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Which export markets should German brand owners concentrate on?

Blue-NunWhich export markets should German brand owners concentrate on?

Export markets are volatile – tastes change, economic conditions affect personal spending power and competition can drive prices to a point where there is little financial benefit to producers.  A canny brand owner must be able to match brand strengths with potential consumers, balance production capability with demand and price their product competitively, all the while navigating the volatilities that influence demand.

In the current landscape, Germany, the 7th largest wine-producing nation, exports approximately 16% of wine produced annually with most of this consumed domestically. Their major trading partners are concentrated in Europe, North America and eastern Asia. The expectations of export vary from the promise of generating higher revenue, attracting wine consumers with higher disposable incomes, exploring new routes to premium markets or seeking high volume branded demand.

German producers have possibly not approached export markets in the best way so far. Continuous failed efforts to demystify German labels and styles, the engrained reputation for high volume semi-aromatic semi-sweet wine of no character or appealing image (known as Liebfraumilch) have played a key role. Also the fact that many producers are keeping their best efforts at home yet exporting some of the worst does not help matters. The director of the German Wine Institute recognizes that due to stiff international competition, producers will have to develop new markets more aggressively and innovatively in order to regain and maintain market share.

For brand owners whose aim is primarily an economic one, the ideal target markets should have balance of a large population, large disposable income and above average spending per capita on imported wine, with the USA being full of potential in particular.  The USA is currently the most important German export market, importing 297,000 hectoliters of wine, worth EU 103 million (EU 2.8 per bottle), equivalent to about one third of all export earnings. It has a large population with high disposable income and the highest spend on alcohol (and tobacco) in 2011.  Despite the USA producing over 18 million hectoliters of its own wine, consumers’ demand is so substantial that imports have increased by a whopping 170% in the last year. The growing trend towards more sophisticated and premium wines together with minimal discounting provides a perfect target for quality-conscious producers. The other end of the market also offers potential prospects as any innovative brand owner can profit from the latest US trend for Moscato, causing its sales to rise by 71% in the last two years.

Jan Matthias, owner of Weingut Staffelter Hof based in Mosel, producing organic premium wines, has successfully focused on the USA market. He explains that being able to offer modern labels, award-winning wines and a one thousand year history of winemaking provide a unique selling point and an important factor in consumers wine choice. Despite his total exports representing close to the national average of 15%, Jan is keen to expand his interest in Australia, South Africa and New Zealand but admits there is still a lot of work to be done.

Tapping into new markets in Australia is particularly tempting as many consumers are familiar with the variety. The increasing disposable income, forecasted stability of the Australian dollar and the third highest alcohol spending per head of any nation offers great potential. However, the country’s geographically remote cosmopolitan centers, loyal domestic consumption (one third of Australian wine production) and local abundance of low-priced wine will pose logistic and pricing challenges. Unsurprisingly, neighboring New Zealand wine continues to account for the largest share of total imports here. German wine imports are currently occupying 7th place and growing healthily, with Riesling being the most successful and the easiest to market.

The brand owners planning to introduce a new wine style or aiming to brave the heavily discounted game, should target the UK, a trendsetter market but with very challenging margins.  While the USA market is full of potential and Australia promising a glimpse of new interest, the UK is showing an unsurprising decline in both value (by 14%) and volume (by 20%). Yet it is still the largest export market worldwide, worth EU 38 million. Timid marketing activity combined with the persisting confusion over German labeling (even by aficionados) and the focus on the heavily discounted lower-end of the market is fueling this decline. Despite the average price having risen by 8% over the last year, it is still disappointingly low at EU 1.3 per bottle and is a poor commercial proposition.  The UK market is one of the most sophisticated yet challenging and competitive worldwide due to aggressive discounting driving sales. However the continuing consumers’ thirst for bargain opens up an opportunity for competitively priced high volume brands with generous marketing budgets. Naturally low alcohol Riesling production could tap into the evolving trend for lower alcohol wines. Alternatively, Pinot Noir or Dornfelder based Rosé could take advantage of its globally gaining demand (now presenting 10% of worldwide wine production). It is also a stepping-stone for any new products and an important market for setting wine trends.

On the opposite side of the market, if your brand offers scarcity, is high scoring and you are prepared to battle out logistical challenges and cultural etiquette then Japan and China is your bet. Just about every brand wine owner wants to do business with China. Its imports have increased by 19% over the last year, replacing Japan as the largest Asian market for German wines. Recent Wine Intelligence research predicts that China will be the most attractive Asian market for wine exports in the next 5 years. However, the challenges may overweigh the potential of this market for German producers. Even if you survived the bureaucratic issues, significant tax and logistical demands, the journey does not end there. To be able to understand the consumer behavior of 19 million wine drinkers may be the biggest challenge of them all with in-country presence being a necessity. Western consumer stereotypes just do not apply here. German brand owners may struggle to attract either adventurous connoisseurs (not brand seekers) or prestige-seeking traditionalists who account for 65% of all spending on imported wines according to Wine Intelligence’s Vinitrac survey in 2012. On top of that, German brand owners are, in most cases, white wine producers – a challenge given the Chinese love for robust red prestigious and status-driven wines.

Despite new emerging trends towards everyday affordable imports by younger and more experimental consumers within the Asian market, it seems unprofitable (in the near term at least) to market German wines to Asian consumers with low disposable incomes, low spend per head, a family oriented culture and with wine purchasing often as a gift rather than for personal consumption. The relatively obvious potential for Asian food matching with German Riesling is over-generalized as it is like saying that it matches well with European cuisine.

Many other markets may be worth exploration but brand owners must be aware of their challenges and suitability for their brands. Switzerland, with common language and cheap transportation. Norway with the highest spend per capita on alcohol and high brand awareness yet whopping alcohol tax (EU 6 per bottle). India with potential reach to 30 million new wine drinkers yet complex tax structure. Hong Kong with no duty on wine, optimum logistic capabilities and the highest average value per bottle (EU 6.8) but a tiny wine consumption (4.5 lt per capita). Singapore with demand for high volume brands yet limited market. Korea with its new drinking culture switching whisky for wine consumption and increasing wine sales at large-scale discount stores.

There is no one-answer-fits-all when it comes to recommending export markets to German brand owners.  Despite the various markets being complicated, looking at basic statistical research on national disposable incomes, alcohol spend per head and value per bottle of imported wines in potential target markets, some initial conclusions can be drawn. In brief, the USA offers the richest picking, UK trend setting and Asia the potential for growing prestige brands.

 
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Posted by on January 29, 2013 in Wine Market

 

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