Canada’s Position in the Global Wine Market Insight... · Canada’s Position in the Global Wine...
Transcript of Canada’s Position in the Global Wine Market Insight... · Canada’s Position in the Global Wine...
Stefano Pallotti Vilma PumiHead of Credit Analyst
Canada’s Position in the Global Wine Market
A look at the broader market
Rabobank InternationalMarch 2012
Current Trends in the Global Wine Market
I Global supply trends
II Production developments by region
III Global demand analysis- where will growth come from?
- The UK
- Germany
- - The US
- China
IV Canada’s position in the world market
Summary
Global Supply
In 2008, Chile and Australia had particularly large harvests (Aus +27%)
In 2009, both Chile and Australia drop pricing on bulk wine to make room in tanks for incoming harvest
California grape prices drop, bottled imports drop, California shipments flat!
Does the rest of the world matter?
Chilean and Aus imports add 14 million cases-Average pricing declines 36%
Total US market grows 2%, but…
Bottled imports decline
California shipments flat
Volume Volume $/ Case
2008 2009 % Growth % Growth
Chile & Aus Bulk Imports 3569.3 17939.2 403% -36%
Total Bottled Imports 69355.6 68366.1 -1% -12%
Total Imports 94948.7 105760.1 11% -22%
Total US Wine Market 316800 322800 2% n.a
California Wine Shipments 196400 196700 0.0% n.a.
Global Supply
Moving towards balance?
The global recession in 2009 erased 5 years of demand growth
Declining supply and growing demand should continue to reduce stocks in 2012
Climate, the economy and Europe will continue to be ‘wild cards’-oversupply can always return
Source: OIV, 2010, Rabobank estimates, 2011
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Global Oversupply
The reduction of oversupply is supporting bulk wine prices
Source: Ciatti Wine Brokers
Average bulk wine prices are gradually improvingPricing improvements seen across a diverse range of regionsPricing improvements seen across a diverse range of varietals
‘Cabernet Sauvignon: Price/lt. of bulk wine by country, Sept 2010- Dec 2011
Generic White: Price/lt. of bulk wine by country, Sept 2010- Dec 2011
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Italy(EUR)
Spain(EUR)
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Bulk wine prices generally on the rise…
… but “be careful with ‘averages’”
The International Market
Easing of oversupply creates other pressures
Rising grape prices raise input costsWeak economies in major consumer markets create pricing pressureMargin pressure the story of 2012, particularly by- Producers with strong currencies (Chile, Australia)- Suppliers dependent on spot market- Markets with tightest supplies (US)
Index of Chilean Cab. Sauv Prices- Internal bulk market vs. Average bottled export prices in Chilean Pesos (CLP), 2007- 2011
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Cab. Sauv. Domestic bulk price Cab. Sauv. Btld export price
Input Costs
Sales Price
Competitiveness of Producers
Currency fluctuationsWeakness of the USD and GBP create pricing pressure for many suppliers (Aus., Chile, South Africa, etc.)
Country (or regional) image/ Perception of qualityImage as a wine supplier is built over time- often tied with the broader image of the countryCountry image will vary from market to market
Regional supply/ demand balanceExcess production results in increasing sales of bulk at lower pricesOngoing/ structural oversupply erodes the country-image, lower perceived quality
Factors that influence pricing
Italy
Export dynamo
Developments:
2011 harvestdown 14% from 2010-Italian bulk wine prices on the rise-Italy becoming a major importer of Spanish bulk wine
Export prices recovering from 2009- supported by weak euro
Ontario’s largest import competitor by volume
Source: Union Italiani Vini, 2011
€ 2.00
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Packaged still Bulk still Average Price- Bottled
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Australia
Can it recover its “Premium” image
Developments:Particularly hurt by strengthening AUD, oversupplyImage-erosion in some markets due to ongoing oversupplySlow, steady reduction of vineyard areaStrong participation in emerging markets
FTA:Current- Chile, US, Singapore, Thailand, NZ, Philippines, VietnamPending- China, Japan, Korea, India
Source: Australian Wine & Brandy Corporation, 2011
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France
The French Paradox
Developments:
Export volumes and pricing recovering from abysmal 2009
Export growth being led by highest priced segments (Champagne, Bordeaux & Burgundy)
2011 harvest +11% (bulk wine prices declining)
No. 3 import in Ontario
China has been a boon, but is a double edged sword
Source: FEVS, 2011
€4.00
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USA
A very different reality
DevelopmentsLarge, attractive domestic market & weak currency set U.S. suppliers apartExports represent a small % of production (17%) but opportunisticPricing for bottled wine exports has improved
FTA:Current- NAFTA, DR-CAFTA, Australia, Chile, Israel, Peru, SingaporePending- Korea
$0.00
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Bottled
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Argentina
Rising star
Developments:Country-image continues to improve with Malbec
Adverse weather affects production in recent years, reduces bulk wine exports
Inflation now the major concern-affecting bottled exports
Next steps after Malbec?
FTA:Current-MERCOSUR, Israel
Source: INV, 2011
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Major Global Wine Import Markets
Who’s growing, who’s not?
Of the world’s largest wine import markets, only three show sustained growth
Source: IWSR/WDR, 2010
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Signs of life?
