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#Rural Estate — 20.01.2016

3 misconceptions about the wine market

Benoît Léchenault

3 fallacies about a market facing the appearance of new consumption trends and stiffer competition

The wine market is affected by the arrival of wines from the “New World” and the emergence of new consumers. It is a market that has become truly worldwide: an average 35% of the global production is exported. Despite greater competition, few brands have succeeded in becoming global names so far and the prospects for expansion at the high end of the market are looking very good.

Common belief 1: The market is doing badly because the younger generations drink less wine

False: While it is true that global consumption has decreased by 13.8% since 1980, stabilising at 239 million hectolitres in 2013, the outlook is very favourable as new consumers are appearing on the market. Today, wine is consumed in 242 countries around the globe.

Even though European consumers still account for over 50% of consumption worldwide and although overall consumption in the Euro-zone is declining, new growth relays are coming to the fore. The US market, for example, with a mere 12 litres consumed per inhabitant, is becoming a very significant and solvent market owing to the sheer size of its population. Today, the USA is the number one consuming country in the world, ahead of France. Prospects in the USA, particularly at the top of the range, are very good; a fact that has not escaped the notice of the main exporting countries. European producers are also looking to conquer the market in other continents, especially Asia.

In all, global exports are continuing to grow: they represent the equivalent of 13 billion bottles (of the 37.2 billion produced) and 25.7 billion euros in sales. Over the last 13 years, exports have almost doubled in volume (+87%). In value, they have increased by 63% but the outlook is better than for volumes.

Misconception 2: Countries everywhere are starting to produce wine

False: Wine production requires a specific biotope where the climate, soil and geography are all very important factors. There are currently 60 wine-producing countries, but the world’s production is still very concentrated: the top 12 producing countries account for 84% of the global wine production, which is currently around 247 million hectoliters (37.2 billion bottles). Global production has, in fact, risen by only 2.2% in the last 20 years.

From one continent to another, we can see diametrically opposing trends. Production in Europe (the leader with 59% of worldwide production) is levelling out at 146.6 million hectolitres. At the same time, new producing countries (Chile, Australia, New Zealand … and more recently China) have increased their volumes by 48% with a very export-focused strategy.

Good news: with 47% of the world’s production, the historical European leaders are still the main contributors with France, Italy and Spain taking it in turns to rank first.

Misconception 3: France is losing ground on the global market

False: In 2014, France was once again the world’s leading wine producer and is still the world’s number one in terms of value, with a positive trade balance of over 7 billion euros.

Export prospects are the best in the fine wines segment. The Americans could become France’s major clients in value terms (with 1/5 of the French wine and spirits market). According to the British “Liv-ex” index, 84 of the 100 most highly renowned “wine brands” in the world are French. Thanks to the richness and diversity of its wines and soils, France has the capacity to produce unique wines.

Whereas the global average price per litre of wine exported in 2012 was around 2.62 euros, exported French wines sold for an average of 7 euros the litre. In 2012, Bordeaux wines were being exported at €9.7 the bottle, Burgundy wines for €10.6 and Champagne for around €15.

So a good outlook for the vineyard market which, even though it is more for knowledgeable investors, remains a very attractive safe-haven asset, both for domestic and foreign investors.