Figures, figures and more figures

Epistle whistle

The Paris-based International Organisation of Vine and Wine (OIV) has released its annual epistle on the state of global wine production and trade.

There have been some slightly alarmist articles concerning lack of growth in vines planted, wine produced and consumption in 2016.

In TKR’s opinion the lack of planting and reduction in production is for the overall good of wine, as is the news that trade in wine increased 2 per cent in value to €29 billion ($40.61 billion). It fell 1.2 per cent in volume to 104 mhl. Getting more for what is already there is the way to go. Money has to be made and reinvestment carried out for the global industry to grow, no matter if it’s Australia or China.

The global area under vine remained at 7.5 million hectares (mha). Wine production declined 3 per cent to 267 million hectolitres (mhl). The leading producers:

• Italy: 50.9 mhl
• France: 43.5 mhl
• Spain: 39.3 mhl
• United States: 23.9 mhl

Global wine consumption is 242 mhl. The US is still the global leader in consumption:

• US: 31.8 mhl
• France: 27.0 mhl
• Italy: 22.5 mhl
• Germany 20.2 mhl
• China 17.3 mhl

There was a significant consumption downturn in Argentina, which can possibly be explained by the woeful economic situation the country is going through, with inflation having dented household purchasing power. The same scenario cannot be applied to Hungary, which had a stable and improving economy in 2016, though it hit a soft patch in the final quarter. Romania also recorded a decline in consumption, which was a surprise as the country was one of the EU’s fastest growing economies in 2016.

The arrival of the OIV report coincided with the Rabobank (RB) second-quarter report for 2017. This edition focuses on entering the US market. The advice is sound but not penetrating, the sort of information that basic research will or should reveal.

RB points out that the US is a good market, which can be seen from the OIV figures, the difference between production and consumption being 7.9 mhl, which works out to be about 88 million cases of wine, and that excludes US exports.

How to get a slice of American pie is the problem that non-American producers wrestle with. Wanting is one thing, obtaining another. The big US producers, such as Gallo and Constellation Brands, are increasing competition and securing their own base. Wholesalers are also consolidating, meaning there are fewer routes to market.

The compelling attractiveness of the US market is consumer willingness to spend more on wine. The sector of US$11 and above per 75cl bottle is in double-digit growth.

Also in growth is the American direct to consumer (DTC) market, which is up 18.5 per cent, according to RB. Unfortunately, this is not a route that imported wines can take. What it boils down to for small Australian wineries is finding an importer that sells to a wholesaler that cares about the brand. And the way to make them care is be there for them, tramp the pavement, shake the hands, smile the smile, tell the stories, promote the myth, grow reputation and make the buggers love you. “You” is the face, heart and soul behind the wine. Show them it’s not just a smart label with some fictional story; there are real people involved. It’s not only a case of making the brand attractive to Americans, its making Americans interested enough to want it, unable to live without it and willing to go to great lengths to find it.

RB also recommends using a service provider such as MHW Ltd which describes itself as “the foremost solutions partner for both aspiring and seasoned brands in the beer, wine, and spirits industry”.

RB presents a short round-up of various countries’ 2016 wine exports via the following chart:

 

It’s interesting to compare production with imports. Why would Italy, which according to the OIV is the world’s largest producer at 50.9 mhl, importing so much wine? Some will be genuine imports – that is, wealthy Italians who buy Champagne, Burgundy and Bordeaux – but maybe there is something in the rumour that more Italian pinot grigio is sold on the east coast of America than is produced in Italy. Australia is showing a decline in imports that are probably New Zealand sauvignon blancs.

Australian decline will not upset NZ producers a great deal, as America is a growing market and Americans are willing to pay more for the whiter-than-white, scrotum-shrinking, eye-watering sauvignon blanc.

US imports by country of origin Jan-Dec 2016:

 

Australia down 8 per cent in value? RB does not make it clear if it has converted bulk shipments into cases or just left bulk out. Wine Australia’s view on 2016 exports to the US: “In 2016, exports to the US increased by 3 per cent to $458 million [US$347 million], while volume declined by 5 per cent to 160 million litres.”

The FOB value of bulk wine shipped to the US in 2016, according to Wine Australia, was $63.25 million.

The UK remains as problematic as it always has been, with several centuries of experience in buying and trading giving it the upper hand when dealing with producers or their agents. Increased taxation is expected to be absorbed by suppliers, and not the public as intended, and continues to be an issue. Currency difficulties remain, as they will remain for evermore.

Less vineyard, reduced production, lower consumption and higher prices are in our opinion a good way to go. But as always there are other figures from other countries. The Italian agricultural financial adviser ISMEA issued its wine outlook 2020 at Vinitaly.

The ISMEA report says global wine consumption will increase 4.3 per cent over the next four years. Has it taken into account the OIV figure of a decline last year of 1.2 per cent, which raises the question: are we drinking more or less wine?

