Is Bigger Better Winners and Losers in the Global Wine Market

1
Is Bigger Better?Winners and Losers in the
Global Wine Market

• Prof Larry Lockshin
• Wine Marketing Group
• University of South Australia

2
Introduction

• The global wine sector
• A very brief history of the Australian wine
  industry - why we are where we are
• Research in consumer buying behaviour
• Who will be successful in the future

3
Wine Market Facts (OIV, Impact)

• Sales of 2.52 Billion ( 9 litre cases)
• High concentration in the selling of wine
• Low concentration in production (10 largest 14
  of global production),
• Growth is 0.6 per annum in 2003.
• International trade is static
• Growth is confined to the commercial sector (
  table and branded wines)
• AOC/DOC (appellation wines) are losing share
• Significant surpluses in the New World too (2
  Buck Chuck).

4
Concentration of Production in the Global Wine
Sector (Source Rabobank)
5
Change in Concentration in Retailing in Selected
Markets (source Euromonitor 2004,1998)
Percentage of retail wine sales by type of outlet
6
Comparing Consolidation across Product Categories

• Global Market Share of Top 4 Players in each
  Category

Soft Drinks
House hold
Tobacco
Spirits
Beer
Wine
7
2002 World Wine Production in Percent
8
2002 World Wine Consumption in Percent
9
World Wine Production Consumption(Hectolitres)
10
Growth of New World Wine
11
Brief History of Australias Wine Sector

• Began early 1800s, but no wine specialists
• Settlement of regions by mainly German and
  British
• Development of the Show System very early
• Depended on regions and blending
• Responded to UK market and tax pressures
• Ownership by consumer products companies in the
  1970s and 1980s.
• Industry collaboration - Strategy 2025

12
Strategy 2025 (1996)

• Industry vision -
• by the Year 2025, the Australian wine industry
  will achieve 4.5 billion in annual sales by
  being the worlds most influential and profitable
  supplier of branded wines, pioneering wine as a
  universal first choice beverage
• Already exports are 2.4 billion and domestic 1
  billion

13
Total Vineyard Area 1979-2000
Strategy 2025

• Already planted 75 of the 30 year plan

14
Marketing Decade (2000)

• Mission 2010
• Grow the consumer franchise for Australian wine
  to achieve 2010 sales of 4.5 billion at a higher
  average margin with enhanced brand values
• Domestic market - focus on infrequent consumers
  (2004)
• International market
• Market by market analysis of potential and
  programs to achieve
• Necessary export quantities
• Classification of export markets
• Action plan for Wine Brand Australia

15
Industry Structure

• 1625 wineries
• 70 of production among 4 companies
• 95 of branded wine produced by the 20 largest
• 158,594 hectares
• 1.75 million tons in the 2004 vintage
• Collaboration is a key to export success

16
The Rise of Australia
17
Australian Export MarketsDecember 2003
66 of all exports up from 18 in 1985
Asia was 5 of 10 top markets in 1985
18
Reasons for Australias Export Success

• Large companies able to deal with large retailers
  and wholesalers
• Brand management developed in the 1970s
• Multi-regional and varietal blends allow for
  minimal variation
• Technical innovation and diffusion of innovation
• Cultural link to the UK US
• Collaboration between wineries
• Luck (timing)

19
The wine market is made up of brands(?)

• Wine brand facts-
• 200, 000 brand names
• 500,000 SKUs
• No one brand has 2 of world market
• No brand has 10 of national market
• Few brand categories span the full range of
  consumer expectations (heuristic and hedonic) and
  prices

20
Current Retail Environment

• Technology better tasting and more consistent
  wine
• Supermarket concentration more new consumers
  introduced to wine, some will move up
• Wines becoming FMCGs
• Reduction of the number of wines on the shelf
• Concentration of distributors
• Squeezing the smaller producers to specialty
  channels
• Higher margins need higher prices
• More management () needed per sale

21
Consumer Buying BehaviourProduct Involvement

• Interest and lifestyle towards product category
• Indicates cognitive processing of information
• Advertising
• Brands
• Salesperson advice and relationships
• More thoughtful choice behavior
• Stores
• Brands
• Based on intrinsic cues

22
Two kinds of wine consumers

• High Involvement
• Traditional connoisseur
• Lifestyle interest in wine
• Cognitive processing
• Reads back labels
• Reads ads
• Enjoys learning about wine
• Considered choice of wines, stores.
• Uses intrinsic cues

• Low involvement
• Enjoys taste of wine
• Enjoys consumption situations
• Peripheral processing
• Not concerned with detail
• Chooses safe wines
• Uses extrinsic cues

23
Low InvolvementBrand Constellation
Brand name
Grape variety
Country-implied by brand
Price
6.99
24
High InvolvementBrand Constellation
Brand name- Special bottling
Brand Name- Negotiant
Region
Style-implied
Vintage
Grape Variety- implied
Vineyard
Price
89.99
25
Australias Strength is Low to Mid Involvement
Buyers

• Excellent value wine
• Innovative packaging
• Not too serious
• Suits the fastest growing consumer segments
• Branded by name and country
• More difficult to sell higher priced wines

