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6. Market Opportunity
THE GLOBAL MARKET
The global beverage market is large and diverse with an ever increasing range of products which aim to satisfy the health, image and individuality requirements of consumers as well as basic thirst and price needs.
The US beverage market is valued at US$165 billion per year and in Australia 3% to 5% of household expenditure is on beverages. The US experience indicates that market growth is dominated by soft drinks, bottled water, fruit drinks and coffee.
Although there is a strong trend away from alcohol beverages and alcohol consumption, quality table wine occupies a unique position. It is the most appropriate food accompaniment beverage, it has image and status, has acknowledged health attributes, provides variety, engenders high consumer involvement and has a range of flavour complexity. It is therefore a stronger alternative to other non-alcoholic beverages than is beer or spirits.
Wine's natural product character, its positive lifestyle associations and its links with food and tourism are expected to stimulate modest sales growth from $65 billion to $69 billion by 2025. However, strong growth will occur in the commercial and premium segments at the expense of commodity wine beverages. Australia will be a contributor to and a beneficiary of this restructure.
Global product branding with multi-variety and multi-country sourcing will develop, but on a micro-scale there will be a paradoxical interest in premium wines with a specific regional and sub-regional identity. Globalisation also will see the widespread extension of wine company alliances and joint ventures across national boundaries.
Australia has an opportunity with its innovation leadership to drive the global wine industry much as Japan did with cars. It now needs to add marketing and investment to achieve its destiny.
A GROWING PREMIUM DOMESTIC MARKET
There has been minimal focus on developing new wine consumers in the Australian domestic wine market during the last ten years. The industry has concentrated on expanding export markets initially as a reaction to weak domestic demand and unprofitable discounting practices in Australia during the late 1980s.
Although domestic wine consumption peaked in 1988, domestic sales of Australian wine have continued to expand in value rather than volume reflecting a switch from cask or bulk wine consumption to higher priced bottled wine. Imported wine sales have been low (less than 5%) due to the variety, quality and value of Australian wine.
Significant opportunities exist for increasing domestic wine consumption as a result of population growth in prime wine consuming age groups, growth in the dining out market, increasing popularity of the Mediterranean diet, tourism growth and the quest for more individualised beverage experiences.
However, threats to be countered include social pressure regarding alcohol abuse, legislative change and globalisation of distribution which could see an increasing influence of imported brands and swinging consumer fashion loyalty.
The industry's Vision 2025 recognises that the domestic market is critical to the industry's long term success. The aim is to lift Australian per capita consumption from 18.3 litres/head to 22 litres/head (realising a market value of $2 billion) by 2025. This will be achieved by extending the occasionality of consumption by the marginal wine consumer segment and by developing consumption in the prospective wine consumer segment.
Although Australia has a positive wine culture, ranking 18th in the world in terms of per capita wine consumption, the industry must continue to reinforce the community acceptability of the product by highlighting its natural, food accompaniment and health attributes.
A series of market development strategies have been identified which encompass positioning, market research, distribution, product development, promotion and regional branding.
WINE TOURISM - AN OPPORTUNITY TO ENHANCE WINERY VIABILITY
The wine industry and tourism industry have a common objective of capturing and presenting a unique sense of place to consumers, whether they be wine drinkers or tourists. An anticipated growth in self discovery tourism in the next century, prompted by the maturation of income and time rich Baby Boomers and the increasing affluence of Asian consumers, means that a number of opportunities exist. Wine tourism in Australia is currently estimated to be worth around $400m with potential to grow substantially to $1100m.
In the past the economic benefits of tourism have often been captured by tourism operators and other non-wine businesses while wineries bear the costs of providing the experience. Nevertheless, small wineries already base a substantial part of their business on tourism. These operators prefer the cost effectiveness of cellar door sales to wholesale/retail distribution and value the opportunity to create brand awareness and loyalty, along with immediate cash flow. For many small wineries, especially those with strong lifestyle business motivation, wine tourism can be the core business focus.
Strategies to increase the wine tourism market and capture a greater share of the tourist dollar include increased collaboration between wineries and tourism operators, enhanced tourism services at wineries and joint promotion with State Tourism authorities.
STRONG EXPORT MARKET GROWTH
Although the world wine market is estimated to be A$65 billion (wholesale) the international wine trade accounts for just 20% of this total at A$13 billion.
With exports of 125 million litres Australia has already seized a significant share of this small but valuable market. Although it only has a 2.4% share of world trade by volume, at $449 million in wholesale terms it has 3.5% of trade by value.
The export challenge over the next 30 years is to capitalise on the dynamic changes anticipated in world income and population growth and its effect on wine markets.
The expectation is that while the volume of wine sales will drop, the value of the world wine market will rise to $69 billion in 2025 as consumers demonstrate a willingness to pay more for consistently higher quality wines. As a result the indicative average per litre value will rise from A$2.55 to A$2.98.
There is also expected to be a relative shift in world wine consumption from traditional wine producing countries to emerging, import dependent countries. Factors influencing this will be declining consumption trends in traditional wine producing countries such as France, Italy and Argentina; growing consumer markets in the UK, Scandinavia and North America where wine sales will reach a broader community base and a substantial increase in emerging markets such as Asia, South America and Africa.
Australia is well placed to capitalise on the demand for consistent, higher quality wines. As wine consumption emphasis shifts towards non-traditional import dependent markets new market opportunities will arise.
Most of the projected growth will come from four major markets:
- The United Kingdom, which is highly import dependent, will experience an increase in per capita consumption to 16.4 litres head and wine sales above £3 will increase at a faster rate than total sales. This will work in Australia's favour as 95% of Australian sales are over £3.Australia will supply 120 million litres (ML) representing an 11% market share by 2025.
- The United States is the world's third largest wine importer and 90% of consumption is in the 'popular' or above segments (i.e. > $US4.25). Australia will capitalise on market growth in this sector to achieve export sales of 88ML (4% market share) by 2025.
- Germany is the world's largest importer by volume but the majority of imports are low in quality and price. There is expected to be a relative shift in consumption from lower to higher priced wine (above 7.5DM), with Australia supplying 80ML for a 4% market share in 2025.
- Japan has the fourth fastest growing wine market and 60% of wine consumed is imported. A substantial increase in per capita consumption is expected to increase this market four fold and Australia's share is expected to grow to 7% (50ML)in 2025.
Overall Australia's exports by 2025 are expected to grow to 600 million litres equating to A$2.5 billion in sales annually.
Export growth is expected to occur in three phases:
- Volume growth (1996-2002) during which the rapid vineyard expansion of recent years will overcome product shortages thereby enabling expansion in existing and penetration of new markets.
- Value growth (2002-2015) which will place increased emphasis on building brand strength, sector share and margins.
- Pre-eminence (2015-2025) when Australia will have established brand leadership in specific market segments.