As with all roads leading to Rome, all factors governing wine sales and consumption lead to China. The ISMEA report shows the following increases in consumption:

• China: 21.6 per cent
• Russia: 6.1 per cent
• US: 5.7 per cent

Increased consumption will be catered for by increased global production of 2.4 per cent. Should it be considered strange that an Italian financial adviser says the country to most benefit over the next three years will be Italy, which will see a 10 per cent increase in the value of its exports? Italy will be followed by:

• France and Chile: plus 6.1 per cent
• US: plus 4.3 per cent
• Spain: plus 3.6 per cent

Apparently Australia is not in the game. Boy, are the Italians in for a surprise when they discover the southern lands. They will be more surprised when they discover the land over the horizon produces wine.

If you’re wondering how Italy will conquer China, an article on Yahoo News, 16 April, by Angus MacKinnon, may hold the answer. He starts:

“Can Prosecco help Italy unlock China wine market?”

MacKinnon says Italy is tipped to become the world’s second biggest importer of wine into China by 2020. Would that tip have originated from ISMEA? To be second (after France), Italy will have to take over from Australia (another surprise!). It’s possible, but TKR is doubtful Italy will succeed.

The optimism in MacKinnon’s article, as well as perhaps coming from ISMEA figures, looks to have been generated by Andrew Tan, who is in charge of procurement for 1919 liquor retailers consisting of 1000-plus stores and an online operation. MacKinnon writes:

“His mission: to find Italian wines capable of matching the success of popular Australian brands like Jacob’s Creek and Yellow Tail in the entry-to-middle sections of the Chinese market.”

“‘We are coming in to cooperate with big wineries on branding,’ Tan told AFP. ‘We want to co-own the brands and we promote them – that is what we are talking to several big producers about.’”

That is the crux: many Chinese want all or a slice of the action from vineyard onwards. It unsettles some Australians, but if the potential partner has access to a 1000 retail stores or more and investment is needed, proposals are worth considering.

The article carries this quote from Stevie Kim, the managing director of Vinitaly International, “

“Italian producers have a USP [unique selling point] of being able to offer better value than rivals at every price point, but accepts it will take time to make gains in China.”

Do they? Or will they go in for undercutting prices, which Australia and other countries will match and undercut again, so as in the UK, the downward spiral will start. It’s established that keeping market supply tight also keeps prices firm, but it’s a long game; can Australia hold its nerve?

Kim continues: “I am not worried about China producing more wine itself. Look at what happened in the United States after California took off. It is very important that the Chinese start drinking lots and lots of wine. Only then will they go into other wines and that is when we have to be ready.”

It’s a doctrine we believed in, but over the years doubts have crept in. Get them to drink wine, any wine, then education will move them up the ladder. The theory is fine but consumers get stuck on price. It’s that aspect that creates issues and it’s not one that marketing seems to have fully got to grips with.

The California reference has us baffled and needs more explanation.

Fickle favourite

According to Wine Australia and various media reports, the 50 sommeliers from all parts of the globe had a wonderful time on their Australian visit. Reading the reports, TKR holds no doubt they did.

A report in the Latin American Herald Tribune started: “The sky is the limit for Spain’s renowned Rioja wines in China, a country with a rapidly growing market and a large population still unfamiliar with wine culture, a leading Chinese expert in the sector said on Friday.”

What, you (the reader) may be wondering, is the connection? The hint is in the heading. TKR wonders if the exotic tours offered by wine-producing countries to those they judge to be of influence – buyers, sommeliers wine writers and the like – make that host country the favourite best friend for evermore, or is it a one-night stand with the favourite at the time.

Will it remain the favourite after the next lavish visit? How fickle are the recipients of these trips? Perhaps not fickle at all, but we wonder.

The same can be said about exhibitions such as ProWein, VinItaly or the various Vinexpos. The ultimate question being: can one afford not to be there?

Luxury sup

Moët Hennessy Louis Vuitton (LVMH) has released its first-quarter results, proving those that sup at the luxury end continue to indulge.

Total group revenue was €9.9 billion ($13.86 billion) for the first quarter of 2017, an increase of 15 per cent, proving that for the rich, disposable income is healthy.

The wine and spirits sector contributed €1.2 billion, an increase of 16 per cent over last year.

LVMH doesn’t reveal a great deal of detail about its business, the comment on wine and spirits being:

“Champagne volumes increased by 7 per cent over the period. Europe and the US markets continued to grow. Hennessy cognac saw volumes increase significantly which could impact the availability of stocks for the rest of the year. Momentum remains positive in the United States, while demand in China confirms the trends of 2016.”

Silver lining

It’s looking as if the Burgundy region is to get a silver lining to its hailstorm problem. Henry Samuel, writing in the Daily Telegraph (UK), 15 April:

“By June, the entire area will be protected by a network of 125 ground generators that cause tiny particles of silver iodide to rise to the clouds above, where they stop the formation of hail stones, and thus reduce the risk of damage.”

The Association Régionale d’Etude et de Lutte contre les Fléaux Atmosphériques (ARELFA) supplied the funding, prompted by more hailstorms of greater intensity in recent years.

Samuel: “A weather forecaster sends alerts four hours ahead of a predicted storm and the generators are switched on as soon as the risk surpasses 40 per cent. A message is sent to every wine grower with a generator, thus sending enough molecules into the sky to form a shield to stop the hail.”

Cost comes into play. Covering the vineyards with nets is estimated to cost around €30,000 ($42,000) per hectare. The generators just €8 per hectare.

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