Canadas Position in the Global Wine Market A look at the broader m - - PowerPoint PPT Presentation

▶
canada s position in the global wine market
SMART_READER_LITE
LIVE PREVIEW

Canadas Position in the Global Wine Market A look at the broader m - - PowerPoint PPT Presentation

Apr 05, 2023 306 likes •646 views

Canadas Position in the Global Wine Market A look at the broader m arket Stefano Pallotti Vilm a Pum i Head of Credit Analyst March 2012 Rabobank I nternational Current Trends in the Global Wine Market Summary I Global supply trends

slide-1
SLIDE 1

Stefano Pallotti Vilm a Pum i

Head of Credit Analyst

Canada’s Position in the Global Wine Market

A look at the broader m arket

Rabobank I nternational

March 2012

slide-2
SLIDE 2

Current Trends in the Global Wine Market

I Global supply trends I I Production developm ents by region I I I Global dem and analysis- w here w ill grow th com e from ?

  • The UK
  • Germ any
  • The US
  • China

I V Canada’s position in the w orld m arket

Summary

slide-3
SLIDE 3

What’s happening in the rest of the world?

The Global Wine Market

slide-4
SLIDE 4

Global Supply

  • In 2008, Chile and Australia had particularly large harvests (Aus + 27% )
  • In 2009, both Chile and Australia drop pricing on bulk wine to make room in tanks

for incoming harvest

  • California grape prices drop, bottled imports drop, California shipments flat!

Does the rest of the world matter?

Chilean and Aus im ports add 1 4 m illion cases- Average pricing declines 3 6 % Total US m arket grow s 2 % , but… Bottled imports decline California shipments flat

Volume Volume $/ Case 2008 2009 % Growth % Growth Chile & Aus Bulk Imports 3569.3 17939.2 403%

  • 36%

Total Bottled Imports 69355.6 68366.1

  • 1%
  • 12%

Total Imports 94948.7 105760.1 11%

  • 22%

Total US Wine Market 316800 322800 2% n.a California Wine Shipments 196400 196700 0.0% n.a.

slide-5
SLIDE 5

Global Supply

Moving towards balance?

The global recession in 2 0 0 9 erased 5 years of dem and grow th Declining supply and grow ing dem and should continue to reduce stocks in 2 0 1 2 Clim ate, the econom y and Europe w ill continue to be ‘w ild cards’-

  • versupply can

alw ays return

Source: OIV, 2010, Rabobank estimates, 2011

10 20 30 40 50 60 70 230 240 250 260 270 280 290 300 Global stocks Production Consumption + Ind. Use Production & Consum ption ( Mn HL) Global Stocks ( Mn HL)

slide-6
SLIDE 6

Global Oversupply

The reduction of oversupply is supporting bulk wine prices

Source: Ciatti Wine Brokers

Average bulk w ine prices are gradually im proving

Pricing improvements seen across a diverse range of regions Pricing improvements seen across a diverse range of varietals ‘Cabernet Sauvignon: Price/ lt. of bulk wine by country, Sept 2010- Dec 2011 Generic White: Price/ lt. of bulk wine by country, Sept 2010- Dec 2011 0 .0 0 0 .5 0 1 .0 0 1 .5 0 2 .0 0 2 .5 0 Sep-1 0 Dec-1 0 Mar-1 1 Jun-1 1 Sep-1 1 Dec-1 1 0 .0 0 0 .1 0 0 .2 0 0 .3 0 0 .4 0 0 .5 0 0 .6 0 0 .7 0 0 .8 0 Australia ( AUD) I taly ( EUR) Spain ( EUR) Sep-1 0 Dec-1 0 Mar-1 1 Jun-1 1 Sep-1 1 Dec-1 1

Bulk w ine prices generally

  • n the rise…

… but “be careful w ith ‘averages’”

slide-7
SLIDE 7

The International Market

Easing of oversupply creates other pressures Rising grape prices raise input costs Weak economies in major consumer markets create pricing pressure Margin pressure the story of 2012, particularly by

