Premium wine – It’s a long way to the top

Media release January 20, 2014

Premium wine – It’s a long way to the top

The global wine community currently has a great deal of interest in market dynamics at the more premium end of the global market, however grasping ‘premiumisation’ opportunities is a complicated and disjointed process, according to specialist agri lender Rabobank.

In its recent report titled ‘Premium wine – It’s a long way to the top’, Rabobank highlights that in recent years, wine suppliers and retailers alike have sensed a growing appetite for wines beyond the mainstream, which has led to global wine companies investing more behind premium wine strategies.

Report author Rabobank senior analyst Marc Soccio says that somewhat paradoxically, at the same time the industry is still seeing many premium wine producers struggling for growth and profitability as their capacity to reach out to modern-day consumers has become more limited.

“As the high-volume grocery retail channel in particular is becoming the realm of bigger brands and suppliers, smaller brands have little choice but to seek new ways to connect with the pockets of consumers looking to head upmarket,” Mr Soccio says.

The evolution of generational preferences

Increasingly, Rabobank notes that it is newer generations of consumers who are shaping global wine consumption, and these consumers have a higher level of awareness of wine and wine quality than any generation before them.

Mr Soccio says this fact, mixed with increasing warnings and regulations designed to curb excessive and irresponsible alcohol consumption, has many younger consumers choosing to drink less, but higher-quality wine than their parents’ generation.

“More consumers are becoming increasingly adventurous, and they are less likely to blindly follow the norms of the past when forming their preferences and purchasing decisions.

“This is giving rise to some great wine stories, such as the uptake of Prosecco and Marlborough Sauvignon Blanc, which have duly presented major threats to some very well-established wine styles and industries.”

Furthermore, he says, in some emerging markets, higher education and/or income levels, combined with a desire to depart from traditional cultural and social norms, are leading younger consumers to engage more deeply and differently with the wine category.

“The rise of some premium-focused emerging markets, such as China, has played a key role in stimulating global demand for more premium – mostly red – wines, as rising incomes and exposure to western cultural norms have taken effect,” Mr Soccio says.

“While the fervour and disposition for more premium foreign wines has begun to wane in China in recent times, the market for these wines still accounts for a significant component of global demand that hardly existed only a decade ago.”

Accessing today’s premium wine consumers

Mr Soccio says demand for more premium wines may be rising in certain pockets of the world market, but the fact remains that there’s relatively less volume demanded at higher price points, and relatively more brands and producers looking to supply it.

“What makes it even more challenging for suppliers focused on this part of the market is that the high volume off-premise channel – particularly the major grocery retail chains – is growing more and more influential in determining which products find their way to consumers,” he says.

“On a producer level, those with the necessary scale and brand recognition to be effective in the grocery retail channel are often best placed to capitalise on the pockets of ‘premiumisation’ appearing in world markets.”

However, Mr Soccio notes that this might not always be the case in the future, as new online retail and on-premise formats continue to emerge and explore the common ground they have with independent premium wine suppliers – all with a “distinct story to tell and a style to sell”.

For suppliers, online retail platforms offer a powerful and cost-effective way in which to communicate the relative value of their products in the highly differentiated and fragmented premium end of the wine market, the Rabobank report highlights.

“The online retail channel especially lends itself to wine more so than other beverage alcohol products – principally because wine is relatively high-value, as compared to beer, and routinely consumed more frequently and in much larger volumes, as compared to spirits,” Mr Soccio says.

“And while the major chains will eventually grow to dominate mainstream online wine volumes – as they have done along the main streets of our cities and towns – independent operators can still offer consumers great value at the premium and clearance ends of the market.”

Supply and demand signals back at the farmgate

Rabobank highlights the fact that not all premium wine producers in all regions have been able to capitalise on rising demand for more premium wines.

Mr Soccio says, “what we tend to find is that only a limited subset of premium-focused regions are receiving positive market signals to produce more, not less”.

“Generally speaking, these are brands with a unique identity that are able to express and leverage a true sense of history, place or product style that resonates with consumers,” he says.

Rabobank New Zealand is a part of the international Rabobank Group, the world’s leading specialist in food and agribusiness banking. Rabobank has more than 110 years’ experience providing customised banking and finance solutions to businesses involved in all aspects of food and agribusiness. Rabobank is structured as a cooperative and operates in 40countries, servicing the needs of about 10 million clients worldwide through a network of close to 1600 offices and branches. Rabobank New Zealand is one of the country's leading rural lenders and a significant provider of business and corporate banking and financial services to the New Zealand food and agribusiness sector. The bank has 32 branches throughout New Zealand.

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