ProWein Business Report 2022 out now:
The wine industry is responding proactively to the economic crisis
Commissioned by ProWein, Hochschule Geisenheim University polled experts from throughout the world across the entire value chain of the wine industry in late 2022, for the sixth time now. Participants include wine producers from the most important wine-growing countries in the Old and New World, exporters, importers, specialist wine merchants as well as representatives from the food service/hospitality and hotel industries. The ProWein Business Report 2022 follows on from ProWein’s unique, regular “Marktbarometer” (Market Barometer) for the international wine industry produced since 2017 and assesses the significance of the challenges facing the industry during the current economic crisis.
“This year again almost 2,500 international experts from 47 countries have shared their insider knowledge with us,” says Prof. Simone Loose, Head of the Department of Wine and Beverage Business at Hochschule Geisenheim University, underlining the special relevance of this global industry barometer. “The industry is facing major challenges caused by rising costs and disrupted supply chains. Interesting to note here is that industry leaders are proactively responding to the economic crisis. They tap into new markets with their products and react to traders’ and consumers’ needs with very innovative solutions.” These include – according to the survey – alternative wine packaging and low and non-alcoholic wines.
Commissioned by ProWein, Geisenheim University polled experts from throughout the world across the entire value chain of the wine industry in late 2022, for the sixth time now. Participants include wine producers from the most important wine-growing countries in the Old and New World, exporters, importers, specialist wine merchants as well as representatives from the food service/hospitality and hotel industries. The ProWein Business Report 2022 follows on from ProWein’s unique, regular “Marktbarometer” (Market Barometer) for the international wine industry produced since 2017 and assesses the significance of the challenges facing the industry during the current economic crisis.
“This year again almost 2,500 international experts from 47 countries have shared their insider knowledge with us,” says Prof. Simone Loose, Head of the Institute for Wine and Beverage Business at Geisenheim University, underlining the special relevance of this global industry barometer. “The industry faces major challenges caused by rising costs and disrupted supply chains. Interesting to note here is that industry leaders are proactively responding to the economic crisis. They tap into new markets with their products and react to traders’ and consumers’ needs with very innovative solutions.” These include - according to the survey - alternative wine packaging and low-no alcohol wines.
“For the industry it is more important than ever to enter new export markets now, to follow market trends and network. That is precisely the strength of ProWein. We provide the industry with the matching contact opportunities, information and connections for all of these requirements. If not here, then where?” asks Michael Degen, Executive Director at Messe Düsseldorf and responsible for ProWein.
The most important results at a glance
The industry entered 2022 with positive expectations. Producers and traders hoped for a recovery from the negative impact of Covid-19. These hopes were not or only partially fulfilled. In general, the industry therefore looks to the future with caution.
Like in the previous year, rising costs and disruptions to supply chains rank top of the list of threats and challenges for the wine industry. However, the degree to which the industry is affected has clearly increased. Furthermore, the economic slowdown threatens to curb wine sales.
The global economic upturn after Covid-19 already led to a greater demand for energy and rising energy prices in 2021. With the war in Ukraine and sudden collapse in energy supplies in 2022, prices in many parts of Europe have therefore often more than doubled compared to 2020. Due to their higher energy consumption, producers are significantly more affected by this than wine traders.
Almost all producers were affected by transportation issues and supply chain disruptions. Wine producers managed to successfully cushion the trade from a large proportion of the supply problems. As a result, the wine trade was significantly less affected. From the industry’s perspective, transportation and supply issues will continue to present a major challenge for their business.
Commissioned by ProWein, late 2021 saw Geisenheim University survey experts representing the entire wine supply chain from 48 countries for the fifth time now. Participants in the survey include wine producers from the most important wine-growing countries in the old and new world, exporters, importers, specialist wine dealers as well as representatives from food service and hospitality. Following on from the unique “journey through time” undertaken with the market barometer for the international wine industry since 2017 this ProWein Business Report rates the importance of challenges facing the sector after two years of pandemic.
The focal theme of the current ProWein Business Report is the significance and implementation of sustainability in the wine industry. It looks at whether sustainability has lost any of its importance during the pandemic and which concrete measures the wine sector has already undertaken to become sustainable. The ProWein Business Report is the first international study comprising industry views on the current and future significance of organic and sustainably certified wine growing. It specifically deals with the question of how sustainability can be communicated to consumers in the most effective way. “The particular importance of sustainability for the wine sector is reflected in the very high participation rate of nearly 3,000 international experts,” stresses Prof. Simone Loose, Head of the Institute of Wine and Beverage Business at Geisenheim University. “The sector is faced with the challenge of adapting to climate change while becoming greener and more sustainable as well as of credibly getting this message across to their customers. This will only be possible if the industry joins forces and wine producers and dealers as well as hospitality can all act and communicate credibly.”
TOPIC BLOCK 1
Economic climate improved and better than expected
“Contrary to expectations the economic climate has not deteriorated any further – the wine sector is doing better in 2021 than in the previous year 2020.”
Since 2017 the ProWein Business Report has mirrored the wine industry’s economic situation and business expectations of the day. In 2020, the first year of the pandemic, the sector still looked to the future with great pessimism. Contrary to expectations, however, 2021 saw a clear recovery in the wine trade – however, the good economic climate prevailing prior to the pandemic has not been reached yet. Expectations for 2022 are cautiously positive.
Spanish and Italian wine producers hope for the strongest post pandemic improvement of wine demand. French producers are slightly less optimistic because of the high crop losses due to late frost, while German producers are generally more reserved. Wine trade and hospitality expect the situation in 2022 to hardly change against 2021.
Current challenges for the wine industry
“Overloaded supply chains and rising prices are right now the key challenges facing the sector.”
The concurrent economic recovery occurring on a global scale after the Covid-19 crisis leads to strong cost increases for energy, raw materials and transport as well as to long delays in global merchandise shipping and, hence, also for wine shipments. Cost increases endanger the profitability of international wine transactions. The wine sector is therefore faced with the challenge of factoring in these cost increases and of passing them on in the supply chain. Since consumer budgets are subject to significantly larger burdens in this inflationary climate in general, the sector is worried about wine consumers’ reactions to price increases. It is therefore uncertain how strongly the current trend of premiumisation of wine can be continued in the near future.
“Hotels and restaurants as well as specialist wine dealers are still suffering from the Covid-19 induced sales restrictions.”
Covid-19 continues to restrict wine trade. Consequences of the pandemic rank third in the list of current challenges. After an initial recovery in summer 2021 the new Covid variants have again heavily constrained tourism and the meetings industry worldwide. Although it is hoped that summer 2022 will bring marked improvement and normalisation, it is not safe to say what the “new normal” in social life will look like after the pandemic. Wine dealers and food service providers have so far felt less of the effects of climate change and environmental regulations than the producers. This goes hand in hand with a lower awareness of sustainability among wine traders as well as a low willingness to honour the higher cost of sustainable wine and to communicate it to consumers.
“Climate change and stronger environmental regulations paired with concurrent lower profitability face wine producers with major challenges.”
