Lecture 4 - Market UGSCCS - Autumn 2013
WINE MARKET LECTURE STRUCTURE Section 1 Global Market
WIDE RANGE OF WINE TYPES Table wines Sparkling wines Fortified wines For each type there may be a different Grape variety Origin (Country, Region, Vineyard) Year of production
TYPE AND PRIMARY PACKAGING Containment Still wine Traditional wine bottles (500g weight) Lighter weight bottles (400g weight) Other forms Sparkling wine Need to contain fermentation in bottle Stronger (thicker) glass bottle Wire enclosure to secure cork
TYPE AND PRIMARY PACKAGING Preserve Dark bottles Protect wine from natural sunlight Prevents oxidisation Increases storage life Commonly used with red wines Clear bottles s with short storage life Ready-to-drink White / rose wines
TYPE AND PRIMARY PACKAGING Inform Labels provide legal and marketing information Alcohol content Storage / drinking information
TYPE AND PRIMARY PACKAGING Promote Individual brands Vineyards Producers Retailers Target market segments Icon Ultra-premium Super premium Premium Basic Source: M Tustin (April 2002) The Marketing Decade Setting the Australian Marketing Agenda 2000-2010, www.winebusiness.com
WINE TYPE & SEGMENT Basic Basic wine aged for short period of time Grapes from several vineyards Premium is aged for a few months Grapes come from different vineyards but are better quality Super premium Aged for a minimum of 2 years (at least 6 months in oak) Grapes come from qualified vineyards Ultra premium Quality wine, aged at least 3 years 1 in an oak cask and 2 years in the bottle Grapes come from top vineyards Icons Aged at least 2 years in oak plus another 3 in the bottle All great icon wines are made from exceptional vintages Source: M Tustin (April 2002) The Marketing Decade Setting the Australian Marketing Agenda 2000-2010, www.winebusiness.com
PRIMARY PACKAGING BASIC WINES Also known as Sales packaging Consumer packaging The packaging The individual product unit Which is in contact with the product That the consumer usually takes home
PRIMARY PACKAGING PREMIUM WINES
PACKAGING ICON WINES
SECONDARY PACKAGING Groups product units into a convenient package For replenishment of stock items / shelves For multiple unit sales It can be removed without affecting the product
TERTIARY PACKAGING Used for transport of the products Outer case Pallet Crate Designed to ensure the damage free handling and transport
PACKAGING FOR TRANSPORT Insulation blankets To regulate temperatures in containers Long term changes in temperature Daily changes in temperature Ideal temperature for wine is 13 15 o C Temperature changes cooks the wine Aroma Colour Flavour Quality of wine Reduced shelf life Re-fermentation Dunnage Materials used to protect goods and their packaging from Moisture Contamination Mechanical damage
TRANSPORT CONSIDERATIONS Ship Stow container away from heat Sun Engine Avoid transhipment in cold / hot climates Road / Rail Be aware of transit time and climate Terminal Avoid long stays on docks Avoid storage in direct sunlight Air Awareness of time on tarmac
TRANSPORT CONSIDERATIONS
ALCOHOL CONSUMPTION (LITRES / YEAR) Country (2011 Rank) Total Beer Spirits Other Moldova (1) 18.22 4.57 4.67 4.42 0.00 South Korea (13) 14.80 2.14 0.06 9.57 0.04 France (16) 13.66 2.31 8.14 2.62 0.17 United Kingdom (17) 13.37 4.93 3.53 2.41 0.67 Argentina (45) 10.00 2.49 4.62 0.52 0.20 United States (57) 9.44 4.47 1.36 2.65 0.00 Chile (65) 8.55 2.03 2.59 2.16 0.04 Japan (70) 8.03 1.72 0.29 3.37 2.61 China (96) 5.91 1.50 0.15 2.51 0.23 Source: Wikipedia Per capita consumption of alcohol - Total (2011) and by Type (2003 2005)
KOREAN SOJU (SPIRIT) Most drunk sprit in world Vodka Whisky Brandy Domestic consumption 94% or more of Jinro soju > 96% of Chum-churum Jinro soju 61,380,000 boxes sold per year 9L per case 552,420,000L per year Source: Drinks International (2012)
GLOBAL MARKET International wine trade is an excellent example of global trade Over 1 million wine producers globally Producing ~2.9 billion unit cases of wine annually Global consumption ~2.6 billion cases drinking ~0.3 billion cases for industrial uses and fortified products The global export market for wine is ~1 billion cases Requires increasingly complex logistics and supply chain management Source: Morgan Stanley (2011), The Global Industry
