Table of Contents
Executive summary
The European Union (EU) being the principal wine producer globally, they own approximately half of the world’s vine plantation area and nearly 65% by quantity of wine production in the whole world. However the consumption of wine in Europe has been on the fall and is expected continue reducing over time, particularly in Southern European nations. Extremely cold winter and hailstorms which leads to crippled vines as well as increase in rainfall which postpones ripening, hence resulting into substantial discrepancy in grape advantage according to Dal Bianco, Boatto, & Caracciolo, 2013 are some of the challenges that face wine producers. Some of these challenges lead to distinguished decreases even among the most prominent EU wine manufacturing nations such as Spain with a 22.4% decrease and Italy with a 15% decrease.
Introduction
The history of wine can be dated back to 1BC when Roman citizens had wine as part of their diet and were consumed by both the Romans and Greeks while diluted. Since 2100 BC in Greece, wine was consumed as part of breakfast. A Neolithic village in northern China’s Henan province can also be linked to wine consumption in 7000-6650 BC (Gately, 2009). At this time wine was referred to as a beverage and was made from grapes, honey, hawthorn berries as well as rice. The oldest evidence regarding the manufacture of wine can also be linked to Armenia and Persia who from ancient time have been reputed for their wine. However since then, wine products, manufacturing methods as well as packaging have undergone a lot of changes. And over the last decade the international alcoholic drinks market has observed inspiring growth due to a number of approving conditions.
In a comprehensive application of both the Kotler/Keller perspectives and the PESTEL analysis, this paper is going to make a review of the wine and spirits industry.
Scope of Analysis
This analysis paper is going to therefore cover in detail, the wine and spirit industry in Europe, unequivocally showing the market overview in terms of the structure and concentration, production and consumption, export and import, new trends in the wine industry, the major key players as well as the market competition as it is in the moment.
Objectives
The main purpose of this analysis paper is to provide a comprehensive study and scrutiny of the wine and spirits industry employing statistical data and previous significant scientific study on the same.
Key Findings
Reduction in the rate of wine consumption in Europe can mainly be attributed to varying lifestyles and preferences, campaigns against alcohol consumption, as well as health worries.
These setbacks have led to some of the disadvantages in the industry hence not fair a competition, at all times against other wine producing firms worldwide. However, it is projected that the global alcoholic beverages marketplace will grow progressively at a Compound Annual Growth Rate (CAGR) of higher than 2% by 2020. This is according to a research carried out by Technavio research analysts.
At the end of the year 2016 production of wine in the European Union (EU) was preliminarily approximated at a quantity of 16.9 billion liters. Thus making it the world’s largest wine importer and exporter at imports of 1.5 billion liters of wine valued at $3.1 billion, and exports of 2.2 billion liters of wine valued at $11.8 billion (Anderson & Golin, 2004). France Germany, the United States and the United Kingdom are the major key players in the industry.
Methodology
This analysis paper made use of both the quantitative and qualitative aspects of research, incorporating study of past scientific case studies, relevant journals and articles, internet resources such as crowd sourcing sites, taking into consideration a choice of hypotheses to be addressed and predictions about possible relationships between the variables. Scientific case studies were carefully scrutinized for relevance and quality of information, same applies to journals and articles. Crowd sourcing sources which (Howe, 2008) is one of the best ways of gathering non-biased data. Obtained data from the internet was analyzed critically to filter out and narrow down on the information collected which was used in formulation of this analysis report.
Market Structure and Concentration
Regrettably, excessive intake of alcoholic drinks adversely impacts the health of a person, particularly among young adults. This may challenge the growth of the wine and spirit industry. (Wolf & Morrish) Reports presented by World Health Organization (WHO) in 2014 showed that, over 3.2 million people died from excessive alcohol intake annually all around the world (Dal Bianco, Boatto, & Caracciolo, 2013). However, according to other reports published by the Transparency Market Research, worldwide wines and spirits market is expected to grow at a CAGR of 6.5% in income between the years of 2017 and 2025 (Anderson & Nelgen, 2011). More so, the wines and spirits market will be worth US$1,977, 344 million as 2025 concludes. Currently, the international alcoholic drinks marketplace is projected to be worth US$1, 206, 360 million as 2017 concludes.
