SA targets US wine market, US focuses on Europe
in their wines from US consumers - and on the predicted growth in
the market there. Their US counterparts, meanwhile, continue to
focus on Europe, where sales have grown strongly despite strong
competition from Old World producers, writes Chris Jones.
South African wine sales to the US grew by 59 per cent in 2004 compared to the previous year, according to the latest figures from Wines of South Africa (WOSA), and the industry's promotion and marketing association is preparing to invest heavily in building sales in a market which is set to become the world's biggest consumer of wine by 2008.
Speaking on her return earlier this month from a meeting in New York with US importers of Cape wines, WOSA CEO Su Birch confirmed that this year the organisation would be allocating the same promotional spend on the US as it dedicates to the UK, the biggest export destination for SA wines which currently accounts for 46 per cent of total packaged export volumes, ten times the current volume exported to the US.
"We were very encouraged by the groundswell of support shown by all the major importers of South African wines, whose top representatives flew into New York for our recent meeting from as far afield as Florida, Los Angeles, Chicago and across the Atlantic to learn more about our offerings and our plans to build visibility," said Birch. "They are tremendously excited by our quality, our positioning and our price:value ratios. The level of enthusiasm they have expressed is ample indication of the growing respect for South Africa as a wine producing country."
Funds in the US, said Birch, would be directed at raising South Africa's visibility at trade and consumer shows, through retail and on-consumption drives in the primary markets along the Eastern seaboard of New York, Boston and Washington, and then in the secondary markets of Florida, Chicago, Texas and California. The campaign would also include visits by carefully selected wine, travel and leisure media to the Cape winelands.
Last year, US wine consumption totalled 278 million nine-litre cases, according to wine market specialist Jon Fredrikson of Gomberg, Fredrikson & Associates. Imports accounted for 26 per cent of sales, reaching a record level of 72 million cases, and total wine sales volumes in the US are predicted to increase to 410 million cases by 2008, valued at US$24bn.
South Africa currently has 2.6 per cent of the New World volume share, worth US$30m. Sales have been climbing rapidly, moving from less than 500 000 cases in 2003 to over 700 000 last year, according to WOSA.
"Although our US sales figures are obviously small when compared with those to the UK, they are focused on higher price segments. We are building a small but nevertheless significant reputation in the premium sector that provides us with a springboard from which to access a broader market in the retail price segment of US$8 a bottle and upwards," said Birch. "Our strategy targets a vast spectrum of wine drinkers, from those with a high level of involvement in wine to those who just enjoy it as their beverage of choice."
Last year the US$6 to $9 retail segment accounted for 51 per cent of imported wine retail sales.
Birch cautioned that the complexity of the three-tier US market, which generally precluded direct purchasing by retailers from suppliers and demanded the involvement of an intermediary wholesaler or distributor, meant that penetration of the market would require sound planning by producers, and a long-term investment.
In stark contrast to the declining sales of French and Italian wines, New World wine sales to the US are soaring, with Australia still very much in the lead, accounting for 68 per cent of total New World wine sales, followed by Chile with 20 per cent.
"There is a growing appreciation for New World wines, the fastest growing segment of the imported wine category and retailers are looking to see who will succeed Australia. Now is the time to capitalise on this interest, as some South African producers are already doing with very pleasing results thus far," Birch said.
"Chardonnay and Merlot remain the most popular varietals in the US, while Cabernet Sauvignon and Sauvignon Blanc also enjoy strong support. We are well placed to service demand in these segments, as well as more broadly, with our Shiraz and blended wines," she added.
Last year, South Africa exported a total of 266.5 million litres worldwide, a 12 per cent volume increase on 2003, despite the robust rand and aggressive competition prompted by a global oversupply. In addition to the US, other high-growth destinations were the Netherlands, which grew by 18 per cent, Germany (34 per cent), Sweden (31 per cent) and Canada (40 per cent).
US targeting European subsidies
Meanwhile, US wine producers are setting their sites on what they consider to be unfair subsidies granted to their European rivals.
"More than 60 per cent of California wine exports are to the EU, despite the fact that our vintners face significant trade barriers, including high tariffs and a heavily subsidised EU wine industry," said Robert Koch, president of the Wine Institute. "We are hopeful that the ongoing bilateral wine trade negotiations with the EU and the next round of World Trade Organisation negotiations will lower these barriers."
US wine exports grew strongly in 2004 despite these alleged barriers. Exports, 95 per cent of which come from California, surged to $794 million in 2004, a 28 per cent jump over the previous year, according to preliminary figures released by the US Department of Commerce. Exports exceeded the previous year by $173 million - by far the largest yearly increase. By volume, exports increased 29 per cent to 450 million litres.
"The weaker dollar has allowed California wineries to better compete at key price points in the world export market," said Joseph Rollo, the Wine Institute's international director. "The wineries are now reaping the benefits of their hard work and marketing efforts of the last few years and establishing brands in major markets."
The top market for California wine is the UK, which experienced a strong 41 per cent increase in revenues to $299.1 million. The other leading markets are Canada with $123.8 million, the Netherlands with $85.6 million, Japan with $82.1 million, Germany with $26.8 million, Mexico with $14.5 million, Switzerland with $14.0 million, Denmark also with $14.0 million, Ireland with $13.9 million and Belgium/Luxembourg with $13.4 million.
"California wine had another fantastic year in the UK, with growth far beyond any of our competitors," said John McLaren, head of UK operations for the Wine Institute. "Nearly one in every seven bottles of wine consumed in the UK now comes from the Golden State."
Sales in the rest of Europe reached a record 10.6 million cases in 2004, according to the Wine Institute's European director Paul Molleman. "We have improved our position not only in more established markets such as Germany and Switzerland, but also in developing wine markets. Our business in Russia for instance almost doubled in 2004 to reach 100,000 cases."
In Japan, which had a 35 percent increase in US wine exports, deregulation of liquor retailing licences in September 2003 was followed by many supermarket stores starting to sell wines in 2004 for the first time, according to Ken-ichi Hori, the Wine Institute's director in Japan.
In a recent survey, 85 per cent of supermarket outlets now sell wine and alcohol (4,055 stores, +8.4 per cent from a year ago). "California wine is particularly strong in the popular priced segment, replacing domestic brands made from imported concentrates and bulk wine," he said.