  • Producers with strong currencies (Chile, Australia)
  • Suppliers dependent on spot market
  • Markets with tightest supplies (US)

Index of Chilean Cab. Sauv Prices- Internal bulk market vs. Average bottled export prices in Chilean Pesos (CLP), 2007- 2011

50 100 150 200 250 300 350 400 450 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11

  • Cab. Sauv. Dom estic bulk price
  • Cab. Sauv. Btld export price

I nput Costs Sales Price

slide-8
SLIDE 8

Exports of key competitors

Production Developments

slide-9
SLIDE 9

Competitiveness of Producers

  • Currency fluctuations

Weakness of the USD and GBP create pricing pressure for many suppliers (Aus., Chile, South Africa, etc.)

  • Country ( or regional) im age/ Perception of quality

Image as a wine supplier is built over time- often tied with the broader image of the country Country image will vary from market to market

  • Regional supply/ dem and balance

Excess production results in increasing sales of bulk at lower prices Ongoing/ structural oversupply erodes the country-image, lower perceived quality

Factors that influence pricing

slide-10
SLIDE 10

Italy

Export dynamo

Developm ents: 2 0 1 1 harvest dow n 1 4 % from 2 0 1 0

  • I talian bulk

w ine prices on the rise

  • I taly becom ing

a m ajor im porter of Spanish bulk w ine Export prices recovering from 2 0 0 9 - supported by w eak euro Ontario’s largest im port com petitor by volum e

Source: Union Italiani Vini, 2011

€ 2 .0 0 € 2 .1 0 € 2 .2 0 € 2 .3 0 € 2 .4 0 € 2 .5 0 € 2 .6 0 € 2 .7 0 5 0 0 1 ,0 0 0 1 ,5 0 0 2 ,0 0 0 2 ,5 0 0 Packaged still Bulk still Average Price- Bottled Export Volum e- Million liters Average Price btld- € / lt

slide-11
SLIDE 11

Australia

Can it recover its “Premium” image

Developm ents: Particularly hurt by strengthening AUD, oversupply I m age-erosion in som e m arkets due to ongoing

  • versupply

Slow , steady reduction of vineyard area Strong participation in em erging m arkets FTA: Current- Chile, US, Singapore, Thailand, NZ, Philippines, Vietnam Pending- China, Japan, Korea, India

Source: Australian Wine & Brandy Corporation, 2011

$ 0 .0 0 $ 1 .0 0 $ 2 .0 0 $ 3 .0 0 $ 4 .0 0 $ 5 .0 0 $ 6 .0 0 1 0 0 2 0 0 3 0 0 4 0 0 5 0 0 6 0 0 7 0 0 8 0 0 9 0 0 Bottled Bulk Avg Value- Btld Export Volum e- Million liters Average Price btld- $ / lt

slide-12
SLIDE 12

France

The French Paradox

Developm ents: Export volum es and pricing recovering from abysm al 2 0 0 9 Export grow th being led by highest priced segm ents ( Cham pagne, Bordeaux & Burgundy) 2 0 1 1 harvest + 1 1 % ( bulk w ine prices declining)

  • No. 3 im port in

Ontario China has been a boon, but is a double edged sw ord

Source: FEVS, 2011

€ 4 .0 0 € 4 .2 0 € 4 .4 0 € 4 .6 0 € 4 .8 0 € 5 .0 0 € 5 .2 0 € 5 .4 0

  • 2 0 0

4 0 0 6 0 0 8 0 0 1 ,0 0 0 1 ,2 0 0 1 ,4 0 0 1 ,6 0 0 2 0 0 7 2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1 e Volum e ( Mn. Lt) Avg Value ( € / lt.) Export Volum e- Million liters Average Price- € / lt

slide-13
SLIDE 13

USA

A very different reality

Developm ents Large, attractive dom estic m arket & w eak currency set U.S. suppliers apart Exports represent a sm all % of production ( 1 7 % ) but

