New World versus Old World Wine Sales - Coursework Example

NEW WORLD Vs OLD WORLD WINE SALES The Old World wineries have traditionally dominated the global wine market. These wineries, all located in Europe, are mainly concentrated in France, Italy, Spain, Portugal and Germany. Recently however, wineries have emerged in the New World (mainly in United States, Argentina, Australia, New Zealand, South Africa and Chile); their rapid development and burgeoning sales are threatening the dominance hitherto enjoyed by the Old World wineries. Global Wine Sales The first conclusive indication of this trend is the October 2006 International Organisation of Vine and Wine (OIV) declaration that in 2005, out of the total 80 billion Euro ($ 100 billion) global wine market sales, New World wines had a 25.5% share, as compared to its share of 1.6% in 1985. At the same time, Old World wines share fell from 75% in 1985 to 62% in 2005.1 Global Wine Exports The second conclusive indication of this trend is an analysis of global wine exports in recent years.2 In 1981-85, the Old World exported a volume of 43.5 million hl (Italy 17.3, France 10.2, Spain 5.9, Germany 2.6, Portugal 1.4, other EU nations 6.1) which was equal to 88% of total world exports (Italy 35%, France 21%, Spain 12%, Germany 5%, Portugal 3%, other EU nations 12%). The New World exported a volume of 0.8 million hl (U.S 0.3, Argentina & Chile 0.3, Australia & New Zealand 0.1, South Africa 0.1) which was equal to 2% of total world exports. 1: SCHAEFER, L. German Vinters Feel Squeeze From New World Wines 2: State of Vitiviniculture World Report: OIV In 1991-95, the Old World exported a volume of 41.0 million hl (Italy 15.1, France 11.5, Italy 17.3, Spain 7.4, Germany 2.7, Portugal 1.9, other EU nations 2.4) which was equal to 79% of total world exports (Italy 29%, France 22%, Spain 14%, Germany 5%, Portugal 4%, other EU nations 5%). The New World exported a volume of 4.2 million hl (U.S 1.2, Argentina & Chile 1.5, Australia & New Zealand 1.1, South Africa 0.4) which was equal to 7% of total world exports (U.S 2%, Argentina & Chile 3%, Australia & New Zealand 2%). In 1996-2000, the Old World exported a volume of 46.1 million hl (France 15.3, Italy 14.8, Spain 8.8, Germany 2.3, Portugal 2.1, other EU nations 2.8) which was equal to 76% of total world exports (France 25%, Italy 24%, Spain 14%, Germany 4%, Portugal 4%, other EU nations 5%). The New World exported a volume of 9.0 million hl (U.S 2.3, Argentina & Chile 3.3, Australia & New Zealand 2.2, South Africa 1.2) which was equal to 15% of total world exports (U.S 4%, Argentina & Chile 5%, Australia & New Zealand 4%, South Africa 2%). In 2001-2005, the Old World exported a volume of 48.4 million hl (France 14.8, Italy 14.6, Spain 11.9, Germany 2.7, Portugal 2.5, other EU nations 1.9) which was equal to 69% of total world exports (France 21%, Italy 20%, Spain 17%, Germany 4%, Portugal 4%, other EU nations 3%). The New World exported a volume of 16.8 million hl (U.S 3.2, Argentina & Chile 5.4, Australia & New Zealand 5.8, South Africa 2.4) which was equal to 24% of total world exports (U.S 5%, Argentina & Chile 8%, Australia & New Zealand 8%, South Africa 3%). Global Vineyard Coverage The increasing share of New World wines in worldwide sales and exports is a direct consequence of increase in vineyard coverage.3 A vineyard coverage of 3750 mha in 2000 of Old World wine producing countries decreased to 3663 mha in 2002, 3641 in 2003, 3617 mha in 2004 and 3600 mha in 2005. Vineyard coverage in France fell from 898 mha in 2002 to 890 mha in 2005, in Italy it fell from 872 mha in 2002 to 847 mha in 2005, in Spain it fell from 1202 mha in 2002 to 1180 mha in 2005 while in Germany and Portugal it remained constant. New World wine producing countries’ vineyard coverage increased from 4291 mha in 2002 to 4313 mha in 2003, to 4314 mha in 2004 and to 4342 mha in 2005. Vineyard coverage in Argentina increased from 208 mha in 2002 to 217 mha in 2005, in Australia from 159 mha in 2002 to 167 mha in 2005, in Chile from 184 mha in 2002 to 191 mha in 2005. In the U.S. it reduced from 415 mha in 2002 to 399 mha in 2005. Global Wine Production The increasing share of New World wines in worldwide sales and exports is also a direct consequence of increase in wine production.4 Old World wine production in 2005 was 163.800 Miohl (share of Italy was 50.556, France 50.500, Spain 35.300, Portugal 6.645 and Germany 9.1). This was a reduction of 19.600 Miohl (11%) from 2004 production of 178.200 Miohl (share of reduction was France -6.886 Miohl, Italy -2.444 Miohl, Spain -7.862 Miohl, 3: State of Vitiviniculture World Report: OIV 4: Ibid. Portugal -0.830 Miohl and