industry, with the 10 leading companies accounting for only 16 percent of the global market in 2007, according to Impact Databank, which is owned by M. Shanken Communications, the parent company of Wine Spectator. But that represents a five-point increase since 1995, as wine's biggest players continue to acquire smaller wineries and form international joint ventures.
But faced with a sluggish global economy and supply challenges like the extended drought in Australia, the big players have tried to improve long-term growth and maximize profits by focusing on more high-end wines. In Constellation’s case, the company acquired more premium wine labels with the recent purchases, and at the same time, it sold off two high-volume but low-profit brands—Almaden and Inglenook. Other high-profile wine companies such as E. & J. Gallo and W.J. Deutsch have also joined the fray by forging partnerships with other marketers. Several industry insiders speculate that Foster’s Group, owners of major wine properties on both sides of the Pacific, is the prime target of the next round of consolidation.