  • pportunistic

Pricing for bottled w ine exports has im proved FTA: Current- NAFTA, DR-CAFTA, Australia, Chile, Israel, Peru, Singapore Pending- Korea

$ 0 .0 0 $ 0 .5 0 $ 1 .0 0 $ 1 .5 0 $ 2 .0 0 $ 2 .5 0 $ 3 .0 0 $ 3 .5 0 $ 4 .0 0 $ 4 .5 0 $ 5 .0 0 5 0 1 0 0 1 5 0 2 0 0 2 5 0 3 0 0 3 5 0 4 0 0 4 5 0 5 0 0 2 0 0 5 2 0 0 6 2 0 0 7 2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1 e Average Value ( US$ / litre FOB) Export Volum e ( ML) Bulk Bottled Avg Value - Bottled ( RHS)

slide-14
SLIDE 14

Argentina

Rising star

Developm ents: Country-im age continues to im prove w ith Malbec Adverse w eather affects production in recent years, reduces bulk w ine exports I nflation now the m ajor concern- affecting bottled exports Next steps after Malbec? FTA: Current- MERCOSUR, Israel

Source: INV, 2011

$ 0 .0 0 $ 0 .5 0 $ 1 .0 0 $ 1 .5 0 $ 2 .0 0 $ 2 .5 0 $ 3 .0 0 $ 3 .5 0 $ 4 .0 0 5 0 1 0 0 1 5 0 2 0 0 2 5 0 3 0 0 3 5 0 4 0 0 4 5 0 2 0 0 5 2 0 0 6 2 0 0 7 2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1 e Packaged Bulk Avg Price- pckgd Export Volum e- Million liters Average Price btld- $ / lt

slide-15
SLIDE 15

Where are exporters finding growth?

Global Demand

slide-16
SLIDE 16

Major Global Wine Import Markets

Who’s growing, who’s not?

Of the w orld’s largest w ine im port m arkets,

  • nly three show

sustained grow th

Source: IWSR/ WDR, 2010

2 ,0 0 0 4 ,0 0 0 6 ,0 0 0 8 ,0 0 0 1 0 ,0 0 0 1 2 ,0 0 0 1 4 ,0 0 0 1 6 ,0 0 0

slide-17
SLIDE 17

Signs of life?

Germany

slide-18
SLIDE 18

Signs of life?

Germany

  • Germ an m arket

Old World suppliers dominate import market (@75% share of imports) PL makes up @ 50% of wine sales 70% of wine sold were valued at < €3.00/ liter; 95% < €4.99/ liter Growth occurring at the < €1.50/ liter AND €3.00- €4.99/ liter Share of I m ports Avg I m port Price ( € / l) I taly 43.3% € 1.20 France 15.8% € 2.53 Spain 14.9% € 1.17 South Africa 4.80% € 0.99 Chile 3.10% € 1.08 US 2.70% € 1.14 Australia 2.30% € 1.25 Price Segm ent Mkt Share > € 0 .9 9 14.20% €1 .0 0 -1 .4 9 9.50% €1 .5 0 - 1 .9 9 22.40% € 2 .0 0 -2 .9 9 24.50% € 3 .0 0 - 4 .9 9 23.80% € 5 .0 0 + 5.60%

Source: Euromonitor 2011

slide-19
SLIDE 19

Will profitability recover?

The UK

slide-20
SLIDE 20

UK

  • Governm ent policies affect consum ption
  • Excise tax on wine + 34% since 2005, VAT increased from 17.5% to 20% in

2011- Taxes make up 54% of retail price of a bottle of wine

  • Austerity measures affect consumer demand

Retailer consolidation increases pricing pressure on suppliers Can profitability recover in the World’s largest import market?