Germany -0.947 Miohl). New World wine production increased by 7.990 Miohl from 69.416 Miohl in 2003 to 77.406 Miohl in 2004, and again increased by 0.183 Miohl to 77.589 Miohl in 2005 (share of increase was U.S. from 20.770 Miohl in 2003 to 23.500 Miohl in 2005, Argentina from 13.225 Miohl in 2003 to 15.222 Miohl in 2005, Chile from 6.682 Miohl in 2003 to 7.886 Miohl in 2005, and Australia from 10.194 Miohl to 14.001 Miohl in 2005). Global Wine Consumption Another indication of the advance of New World wines in the global wine market is the consumption trends of the Old World, New World and major wine consuming countries.5 World wine consumption increased from 226.900 Miohl in 2001 to 228.600 Miohl in 2002, to 235.100 Miohl in 2003, to 235.300 Miohl in 2004 and to 235.600 Miohl in 2005. Between 2004 and 2005, wine consumption in Old World countries fell from 33.141 to 32.600 Miohl in France, from 28.300 to 27.300 Miohol in Italy and from 4.828 to 4.710 Miohl in Portugal. It increased from 19.593 to 19.631 Miohl in Germany, and from 13.735 to 13.900 Miohl in Spain). Between 2004 and 2005, wine consumption in New World countries fell from 4.361 to 4.253 Miohl in Australia and from 11.113 to 10.942 Miohl in Argentina. Wine consumption increased from 2.547 to 2.600 Miohl in Chile, and from 24.664 to 25.400 in U.S. 5: State of Vitiviniculture World Report: OIV Between 2004 and 2005, wine consumption in major world consuming countries increased. It increased from 11.300 to 11.900 Miohol in the U.K, from 1.720 to 1.770 Miohl in Denmark, from 3.600 to 3.700 Miohl in the Netherlands, from 0.473 to 0.482 Miohl in Finland, from 0.685 to 0.750 Miohl in Ireland, from 2.921 to 2.940 Miohl in Belgium, and from 1.324 to 1.400 Miohl in Sweden. Given the fact that the New World wines have captured an increasing share in the global export market, the increasing wine consuming patterns (especially in New World countries and major wine consuming countries) is a direct reflection of the increasing sales of New World wines in the world. Reasons for Increased New World Wine Sales Various factors are seen as significant contributors. Old World wineries are large in number, small in size, privately owned and operated by family over a large number of years. New World wineries are few, large and owned by powerful public corporations. This makes the latter group more forceful players in the global market. For example, France has more than 230,000 wineries, while Australia has 4 large corporation-owned wineries which control 75% of its wine market.6 New World wineries have spent time and money on marketing campaigns that also educate consumers in the New World. For example, Australian wineries have captured a larger share of the U.S. wine market than the French because of their marketing plans that include educating customers about wine (especially dispelling the notion that wine is only meant for special occasions).7 6: SALLS, M. Marketing Wine to the World: Harvard Business School 7: Ibid. Supermarkets have taken over from wholesalers as the major sales outlets for wine (for example in the U.S, the number of wine wholesalers fell by 75% between 1960 and 2004). Unlike Old World financially weak and disorganised wineries, New World wineries are financially strong and well organised to comfortably cope with the supermarkets’ competitive bargains for shelf space and low prices. The consumer is benefited by the supermarkets’ bargaining by getting low prices which increases wine sales; consumers also find it more convenient to purchase wine at the same supermarket location as other needed items (like foodstuff and households), rather than shopping separately for wine in retail stores located at a different place.8 New World wines are cheap. For example, U.S. wine sales within its territory recorded a high of 441 million gallons in 2005 (185.4 million nine-litre cases) of total retail value $ 16.5 billion. Of this, Premium wines ($ 7 and above) occupied a 35% share of case volume and 66% share of winery sales revenue, while Everyday wines ($ 7 or less) accounted for 65% share in case volume and 34% share in winery sales revenue).9 New World wines have dispelled notions that their quality may not be good due to their cheap price. In the list of ‘Top 100 Wines of 2006,’ 3 New World wines featured in the top 10: U.S. at No.2, Chile at No. 4 and Australia at No.10.10 Overproduction by New World wine producers has reduced wine prices thus boosting sales. In the U.S., the popular discount wine, Charles Shaw (also called 8: SALLS, M. Marketing Wine to the World: Harvard Business School 9: 2005 California Wine Sales Continue Growth Trend As Wine Enters Mainstream