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Is staying home a good option for Australian wine businesses?

Market Bulletin | Issue 260
30 Mar 2022
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With the challenges currently facing Australian wine exporters, many wine businesses are shifting their focus to the domestic market. However, as described in Wine Australia’s Australian Wine Market Insights Report 2022, released today, this market has also seen a number of changes that make it more challenging than it was three years ago. 

Australia is one of the top 10 wine-consuming countries in a context of declining consumption

Australia is the 10th largest wine-consuming1 country in the world, with approximately 2 per cent of global consumption. Its position has not changed since 2018.

Australia has the second-highest per person wine consumption outside of Europe and is the highest-ranked English-speaking country in the world on this measure. Per capita wine consumption is more than double that of the United States of America (US). However, total wine consumption in Australia has declined by an average of 1 per cent per year from 2016 to 2020 and per capita consumption of wine has declined from 22.3 litres per year in 2016 to 20.2 litres per year in 2020 – a decrease of 9 per cent2.

According to Wine Intelligence’s Global Compass market definitions3, Australia has shifted from being an ‘established’ to a ‘mature’ market, characterised as having stable or declining volumes rather than showing growth. Of the top 20 global wine-consuming markets, 16 are ‘established’ or ‘mature’, while only 2 are ‘growth’ markets and 2 are ‘emerging’ according to Wine Intelligence’s classification. This means that there is very limited expectation for growth among the world’s main current wine-consuming nations. 

Australia has declined in global market attractiveness

In 2018, Wine Intelligence rated Australia as the world’s eighth most attractive wine market in the world. However, in 2021 it slipped to 18th position. The most significant contributors to its decline were the relatively weak IMF forecast for short-term growth in GDP, indicating a slower than average economic recovery from COVID-19 (Australia ranked at 31 out of the 50 wine markets analysed) and a reduction in wine consumption, as well as other countries overtaking Australia by making significant gains in some areas. 

The domestic market is dominated by off-trade retail, with e-commerce likely to increase its share

Off-trade means products purchased for consumption elsewhere (usually at home). It includes retail outlets, online/e-commerce purchases and direct-to-consumer (e.g. cellar door, wine club). 

Australia has a relatively high off-trade share compared with many global markets, particularly European ones. Prior to COVID-19, Australia’s off-trade share was 84 per cent, compared with 70 per cent in France, 51 per cent in Italy and just 36 per cent in Greece. On the other hand, the United Kingdom had a slightly higher share (86 per cent) and the US slightly lower (79 per cent)4

In 2020, the off-trade share increased in all wine-consuming countries5, with on-premise sales (wine bars, restaurants, pubs and clubs) losing market share due to COVID-19 lockdowns and trade restrictions. Wine Australia modelling indicates that the off-trade in Australia made up 90 per cent of domestic wine sales by volume in 2020–21, with in-store retail making up 66 per cent, e-commerce 19 per cent and direct-to-consumer (DTC) 13 per cent. 

Following the strong growth in 2020 at the expense of the on-premise, the latest figures6 show that the retail off-trade declined by 7 per cent in volume in 2021. The channel has not recovered to pre-pandemic levels, with sales volume in 2021 still 1 per cent below the 2019 figure, consistent with the long-term overall decline in wine consumption.

Sparkling wine and Champagne showed the strongest growth, while rosé was the only still wine category that continued to grow in 2021 (Figure 1).

Figure 1        Value and volume growth by wine style in the off-trade in 2021

Source: IRI MarketEdge

E-commerce was the success story of the pandemic, with strong growth across all fast-moving consumer goods (FMCG) categories including alcohol.  IWSR forecasts that e-commerce will continue to grow strongly, reaching a 5 per cent share of total alcohol sales in Australia by 2023. However, wine is unlikely to see significant further volume gains as it is already well-established in this channel, while overall wine consumption volume is expected to continue to decline. Any gains in e-commerce are likely to be at the expense of sales in other channels, particularly retail stores. According to IWSR, the big retailers are investing significantly in their e-commerce platforms in order to retain shoppers looking to shift from in-store to online purchasing. Alcohol e-commerce is largely dominated by the same players that dominate the retail ‘bricks-and-mortar’ sales channel. Endeavour Group alone has a 70 per cent share of the Australian alcohol online trade by revenue (Figure 2).