The UK had been the m ost attractive export m arket for m any suppliers Pricing has now becom e unattractive or unsustainable for m any suppliers Most suppliers exiting or reducing exposure to the UK m arket

Source: IWSR/ WDR, 2010

UK Wine Imports and excise tax per bottle, 2005- 2011e

£0.00 £0.50 £1.00 £1.50 £2.00 £2.50 £3.00 1,050 1,100 1,150 1,200 1,250 1,300 1,350 1,400 Average Excise Paid ( GBP/ L) Volum e ( ML) Sparkling Still < 15% abv

Wine imports down 8% from 2007 Australian suppliers have seen average income/ case decline by @ 65% since 2002 due to:

  • Excise tax increase
  • Currency
slide-21
SLIDE 21

Still attractive for exporters?

The US

slide-22
SLIDE 22

22

Source: Gomberg-Fredrikson

  • US m arket grew 4 .5 % in 2 0 1 1 , reaching 3 4 5 m illion cases ( @ 3 .1 bn. Lt.)

Domestic wine (@65% market share) facing supply constraints Consumers return to premiumization, discounting activity abating Imported wine growing at a faster rate, as California production has not kept pace with consumption

The US

Current Situation

US consum ption has increased by

  • ver 1 0 0 m n

cases betw een 2 0 0 1 - 2 0 1 1 Over past decade, m ost grow th has

  • ccurred at

higher price points ( $ 9 + ) Pricing pressure during 2 0 0 8 - 2 0 1 0 Encouraging m arket grow th in 2 0 1 0 and 2 0 1 1

Discounting/

promotions becoming less aggressive

5 0 1 0 0 1 5 0 2 0 0 2 5 0 3 0 0 3 5 0 4 0 0 2 0 0 ,0 0 0 2 5 0 ,0 0 0 3 0 0 ,0 0 0 3 5 0 ,0 0 0 4 0 0 ,0 0 0 4 5 0 ,0 0 0 5 0 0 ,0 0 0 5 5 0 ,0 0 0 Existing New

Source: Gomberg-Fredrikson

US wine consumption (mn cases), 2001- 2011 California wine grape acreage, 2002- 2010

slide-23
SLIDE 23

23

Source: Gomberg-Fredrikson Report, Rabobank analysis, 2011

The US

Imports grow share in last decade…

0 % 2 0 % 4 0 % 6 0 % 8 0 % 1 9 7 0 1 9 8 0 1 9 9 0 2 0 0 0 2 0 0 5 2 0 1 1 California I m ports Share of US Market- California vs Imports, 1970- 2011 Yellow Tail

becam e a w ake- up call for US w ine com panies:

  • Entered US in

2000

  • Best selling import

by 2003

  • Over 7 million

cases by 2005

  • Over 8 million

cases today

  • I m port share of US w ine m arket varied betw een 1 0 % to 2 0 % from 1 9 7 0 to 2 0 0 0
  • From 2 0 0 0 to 2 0 1 1 im port share grew from 2 0 % to 3 4 %
  • Yellow Tail a “w ake up call” for m any US w ine com panies
slide-24
SLIDE 24

24

The US

… but US wineries are now import protagonists

US w ineries

have incorporated im ported w ines by:

Importing foreign

brands to enhance their portfolio

Eliminating

appellation for lower-priced brands to use cheaper imported wines

Use imported

wines in traditional California brands for key varietals

Creating new

brands using various import sources

slide-25
SLIDE 25

The miracle we’ve been waiting for?

China

slide-26
SLIDE 26

China

A big nation with a growing thirst for the good life

  • Changing preferences of the developing middle class & younger generations

The luxury appeal of imported wines Chinese consumers are highly motivated by image & status

The miracle we’ve been waiting for?