WINE PRODUCING REGIONS Old World - France, Spain, Italy, Germany, Portugal New World - USA, Australia, Argentina, Chile, South Africa, New Zealand Other India, China Source: http://schiller-wine.blogspot.co.uk
OLD VS NEW WORLD Old World Controls 65% of export market Declining production 1% loss vine acres 2010 Europe ~7% less winemaking capacity than in 2005 New World 30% of the global export market Less than 3% in the early 1980s Slow down in new plantings Source: Morgan Stanley (2011), The Global Industry
TOP 10 PRODUCERS 2009 Region Country 2009 (000 hectolitres) % Italy 47,699 17.7% Old World France 45,558 17.0% Spain 35,166 13.1% Germany 9,180 3.4% USA 20,600 7.7% New World Argentina 12,135 4.5% Australia 11,598 4.3% Chile 9,869 3.7% South Africa 9,788 3.6% Other China 12,000 4.5% World Total 268,733 Source: www.indianwineacademy.com
GLOBAL WINE TRADE Source: Rabobank (2011), World Map
EXAMPLE TRADE VOLUMES (TONNES) Export Import Argentina 297,062 1,669 Chile 691,824 3,022 China 1,450 172,835 France 1,215,984 576,710 New Zealand 128,560 31,791 Republic of Korea 107 23,007 United Kingdom 43,815 1,102,907
OLD WORLD - FRANCE EXPORTS
OLD WORLD - FRANCE IMPORTS
NEW WORLD - ARGENTINA EXPORTS
NEW WORLD - ARGENTINA IMPORTS
NEW WORLD - NEW ZEALAND EXPORTS
NEW WORLD - NEW ZEALAND IMPORTS
OTHER - CHINA EXPORTS
OTHER - CHINA IMPORTS
OTHER - SOUTH KOREA EXPORTS
OTHER - SOUTH KOREA IMPORTS
OTHER - UK EXPORTS
OTHER - UK IMPORTS
EXPORTING GLOBALY France 181 countries Chile 133 countries New Zealand 85 countries Is exporting the same to every country?
ADAPTATION - IMPORT RESTRICTIONS Travellers To Korea - one bottle of alcohol per passenger To UK per passenger European Union Unlimited Outside European Union 4 litres of still wine OR 1 litre of spirits or strong liqueurs OR 2 litres of fortified wine OR 16 litres of beer Alcohol bans Few restrictions Latin America, Southern Europe, Asia, Africa State alcohol monopolies in some areas and/or prohibition in the past United States, Northern Europe, Russia Alcohol banned or severely restricted Islamic countries
ADAPTATION - TAXATION Countries may seek to protect their own producers from imports Tariffs Ad valorem tariffs Duty payable is proportional to the value of the product Specific tariffs Duty payable is calculated at a currency amount per unit of volume Tariff quotas An in-quota tariff rate is applied to an agreed volume of imports Any additional imports face a higher above-quota tariff rate Domestic sales tax Often linked to alcoholic % of wine Impact Alcoholic strength of wine Packaging location Type of wine that is competitive in individual markets Korean wine imports 15% Tax (waived in the case of the countries with a FTA e.g. Chile) 30% Alcohol Tax 10% Education Tax 10% VAT
ADAPTATION - TAXATION EG UK Beer and spirits taxed on alcoholic content Typically 74% price duty & VAT and cider taxed by volume of alcohol 6 duty bands Typically 56% price duty & VAT
ADAPTATION - LABELLING REGULATIONS Alcohol content Additive presence Specific marks Health warnings Importers details Alcohol units Storage Best before Source: www.wineaustralia.com
ADAPTATION - IP PROTECTION Intellectual Property (IP) Protection Geographical identification Champagne Grape Burgundy What words are used in packaging and marketing French system by region American system by grape Source: www.wineaustralia.com
ADAPTATION - ADDITIVES Function Improve wine shelf life Improve flavour Natural part of wine making process Examples Yeast part of wine making process Alcohol increase alcohol content (or removal) Gases to prevent oxidisation Copper sulphite improve colour and taste Sulphites - preservative Bentonite prevent cloudiness Highly regulated by country (US state) exports must comply with import country regulations Additives may have to be clearly identified on labels Concerns driven by Impact on wine Potential impact on human health
ADAPTATION - PACKAGING MATERIALS Comply with import regulations for treatment of packaging eg wood fumigation and whiskey barrels are exempt from ISPM #15
EXPORTING GLOBALY France 181 countries Chile 133 countries New Zealand 85 countries Is exporting the same to every country? No Import restrictions Taxation Labelling regulations Additives Packaging regulations Exchange rate fluctuations
