New Rabobank Report Shows Significant International Interest in U.S. Wine Market

03/10/07 According to a new report by Rabobank, the United States is the only major wine market showing significant growth in purchases of higher-value wines, which makes it an ideal export target for other wine producing countries.

The report, "The future of the California wine industry: A 'perfect storm' of imports brewing?" states that since 1995, imports have grown 184 percent. More recently, 2006 total wine shipments in the United States reached 301 million cases, up 3.5 percent over 2005. The value of wine sales grew by 9 percent, which signifies strong growth in higher-value wines.

"Currently, nearly all the major wine-producing countries are developing plans to increase sales to the U.S. market, targeting the high-value market," said Rabobank Food & Agribusiness Research Vice President Stephen Rannekleiv. In order to achieve this sales growth, the primary wine-producing countries are focusing on improving products and retooling sales efforts.

European Union

Historically, the European Union has lacked a strong market focus, but that is beginning to change after its recent success in the U.S. market. "The major weakness that has hindered the European wine sector has been its lack of market-oriented focus, which has been a key to the success of the New World suppliers," said Rannekleiv.

However, with a new plan in place to increase sales, the main Old World exporters -- Italy, France, Spain and Germany -- have added four times as many cases of table wine (combined bottle and bulk) as Australia. According to the report, of the total dollar value increase in imported table wine sales in 2006, 99 percent was generated by the EU.

In addition to Old World producers becoming more market-oriented, U.S. wine companies are creating brands in their own portfolios, using Old World wines. Many of the large U.S. wine companies, which in the past had a vested interest in defending the market from imports, have evolved into international companies with a diverse set of shareholders. These international companies are now importing increasing volumes of wine for various reasons. Some are imported as low-cost blenders for other wines; others to broaden the portfolio of country-specific varietals (e.g. Malbec from Argentina, Tempranillo from Spain, etc.); and some wines are imported simply because they offer a good quality/price ratio.

While Italy is the EU's second largest wine producer and much of their wine industry is highly fragmented, there are also some very successful wine companies. Italy is the largest source of imported wines into the U.S. and continues to enjoy solid growth.

France, which is the third largest source of imports into the U.S. market by volume, has the highest total sales value of any country, but has struggled to regain its place as the primary supplier of wines to the rest of the world. Rannekleiv said, "the emergence of New World producers unhindered by France's rules of traditionalism of how wines can be made and labeled have caused France to lose its competitive place in the international market, and even in its own domestic market."

This traditionalism, as well as the rift in relations between the United States and France over Iraq, have hindered France's growth, but an increase in international wine companies developing French-sourced wines appears to be shifting the focus to consumer demands. These changes, as well as improved relations with the United States have moved France into a position to improve its market share.

Of all the EU countries, Spain has the largest area of vineyards, and during the last 10 years has experienced the largest growth in exports of all EU wine-producing nations. Specifically, sales of wines from the Rioja region known for high-quality wines rose by nearly 13 percent in the United States, and varietals such as Tempranillo are also experiencing demand as Spanish vineyards employ New World marketing strategies.

Australia

Australia has had significant success in the U.S. market in recent years, and is the second largest source of imported wines into the United States. Between 2002 and 2006 case sales of wine nearly doubled from 12.4 million cases to 23.8 million. Much of this growth was targeted at lower priced wines.

The lower price wines were driven by an over-supply of grapes, but the 2007 crop was reduced by nearly 30 percent from drought and frost, which will help reduce the surplus and the need to discount wines.

"After years of discounting in order to reduce oversupplies, attaining higher prices will be a critical foundation for returning profitability to the sector. While this is important, it remains to be seen if Australia can break the image as a supplier of cheap, decent wine," said Rannekleiv.

South America

In recent years, Chile and Argentina have been gaining ground on the export market. Between 2000 and 2006 Chile's wine exports increased by nearly 80 percent in volume and 70 percent in value. During this time, "Chile has earned its reputation in the world market as a producer of popular premium wines," said Rannekleiv.

Although Argentina's exports are about one quarter of Chile's, they grew by more than 200 percent between 2000 and 2005. Over time, it appears that Argentina will have the potential to produce high quality at a low cost, due to its large production base and ability to differentiate itself in the market.

With the increased focus on countries exporting wine to the United States, Rannekleiv expects that imports will take up to 35 percent of the market by 2012 "Until recently, imports have been focused on the mid-range price points, but it appears that nearly all producing countries are targeting their strategies to compete more fiercely at the higher end of the U.S. market, where growth and profits have been strongest.