The pandemic and the less extreme last summer have weakened the public perception of climate change. The process of climate change, however, continues unabated and also in the current survey constitutes a strong or very strong threat for six out of ten wine producers, making costly adaptation measures necessary. At the same time, wine producers are faced with the challenge of complying with increasing environmental regulation by means of investment. Considering the low profitability of most wine producers, coping with environmental challenges proves an economic burden especially for many smaller outfits and will further accelerate the concentration process.
Wine producers also face more challenges on account of price increases in general. In France and Germany the European health policy to reduce alcohol consumption is felt particularly strongly. Producers in new world countries, the USA, Australia and South Africa perceive the international trade war as well as competition through other beverages (Hard Seltzer, Craft Beer) and the legalisation of cannabis as particular challenges.
TOPICS BLOCK 2:
Organic viticulture paving the way for sustainability
“Organically certified viticulture is already widespread with strong regional differences due to climate.”
Certified organic viticulture looks back on a long tradition and in essence centres on the use of non-synthetic substances for vine protection and fertilisation. The Green Deal of the European Commission aims for a quarter of European vineyards to be cultivated as certified organic to increase sustainability. This has given rise to a heated debate in the wine sector about how sustainable organic viticulture really is.
The industry leaders polled hold noticeably more organic certifications than the industry average – values are not representative for wine-growing countries though. Thanks to the climatic advantage of dry, Mediterranean summers organic viticulture is most widespread in Spain, Italy and France; 61%, 52% and 35% respectively, of the industry leaders participating in the survey are organically certified, and nearly all of them could imagine changing their production over to organic in future.
Due to the moist and cool climate that promotes fungus diseases in vines only 21% of the German producers surveyed are organically certified and the majority of vintners in Germany and the new world are not considering going organic in future either.
“The future prospects in the wine trade and in food service are positive but unfortunately also clouded by consumers’ unwillingness to pay for organic wine.”
The majority of specialist wine dealers (78%), hoteliers (77%) and food service providers (72%) assume that organic wine production will continue to rise in future. Optimism is strongest among the trade representatives in Scandinavia, Belgium, Luxembourg as well as France and Italy. Part of these countries are even noting active demand for organic wine among consumers. In contrast to this, wine dealers in the Netherlands, Germany and Eastern Europe report of lower demand from consumers and an unwillingness to pay for organic wine. They are therefore less optimistic about market growth for organic wines. For those in the wine trade consumer unwillingness to pay for organic wine and organic certification costs rank first in the list of reasons for refusing certification. Only a third of those in retail and food service expect the EU to attain its 25% organic vineyards target.
“The industry is calling for the further development of organic viticulture towards environmental sustainability.”
From the vintners’ point of view, the economic risk and use of copper for plant protection are the two key reasons against organic certification. The environmental and economic sustainability of organic viticulture is seen as rather critical by winegrowers. Only half of them believe that profitable viticulture is environmentally sustainable. This view is most widespread in Spain at 82%, while German vintners (at 41%) are most critical because of the herbicides often needed. The environmental sustainability of organic viticulture is rated even less positively. Only 30% of German vintners, 40% of vintners in France and Italy and 58% of vintners in Spain feel that organic winegrowing is economically viable in the long term. A greater willingness to pay on the consumers’ part would be a key prerequisite for covering the higher costs for organic wine production in growing regions not graced with an ideal climate.
The overwhelming majority of the industry demands further development of organic viticulture regulations to reconcile them with the more comprehensive concept of environmental sustainability. This demand is equally shared by all wine-growing nations; 8 out of 10 producers agree that further development is necessary. In general, those in the wine trade and food service sector have a less detailed insight into the production conditions of organic winegrowing. Nevertheless, they are similarly critical when it comes to the sustainability of organic viticulture: 7 out of 10 representatives of the wine trade and food service sectors demand a consistent development of organic viticulture towards sustainability.
Sustainability is as important as before for the wine sector and implemented with concrete measures
“The pandemic has not diminished the importance of sustainability for the wine industry – economic sustainability is most important.”
At the beginning of the pandemic, industry experts voiced their concerns in the last ProWein Business Report that the challenges triggered by Covid-19 would limit the industry’s ambition to reach sustainability. Fortunately, these fears have not been confirmed. Compared to 2019 sustainability is considered as important as before in the industry.
Of the three pillars of sustainability, the economic pillar – meaning the long-term survival of a company – is the most important dimension of sustainability, according to the wine industry. Only economically viable and successful companies can invest in environmental and social sustainability.
“The new world and France lead in producer sustainability.”
Being a more recent concept, certification as a sustainable producer is not yet as widespread as organic viticulture. In the lead here are the new world and France where roughly half the vintners surveyed are already certified as sustainable. In Spain, Italy, Portugal, Austria and Greece 40-50% of those polled are considering sustainability certification in future. Of the larger companies in cooperatives and wineries one third already hold or are undergoing certification at present. This percentage is still markedly lower among smaller wine-growing estates. In Germany, where many small enterprises also took part in the survey, most companies have not considered certification so far.
Awareness of sustainability certification has so far been least pronounced in the wine trade and food service segments. In terms of trade, Sweden and Finland, where more than 30% of companies are certified as sustainable, are out in front – followed by Norway (27%), France (21%) and Austria (16%). In Central Europe one in ten of the polled wine dealers and gastronomers are sustainably certified: Denmark (11%), Belgium (9%), Netherlands (8%) and Germany (7%).
“There are already numerous concrete measures to improve sustainability in viticulture.”
The vintners polled stated they had predominantly undertaken measures to achieve environmental sustainability. Two thirds of the wine-growing estates surveyed had reduced the use of herbicides (France and Austria are leading here at 80%, followed by Spain 74%) and proactively promoted biodiversity (USA 78%, France 72%, Germany 61%). Half the estates polled had minimised the use of pesticides (New Zealand 100%, USA 90%, France 80%, Spain 70%), and just under 30% had reduced water consumption (South Africa 90%, New Zealand 50%, Portugal 40%). Due to the high investment costs associated with its use, digital technology for optimally dosing water, fertilisers and herbicides is so far not very widespread. The countries of the new world (Australia 50%, USA 33% and South Africa 33%) are leading here compared to old world nations (Spain and Italy 22%, France and Portugal 17%, Germany 11%).
“Wine trade and gastronomy are also focusing on concrete measures in the field of sustainability. However, support from producers through listing and marketing still leaves room for improvement.”
Specialist wine dealers and gastronomes have so far focused their measures especially on saving resources. These include saving paper by digitalisation by one in two companies, waste avoidance (Norway and Portugal 50%; Finland, Sweden and Spain 45%), reduced energy consumption (Sweden 43%, Finland 35%, Germany 28%, Belgium 26%), optimisation of the supply chain to reduce CO2-emissions (Luxembourg 45%, Norway 36%, Sweden 32%) and changeover to a CO2-neutral energy supplier (Sweden 25%, Italy and Belgium 24%, Austria 18%).
