Comment - Wine - Our Survey Said...?
Last month, Chris Losh was one of the experts on just-drinks' ‘state of the industry’ webinar. While the webinar looked at the drinks industry as a whole, Chris thinks the results provide plenty of food for thought for the wine companies of this world.
With over 300 responses from people deep within the industry, last month's just-drinks confidence survey was large enough and wide-ranging enough in its scope to give a fascinating snapshot of the issues that are shaping the world of booze.
First of all, the broadest overview of all: half of all the respondents expect things to improve in 2013. Meaning, of course, that half don’t.
Given that a dozen of the world’s key markets either have been - or are still mired - in recession, I would suggest that the viewpoint here depends almost entirely on where the respondent is doing business.
The optimism felt for Asia, for instance, is in marked contrast to sentiment regarding Western Europe. 60% of the survey’s respondents felt that the latter’s economic outlook would not improve in 2013. Given the lack of energy in most of the region's markets, I was surprised that even this dire vote of no confidence wasn’t higher. I’m sure that, were it carried out now, following the Cypriot banking debacle, it would be.
Interestingly, the US (which, let us not forget, kicked off the global economic crisis) seems to be recovering quickly. Only 20% feel it won’t improve this year, and this optimism is backed up by some Bordeaux export figures released last week, showing the AC’s exports to the US were up last year by 17%. (Japan, by the way, at +29% did even better. Could this be proof, perhaps, of economic recovery after almost two decades of miserable flat-lining?)
The fact that some of the world’s biggest drinks markets are stagnating is reflected in the fact that 70% of the survey’s respondents expect the trading environment to be "more competitive" in 2013.
Yet, paradoxically, the same percentage expect their business to grow this year.
It’s an obvious contradiction that suggests either too many in the industry are being over-optimistic about their ability to drive growth, or that marketing and promotional activity will be key: Two-thirds of respondents expect to increase their promotional activity this year. Companies already running on empty, in other words, could be vulnerable.
Of course, challenging times can present real opportunities. And, one of the interesting elements of doing this webinar with specialists in beer, soft drinks and spirits was in listening to their thoughts regarding potential mergers and acquisitions in their sectors. Not least because, in the world of wine, such multi-million (or billion) dollar speculation is conspicuous by its absence.
In fact, one of the characteristics of the five years since the economic slowdown, has been that corporate activity in the wine world has more or less ground to a halt.
Large to medium-sized family-owned companies that tend to be conservative by nature have largely kept their powder dry. Concha y Toro’s 2011 purchase of Fetzer for US$240m is the only one of any size that springs to mind.
In fact, rather than mergers and acquisitions, we’ve seen the opposite, with larger operators splitting into smaller, regional companies (Constellation Brands and Accolade Wines) or demerging from powerful partners altogether (Fosters Group and Treasury Wine Estates).
It’s not hard to understand why. Wine is a long, slow burn with high costs, small margins and erratic supply. None of these (unless your business revolves exclusively around aged products) applies to beer or spirits. And, at the moment, the returns for the latter two are far better than for wine.
It’s been noticeable for a while that Pernod Ricard’s wine figures, for instance, have been consistently more downbeat than for its spirits side. In its last six-monthly statement, the key brands were up 7%; the priority premium wines, by contrast, were up only 2%.
This is understandable, given that the key markets for wine are mostly Europe and the US, which have suffered more than most of late. But, companies run on figures not excuses and, for most brewers and distillers, wine has generally proved to be more trouble than it’s worth.
There’s never been any suggestion from Pernod that they’re looking to offload the likes of Brancott Estate or Jacob’s Creek. The company’s French heritage gives them a tolerance of wine’s foibles, and of course the wine arm adds stability to the more volatile (albeit profitable) elements of their portfolio. But, if I had to pick a name out of the hat for a surprise wine sale or two, logic suggests it might come from here.
There’s another area where the beer, spirits and soft-drinks industries talk a different language, too: NPD. To a large extent, of course, wine is resistant to innovation. For many, the introduction of the screwcap closure was a heresy to rival Dylan going electric.
And certainly, the vast majority of barely-drinkable sub-5.5% abv wines that have appeared on the scene over the last three years are spectacular proof that innovation is not necessarily, in itself, a good thing.
But still, there was something depressing about a survey where the two biggest trends driving innovation were picked out as ‘quality’, and ‘flavour’.
Surely these two elements should be taken as read?
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