Grow th rates of

w ine 2 0 0 5 - 2 0 1 0 : 22% vol. 26% val

(Euromonitor, 2011)

I m ported w ine

represents 1 0 %

  • f volum es and

grow ing fast

2 0 0 4 0 0 6 0 0 8 0 0 1 ,0 0 0 1 ,2 0 0 1 ,4 0 0 1 ,6 0 0 2 0 0 5 2 0 0 6 2 0 0 7 2 0 0 8 2 0 0 9 2 0 1 0

Millions lt

+ 1 7 0 % Wine sales in China, 2005- 2010

slide-27
SLIDE 27

Source: China Customs, 2011 Source: China Customs, 2011

Competitive outlook for imported wines

China

  • 2

4 6 8 10 12 14 16 18 2 0 0 4 2 0 0 5 2 0 0 6 2 0 0 7 2 0 0 8 2 0 0 9 2 0 1 0 Volum e ( m illion 9 L cases)

Bottled w ine im ports

France Australia I taly Chile Spain USA Others + 6 1 %

  • 2

4 6 8 10 12 14 16 18 2 0 0 4 2 0 0 5 2 0 0 6 2 0 0 7 2 0 0 8 2 0 0 9 2 0 1 0

Volum e ( m illion 9 L case equivalents)

Bulk w ine im ports

Chile Spain Australia I taly France USA Others + 7 1 %

slide-28
SLIDE 28

Relative prices of imported wines

China

  • Generally strong pricing in the Chinese m arket
  • Significant variations am ong suppliers

France maintains a dominant position and strong pricing Australia achieves above-average prices Most others are mainly bulk suppliers In spite of attractive growth and pricing, the Chinese market remains problematic and a “Black Box” No national distributors Lack of protection for brands Etc.

slide-29
SLIDE 29

How Canada should view itself in the context of the global market

Implications for the Canadian Wine Industry

slide-30
SLIDE 30

Secondary Markets

  • Exporters seeking opportunities for grow th in sm aller m arkets
  • Lower volumes, but better pricing and greater growth prospects
  • Opportunities to diversify exposure to different currencies
  • Potential advantages for improved ‘country image’ in regional markets

Smaller markets, growing priority

0 % 1 0 % 2 0 % 3 0 % 4 0 % 5 0 % 6 0 % 7 0 % 8 0 % 9 0 % 1 0 0 % 2 0 0 9 2 0 1 0 2 0 1 1

US UK Netherlands Japan Brazil Canada China Row

  • 3 0 %
  • 2 0 %
  • 1 0 %

0 % 1 0 % 2 0 % 3 0 %

Share of Chilean exports by destination, 2009- 2011 Growth rate of South Africa exports by destination, MAT June 2011

Source: SAWIS Source: Wines of Chile

slide-31
SLIDE 31

Canada

  • Opportunities:

Sixth largest wine importer in the world Total wine consumption (@ 400 mn lt.) has grown 30% over past 5 years Strong average pricing Value growth has been outpacing volume growth

  • Challenges:

Relatively small market Access (LCBO, SAQ) Fragmented Marketing costs

Exporters increasingly prioritizing Canada as a target market

slide-32
SLIDE 32

Canada

Canada’s position in the global wine market…

Canadian W ine Market

International suppliers increasingly prioritizing Canada as a key export market

slide-33
SLIDE 33

Canada’s Competitive Positioning

Ontario growers versus foreign competitors in the Canadian market

W ho to w atch

France facing

excess supply

Australia

looking to replace dependence on US, UK

US enjoys

strong export pricing to Canada

Chile ( esp.

Concha y Toro) em phasizing Canadian m arket

Source: LCBO, Rabobank analysis, 2011

LCBO W ine Sales and Average Price per Liter by Source Source Vol ( Mn Lt.) Canada 3 4 I taly 1 9 .8 Australia 1 4 France 1 0 .8 US 1 2 .4 Argentina 8 .8 Chile 7 .2 Spain 2 .6 South Africa 3 .5