U.S. Lifestyle: Wine Institute 10: MARKELS, A. Uncork the Lowest Prices: U.S. News Two Buck Chuck) brand came into existence due to overproduction; it recorded sales of more than 10 million cases within 7 months (August 2003 to February 2004) inside the U.S. through the Trader Joe’s retail network.11 Rising income and changing lifestyles in New World countries have led to increasing shift from beer and other alcoholic beverages consumption to wine preference. For example, in the U.S., annual wine consumption per person rose from 8 litres in 1980 to 10.4 litres in 2005.12 Conclusion Today, more and more countries are encouraging wine cultivation. Countries which did not produce wine earlier, like the U.K and the Netherlands, are starting to do so due to favorable factors like global warming and newer breeds of vines that can flourish in moderate, raining climates (as opposed to vines that thrive only in traditional sunny, warm climates). Old World wine producing nations are scrambling to consolidate their position. The EU is propagating an “improve quality, reduce quantity” campaign to bring about changes in the way wine is produced and marketed.13 France has been attempting to manipulate international trade regulations while boosting the image of Old World wines, and favourably highlighting traditional wine making methods.14 EU wineries have recently begun shipping wine in bulk (instead of in bottles) to save costs; the wine is later bottled at the destination before being sold in it as well as other neighbouring countries.15 Some Old World wine producers, notably Italy and Spain, are breaking away from 11: Premium Growth for New World Wine Makers: Beveragedaily.com 12: Australian Wine Industry – Challenges for the Future: Abareconomics.com 13: SCHAEFER, L. German Vinters Feel Squeeze From New World Wines 14: JUERGEN, J. World Wine Statistics – U.S. Fourth in Production, Third in Consumption: Wineloverspage.com 15: 2005 California Wine Sales Continue Growth Trend As Wine Enters Mainstream U.S. Lifestyle: Wine Institute tradition and emulating the marketing principles and tactics of New World wine producers.16 The latest addition to the New World wine producing group is China; boosted by its geographically favourable winegrowing regions that lie on the same degree of latitude as wine heavyweights Bordeaux, Tuscany and the Napa Valley,17 China’s vineyard coverage has expanded from 421 mha in 2002 to 455 mha in 2003, to 471 mha in 2004 and to 487 mha in 2005.18 Today, China is ranked as the 7th largest producer of wine in the world,19 and considering its mammoth billion plus population, if wine consumption is boosted from the annual 0.3 litres per person recorded in 2006,20 then the overall global market of New World wines is all set to reach new heights in the near future. 16: JUERGEN, J. World Wine Statistics – U.S. Fourth in Production, Third in Consumption: Wineloverspage.com 17: SCHAEFER, L. German Vinters Feel Squeeze From New World Wines 18: State of Vitiviniculture World Report: OIV 19: SCHAEFER, L. German Vinters Feel Squeeze From New World Wines 20: Australian Wine Industry – Challenges for the Future: Abareconomics.com References used: ANON. 2006. 2005 California Wine Sales Continue Growth Trends As Wine Enters Mainstream U.S. Lifestyle: Wine Institute. [Online]. Available: http://www.wineinstitute.org/industry/statistics/2006/wine_sales.php [23 March 2007] ANON. 2004. Premium Growth for New World Wine Makers: Beveragedaily.com. [Online]. Available: http://www.beveragedaily.com/news/ ng.asp?id=53817-premium-growth-for [23 March 2007] ANON. 2006. State of Vitiviniculture World Report: OIV. [Online]. Available: http://news.reseau-concept.net/images/oiv_uk/Client/ Conjoncture_mars_2006_EN.pdf [23 March 2007] JUERGENS, J. 2002. World Wine Statistics - U.S. Fourth in Production, Third in Consumption: Wineloverspage.com. [Online]. Available: http://www.wineloverspage.com/oxford/stats.phtml [23 March 2007] MARKELS, A. 2006. Uncork the Lowest Prices: U.S. News. [Online]. Available: http://www.usnews.com/usnews/biztech/articles/061203/11wine.htm [23 March 2007] SALLS, M. 2004. Marketing Wine to the World: Harvard Business School. [Online]. Available: http://hbswk.hbs.edu/item/3910.html [23 March 2007] SCHAEFER, L. 2006. German Vinters Feel Squeeze From New World Wines: Deutsche Welle. [Online]. Available: http://www.dw-world.de/dw/article/0,2144,2201522,00.html [23 March 2007] SHEALES, T., APTED, S., DICKSON, A., KENDALL, R. & FRENCH, S. 2006. Australian Wine Industry - Challengers for the Future: Abareconomics.com. [Online]. Available: http://www.abareconomics.com/publications_html/crops/ crops_06/aus_wine.pdf [23 March 2007] Read More