Figure 2        Alcohol e-commerce sales in Australian in 2021 – top 10 retailers

Source: ecommerceDB (Statista)

Direct-to-consumer sales outperformed other channels in 2020–21 

Direct-to-consumer (DTC) sales are the major source of revenue for most Australian wine businesses. For Australia’s 1500 or so wineries producing fewer than 5000 cases, DTC accounts for well over half their annual sales revenue. DTC sales grew overall by 17 per cent in value and 14 per cent in volume in 2020–21, outperforming other channels and increasing profitability through an increased average value. 

The DTC sales channel is only available to Australian wine businesses in Australia – providing a unique competitive advantage to local producers. It is a relatively high value channel although associated costs may also be higher than other channels. Unfortunately, its overall share of the domestic market is only around 12 per cent by volume, with many businesses competing for part of that share.

Imported wines are increasing their share of the domestic market

Despite the dominance of Australian wine on the domestic market, imported wines have been increasing in volume over the past 5 years, with growth accelerating during 2020 and 2021. As the overall market has been relatively flat, imported wine is taking market share.

Imported wine accounted for 14 per cent of the off-trade retail market by volume in 20217. Its value share was 25 per cent, reflecting the higher average value of imported wine. Overall, the average value of imported wine was $18.74 per 750 ml compared with $9.59 for domestic wines.

In the on-premise, imported wines accounted for nearly 40 per cent of listings in 20218, giving them a relative advantage in this channel compared with the off-trade. (While listings do not translate into sales volume, they do indicate the representation of different wines available to purchase.)

The on-premise channel is under pressure

Despite its small share of overall wine sales, the on-premise is considered an important channel for building brand recognition and introducing consumers to new brands, products and varieties. ‘By-the-glass’ options give consumers the opportunity to trial a new wine with less risk than purchasing a bottle for home consumption.

IWSR forecasts that the on-premise will recover slowly and increase only very slightly by 2025, barely returning to 2019 volumes by then. This is a result of consumer behaviour changes, such as working and entertaining at home, persisting after the pandemic. 

Wine’s share of the on-premise is under pressure as overall wine consumption declines, and its traditionally strong association with food is undermined by younger drinkers with different taste preferences. These changes are long-term and not likely to be reversed by recovery from the pandemic.

Consumer demographic and behaviour changes open up new opportunities and challenges

Unlike in many markets globally, where the profile of regular wine drinkers is ageing, in Australia the share of younger generations among regular wine drinkers has increased in the past three years. People aged between 25 and 44 (approximately Millennials) now make up 44 per cent of regular wine drinkers, up from 35 per cent in 2018, while people over 55 account for 29 per cent compared with 36 per cent9 (Figure 3). 

Figure 3        Age breakdown of Australian regular wine drinkers 2021 vs 2018

Source: Wine Intelligence

According to Wine Intelligence, Millennials differ from their elders in that they are looking more for variety and experiences, and are less moved by low prices, and/or reliable and familiar brands. This presents opportunities for new products, cellar door experiences and premiumisation, while the youngest Millennials are most likely to be interested in no/low alcohol products10. However, Millennials also drink less often than older cohorts, and there has been a dramatic shift in gender shares, with females now making up just 42 per cent of regular wine drinkers compared with 50 per cent in 2018. This suggests that females are leaving the category, and may account for the finding that the proportion of regular wine drinkers who had drunk white wine in the past 12 months decreased by 8 percentage points compared with 2018. By contrast, in the US the proportion of females among regular wine drinkers increased from 50 per cent in 2018 to 57 per cent in 202111

Such a significant exodus among the key demographic of female drinkers is a potential concern for the sector.

The Australian Wine Market Insights Report 2022 can be downloaded from the Wine Australia website.

1 All statistics refer to grape wine only
2 IWSR 2021
3 Global Compass reports
4 IWSR 2019 – see the Wine Australia Market Explorer dashboard
5 IWSR 2020
6 IRI MarketEdge January 2022
7 IRI MarketEdge
8 Entries on wine lists in restaurants, hotels, pubs and clubs sampled randomly across Australia. Source: Wine On-Premise Australia 2022 Wine Business Solutions
9 Australia Wine Landscapes Wine Intelligence November 2021
10 Opportunities for low and no alcohol wine Wine Intelligence March 2021
11 United States Wine Landscapes 2022 Wine Intelligence

This content is restricted to wine exporters and levy-payers. Some reports are available for purchase to non-levy payers/exporters.

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This content is restricted to wine exporters and levy-payers. Some reports are available for purchase to non-levy payers/exporters.