Wine production market development

Large wineries highly profit from economies of scale

The global wine production market is highly competitive and fragmented with numerous local and international players without clear market leadership. Although not all local markets are fragmented at the same level, it is rare to see high concentration. But this is changing. [1]

In line with the trend of globalization, the wine industry is undergoing rapid change from a localized and highly fragmented industry, where many small wineries supplied domestic customers, to an international, competitive environment controlled by big and powerful global players, which emerged through mergers on all layers of the value chain. The lergest player, E.J. Gallo winery, grew from 2.8 to 3.6% global market share in the last two years. [2]

Challenges for small wineries

After a long tradition of winemaking, many wineries face increased price pressure due to changed customer behaviour towards international wine consumption, in combination with lacking economies of scale compared to growing competitors. At the same time, they can’t deliver the amounts requested by discounters, supermarkets or other large resellers preferred by many customers. [3]

To further compete on this domestic, but internationally influenced market, smaller wineries need to rethink their organizational structure, their distribution model and their marketing strategy to strengthen their brand and differentiate from competition. So far, many small, family-owned companies mainly focus on a personal customer relationship although the number of customers, who obtain their wine directly from the producers is decreasing. [4] Sometimes, according to a few entrepreneurs we interviewed, margins of premium wines sold to end customers even need to cover the losses from sales of unbottled commodity wines to commercial chains for knocked-down prices.

Possibilities and opportunities

Directly related to increased import volumes and progressive global sourcing is a growing customer demand for authenticity in viniculture, for endemic grape varieties, for information about wine origin as well as for sustainable wine supplies. The interest in sustainable production exceeds organic or biodynamic production and incorporates packaging, transportation, energy and water conservation, use of renewable resources and reduction of waste and emissions. [5]

Developments among customer groups show growing numbers of seniors and growing impact of millennials. As seniors drink less (but still frequent), the wine industry develops towards smaller or innovative packaging options to preserve wine better and longer. Millennials see wine as a social drink and demand for variety. With high interest of millennials in adventure, experimentation and diversity, more unusual and versatile wines and growth in new regions and non-mainstream grape varieties can be expected. As this consumer group adopted a lifestyle-centred attitude with great importance of social life, experiences which can be shared (virtually) with friends, gain significance. To cater towards these needs, the wine industry is expected to become more entertaining with stronger emphasis on experiential and emotional marketing, building strong brand awareness through social media and wine apps, complemented with one-off small-sized promotions to create unique experiences. [6, 7]

Both, the demand for authenticity and the demand for experimentation or diversity, can easier be fullfilled by small wineries than global players. We at DigitalWine would be happy to see more wineries take advantage of those developments.

Sources & Recommended Readings

Sources

[1] Statistisches Bundesamt. (2018). (German)
[2] MarketLine Industry Profile – Global Wine. (2016, 2017, 2018).
[3] Szolnoki G. / Hoffmann D. (2014). (German)
[4] Deutsches Weininstitut GmbH (2011, 2017).
[5] Janssen et al (2012). (German)
[6] TheDrinksBusiness. (2016).
[7] WineIntelligence. (2016).