With popular dominating wine brands such as Renato Ratti, Borgaio Castello di Meleto, Churchill Estates Douro, Ciu Bacchus and Rioja Bourdon, alcoholic beverages manufacturers are constantly launching emerging products with extra flavors to entice their customers towards buying more drinks. Also, the fact that most alcohol consumers, particularly among the millennials are curious is pushing them towards attempting the new products, an event that is having an optimistic attitude on the alcoholic drinks market (Cembalo, Caracciolo, & Pomarici, 2014). Popular types and classification of wine brands have been in the market for quite a while. Examples are bulk wine, packaged wine and sparkling wine.
Market Overview
According to a research carried out by Technavio research analysts, it is estimated that the global alcoholic beverages marketplace will grow progressively at a CAGR of higher than 2% by 2020. The increasing demand for first-class alcoholic drinks is deliberated to be among the top leading factors for increased demand for alcoholic drinks as well as the trend in the marketplace (Anderson & Golin, 2004). Furthermore, because of increased throwaway revenues in the part of consumers, alcohol consumption is now being deliberated to be more of a class mark and the connection of first-class labels with both quality and taste has resulted into first-class brands having increased demand as compared to normal quality alcoholic beverages (Cembalo, Caracciolo, & Pomarici, 2014). The mere existence of fashionable brands in the market has heightened the demand for first-class brands. Therefore, this desire for first rating across all groups will consequently divide the opportunities for market development within the forecast time (Dal Bianco, Boatto, & Caracciolo, 2013).
On the other hand, increased health awareness among the population is one of the major trends in the wines and spirits market currently. Alcohol consumers are currently shifting towards consuming low-calorie drinks such as pre-mixed cocktails due to increased health and skin worries. This has compelled a greater percentage of the drinking population to switch into consuming pre-mixed drinks which have extremely low-calorie degrees in the market (Dal Bianco, Boatto, & Caracciolo, 2013). Also, drinks that are naturally sugared, herb-infused, those that are gluten free and alcoholic drinks with less than 30% of calories as compared to regular ones have made their way into the alcohol market. Research shows that, such drinks will experiences increased demand from alcohol consumers in the near future due to increased health and skin worries.
Wine Production and Consumption in Europe
Production
The European Union (EU) is the leading wine manufacturer globally, will roughly half of the world’s vine plantation area as well as about 65% of production by quantity. Countries such as France, Spain, and Italy are the leading EU wine manufacturing nations, representing about 825 of the total production (Agostino & Trivieri, 2014). Other nations that produce substantial amounts of wine to add to the remaining percentage are Germany, Hungary, and Romania to name a few. Research has shown that wine production is extremely crucial in the economy of nations such as Slovenia, Bulgaria, as well as Croatia.
Statistics from 2016 shows that wine production was preliminarily approximated at 16.9 billion liters, which represents an 8.7% decrease from the comparatively high production of 17.9 billion liters. This was attributed to extremely cold winter which crippled vines, the hailstorms which destroyed many vineyards, and an increase in rainfall which postponed ripening, hence resulting into substantial discrepancy in grape superiority (Dal Bianco, Boatto, & Caracciolo, 2013). Among the leading EU wine manufacturing nations, distinguished decreases took place in countries such as Spain with a 22.4% decrease, Italy with a 15% decrease. On the other hand, countries such as France showed a notable increase in wine production by 12% and Germany at an 11% increase. Additionally, substantial decreases took place in countries such as Bulgaria, which showed a 36% decrease and Croatia a 30% decrease to name a few (Anderson & Nelgen, 2011).
Dwindling margins as well as the adoption of the novel Common Market Organizations (CMO) grubbing-up agenda. Has led to dilapidation of vine growing fields over the past years the (CMO) grubbing-up agenda comprised of charitable removal from cultivating vines. More so, funding for vine growing were reduced in a period of three years to minimize production of collegial wines and reduce surpluses (Agostino & Trivieri, 2014). Manufacturers were, however, compensated for substitutes. The EU Commission reported that, 175,000 hectares of land were removed from production between the years of 2011 and 2013. Since then, the turn down degree of EU vineyards has dawdled substantially.
