Wine Australia releases a report on wine exports at the end of each quarter, but to keep the sector informed in these unprecedented times, this week we provide a special update on the reported results to the end of April.
For the 12 months ended April 2020, compared to the same period in 2019, the value of exports increased by 3 per cent to $2.868 billion, volume declined by 10 per cent to 728 million litres and the average value rose by 14 per cent to $3.94 per litre.
The increase in average value reflects strong growth at the top end and a decline at the low end. Exports above $10 per litre increased by 18 per cent to $1.07 billion, while exports below $2.50 per litre declined by 11 per cent to $466 billion. Exports between $2.50 and $9.99 per litre, also declined, by 3 per cent to $1.33 billion.
Figure 1 shows that while value is higher than it was 12 months ago, it has declined over the past few months. This can be attributed to two factors; the lockdown measures that have been implemented around the world in response to the COVID-19 pandemic as well as the lower Australian wine production over the past 2 years, which has reduced volumes available to export.
Figure 1: Value of Australian exports over time (A$ billion FOB)
Source: Wine Australia
Compared to the 12 months ended March 2020 (the period covered in the last Export Report), while volume was stable, value has declined marginally from $2.873 billion to $2.868 billion. This is principally due to a decline in exports in the January to April 2020 period.
Compared to 2019, exports from January to April declined by 5 per cent to $730 million for the period. The most significant change has been the reversing of the trends at the high and low ends of the price spectrum. Exports at below $2.50 per litre increased by 2 per cent to $158 million and at $10 or more per litre declined by 7 per cent to $218 million (see Figure 2).
This reflects shifts in consumer behaviour in most major markets around the world. With the on-trade shut-down in many markets, widespread unemployment leading to lower incomes, and some panic buying, the focus has shifted almost exclusively to the off-trade. The demand in this channel for commercial/value wines has been stronger than for premium wines over the past few months. In some markets such as China and the United Kingdom (UK), consumers have been gravitating towards well-established brands.
Figure 2: Exports by price point for January to April; 2019 v 2020 (A$ million FOB)
Source: Wine Australia
Our top three export markets of mainland China, the United States of America (USA) and the UK account for two-thirds of the total value of exports and each have been impacted by the pandemic to varying degrees.
While the value of exports to mainland China are higher than what they were 12 months ago (up 11 per cent), they are $12 million lower than they were in the 12 months ended March 2020, dropping from $1.148 billion to $1.136 billion.
Traditionally, Chinese New Year is one of the biggest wine consumption periods and exports were sent to market in preparation for this prior to the shutdown. Wine consumption over the shutdown period (which included Chinese New Year) was lower than anticipated and hence there was some excess stock. Therefore, the impact on exports is only now being felt.
Figure 3 illustrates that the value of exports has fallen by 14 per cent in the January to April period this year compared to 2019. The decline was across all price points.
Figure 3: Exports to mainland China for January to April; 2016 to 2020 (A$ million FOB)
Source: Wine Australia
In the 12 months ended March 2020, total wine imported by mainland China declined by 14 per cent in value and by 8 per cent in volume. France lost 36 per cent in value and 24 per cent in average value – driving the overall result. Australia now has a 37 per cent share of value while France’s share is 27 per cent. Twelve months ago, Australia’s share was 29 per cent and France’s was 35 per cent.
The average value of all global wine imports to China declined by 7 per cent. This is consistent with the anecdotal evidence that suggests Chinese imported wine consumption has started to shift toward commercial/value wines since the advent of the shutdown.
The decline in total imports is less than it was for the 12 months ended February 2020, possibly suggesting that the decline is slowing. The volume decline is the smallest since the 12 months ending December 2018.
United States of America
In the 12 months ended April 2020, the value of Australian wine exports to the USA totaled $416 million, a 3 per cent decline compared to the same period in 2019. Value was stable compared to the 12 months ended March 2020. Exports also declined by 3 per cent in the January to April period indicating that the shutdown in the USA has not accelerated the decline to date.
The positive news for exports to the USA during this 4-month period is that the value of wine shipped at $10 or more per litre increased by 20 per cent (see Figure 4).
Figure 4: Exports to the USA by price point for January to April; 2019 v 2020 (A$ million FOB)
Source: Wine Australia
Wine sales have grown strongly in the off-trade market since the pandemic hit the USA. According to IRI, in the year to date ending 1 March 2020, the value of wine sales was flat compared to the same period a year ago. However, from 2 March to 26 April 2020, wine sales increased by 31 per cent, compared to a year ago. This trend has continued in the most recent period, as in the week ending 26 April 2020, wine sales grew by 34 per cent.
Figure 5 shows that there has been strong growth across all price points. The biggest turn-around has been in sales in the commercial/value end of the market, but importantly the long-term premiumisation trend has continued in the USA.
Figure 5: Growth rates by price point in USA off-trade market
The latest available figures from IRI for the Australian category are for the 12 months to the end of March 2020, and these show that Australian wine sales declined by 1 per cent. However, for the month of March, Australian sales were up 24 per cent in value compared to March 2019. On a quarterly basis (January to March), Australian wine sales increased by 3 per cent in value. The price segments where Australian wine performed the best in the latest quarter were between US$8 and US$25 per bottle. Overall, all price points above US$4 bottle grew, with the strongest growth above $15 per bottle.
The value of Australian wine exports to the UK declined by 7 per cent in the 12 months ended April 2020 to $356 million. However, this is $8 million more than was reported for the 12 months ended March 2020, partially offsetting the decline to mainland China. In the period January to April 2020, the value of exports grew by 3 per cent, compared to the same period in 2019.
While the country is in lockdown and the on-trade has closed, sales in the UK off-trade are strong. There is unlikely to be any fundamental shift in the UK market because sales are already more heavily weighted to the commercial/value end.
According IRI, in the 12 months ended March 2020, the value of wine sales in the UK off-trade increased by 3 per cent while Australian sales declined by 1 per cent. However, since mid-March, IRI reports that the growth in wine sales has been very strong in most of the past seven weeks (see Figure 6)
Figure 6: The growth rate in the value of wine sales in the UK off-trade market