Preview of the Year 2012 – Part IV: Wine
The final part in Euromonitor's preview of 2012 for now - soft drinks & water will be covered in the coming days - concerns itself with wine. Spiros Malandrakis and Jeremy Cunnington, alcoholics drinks analysts at Euromonitor International, ponder the coming year.
Red will be the colour that perfectly epitomises 2012 as far as the still light grape wine industry is concerned. On the one hand, the category’s Western European bastion will continue seeing overall volume performance resolutely and stubbornly stuck in the red. What for the moment appears to be a maturity induced flesh wound could quickly turn into life threatening haemorrhage if developments in the European Union take a further turn for the worse.
On the other hand, red is also the colour symbolising luck and good fortune in China. Fittingly, still light red varietals will continue posting huge gains in the country as well as throughout Asia Pacific on the back of their perceived cardiovascular health benefits, essentially providing a coronary tonic for the global still light grape wine industry.
The Problem with Bubbly
Champagne might have begun the much vaunted diversification process and a belated shift of focus towards emerging economies is indeed currently underway. However, the problem with bubbles remains - they tend to follow the prevailing winds. In other words, while the category was enjoying the tailwinds of the booming global economy, sales were thriving. When the brutal socio-economic headwinds of the Great Recession started blowing the other way, sales plummeted. This direct correlation is hence a double edged sword and with a fresh storm brewing on the horizon, other sparkling wine could well prove to be the segment best placed to benefit as consumers batten down the hatches and tighten belts once more.
Calmness After a Busy Year
Following major restructuring of many of the leading players in 2011, such as Constellation Brands and Treasury Wine Estates, merger and acquisition activity in wine is likely to be minimal in 2012 and the foreseeable future as many companies look to focus on the organic growth of key brands. They will increasingly focus their resources on building their core brands rather than adding any new ones. Any activities are likely to be small, with the major companies more likely to rationalise than add to their portfolios by divesting non-core brands.
Wine companies have increasingly realised that the best way to grow is to focus on a small range of brands (or sub-brands) with different price points so as to target all consumers in all markets. This strategy allows companies to focus their resources on building the profile of those few brands.
This approach was adopted by Viña Concha y Toro some years ago. The company has seen strong growth by focusing on a limited range of brands, led by its eponymous label, and developing them in a small number of key markets either through strong third-party distributors or setting up its own distribution operations, as it has done in the UK and more latterly Scandinavia, Singapore and Brazil.
In 2012, it will be interesting to see what Concha y Toro does with the Brown-Forman brands it acquired in 2011 in terms of both how it introduces them into its distribution network and how they start to benefit the company’s position in the US.
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