Germany
German marketOld World suppliers dominate import market (@75% share of imports)PL makes up @ 50% of wine sales70% of wine sold were valued at <€3.00/ liter; 95% <€4.99/ literGrowth occurring at the <€1.50/ liter AND €3.00- €4.99/ liter
Share of Imports
Avg Import Price (€/l)
Italy 43.3% € 1.20
France 15.8% € 2.53
Spain 14.9% € 1.17
South Africa 4.80% € 0.99
Chile 3.10% € 1.08
US 2.70% € 1.14
Australia 2.30% € 1.25
Price Segment Mkt Share
> € 0.99 14.20%
€1.00-1.49 9.50%
€1.50- 1.99 22.40%
€2.00-2.99 24.50%
€3.00- 4.99 23.80%
€5.00+ 5.60%
Source: Euromonitor 2011
UK
Government policies affect consumptionExcise tax on wine +34% since 2005, VAT increased from 17.5% to 20% in 2011- Taxes make up 54% of retail price of a bottle of wineAusterity measures affect consumer demand
Retailer consolidation increases pricing pressure on suppliers
Can profitability recover in the World’s largest import market?
The UK had been the most attractive export market for many suppliers
Pricing has now become unattractive or unsustainable for many suppliers
Most suppliers exiting or reducing exposure to the UK market
Source: IWSR/WDR, 2010
UK Wine Imports and excise tax per bottle, 2005- 2011e
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SparklingStill <15% abv
Wine imports down 8% from 2007
Australian suppliers have seen average income/ case decline by @ 65% since 2002 due to:- Excise tax increase- Currency
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Source: Gomberg-Fredrikson
US market grew 4.5% in 2011, reaching 345 million cases (@ 3.1 bn. Lt.)Domestic wine (@65% market share) facing supply constraintsConsumers return to premiumization, discounting activity abatingImported wine growing at a faster rate, as California production has not kept pace with consumption
The US
Current Situation
US consumption has increased by over 100 mncases between 2001- 2011
Over past decade, most growth has occurred at higher price points ($9+)
Pricing pressure during 2008-2010
Encouraging market growth in 2010 and 2011
Discounting/ promotions becoming less aggressive
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Existing NewSource: Gomberg-Fredrikson
US wine consumption (mn cases), 2001- 2011 California wine grape acreage, 2002- 2010
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Source: Gomberg-Fredrikson Report, Rabobank analysis, 2011
The US
Imports grow share in last decade…
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1970 1980 1990 2000 2005 2011
California Imports
Share of US Market- California vs Imports, 1970- 2011
Yellow Tail became a wake-up call for US wine companies:
- Entered US in 2000
- Best selling import by 2003
- Over 7 million cases by 2005
- Over 8 million cases today
Import share of US wine market varied between 10% to 20% from 1970 to 2000
From 2000 to 2011 import share grew from 20% to 34%
Yellow Tail a “wake up call” for many US wine companies
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The US
… but US wineries are now import protagonists US wineries have incorporated imported wines by:
Importing foreign brands to enhance their portfolio
Eliminating appellation for lower-priced brands to use cheaper imported wines
Use imported wines in traditional California brands for key varietals
Creating new brands using various import sources
China
A big nation with a growing thirst for the good lifeChanging preferences of the developing middle class & younger generations
The luxury appeal of imported winesChinese consumers are highly motivated by image & status
The miracle we’ve been waiting for?
Growth rates of wine 2005-2010:
22% vol. 26% val(Euromonitor, 2011)
Imported wine represents 10% of volumes and growing fast
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Wine sales in China, 2005- 2010
Source: China Customs, 2011 Source: China Customs, 2011
Competitive outlook for imported wines
China
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Bottled wine imports
France Australia
Italy Chile
Spain USA
Others
+61%
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Bulk wine imports
Chile Spain
Australia Italy
France USA
Others
+71%
Relative prices of imported wines
China
Generally strong pricing in the Chinese marketSignificant variations among suppliers
France maintains a dominant position and strong pricingAustralia achieves above-average pricesMost others are mainly bulk suppliersIn spite of attractive growth and pricing, the Chinese market remains problematic and a “Black Box”
No national distributorsLack of protection for brandsEtc.
How Canada should view itself in the context of the global market
Implications for the Canadian Wine Industry
Secondary Markets
Exporters seeking opportunities for growth in smaller markets- Lower volumes, but better pricing and greater growth prospects- Opportunities to diversify exposure to different currencies- Potential advantages for improved ‘country image’ in regional markets
Smaller markets, growing priority
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2009 2010 2011
US UK Netherlands
Japan Brazil Canada
China Row
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Share of Chilean exports by destination, 2009-2011
Growth rate of South Africa exports by destination, MAT June 2011
Source: SAWISSource: Wines of Chile
Canada
Opportunities:Sixth largest wine importer in the worldTotal wine consumption (@ 400 mn lt.) has grown 30% over past 5 yearsStrong average pricingValue growth has been outpacing volume growth
Challenges:Relatively small marketAccess (LCBO, SAQ)FragmentedMarketing costs
Exporters increasingly prioritizing Canada as a target market
Canada
Canada’s position in the global wine market…
Canadian Wine Market
International suppliers increasingly prioritizing Canada as a key export market
Canada’s Competitive Positioning
Ontario growers versus foreign competitors in the Canadian market
Who to watch
France facing excess supply
Australia looking to replace dependence on US, UK
US enjoys strong export pricing to Canada
Chile (esp. Concha y Toro) emphasizing Canadian market
Source: LCBO, Rabobank analysis, 2011
LCBO Wine Sales and Average Price per Liter by Source
Source Vol (Mn Lt.)
Canada 34
Italy 19.8
Australia 14
France 10.8
US 12.4
Argentina 8.8
Chile 7.2
Spain 2.6
South Africa 3.5