IMPORTING GLOBAL PRODUCT RANGE UK 69 countries Korea 38 countries Chile 19 countries Managing inventory and supply chain of significant importance Today s wine market is extensive Global Large numbers of players within the supply chain
RETAILERS PRODUCT OFFERING Type Size Grape Packaging Colour Table Vintage Fortified Sparkling 30 cl 70 cl 1 l 3 l box Case (6 or 12) Single Merlot Pinot Noir Shiraz Blend Glass Plastic Cardboard Can Red White Rose Green Location Origin Consumer Region Champagne Burgundy Vineyard New World Old World Other Brand name Alcohol level Label design Promotion Food match Recommend
SUPPLY CHAIN 2010 world wine market 23.6 billion litres / US$183.1 billion Global supply / demand imbalance New markets emerging Complex global supply chains Many players
Production and harvest of grapes GLOBAL WINE MARKET SUPPLY CHAIN GRAPE GROWER Raw Materials Supplier Supplies Grape Grower Grapes Producer Bulk Filler / Packer Importer Finished Goods Distributor Wholesaler Retailer Final Customer
SUPPLY CHAIN WINE PRODUCER Manufactures wine from grapes May grow own / purchase grapes May bottle / pack own wines Raw Materials Supplier Supplies Grape Grower Producer Bulk Filler / Packer Importer Finished Goods Distributor Wholesaler Retailer Final Customer
Roles may be undertaken by one company GLOBAL WINE MARKET SUPPLY CHAIN FILLER / PACKER Raw Materials Supplier Supplies Grape Grower Producer Filler / Packer Importer Finished Goods Distributor Wholesaler Retailer Final Customer
To wine producer Additives Filler / packager Bottles, cork, labels GLOBAL WINE MARKET SUPPLY CHAIN MATERIALS SUPPLIER Raw Materials Supplier Supplies Grape Grower Grapes Producer Bulk Filler / Packer Importer Finished Goods Distributor Wholesaler Retailer Final Customer
Purchases wine from the wine producer Sells to Wholesaler or Distributor GLOBAL WINE MARKET SUPPLY CHAIN - IMPORTER Raw Materials Supplier Supplies Grape Grower Grapes Producer Bulk Filler / Packer Importer Finished Goods Distributor Wholesaler Retailer Final Customer
FDR - Finished Goods Distributor Distributes wine to wholesaler or retailer May re-pack and re-label for final customer GLOBAL WINE MARKET SUPPLY CHAIN FDR Raw Materials Supplier Supplies Grape Grower Grapes Producer Bulk Filler / Packer Importer Finished Goods Distributor Wholesaler Retailer Final Customer
Receives wine from Distributor Dispatches goods to the retails stores May purchase direct from winery GLOBAL WINE MARKET SUPPLY CHAIN - WHOLESALER Raw Materials Supplier Supplies Grape Grower Grapes Producer Bulk Filler / Packer Importer Finished Goods Distributor Wholesaler Retailer Final Customer
Sells consumer units to general public GLOBAL WINE MARKET SUPPLY CHAIN - RETAILER Raw Materials Supplier Supplies Grape Grower Grapes Producer Bulk Filler / Packer Importer Finished Goods Distributor Wholesaler Retailer Final Customer
SUPPLY CHAIN - RETAILER Sells consumer units to general public May have direct relationships with Finished goods distributor Raw Materials Supplier Supplies Grape Grower Grapes Producer Bulk Filler / Packer Importer Finished Goods Distributor Retailer Final Customer
SUPPLY CHAIN - RETAILER Sells consumer units to general public May have direct relationships with Finished goods distributor Importer Raw Materials Supplier Supplies Grape Grower Grapes Producer Bulk Filler / Packer Importer Retailer Final Customer
SUPPLY CHAIN - ALTERNATIVE Sells consumer units to general public May have direct relationships with Finished goods distributor Importer ry Raw Materials Supplier Supplies Grape Grower Grapes Producer Filler / Packer Retailer Final Customer
SUPPLY CHAIN - ALTERNATIVE Sells consumer units to general public May have direct relationships with Finished goods distributor Importer ry Raw Materials Supplier Supplies Grape Grower Producer Filler / Packer Retailer Final Customer
Consumes purchased wine May purchase direct from ry Importer GLOBAL WINE MARKET SUPPLY CHAIN - CONSUMER Raw Materials Supplier Supplies Grape Grower Grapes Producer Bulk Filler / Packer Importer Finished Goods Distributor Wholesaler Retailer Final Customer