Consumption
Wine consumption in Europe is anticipated to continue reducing over time. The rate of wine consumption has been reducing for many years now, particularly in Southern European nations, where varying lifestyles as well as preferences, campaigns against alcohol consumption, as well as health worries have impacted the general demand and consumption for wine. In the meantime, wine consumption in the Northern Member States seems to be neutral or sometime on the rise (Dal Bianco, Boatto, & Caracciolo, 2013).
On the other hand, the industrial utilization of wine within the EU including in industrial processes including drinkable alcohol refining, by-products refinement and crisis refining to name a few has reduced from about 32 Mhl in 2013 to about 25mhl in 2014, mainly due to the decline in EU sponsored refinements (Agostino & Trivieri, 2014). The projections for the industrial usage of wine in the future years are about 15 Mhl refined into drinkable alcohol for the entire alcoholic drinks industry; with 5 Mhl refined into alcohol for energy or other non-potable reasons such as alcohol resultant from intentional delivery of by-products, and about 4 Mhl, specifically for vinegar (Anderson & Nelgen, 2011).
Wine Export and Import from Europe
Europe is the world’s largest wine importer and exporter. The EU imports about 1.5 billion liters of wine valued at $3.1 billion, whereas exporting 2.2 billion liters of wine valued at $11.8 billion. However, during 2014, total imports from developing nations remained constant (Anderson & Golin, 2004). Europe’s leading wine dealers include Australia, which supplied a total of 332 million liters of wine valued at $ 560 million, Chile which imports 300 million liters of wine with the value of $801 million, South Africa which imports a total of 300 liters of wine valued at $512 million, and the United States of America which imports 228 liters of wine which is valued at $ 528 million (Anderson & Nelgen, 2011).
Furthermore, about 65% of total wine imports to Europe composed of bulk wine which was is normally refined, bottled and then sold again. Also, about 43% of intra-EU wine trading involves consignments of mass wine which is mainly utilized for blending reasons. On the other hand, the U.S. mass exports to a country like Italy during 2014 were about 48 million liters or rather 99.98% of total U.S. wine exports to Italy. After wine is imported in Europe, mass wine is then bottled and then retailed in the EU, principally in the United Kingdom (UK) as well as Germany marketplaces (Dal Bianco, Boatto, & Caracciolo, 2013). Ever since 2004, this mass trade still is competitive because of reduced tariff, shipping and bottling expenses. Therefore, EU wine imports of bottled wine are gradually declining from 55% during 2007 to about 34% during 2014.
However, Europe is not only the world’s leading wine importer, but also the leading exporter (Vinidolo, 2017) with 71% of its total exports comprising of just bottled wines. The U.S. continued to be the leader in the EU wine export marketplace during 2014. This represents about 25% of the total quantity as well as 30% of the net value (Anderson & Golin, 2004). The U.S. was also among the major additional EU export allies for Italy by importing 295 million liters of wine with a value of $ 1.5 billion. The U.S. also imported about 120 million liters of wine from France, which was valued at $1.5 billion, and Spain by importing 66 million liters of wine valued at $ 238 million. On the other hand, Switzerland was the second major wine importer from European nations by importing wine valued at $1.2 billion during 2014 alone (Vinidolo, 2017)
New Trends in European Wine Industry
Global sourcing is becoming increasingly crucial in the high-volume portion of the European wine industry because it is cost efficient. Nevertheless, in European market’s low-volume portion, genuineness as well as sustainability of high quality wines is becoming very important with time (Cembalo, Caracciolo, & Pomarici, 2014). On the other hand, the old European populace is presenting prospects for new packaging results, while the young generation presents prospects for the wine industry from various regions which are thoughtfully manufactured. Below are some of the emergent trends in the European wine industry.