Beyond this, wine dealers and hospitality play a crucial role in the listing, marketing and communication of sustainable products with consumers. So far, the majority of dealers have stated they have marketed organically or sustainably certified wines as part of their portfolio (Sweden 67% of dealers, France 60%, Finland 57%, Poland and Luxemburg 55%, UK 52%, Italy 47%). While one in four wine producers say they use alternative wine packaging, only one in ten specialist wine dealers and gastronomes have listed these for marketing. There are vast regional differences here, with the Nordic countries in a clear lead due to the monopolies in those countries (Sweden 57%, Finland 48%, Norway 43%, Canada 30%, UK 24%, France 20%, Germany 4%). Since the production and transportation of glass bottles accounts for a third to a half of the CO2 emissions, the greatest potential for supporting sustainable products lies with the trade side of the industry.
Uniform, credible sustainability standard is called for
“The industry calls for one single credible standard!”
Industry representatives agree that consumers cannot understand and differentiate between the great number of environmental and sustainable certifications. Eight out of ten industry experts demand a unique, strong sustainability standard that can be jointly communicated to consumers.
The industry names credibility, independence and a critical audit of the data submitted for certification as the most important requirements for notified bodies. Ranking second are consulting and proposals as to how the sustainability of the company can be improved in concrete terms. The companies surveyed also felt that the certifying bodies should translate research into more sustainable measures and build a network for companies to exchange on best practice.
The motivation of producers and dealers to obtain a sustainability certification is primarily driven by their own conviction and their personal interest in sustainability as a holistic system. This interest shown by companies now needs to be increased further by targeted information. A vague definition of sustainability and the risk of greenwashing are stated as the biggest obstacles to certification, followed by consumers’ unwillingness to pay for this and excessively high certification costs.
“Certification as a joint path with political regulations is called for.”
At a rate of 8 out of 10 companies the absolute majority of industry experts are aware that the wine sector still has substantial room for improvement in terms of sustainability. One in two of those polled regard mandatory legal regulations (like the ban on herbicides) as more effective than voluntary commitments of the organisations to reach these sustainability goals. In particular, the companies already obtaining or undergoing sustainability certification are those calling for additional state rules. These companies with a particularly strong interest in sustainability believe that certification and state regulation complement rather than replace each other. From the wine producers’ perspective, however, there is a risk of sustainability regulations leading to distortion of competition through higher costs. One in two wine producers fear competition by wine imports from countries with cost advantages from low sustainability standards and demand compensation by way of import restrictions on non-sustainable wine.
“Sustainability complements tomorrow’s organic cultivation.”
Environmental viticulture has paved the way for more sustainability in the wine sector. Holistic sustainability goes one step further and also encompasses measures to reduce greenhouse gas emissions and to save water and energy as well as actions for economic and social sustainability. The majority of industry leaders polled can imagine undergoing sustainability certification or are already certified. The results of the survey conducted for the ProWein Business Report allude to sustainability becoming a complement for “tomorrow’s organic cultivation”. Those wine-growing companies obtaining both organic and sustainable certification, have – by their own accounts – undertaken more measures to achieve environmental sustainability than companies that are only certified as organic producers.
A sustainable wine industry is only achieved if all actors along the complete supply chain cooperate and can also convince shoppers of the benefits of sustainability with their approach. To this end the wine trade and hospitality have to better fulfil their roles as ambassadors and communicators of sustainability and contribute to the successful sale of sustainable wine.
Commissioned by ProWein, Hochschule Geisenheim University surveyed experts from 49 countries at the end of 2020, thereby covering the entire value chain of the wine industry. This year's survey focused on the effects of Covid-19 on the global wine industry.
According to Prof. Simone Loose, Head of the Department of Wine and Beverage Business at Hochschule Geisenheim University, the ProWein Business Report is the first report worldwide to quantify the global impact of Covid-19 on the different areas of the wine sector and to measure the expectations for the necessary future direction of the wine industry. "The extraordinary importance of the Covid-19 topic for the wine industry is demonstrated by the very high participation rate of international experts, doubling to almost 3,500 participants compared to previous years," says Bastian Mingers, Project Director of ProWein. This underlines the informative value of the current Business Report. "Everyone in the industry has a high interest in comparing with others the effects experienced on their business. At the same time, all businesses are looking for clues for possible strategies and ways out of the crisis.
The Covid-19 pandemic and the resulting decline of the economic situation are the most acute threats to the wine industry, which are suppressing other challenges such as health policy, climate change and the international trade war. Hotel and restaurant closures caused by the pandemic have led to a global disruption of wine distribution channels. Food retailing and online trading, and to some extent the specialist wine trade, have benefited from these shifts in many countries. However, the lack of foreign tourists caused by Covid-19 led to a sharp drop in local wine consumption in many wine-growing countries.
The impact of the Covid-19 crisis on wine producers varied depending on their sales focus. Smaller wineries were particularly affected by the closures of restaurants and hotels and the lack of tourists. The simultaneous global impact of the pandemic also led to a global decline in wine exports, especially to countries with a high proportion of wine consumption at social events and in restaurants. The industry expects only a very slow recovery of tourism and exports and anticipates a further deterioration of the economic situation in 2021.
For the majority of wine producers in Spain, France and Italy, several of their strongest sales channels, in terms of value and volume, have been negatively affected at the same time. These effects, by far, could not be compensated by increases in online sales.
In response to the pandemic, both retailers and producers intensified their online communication, opened online shops, conducted online tastings and offered delivery services. This digital transformation of the wine industry, which was greatly accelerated by Covid-19, will continue in the future, according to the experts.
Cost reductions and government aid programmes have so far been able to avert extensive redundancies and plant closures. However, the experts expect the industry to consolidate and become increasingly concentrated as the pandemic progresses and some businesses are forced to close down. In the future, companies will also strive for greater diversification across different sales channels and markets in order to spread their risk more effectively. For example, producers are trying to switch mainly to direct customer business and food retailing, which will further intensify competition in these channels in the future. It is feared that cost reductions and postponed investments will also slow down the adaptation of the wine sector to climate change and the improvement of environmental sustainability.
Although many consumers have been spoiling themselves with wine during the pandemic, experts expect that the economic consequences of Covid-19 will lead to more price-sensitive consumers and lower sales of premium wines in the future. In contrast, global sales of wine as a whole are expected to recover for the most part after Covid-19.
Current challenges of the wine industry
The effects of the Covid-19 crisis and the expected negative impact on the global economic situation are by far the most important challenges facing the wine industry this year. Compared to last year, the threat of climate change and health policy have receded somewhat into the background due to the acute threat of the pandemic, but are still considered important.
Covid-19 causes disruption in wine distribution channels
As a result of global restrictions, the Covid-19 crisis has led to an abrupt change in the purchasing behaviour of consumers. In many countries there have been extensive closures and restrictions in the restaurant and hotel industry. International tourism, which is of immense importance for sales in countries such as Spain, France and Italy also came to a virtual standstill. In return, consumers were more dependent than before on buying their wine at food retailers or online.
The restrictions imposed by Covid-19 mainly affected restaurants and hotels, 77% of which, according to the results of the survey, had to close down at least temporarily. The hygiene measures imposed led to higher operating costs, restrictions in the services offered, lower occupancy rates and declining turnover for more than 60% of the restaurants and hotels. The whole sector suffered and still suffers from the almost complete cancellation of private and public events and festivities.
Compared to restaurants and hotels, the wine trade was much less affected, with only 25% of businesses having to close and/or suffering a loss of turnover. On the other side, 38% of wine retailers reported increased sales since March 2020.
