Can SA meet US wine demand?

Wine consumption in the US has grown to such an extent over the past 10 years that it is currently regarded as the third-largest wine-consuming nation in the world, swallowing 19% of the total global consumption per year. Mike ­Ratcliffe, general manager of Vilafonte and MD of Warwick Wine Estate, spoke about market trends and ­opportunities in this market at the recent Wine Cellars SA’s annual ­congress in Goudini, Western Cape.
Issue date 1 June 2007

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Wine consumption in the US is predicted to grow at 3% per year, so the US will surpass France, Italy and Spain to become the biggest wine consumer in the world by 2010. Due to this, the international market is projected to increase by 50 ­million nine-litre wine cases from its current 259 million over the next five years. The increased popularity of wine is linked to a shift in drinking preferences of US consumers – wine consumption has increased exponentially since 1995, coinciding with a substantial drop in beer consumption. Growth is driven by the younger generation. Some 40% of the millennial generation (13- to 30-year-olds, 26% of the US population), 26% of Generation X (31- to 42-year-olds, 16% of the population) and 13% of the Baby Boomers (43- to 61-year-olds, 29% of the population) drink more wine than in the past, and more often. The AC Nielsen Premium Wine Scan 2006 found that expensive wines (from to ) showed between 17% and 27% growth in sales. Sales of wines between and ,99 grew by 6% to 9%, while sales for wines under declined substantially. Almost 5 000 wineries supply over 7 000 brands through 600 distributors. The top 10 wineries sell more than 82% of volume. There has also been a 30% to 40% increase in production since 2003.

This sounds like bad news for countries that want to take advantage of the growing market, but it’s not. The US is unable to meet the growing demand in the country. For example, there has been a 42,1% rise in Chardonnay sales, but a 17% drop in supply from 2005 to 2006. Cabernet Sauvignon and Syrah (Shiraz) sales have risen by 25,29% and 60% respectively, but these sales have coincided with an 18% drop in supply volumes for both these cultivars over the same period. Merlot and Zinfandel show the same trend. Supply volumes have increased by only 0,19% for Sauvignon Blanc and over 32% for Pinot Noir – however sales for these two cultivars also increased by 19,46% and 27,9% respectively. The good news is that wine imports are growing strongly and comprise 30% of the market. Over 60% of the largest wine cellars in California are planning to increase import wine volumes.

Most of the current imported wine comes from Old World countries – France has the biggest market share in terms of value, followed by Italy and then Australia. Italy is the largest exporter in terms of volume, accounting for almost 33%, followed by Australia (30%) and France (12%). SA currently only accounts for 1%.
So what are the challenges to countries that intend to export to the US? Distributor consolidation is currently a bottleneck. It would therefore be better for new entrants to form alliances with strong existing distributors than to try and make it in the market alone. The size of the US should be considered. Just as in Europe, a blanket marketing strategy won’t work. People in the southern US are different from those in the north; people from different states have their own cultures and preferences. This is why positioning with an existing distributor who knows these markets and has logistics and marketing programmes in place, is preferable to trying to make it in this market alone.

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Exporting wine producers will also have to ensure that they are able to maintain volumes. Americans might expect a year-on-year increase if the wine is in high demand. Failure to comply with this would result in exporters losing face, and market share. Marketing SA wine also poses challenges: it takes 17 hours to fly from SA to the US, while America is only five to six hours from the UK, which is currently one of SA’s most important wine markets. SA already has a strong market network in the UK and often sends marketing agents there. If these agents went to the US after visiting England, this would reduce costs and save time.
The US is also one of the most ­efficient internet users and almost everybody has broadband. Wine retailers, buyers and consumers will want internet access to product information. So exporting wine producers will have to use internet marketing tools.
Concerning cultivars and wine styles, America is looking for new experiences. Something unique and terroir-specific might be more suitable than trying to sell old-style wines, especially as most of their wines are imported from France and Italy. It would be better to establish new styles in this market. – Glenneis Erasmus
Contact Mike Ratcliffe on 082 853 8737. |fw