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How Flows the Wine Industry

October 30, 2007 1:08 PM | 6 Comments | No TrackBacks


By Florian Cecil Torres Local wine consumption is growing, which is
impressive for a nation of beer-dri nkers. Here's a quick look at the
global wine market and how well we're imbibin g into it. Ninety-eight
percent of alcoholic beverages in the Philippines are supplied by
domestic producers. This figure includes the ubiquitous San Miguel
beer product s and domestically produced liquors such as gin. The
Philippines is in fact one of the cheapest sources of alcoholic beverages
in the region due to powerful l ocal producers who are not subject to
high import tariffs, thus their ability t o set alcoholic beverages at
affordable prices; and is now operating in many lu minaries. But this
accounts for beer and gin. Wine, on the other hand, is another matter
altogether.
Wine around the world In the last twenty years, the worldwide wine
industry has become increasingly i nternationalized and sophisticated.
At the same time, the market has also becom e more fragmented,
multilingual, and information-intensive. The global wine industry
therefore faces constant shake-up and consolidation. U nder these
circumstances, the generation of mega wine companies has become
inev itable as no single wine company, listed or private, currently has
more than on e percent of the world wine market, in stark contrast to
other beverages. Thus, the world's wine markets are also going through
a fascinating period of struct ural adjustments. Global wine showed
solid growth in terms of volume in recent years, reaching ne arly 25,066
million liters. The two countries that are leading in international wine
production and consumption are France and Italy. In terms of the quality
of exports as reflected in the average export price, France's strong
position h as remained unchanged while emerging countries like
Australia and New Zealand h ave improved their positions hugely over
the past decade. More than three-quarters of the volume of world wine
production, consumption, a nd trade involve Europe, and most of the
rest involves just a handful of New Wo rld countries. In the late 1980s,
Europe accounted in value terms for all but f ive percent of wine exports
and three-quarters of wine imports globally. However, Europe's
dominance is beginning to weaken. In the ten years to 1997, t he rest of
the world's share of wine export dollars rose ten percentage points,
virtually all from California and six Southern Hemisphere countries.
When intr a-European Union trade is excluded, the decline in Europe's
share of global exp orts is even greater over that decade: a fall from 88
percent to 70 percent.
Here comes Asia The Asian market is also competing in the wine
industry. Several growth foreca sts on the wine producers in China,
Korea, Taiwan, Southeast Asia, and India ha ve been made, and are
said to also possibly share a big part in the global wine market. The
wine markets in Asia could be considered heterogeneous in nature.
Each mark et is to a certain extent unique. This is due to the following
reasons: 1) Very different tax and customs systems with regard to wine
imports and c onsumption. One can be totally lost with the myriad of tax
and customs systems that exist i n the different Asian countries. As a
result of this non-uniformity, different wine consumption behaviors have
emerged in these countries. For example, in som e countries like in
Singapore, there is a higher demand for premium wines. 2) Different
national perspectives in looking at wines Wine drinkers in Asia have
different ways of looking at wines. Some view them a s a status symbol
while others would consider them part of their new found life style. 3)
Different industry structures Some Asian countries have an indigenous
wine production industry. As such, fore ign wines will have to face
competition from domestic producers. The Asian wine market can be
segmented into the following: China, Korea, Taiwan , Southeast Asia,
and India. China is the largest wine market in Asia in terms of volume. It
is also the largest wine producer in the continent. China is taki ng a very
aggressive approach in building up its indigenous wine production cap
ability. It is working closely with foreign experts to produce wines and
hopes to rival the best chteaux in France one day. Furthermore, it
has already show n proven successes in the right direction. In
Southeast Asia, the principle growth countries are Singapore,
Indonesia, Mal aysia, Thailand, and the Philippines, with growth rates
ranging from 10 to 20 p ercent for the next five years. Note however that
all of these countries starte d with a very low wine consumption base.
Singapore has the most straightforward tax system while the other
countries imp ose multi-tier tax systems which are fairly complicated to
understand. Principal drivers of growth in Asian wine consumption are
lifestyle and health, making brandy, gin, and beer the major competitors
of wine. The health conscio us, for instance, are switching from brandy
to wines. Women are also an importa nt wine market as they find wine
to be a more acceptable alcoholic beverage tha n beers.
The Philippine Wine Industry
On a domestic scale, the Philippines has a growing wine industry,
wherein much of the growth is attributed to the comparative advantage
of its fruit exports. Furthermore, the market potential is good, and
technology is making wines out o f the fruits that the country produces is
not a far reality. Hence, several ini tiatives from educational institutions
such as UP Los Baos and other wine act ivists are already aimed at
putting the Philippines on the wine map. While the country has
traditionally been a beer and hard liquor-consuming count ry, wine
appreciation and consumption has shown reasonable growth over the
past years, at par with its immediate neighbors. Hence a number of
wine corporation s are already in place. While the total wine market in
the Philippines is small in comparison to other Asian countries, demand
is continually growing. Budget to mid-range priced wines are the most
popular, as price is an issue for the ma jority of consumers. Local
manufacturers of wine and flavored alcoholic beverages are now
expanding their market to women and young urban professionals as
they increasingly have t he predisposition, the money, and the
inclination to spend on alcoholic drinks. The rising number of young
consumers and women joining the workforce makes the wine market,
currently dominated by Australian brands, promising in the Philip pines.
The market for wine in the country increased between 2000-2005,
growing at an a verage annual rate of 13.4 percent. The leading
company in the market in 2005 w as Brumms Quality Wines, Inc. The
second-largest player was E. & J. Gallo Winer y with Robert Mondavi in
third place. Wine production in the Philippines, however, is mostly
confined to niche produc ers who specialize in wine production from
domestic crops, such as mango wine a nd rice wine. Echoing the state
of the global wine industry, there are no signi ficant wine producers in
the country with double-digit market shares. At best, Philippine wines
are considered as novelties. And when it comes to grape wines, the
local market relies primarily on Australian and European vintners.
Market growth So what's the outlook for the Philippine wine market?
Most economic forecasts o n wine consumption point to two distinct
growth areasNorth America and Asia. O n the average, North America
is slated to grow on an average of five percent fo r the next five years,
while Asia's growth is in the tune of 10 to 20 percent p er annum, with
the greatest growths registered in China, India, Korea, Singapor e,
Taiwan, the Philippines, and Malaysia. Bad news for Europe though: it
seems to be in for a long-term gradual stagnatio n or even decline in
wine consumption. While other areas will not see any signi ficant
changes. In today's era of globalization, it is no longer possible to take a
detached mi ndset in doing international business, and wine business
itself is definitely n o exception. The new world players who are not
burdened by any traditional prac tices seem to be making successful
impacts in many markets dominated before by the Old World players.
Published on SME Insight, July-August 2007 issue