Hotels and restaurants have been hit hardest economically by the closures, hygiene measures and the collapse of tourism. For about 80% of the businesses, the economic situation has deteriorated due to Covid-19, 30% of which deteriorated very strongly. Starting from a positive level in 2019, the economic situation of hotels and restaurants has thus fallen drastically to the most negative value of all examined sectors of the wine industry. In contrast, the current economic situation of the specialist wine trade is the most positive of all sectors, even if it is declining compared to the previous year. Wholesalers and importers lie between the two extremes with a significant decline but largely satisfactory economic situation.
Overall, the majority of international wine producers were negatively affected by the Covid-19 related changes in sales volumes. Through their listing in the food retail trade, larger producers in particular, such as wineries and cooperatives, were able to compensate for part of their losses. Nevertheless, almost 60% of the businesses reported economic losses due to Covid-19. 70% of the smaller wineries, which depend even more from wine tourism and gastronomy, have seen their economic situation deteriorate due to Covid-19. Even though the wine producers have increased their sales via online channels, these were based on a very low starting level and for most of the wineries they, by far, could not compensate the losses from the important sales channels of gastronomy, export and wine tourism. Mediterranean wine producers in particular lack easy access to consumers in Central and Northern Europe due to the regulation of intra-European online trade in wine.
Due to the global scale of the pandemic, sales channels have shifted virtually simultaneously in all wine markets of the world. As a result, there was a strong negative feedback loop on wine exports from the three main producing countries, with France and Spain already affected by additional import tariffs to the USA since October 2019. Italy's export loss was smaller due to the exemption from the import duties.
Besides the USA, import markets such as China and Hong Kong were particularly affected by the declines. There, private wine consumption is still relatively low and wine is consumed mainly on special social occasions, which no longer took place due to Covid-19. Exports to countries such as the Netherlands or Switzerland, where wine plays an important role in the gastronomy sector, also declined in 2020. The prospects for a recovery in exports in 2021 are modest.
Reactions from businesses
As a result of the crisis, both producers and retailers completely realigned their marketing with a very strong focus on all online channels. 60% of the wine producers and about 50% of the retailers as well as hotels and restaurants intensified the communication with their customers via social media (Facebook, Instagram etc.). Every third wine retailer placed online advertisements. Almost every fourth winery and every fifth wine retailer conducted online tastings to reach their clients and customers during the lockdown. Likewise, every fourth winery and every tenth wine retailer opened a new, company-owned online store.
Sales to direct customers could be increased for 44% of wine producers – specifically through special offers with discounts (46%) and increased customer activation via newsletters (40%). Every fourth wine producer tried to profit from the sales increases in the food trade and online trade by negotiating new listings there.
According to the motto "if the consumer can't come to the wine, then the wine comes to the consumer", every second wine retailer, every third restaurant and every fourth wine producer offered a delivery service for their products. This enabled a contactless and safe delivery of the goods without wine consumers having to leave their homes. For restaurants, however, this delivery service was only able to compensate for a fraction of the revenue, as the ambience, flair and service of a restaurant visit cannot be delivered to the customer's home.
80% of the businesses negatively affected by the crisis had to reduce their expenses and costs in order to survive economically. Half of the businesses postponed planned innovations and investments. Four out of ten companies used public aid programmes, also to be able to continue paying employees. One producer in five was forced to lay off employees. One in ten producers surveyed took part in crisis distillation, which was intended to remove excess quantities from the market in many countries (except for countries such as Germany where crisis distillation was not permitted). Across Europe, around 10 million hectolitres (more than one German annual harvest) were stored or distilled as part of the crisis measures taken by the European Union.
Change in consumer behaviour
During the lockdown, retailers observed a higher willingness to spend money among consumers, who for instance treated themselves to a special wine as compensation for their cancelled trip abroad. Due to the fact that many consumers spent their vacation at home this year, they also turned more often to local and regional wines. The demand for sparkling wine suffered particularly from the lack of social occasions and celebrations to which it is normally drunk.
The expected negative economic effects of the Covid-19 crisis will also weigh on consumers' disposable income in the future. The wine trade therefore expects wine buyers to be more price-sensitive in the future, but at the same time hopes for an increase in demand for regional and sustainably produced wines.
Experts unanimously expect a slow recovery for the restaurant and hotel industry. The majority expect further restraint and caution on the part of tourists even after the crisis, and only one in three hopes for a rapid and strong increase. Therefore, hotels, restaurants and their wine suppliers still require a great deal of persistence to bridge this phase and survive economically. Every third expert is optimistic and expects a complete recovery of wine sales in the gastronomy sector after Covid-19, which also offers opportunities for new innovative business concepts.
Four out of ten purchasers from the specialist wine trade, gastronomy and hotel industry intend to list and purchase new wines from new producers in 2021. On the other hand, one in three trade businesses feels compelled to buy less wine next year due to necessary cost savings and reduction of tied capital.
Expectations for the future
The experts agree that online trade in wine will continue to play a very strong role after the pandemic. Similarly, respondents believe that wine sales via food retailers will emerge stronger from the crisis. One in three also expects premium wines to be sold via food retailers in the future.
For the post-Covid-19 period, one in seven experts expects a recovery in demand for wine to the previous level. The proportion of respondents who expect an incomplete recovery is slightly higher than the proportion who expect wine demand to increase. The wine trade, with its focus on Central Europe, is slightly more optimistic than wine producers with their focus on Southern Europe. Wine producers from Germany and the New World, as well as wine retailers, expect demand for premium wines to be stronger after the crisis than before it. The expectations of wine producers from Southern Europe for premium wine are rather subdued.
Future strategic adjustment of the wine sector
Companies from all parts of the wine value chain agree that digitisation will play a much stronger role in the wine industry. Even though there are still legal hurdles in cross-border online sales between EU countries, two out of three experts agree that in the future producers will focus more on their direct digital marketing. Also, 56% of retailers plan to increase their spending on digital marketing and more than one in three want to invest in new ways to reach their customers more effectively (digitally). In addition, the advancement of digitalization in wine production will continue to accelerate and experts agree that the Covid-19 crisis is unlikely to slow down this process.
In the view of the experts surveyed, the sudden collapse of important sales channels and export markets is likely to result in wine producers having to diversify more to reduce their dependence and the risk of individual channels and markets. This will only be possible through further business growth or partnerships that allow further specialization in the sales area and ensure the necessary sales volume. Two out of three producers surveyed expect the Covid-19 crisis to have such a negative impact on the industry that some of the producers will not survive economically. This will lead to a further acceleration of the ongoing structural change, which will result in fewer but larger businesses.
The last ProWein Business Report 2019 made clear that escalating climate change has led to a growing commitment to sustainability in the wine sector. However, the majority of measures to protect the environment require investments by the businesses. Covid-19 has already led to the postponement of investments and has attacked the economic substance of many businesses necessary for measures to increase sustainability. Three out of ten experts therefore fear that producers will not be able to increase their environmental sustainability and adapt to climate change as quickly as necessary.