Another trend in the European wine industry is searching prospects for geographical indication (GI). GI is a signal utilized to recognize a product as coming from the territories of specific countries, regions, or even localities where its superiority or other features are associated to its geographical source. Therefore, in the European wine market, a GI can function as a crucial tool in distinguishing a country’s product from competitors (Agostino & Trivieri, 2014). With a sturdy GI, wines of superior qualities from developing nations are more probable to be found in the high-quality area of the European market. Millennials is the last new trend in the European wine industry that will be discussed in this essay. The young generation is usually professed as being increasingly adventurous in their wine preferences (Anderson & Golin, 2004). Recent research has shown that, millennials perceive wine as a social beverage and will preferable will purchase wine in their on-trade channels (Anderson & Nelgen, 2011).
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PESTL and Kotler Perspectives
However, analyzing the PETSL model and putting it into application and reference to this analysis, would prove how these factors affect the trends in the wine and spirits market. Destabilizing political trends have an effect on the market. With the rise of authoritarianism due to Eurosceptism and populism tax rates are on both imports and exports changing the market trends. The Election uncertainty facing the country has the ability to change the economy of the country hence changing consumer trends respectively. The Economy of Europe is in uncertain level with the issue of Brexit and the new sworn in President of the US. A decline in the economy conversely has the ability to affect consumer and producer trends in the market, reducing production and consumption generally. Social factors that determine consumption are public critism on some of the brands as well as values in the society that stand for or against alcohol consumption. Traditional wine brewers do not stand a chance in business competition with newer technology in the market that increases the efficiency of the production process in speed and quality. Introduction and improvement of technology has improved the wine market. The final aspect that determines market trends in the industry is the legal aspect which affects labor laws, consumer laws, safety standards in both export and import countries.
Keller & Kotler (2016) perspectives dictate that sufficient demand for products and services determine whether firms can be able to make a profit in the industry or not. And the authors state that sufficient demand can be achieved by comprehensive marketing which has been attained by most wine producing firms in the industry, with comprehensive brand development and differentiation in terms of tastes and unique packaging.
Market Competition
Market competition in the wine industry is influenced by various factors. The main factor is distance. This is because; distance is important especially in exporting bottled wine as well as mass volume wine. For instance, mass volumes of wine are taxed according to distance (Dal Bianco, Boatto, & Caracciolo, 2013). Increasing the expanse between wine exporters and importers results into an increase in the price of wine by either three or four times, as compared to bottled wine (Anderson & Golin, 2004). Nevertheless, it is important to recall that EU is a comparatively small region and not surrounded navigable waters, hence transporting bulk or mass wine is usually by road. The direct consequence of this setting is increased shipping costs, which end up reflecting in the global costs.
When this happens, only the countries with enough resources will be able to import wine from EU, hence increased competition. Given the price is a main element in making decision whether to purchase or not to purchase wine, countries will compete against one another, with some buying bulk wine from the nearest production locations, even if they are in the neighboring nations (Dal Bianco, Boatto, & Caracciolo, 2013).
Major Key Players
There are many key players in the European wine industry. To begin with, Germany is the leading wine importer globally by volume. Additionally, it ranks third behind the U.S as well as the United Kingdom on a value base. German imports wine volumes of up to 1.6 billion liters yearly. The UK, on the other hand, is the leading wine importer globally in terms of value. The country’s wine imports have been experiencing about 7% increase in its imports which is valued at approximately $5.2 billion (Anderson & Nelgen, 2011). The third key player in the wine industry is France. France wine imports were raised by 23% to 655 million liters, valued at approximately $825 million during 2014 alone.
Conclusion
Taking a keen observation at the statistics, wine consumption is and will be experiencing increased upward trends in the coming future. Therefore to maintain growth in the industry, there is the need for sustainable wine supplies. Sustainability endures to be a serious subject in the European wine industry and they can not only reduce costs of production or even offer constructive taxes, but also can offer prospects for promotion founded on sustainable approaches to buyers. Countries who wish to join the industry can and are open to doing so since there are no rules governing entry into the industry except from stipulated state lows which state the conduct of food production, manufacture and packaging within the states. The idea of other players joining the industry will lead to a wide variety of choice not only in wine consumers but also wine retailers.
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