Preview of the Year - 2011 – Part III: Wine
By Jeremy Cunnington and Spiros Malandrakis at Euromonitor International | 13 January 2011
Euromonitor International considers the year ahead
In part three of our preview of 2011, Euromonitor International tries hard – very hard – to find areas of optimism for the world's wine companies.
Key trends - From New World wine to a new world for wine
Simplification initiatives, new media campaigns, eco spin and millennial targeting will continue to reshape the wine market. From the introduction of PET bottles to Facebook, Twitter and iPhone applications, and from organic offerings to specialist forums, the democratisation of wine will be key to retaining and expanding audiences. At the same time, the eventual sophistication of consumers will translate into a more critical revisiting of the supermarket aisle and ubiquitous, special offer-orientated propositions. The New versus Old World dichotomy will continue, but the massive differences in positioning and marketing techniques of the past will be gradually ameliorated.
Other sparkling wine: He who laughs last
While other sparkling wine failed to immediately take advantage of Champagne’s spectacular collapse - largely due to the latter’s aggressive discounting strategy - the tipping point marking the transition towards a category formerly pigeon-holed as a trading-down alternative is now upon us. Following enforced, albeit successful, experimentation over the tumultuous 2009/2010 period, consumers of other sparkling wine appear to have started to develop loyalties to the segment, which is expected to make massive gains moving forward. Champagne, on the other hand, faces an uphill battle.
Companies to watch
The major point of interest in 2011 will be what happens to Foster’s Group’s wine operations, Treasury Wine Estates. With the Australian company's beer operations, Carlton & United Breweries, likely to be swallowed up, this will leave Treasury Wine Estates on its own. However, excluding private equity, there seem to be few other companies which would be interested, let alone have the money, so it may well remain an independent force.
A notable trend at the end of 2010, was companies looking to divest operations they no longer see as key. This has had the greatest effect on wine.
Rémy Cointreau seemed to start the trend with its decision to sell off its Champagne division. While Pernod Ricard would be interested in expanding its Champagne range, its acquisition ban and focus on the greater prize of Beam Global Spirits & Wine rules it out. More likely possibilities include the world's second and third biggest Champagne companies, Vranken-Pommery and Boizel Chanoine. Both companies have a minimal presence in North America, where Rémy Cointreau is the region's fourth biggest player by volume in 2010 with a 5% share of sales. Whether they too have sufficient funds following the economic downturn is another matter.
In December, Constellation Brands confirmed that it is selling off its Australian and UK wine operations to private equity group CHAMP, in a move aimed at paying down its debts and reducing its exposure to these low-margin markets.
At the same time, Brown-Forman is also looking to divest its remaining wine operations, which are primarily focused in the US. If Pernod Ricard was not so burdened with debt, it would surely be a front runner due to its lack of a domestic US wine. Other than that, it is likely that either private equity or a local producer would be interested in the operations.
Otherwise, most companies will be focusing on growing organically. Many companies such as Constellation, Foster's Treasury Wine Estates and E&J Gallo will have been hurt by their overreliance on a few key markets such as the US, the UK and Australia, all of which have been hurt by recent economic conditions and, in the case of Australia, grape oversupply. In addition, most of these companies lack the resources for any major acquisitions.
Thus, companies such as Constellation will spend most of their spare resources on developing a presence in a combination of emerging markets, such as Russia, Poland and Brazil, and Western countries such as those in Scandinavia, the Netherlands and Germany.
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