Commissioned by ProWein, Geisenheim University for the third time now surveyed more than 1,700 experts in the wine industry from 45 countries on international wine markets, marketing trends and the economic situation in mid 2019. This year’s survey focused on the effects of climate change on the global wine industry. The study covers the complete value chain of wine. The respondents include both wine producers (wine-growing estates, wineries, cooperatives) and intermediaries (exporters and importers) as well as marketers (wholesalers, specialist retailers, hotels and gastronomers). “It is especially this combination of the different perspectives of producers, intermediaries and marketers captured over several years that provides such a unique atmospheric picture for the international industry,” says Prof. Simone Loose, Head of the Department of Wine and Beverage Business at Geisenheim University, underlining the significance of the current Business Report. “This makes the ProWein Business Report the most comprehensive trend barometer of the wine industry worldwide.”
In the short term the international wine industry is faced with the challenges of health policy, the global economic situation and growing obstacles to trade. In the long term climate change confronts the sector with major challenges which have already been felt by actors over the past five years.
Grape and wine producers have so far been and will also continue to be hardest hit by climate change. They often only have few alternatives since they are tied to their vineyards in most cases. Through changes in viticultural practices, in harvest management, in oenological practices as well as through the use of irrigation the effects of climate change on grapes and wine are mitigated. For the future, it is anticipated that new grape varieties more tolerant to heat and drought stress will be in great demand. Beyond these adaption measures in existing wine-growing regions wine growing will increasingly shift to cooler growing regions in higher altitudes or further away from the equator. “All around the grape-growing world we can see the impact of a changing climate. Several wine companies have taken major commercial decisions on the basis of climate-related risks and opportunities, including divesting or acquiring vineyards based on their altitude, latitude and/or access to water resources,” emphasizes Dr. Dan Johnson, Managing Director The Australian Wine Research Institute.
The effects of climate change in wine growing affect all players across the complete wine value chain. Companies at the beginning and in the middle of the value chain have so far largely buffered most impacts. In future, however, these effects will be felt more strongly by marketers and consumers. Besides producers, the bottling wineries as buyers of grapes and bulk wine and exporters as intermediaries between international markets are affected most here by the risks associated with rising volatility of prices, quantities and wine qualities. Companies respond to these mounting risks by both closer cooperation with producers and by shifting to other producers and wine origins.
Wine industry players are seeing increased demand for improved sustainability in the sector. In addition to reduced water consumption the energy needs and therefore carbon footprint of wine production and distribution also have to be minimised. Furthermore, they are faced with the major challenge of also convincing consumers to buy sustainable wine. Uniform industry standards combined with comprehensive information and education campaigns could prove a solution here. “It is important that Climate Change is the central focus (independent of the wine category) of this well-made ProWein Business Report 2019. We must reduce our emissions drastically and more action is needed on all levels. Every company should have a decarbonization program in place, but the key-word is ‘Taking Collective Action ‘and wineries should set an example and lead. The new initiative IWCA (International Wineries for Climate Action/www.iwcawine.org) makes the collaboration between wineries regarding climate change easier. Hopefully IWCA will be a trigger for other wineries to join, to accelerate or to start the implementation of carbon-emissions-reduction-programs”, underlines Miguel A. Torres, President and 4th generation of Familia Torres. “The great interest in sustainability shown in the report confirms our own observations on the Nordic market. Organic certified is one example of how sustainable products are communicated to customers. However, we welcome a complement to organic, addressing a wider scope of sustainability issues through national and regional sustainability certifications that are now established in many countries,” underlines Marcus Ihre, Sustainability Manager Supply Chain at Systembolaget.
The economic expectations of the industry have dipped on the one hand due to business cycle challenges and trade barriers. On the other hand, the marked decreases experienced by producers are symptoms of the economic effects of climate-induced highly volatile grape yields and the resulting prices. Further adaption to the effects of climate change present the wine industry with major challenges. It is therefore also very much in the interest of the wine industry to jointly counteract climate change by efficient sustainability measures. “To reach the COP 21 targets quick and courageous re-thinking is needed. Every industry and every nation is called upon to change their mindsets but especially the wine and spirits industry has the possibility of positioning itself as a pioneer. Not exclusively with the aim of acting as a role model but also with a view to securing its own interests and future economic success. Clean water and sustainable energy will become the most important raw materials on earth. And wine-growing is particularly dependent on them,” explains Bastian Mingers, Global Head of Wine & Spirits and Director of ProWein, and adds: “ProWein is committed to achieving the 2-degree target and wants to offer the industry a platform for exchanging experiences and knowledge to this end.”
Current Challenges for the Wine Industry
In the short term companies view the effects of the restrictive health policy with in part high tax rates and minimum prices made mandatory for wine and alcohol as the biggest challenge facing the wine industry. The less rosy global economic climate and increasing barriers to trade are considered as the second biggest challenge. The effects of a no-deal Brexit as well as the competition with other alcoholic beverages and the deregulated sale of cannabis are seen are comparatively negligible.
Half the enterprises rate the effects of climate change on their companies as strong or very strong. This means, it is the third biggest challenge for the industry short term. In contrast to other challenges, which are expected with lower probability, climate change is the most likely threat to occur in the eyes of companies. 73% of enterprises expect climate change to impact their companies.
Effects of climate change on the wine industry so far – the last 5 years
The degree to which climate change was felt by companies over the last 5 years varies by position in the value chain. Nine out of ten wine producers have already felt the effects of climate change while only six out of ten marketers have. The most affected wine producers are mostly the least capable of avoiding the effects of climate change due to being economically tied to their land and property.
It is over the last 5 years that the strongest effects were registered on viticulture. More than half the grape producers faced lower grape yields due to extreme weather events such as late frost, heavy rains, hail or drought stress. These extreme weather events have substantially increased the volatility of grape yields; at the same time, this volatility entailed strong price volatility for grapes and bulk wine. Due to existing yield regulations small harvests can only be compensated for by higher harvests in the following year to a limited extent. Almost one in two grape producers had to change their corporate processes by shortened time windows for harvesting and higher reception capacities.
The majority of both marketers and bottling wineries stated that sensory characteristics had changed. Half of the large wine-growing estates and wineries that source grapes and bulk wine from several producers already had to apply new oenological practices to mitigate the effects of the climatically changed bulk wine on the ready-to-drink wine. Wineries and cooperatives with their own grape production have used these new technologies to a lesser extent so far.
Climate change already impacts the coordination between the players in the wine industry today. Volatility in yields and wine quality increase price fluctuations on the one hand, and the risk of availability, on the other. When faced with harvest losses the affected vintners can hardly profit from price increases and wineries find it difficult to source the grapes and bulk wine required to supply the volumes agreed with food retailers. Years with a global oversupply lead to a price erosion since the global demand for wine is constant and only few wines are storable long term.
To secure goods sourcing and minimise risks such companies as buying wineries, exporters and marketers can either cooperate more closely or switch to other suppliers. Exporters and wineries, in particular, already pursued these strategies in the past thereby reducing the effects on retailers and consumers at the end of the value chain
Expected effects of climate change
Over the last 5 years climate change has brought about economic winners (23%) and losers (35%). For the coming ten years it is especially cooperatives (53%) and wineries (44%) that expect their efficiency to drop heavily or very heavily due to climate change. Declining profitability hinders the ability to increase adaptability to climate change by investment.