26
Consumer Behaviour Research Purchase Cues for
Wine

• Understanding cues allows better marketing of
  wine
• Deciding channels of distribution
• Promotion
• Pricing
• External cues important when wines have similar
  quality

27
Research Using Discrete Choice Modelling

• Method used by many new product development teams
• Simulates choice in market, including would not
  purchase
• Researcher defines choice cues (attributes) and
  levels within each
• Choice set presented to buyers in a scenario
  format
• Preferences measured as the percent of times an
  attribute and level are chosen
• Multinomial logit model fitted

28
Choice Task
29
Relative Importance of Label Cues for Wine Choice
in the UK(Perrouty, Lockshin and dHauteville
2004)at home for dinner with friends
30
Relative Importance of Label Cues for Wine Choice
in Germany
31
Relative Importance of Label Cues for Wine Choice
in France
32
Simulating Market ChangesCompetitive Scenario 1
(UK)
33
Competitive scenario 3French grape labelling
evolves
34
Australian Choice ExperimentSegmentation
variable

• Tested the various splits of the sample
• Involvement chi-square 245
• Male/female chi square 122
• High/low consumption 54
• Under/over age 34 49
• Use involvement as the split variable

35
Importance of Cues in Wine Choice by Involvement
(Australia)
36
Simulated Purchases in Australia Small Brand
Sensitivity to Region Involvement, Price, and
Medal
37
Using Panel Data to Measure Brand Performance and
Consumer Choice

• Brand Performance Measures
• Penetration brand buyers / Total category
  buyers
• S-statistic propensity to switch
• Brand repeat rate probability of repurchase, if
  bought last time (market share effect)
• C- statistic loyalty rate for the category
• Brand alpha brand loyalty, propensity to
  re-buy, adjusted for market share
• What is a brand?
• Name, region, variety, price?

38
Wine Brand Market Structure(not adjusted for
market share)
Jarvis, Rungie and Lockshin 2003
Loyalty/Probability of repeat purchase
Penetration
39
Typical Values of Polarization (repurchase
probability adjusted for Market Share)

• Store choice 60
• Detergents 40
• Shampoos 30
• Chocolate bars 20
• Biscuits 10

40
Loyalty (polarization) to price classes for 2500
consumers of bottled wine in Australia from one
retail chain (Jarvis, Lockshin, Rungie 2004)
17.50
lt 7.49
Polarization
Average Loyalty to price
7.50-12.49
12.50-17.49
Market Share
41
Loyalty (polarization) to regions for 2500
consumers of bottled wine in Australia from one
retail chain (Jarvis, Lockshin, Rungie 2004)
SE Australia State
Foreign
Average Loyalty to Region
High Awareness
Polarization
Low Awareness
Market Share
42
Polarization (loyalty) and market share in white
wine varieties(Jarvis, Rungie, and Lockshin 2003)
Riesling
Chardonnay
43
Polarization (loyalty) and market share in red
wine varieties(Jarvis, Rungie, and Lockshin 2003)
Merlot
Shiraz
Cabernet
44
Polarization (loyalty) to wine attributes in
Australia
45
Consumer Perception of Australian Wine Regions

• Percentage of times the region was mentioned
  across the 12 attributes (300 respondents)

46
Pmap of top 8 regions
Margaret River
47
Infrequent Wine Consumer Perceptions of Wine
Consumption Situations
48
Market signals are important

• Marketing relevance to consumer
• How they buy and what cues
• Differ by place and time (cellar door v
  supermarket v restaurant) convenience v
  destination
• Understand the key aspects of the brand at all
  levels from grower to agent/salesperson
• Brand position and relevance (eg Jacobs Creek)
• Cues used for purchase
• Translate these to the wine making and to the
  vineyards (specific style)

49
Marketing Outcomes

• Planting a vine is a marketing decision
• Variety
• Location (climate, soil, awareness)
• Management
• Fit for use (must be communication between
  grower and the market with the winery in the
  middle)
• Differs for large exporting winery and tourist
  focused winery
• Margins for the wine affect the management
  techniques for the grapes

50
Success Communication between Wineries,
Distributors and Growers

• Strong information and trend analysis in the
  market leads to good planning and forecasting
• Own sales people, distributors, agents
• Market research
• Market visits
• Information on fit for purpose communicated
  regularly to the grower
• Payment for fitness based on style
• Field advisors
• Grower comparative tastings
• Financing for vineyards changes available

51
The Haves and the Have-Nots

• The haves
• Large wineries with beginnings of quality
  payments systems and FMCG management (brands and
  logistics)
• Smaller vineyard/wineries with known terroir and
  quality
• Competent and focused channel representation
• The have-nots
• Larger wineries without brands and logistics
• Smaller wineries with unknown terroir or poor
  marketing
• Adversarial channel relationships
• Competition between supply chains is the global
  arena
• There is no evidence of size influencing success

52
Agenda for the future

• Why do some consumers become involved and not
  others?
• Regional identification only works for more
  expensive wines regions and countries, must work
  together to improve salience
• How to spend and how much
• Wine is promoted too narrowly as a beverage, how
  to increase?
• Consumer segment
• Situation
• Information
• Packaging