Preview of the Year - 2014 - Part IV: Wine
By Jeremy Cunnington and Spiros Malandrakis at Euromonitor International | 30 January 2014
In the penultimate part of this month's preview of the year ahead for the global drinks industry, Euromonitor turns its attention to the wine category.
Flux, turmoil and equilibrium
While hysterical proclamations suggesting the imminent breakdown of supply lines and production capabilities under the enormous – and all too real - weight of emerging market consumption growth will continue to provide material for panic-stricken headlines, a tight equilibrium remains the most probable and realistic scenario in the short to medium term.
There will be no wine shortages.
China’s terrestrial gravitational pull will inevitably exert severe pressure on existing stocks and vineyards, but production does not merely remain static. As wine consumption continues to shift eastwards, wine production will continue to expand northwards, both as an indirect reaction to creeping climate change and due to blooming if still embryonic industries in emerging markets themselves.
However, profit margins will have to face a different kind of problem. Expected macroeconomic ripple effects emanating from the imminent unwinding of the massive US stimulus programme will be hitting the shores of a large number of emerging nations, with severe exchange rate volatility raising its ugly head again after years of relative calm.
Mind the generational gap
As the baby-boomer generation is taking one last extravagant bow before quietly exiting the stage, millennials are finally coming of age, claiming the role of the key protagonist in the industry’s evolving narrative. They tend to be far more experimental and adventurous, actively looking for authentic and unique experiences that question rigidly defined concepts of regionality, established grape varietals, packaging innovation or promotional strategies. They are instinctively adverse to the category’s stuffy traditionalism and simmering elitism.
Unfortunately, and to the detriment of most industry pundits’ simplistic projections, they are also largely broke, unemployed or unable to independently support themselves; facts that, combined with their demonstrated disdain for brand equity, necessitates a radical rethinking of the category’s future positioning, pricing and aspirations. From sweeter taste profiles to controversial flavour sophistication initiatives, and from celebrity endorsements to canned offerings and social media interactivity, Generation Y is already implicitly - or explicitly - reshaping wine. The ‘Cupcake’ effect, the ‘Moscato Madness’, quirky, tongue-in-cheek labels and a plethora of apps are forming the vanguard of the ongoing shifts. However, the offspring of the Great Recession will have to remain thrifty for the foreseeable future and affordability concerns should not be discounted lightly.
Healthier, better, less
While the proverbial storm in a fermentation tank instigated by the disciples of the natural movement appears to gradually subside, interest in lower manipulation techniques and sustainability drives will continue to gain traction. Lower abv offerings might remain niche but will secure a stable, if still small, following while lower calorie extensions will most probably be limited in their scope and be more of a celebrity-fuelled fad – as was bitterly proven by the sobering trajectory of the Skinnygirl series in the US. The ‘drink local’ mantra that also forms the pillar of the microbrewing and microdistilling movements will finally trickle down to wine, while reducing the sulphite content could well prove to be the next Holy Grail for health-spinning marketers.
Glimpses of the future
Beyond mainstream megatrends driven by demographics, evolving drinking rituals, macroeconomic fundamentals and cultural factors, there are also hints as to which categories will make waves in the short to medium term.
A new generation of gadgetry will drastically reshape perceptions, positioning, storage and maturation techniques. Coravin, a simple yet groundbreaking contraption that allows the pouring of wine without pulling the cork and hence avoiding oxidation and taint, and the Wine Wizard, a device using electro-magnetic and acoustic waves to increase the wine's pH, reducing acidity and sulphite levels (essentially accelerating maturation within minutes), are just some of the examples that will usher in a new era of innovation and experimentation.
Niche categories such as icewine, ideally positioned within the realm of luxurious rarity, Port and Sherry, capitalising on the cyclical return to tradition and a hipster-led revival in key Western metropolitan centres, and mead, boasting one of the grandest and most colourful mythologies and already quietly booming in the US, should be on manufacturers’ watch lists.
Organic Growth Still the Way Forward for Global Wine
If corporate goings-on in the spirits industry in 2014 make the category look as though it will be like the happening night spot of the year, wine will continue to look like a sedate gentlemen’s club.
As many of the major wine companies showed in the M&A frenzy of the late 1990s and 2000s, growing by acquiring companies and numerous brands is not a sustainable growth model. As a consequence, these companies will be continuing to develop through enhancing their distribution in export markets.
This was shown in 2013 when Western wine companies, both large and small, were looking to grow organically in key markets, especially emerging ones. Early in the year, Constellation Brands enhanced its distribution presence in Brazil, while LVMH was particularly active in 2013, launching a new winery in China and local variants of its Chandon brand in both India and China. Such corporate activity is expected to continue.
Any acquisition activity is likely to be focused on small-scale and either high-end brands or vineyard properties in key markets such as the US and Old World wine markets, or possibly finding a route to market in key target regions for the more expansionist international companies. Acquirers could come from either traditional wine countries or emerging markets. However, as Perfect China showed with its August 2013 acquisition of South African winery Val de Vie's wine cellar and some of its vineyards, this emerging market expansion could spread further into New World markets as wine growing know-how is sought.
For details of the other category previews, click here.
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