The effects of climate change on grape production observed so far will increase further in coming years. For the future, grape producers expect a strong increase in the use of grape varieties more appropriate for the climate. One in three producers expect this to become necessary by 2030.
For the next ten years 62% of retailers, 55% of bottling wineries and 42% of wine producers expect the sensory characteristics of wine to change further. In future, the adaptation strategy of the new oenological practices will also assert itself with independent wineries and cooperatives and will be applied by the majority of wineries.
For the future, especially marketers and exporters expect the volatility of prices and availability of wine, so far in part compensated for by wineries, to rise significantly. By 2030 half to one third of the players expect rising risks which will lead to new forms of cooperation with producers but also lower profitability.
Over 40% of retailers plan to shift to other suppliers or countries of origin in future if their existing suppliers are affected by climate change. This will additionally aggravate the economic pressure on grape and wine producers who themselves have markedly fewer possibilities to shift.
Retailers are already now noticing climate-change induced changes in consumer behaviour. In hot summers, for example, wine consumption drops, and demand for heavy red wines dwindles. In future, retailers also expect demand for other wines (63%) and other beverages (47%) to go up. This means production and demand will develop in an opposite direction. Climate change means the production of heavy wines richer in alcohol and at the same time fuels consumer demand for lighter and more refreshing wines. More than half the retailers (57%) therefore urge producers to apply new oenological practices to come up with the existing wine profiles despite climate change.
Industry measures to adapt to climate change
In line with the strong effects on wine growing observed, the adaptation strategies have so far focused primarily on viticultural measures and changes in harvest management. Irrigation was also introduced but often fails on account of high costs and limited availability of water. Since some of the adaptation measures in vineyards have reached their limits, the next planned steps are a change in oenological practices and grape varieties or root stock. A shift to other growing regions is not (yet) relevant to 45% of producers until 2030, but 27% have already undertaken such measures or plan to do so. Viticultural and oenological adaptations will in future also require more flexibility in the existing regulatory framework.
Wine producers regard reduced water and energy consumption as the most important adaptation measure. Saving water is an especially big challenge since the grape varieties currently grown require more water in the form of irrigation. Apart from the direct benefits for companies, water and energy savings also make a positive contribution to the sustainability of the industry.
The importance of sustainability
86% of the players agree that the wine industry should focus more on sustainable production. Approval among retailers is highest in Scandinavia (96%) and Southern Europe (93%). Three quarters consider a reduction in the carbon footprint a necessary contribution to be made by the wine industry. Approval for this is highest in Italy (81%) and lowest in Germany (65%).
Only some respondents are optimistic that consumers will also prefer wines produced in a climate-neutral manner in future. Most optimistic are retailers in Scandinavia and Southern Europe (91%), while German producers at 38% are rather sceptical. 40% of players expect the negative economic effects of climate change to impact the demand for wine.
Attractiveness of export markets
Polled on the current attractiveness of markets, exporters and wine producers rate Scandinavia with Norway and Sweden in the lead, as the world’s most attractive export market. These are followed by Japan, China, Hong Kong, USA, Canada and Poland. The slightly lower ranking of China and Hong Kong is based primarily on the high stocks and the slightly lower domestic demand there. The political unrest in Hong Kong has not been taken into consideration due to the timing of the survey. The USA and Canada were able to confirm their role as key export markets again, the effects of the higher import duties in force for most European wines from October 2019 remain to be seen. Poland has regained its position among the Top-7 export markets after 2017. Due to the continued lack of certainty over Brexit and its economic effects on the domestic market now already being felt by the rating of the British market has dropped again to another all-time low.
The economic situation of the wine industry
The economic challenges facing businesses due the slowdown in the global economy and trade barriers are also reflected in the expectations for economic developments in 2020. After the very large harvest in 2018 the market suddenly shifted from shortages to a state of oversupply, proving the higher market volatility. After price increases for the scarce 2017 vintage, in 2019 prices for bulk wine dropped markedly worldwide and stocks are still above average at the end of 2019. This double pressure of oversupply and a slump in demand is reflected clearly in the lower expectations of the various producers. Expectations are more stable on the part of exporters, importers, wholesalers and (to a slightly lesser extent) specialist retailers.
Commissioned by ProWein for the second time, Hochschule Geisenheim University has again surveyed more than 2,300 experts in the wine industry from 46 countries on international wine markets, marketing trends, developments in online wine sales and the economic situation. The survey conducted in mid 2018 was once more met with strong interest in the industry. Since the first survey in 2017 the number of participants increased by 60% from 1,487 to 2,364. This makes the ProWein Business Report the globally most comprehensive trend barometer of the international wine industry.
The study covers the complete value chain of wine. Respondents included both wine producers (wine-growing estates, wineries, cooperatives) and intermediates (exporters and importers) and marketers (wholesalers, specialist retailers, hotels, and gastronomy). The combination of the various views of producers, dealers and markets collected over several years constitutes a unique barometer for the industry.
Attractiveness of Export Markets
Asked about the current attraction of markets exporters and wine producers rate China as the globally most attractive export market, followed by Japan, Hong Kong, Scandinavia, USA, and Canada. Compared to the survey conducted in the previous year China has moved up to the top from the 9th place. This subjective assessment of market players corresponds to the reports about China’s rising import demand and the high increases in volume and value of exports to China, especially from Australia, France and Chile.
Within one year the ranking of currently most attractive export markets has changed. Alongside China, Canada and Australia have risen to the Top 7 while South Korea, Poland and Switzerland dropped in the listing. The USA are still a highly attractive export market and have only lost a little ground descending from rank 4 to rank 5.
Compared to the first ProWein Business Report 2017 the strongest relative increase in market attractiveness was measured for Russia, China and Brazil. Russia rose from rank 16 to rank 11 and Brazil from rank 15 to rank 13. This means, part of the expectations reported in 2017 (that these markets would strongly increase in attractiveness) have already turned into reality. These high-population and big countries of the BRIC group hold an extraordinarily high potential for wine exports. However, tapping into this potential is also associated with high market risks due to in part political and economic instability.
Of the traditionally established markets Italy and France have slightly recovered against 2017. The Netherlands, South Korea and Switzerland lost some market attractiveness compared to 2017.
For the coming three years exporters and producers expect market attractiveness to go up most for China, South Korea and Poland, followed by Russia, Hong Kong, Japan and Australia. The Top 7 are followed very closely by the two important North American markets – USA and Canada – where wine consumption continues to rise.
This means, China is the wine market with the highest current and expected market attractiveness in future. As a result especially Asian and Eastern European countries will gain even further importance. Handling these geographically and culturally distant markets in Asia successfully will prove a major challenge for European wine producers over the coming years.
In comparison with 2017 the attractiveness of the UK wine market has deteriorated further while the perceived risk has gone up. The UK also posts the worst expected development until 2021. This weak position is due to several factors. The constantly rising alcohol tax and the amount of shelf space lost for wine through the competition between established retail formats and discount stores makes this market increasingly difficult for producers. Add to this the economic and legal uncertainties caused by the imminent BREXIT, the modalities of which have still not been clarified yet. After the UK the traditional wine markets France and Italy are the countries for which only very little increase in attractiveness is expected.
Eight out of ten producers plan to expand their export activities to new markets over the next 3 years – a high share that has remained unchanged versus 2017. The domestic markets of the biggest wine producers (Spain, Italy, France) are saturated with a rather declining trend. Therefore the export to new growth markets is the only way to compensate for these losses and generate growth. This also means the international wine trade will continue gaining in volume and importance. This raises the question long term, whether and when this growth trend will level off, in case the new wine markets build and/or expand their own wine production as is the case in China.
New emerging export markets for wine
Polled about the highest potential for new wine markets over the coming five years, wine exporters mentioned Singapore, the Czech Republic and Taiwan most often. Here the list of new emerging wine markets is headed by smaller, easily governable and easier to build up markets that are relatively far developed in economic terms and stable. In contrast to this, fewer exporters see imminent potential for Vietnam, India, Thailand, Malaysia, Philippines and Indonesia – countries that share a bigger market size, a lower economic development status and are more difficult to penetrate. The portion of the population that can afford wine is still smaller on these markets than in better developed countries. Here a long- term perspective is needed to overcome existing barriers (taxes on wine imports, diversity of regional laws). If the high expectations for the leading Asian markets China, South Korea, Hong Kong and Japan prove realistic in future positive spillover effects within Asia can also be expected.
India is the number one among the emerging export markets for wine producers from the New World - Australia, USA, South Africa etc. The cultural links in the Commonwealth and the common language make it easier for these countries to develop India.
One in four of the polled producers is still hesitant at present and does not see a potential market entry for any of these emerging markets over the coming five years. It will be interesting to watch further developments here.
It may come as a surprise at first sight that the United Arab Emirates (UAE) occupy rank 4 among the emerging wine markets. This position among the top 4 illustrates the rising importance of wine and also other high-quality food and delicatessen in this rising gateway to the Arab Peninsula for both tourists and expatriates. This positive ranking is in line with other indicators such as the number of participants in WSET courses from the UAE.
Retailers’ interest in wine origins
Nearly one in two wine retailers who visits ProWein plans to expand his range with wines from new origins. Wine origins less wide spread so far show a particularly high potential to be listed in the specialist wine retailers’ and gastronomy portfolios.
One in five specialist wine retailers and importers intend to add wines from Portugal, South Africa and Argentina to their ranges. These new wine origins are to complete or partially replace retailers’ existing ranges which were so far dominated by Italy, France and Spain.
The various wine markets differ in terms of the new origins in demand by retailers and marketers.This is due to a variety of reasons such as geographical proximity (Slovenian wine in Central Europe, German wine in Eastern Europe, Chilean wine in North America), the trend towards diversity and “sensorially easy-to-access” wines from the New World (Eastern Europe, Southern Europe) as well as the aspiration to stand out from other retailers and find niches in highly competitive markets (e.g. Germany).
The importance of online sales
The share of producers and specialist wine retailers who run their own webshop for wine is similarly high at 38% and 40%. However, the relative share of sales generated by these webshops differs widely. On average wine specialist retailers sell more than one fourth of their products online (28%) while producers only handle 5% of their sales online. The reasons are the strengths of the wine specialist retailer such as the wider portfolio of wines, the special focus on end users and the expert use of online marketing. By comparison only one in five producers uses online portals (e.g. Amazon, other portals specializing in wine such as Vicampo etc.), to reach end users.
Both producers and specialist wine retailers expect online sales of wine to increase further. They rate the growth opportunities for retailers’ and producers’ web shops as high as that of portals (e.g. Amazon, Ebay). While general portals have gained market shares for other product groups industry experts regard emotionally appealing solutions as necessary for the demanding product wine. It will remain exciting to see in future how general portals will develop relative to wine retailers’ specialized web shops.
The overwhelming part of specialist wine retailers agree that the operation of their web shop involves a lot of work and that comparability of prices on the Web will make profits dwindle even further. Which is why a further increase in online wine sales is seen more critically by wine retailers than by producers who are supposedly not so aware of the workload associated with online marketing yet. Specialist wine retailers, however, have already largely exploited the available potential and can only realise increases at high costs.
The economic situation of the wine industry
The survey included especially industry leaders. These have positive expectations for the economic developments in 2019 but there are differences between producers, intermediate dealers and marketers.
Among producers large wineries are most optimistic. Wine-growing estates see the situation as stable while cooperatives expect the economic situation to deteriorate markedly. Importers and exporters expect the economic situation to improve in 2019 after a deterioration between 2017 and 2018. In 2018 the situation proved better than expected in 2017 for wholesalers and gastronomy but the estimates for 2019 are slightly more pessimistic again. Specialist wine retailers rate the situation as stable.
The high expectations Italian producers had in 2017 fulfilled in 2018 and the new year 2019 is seen on the same high level. The high expectations of Spanish producers for 2017 were not fulfilled by the extraordinarily small harvest in 2017 but the outlook for 2019 is positive. French producers have a slightly positive outlook for 2019 after unchanged developments between 2017 and 2018. For German producers the small harvest in 2017 contributed to a slightly negative development - their outlook for 2019 is the less positive of all countries. It should be noted that the results in part also reflect different mentalities in different countries of origin. Alongside realistic economic reasons these different expectations definitely also reflect the “German angst” and the “optimism of the South”.
In the second issue of the ProWein Business Report we could observe how part of the future expectations measured in the first issue materialised within one year. The expected rise of China took place faster than expected and the most populous country on earth already ranks first of the currently and future most attractive wine markets in the world. It remains exciting to see how the hopes in the emerging new wine markets such as Vietnam, India and Thailand will turn into reality in future. All expectations have in common that the focus of the wine world increasingly shifts away from the traditional wine production countries and to the East, Asia and in part also Eastern Europe. This is also strongly linked with the new trading formats for wine. While only part of the wine trade on traditional markets is online, Asia has leapfrogged several steps in this development and holds markedly higher online shares also because wine consumers are predominantly young. Over the next years it will be of decisive importance to the industry to find solutions for the in part cut-throat price competition caused by the high market transparency on the Web. The USA and Canada are the third important growth impetus for the international wine sector next to Asia as the populous business engine and Eastern Europe located close to the classic production countries.
The study was conducted by the Institute for Wine and Beverage Business Research at the Geisenheim University, headed by Prof. Dr. Simone Loose and her team and commissioned by ProWein. ProWein and Geisenheim University look forward to the continued compilation of the ProWein Business Report in coming years. This offers the possibility to verify whether the current expectations will materialize in future and which currently unexpected changes will emerge. In addition to a long-term series of an international market barometer interesting special themes will be included in the surveys every year. We would like to thank the participants of the survey and hope for continued strong participation among wine producers and marketers.
In cooperation with Hochschule Geisenheim University ProWein polled almost 1,500 wine sector experts from 46 countries on international wine markets, marketing trends and the development of wine sales channels. Those polled included wine producers (large and small wine-growing estates, wineries, cooperatives) as well as marketers (speciality retailers, wholesalers, importers/exporters, hotels and gastronomy). The combination of different perspectives of the producers on the one hand and the marketers on the other constitutes a unique barometer of opinions for the sector.
The survey primarily polled sectoral leaders. These rate their current and future economic situation as satisfactory to good. It is interesting to observe that wine producers generally look to the future more optimistically than wine marketers who are in direct contact with end users. While export-oriented producers can try their luck on new export markets marketers have less opportunity to escape the structural changes of wine sales and increasing competition on their domestic markets.
On the producer side independent winemakers look to the future with more optimism than cooperatives and large wineries that find themselves amidst a strong process of concentration.
International and German specialty retailers focused on wine are the least satisfied and look to the future with less optimism than other marketers. This is primarily the expression of on-going structural change affecting wine sales channels where food retail and online channels are gaining importance internationally.
The results also reflect significant differences in mentality among countries of origin. German wine producers and marketers generally look to the future more negatively while producers primarily from Spain and Italy have very positive expectations about the future. Alongside real economic reasons these differences in expectations are sure to also reflect typical “German caution” and “Mediterranean optimism”.
The producers polled count more than 40 markets as their top 5 sales markets. Here Germany, the USA, Great Britain, Belgium and Switzerland are most frequently named as the most important sales countries. Currently rated as the most attractive sales markets among producers are Hong Kong, Switzerland, South Korea and the Scandinavian countries. Italy, France, Great Britain, Russia and Brazil are currently perceived as less attractive from the wine producers’ perspective.
What sales markets do producers expect to undergo the greatest rise in economic attractiveness? The countries primarily named here are Russia, Hong Kong, Poland, South Korea, Brazil and China. In these assessments it becomes clear that export markets outside the traditional European wine countries will in future be of greater importance for wine producers. In addition to geographic distance producers must also overcome the cultural distance to countries that traditionally consume little or no wine and whose marketing structure often differs fundamentally from previous markets.
The lowest improvements are expected for Great Britain, France, Austria, Italy and Belgium. In France and Italy per capita wine consumption is still on a slight decline and on both markets predominantly domestic wine is drunk, which means fewer sales options for wine exporters. The forthcoming Brexit and constant rise in the tax on wine are the main reasons why wine producers rate Great Britain very low in terms of market attractiveness.
Changes in the future are always accompanied by risk. Producers see the greatest risk in market development for Russia, Brazil, China, Great Britain and Hong Kong. The growing levels of wine consumption expected for the Asian and South American markets are accompanied by a series of uncertainties. In addition to possible trade restrictions (Russia) and countries’ different sales structures, it is primarily the uncertainty about economic and legal development that will play a role in the years ahead. For Great Britain the risk primarily concerns the question of whether and how wine imports will be affected by import duties after Brexit and what countries of origin will sign trade deals with Great Britain.
The current and future attractiveness of a market was summarised in the form of a market barometer. By juxtaposing the market barometer and the risk four different market types can be identified (see table). The markets with high attractiveness and low risk in the lower right-hand box include Poland, Australia, Japan, Canada and the Scandinavian countries. These are countries where wine consumption has risen lately or where a coherent local trading structure exists with the monopolies. High attractiveness alongside high risk is the case for Russia, Brazil, China and Hong Kong in the upper right-hand box. Markets with low attractiveness and high risk are Great Britain and Italy.
Nine out of ten leading international wine producers plan to extend their exports to new markets by 2020. Among wine exporters from the large European producer countries Italy, Spain and France this proportion stands at almost 100% and in Germany, which exports less, it stands at 55%.
Those countries which producers most often say they wish to extend exports to are the USA, Germany, Great Britain and China (see chart). It is predominantly China, Hong Kong, Russia, Japan, Australia, South Korea and Brazil that are named as new export destinations with the most disproportionate frequency relative to their currently low importance. For European wine producers successfully operating on these geographically and culturally distant markets in Asia and Oceania represents a great challenge over the next few years.
Two-thirds of international marketers attending ProWein wish to include wines from new countries of origin in their product range. Among German marketers the figure is only one third. Amongst other things this is because the wine range in Germany is already extremely international.
International marketers are most interested in including in their portfolio wines from Germany, Spain, Italy, Portugal and France (see chart). On the other hand, German marketers show the greatest interest in the countries of origin Austria, Portugal, Italy and Germany followed by France, Spain and South Africa. What is surprising here is that Austria and Portugal rank at the top of the list which might reveal some new market trends. Interest in Italy, France and Spain is less surprising as these are the main import countries on the German wine market.
For marketers’ purchasing channels there is a clear trend towards shortening wine procurement channels. Marketers are clearly striving to increasingly source their wine direct from a small wine-growing estate or to a lesser extent directly from a large winery (see chart). By comparison, procurement via sales agents (importers, distributors, wholesalers or wine agencies) will decline considerably among marketers by 2020. This means for sales agents more difficult times lie ahead, which are in part already being indicated in their somewhat less optimistic outlook on the future. Small wine-growing estates, on the other hand, will need to rise to new challenges of coping, administratively and logistically, with the increasing direct enquiries from marketers.
Via what sales channels will wine reach end consumers in future? Producers whose main sales market is Germany currently value speciality wine retail, gastronomy and ex-cellar sales as their most important sales channels. For the future, departing from the current low basis, a strong increase in online sales via wineries’ own online stores and external online retailers as well as food retailers is expected. For speciality wine retail, on the other hand, another stronger decline is expected which is less pronounced for gastronomy (see chart).
In the USA very similar trends can be observed concerning increased wine sales online and via food retailers and a decline in wine merchants/speciality wine retail. Unlike in Germany, where ex-cellar sales from small wine-growing estates are considered stable, this trend is anticipated to rise strongly in the US. This specific development reflects two current trends in the US: the number of small wine-growing estates is currently growing at a rate of 4% and “direct-to-consumer” sales from winemakers to end consumers is booming with double-digit growth rates.
In the wine world competition between marketing via a wine’s origin (also terroir) or its brand has taken off. Who will be seen as the winner in future? The majority of both marketers and producers agree that in future wine will be marketed most successfully via its origin.
Surprisingly, the significance of the brand will in future be greater from the producers’ perspective than it is from the marketer’s. Among wine producers there are great differences. Firstly, the Mediterranean countries France, Italy and Spain focus much more on origin while in Germany the personality of the winemaker plays a greater role in marketing. Secondly, it is not surprising that winemakers focus more strongly on personality than cooperatives or large wineries.
The verdict we can draw is that the wine sector is facing changes that are also reflected in the different future outlooks of the various market participants. Producers are increasingly looking to new distant wine markets and marketers are facing structural changes in the sale of wine where primarily sales via traditional wine merchants will decline. By contrast, purchasing wine via food retail and online will continue to rise. The wine trade between producers and marketers will change and supply chains will become even shorter as wine will be ordered direct from the producer. It will be interesting to see how this development unfolds over the next few years.
The study was conducted on behalf of ProWein by Geisenheim University’s Department of Business Administration and Market Research headed by Prof. Dr. Simone Loose and Heinz Küsters, Director of Market Research at Messe Düsseldorf, and their teams. ProWein and Geisenheim University also look forward to successfully continuing the ProWein Business Report in the coming years. This will provide the opportunity to check whether current expectations prove correct in future and see what currently unexpected changes will arise. In addition to providing long-term analysis of an international trend barometer, special interesting annual themes will be incorporated into the survey questionnaires. We thank survey participants and hope to also see continued avid participation among wine producers and marketers.