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Bright spots for wine despite challenges in Australia’s domestic market

Market Bulletin | Issue 306
13 Feb 2024
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The Australian wine market is experiencing the same challenges from declining wine consumption as our major export markets. Despite this, Australia is the world’s eighth most attractive wine market. The 2024 Australian Wine Market Insights report, released today by Wine Australia, identifies trends and opportunities for wine on the Australian domestic market.

Wine consumption in Australia declined by 9 per cent over the two years from 2020 to 2022, equating to a reduction of 50 million litres (IWSR 2023).

Australian wine has a competitive advantage on the Australian market

Despite declining consumption, Australia is ranked the eighth most attractive market for still wine in 2022 according to the Wine Intelligence 2023 Global Compass.

For Australian winemakers, the big advantage of the Australian market is that local wine dominates, with an estimated 82 per cent share of the market by volume – an even higher share than in the United States (US) and France, both of which have a strong domestic wine sector.

Competition from imported wine has in fact decreased recently. Import volume declined by 16 per cent in the year ended November 2023, to the lowest level since 2017. This may reflect a temporary result of transportation issues and/or reduced spending due to increased costs of living, or it may indicate a more persistent declining trend as consumer preferences change.

Although volumes of imported wines have declined, the share of wine listings in the on-premise held by countries outside of Australia has continued to increase, with all Australian wine-producing states and New Zealand losing share of listings to European countries (especially France) and the US (Wine Business Solutions 2023).

IWSR forecasts that the share of imported wine in Australia will increase to 23 per cent by 2027. As total consumption is expected to decline, any increase in imports will mean a reduction in sales of Australian wine.

Colour and varietal changes reflect trend towards whites, rosé and sparkling wine

Still white wine has the largest share of retail wine sales, with 46 per cent, followed by still red at 32 per cent. Overall, the retail off-trade declined by 1 per cent in volume and 0.3 per cent in value in the year ended September 2023 (Circana 2023). White still wine performed better than red, particularly in value (Figure 1).

Figure 1: Value and volume growth by wine style – year ended September 2023

Source: Circana

The only categories in growth were still rosé wine (from a small base) and sparkling wine (excluding Champagne). Much of the growth in sparkling was driven by Prosecco, which increased by 20 per cent in volume and 17 per cent in value in the year ended September 2023. Other varieties (in the top 20) that showed growth were: Pinot Grigio (up 11 per cent), rosé (up 8 per cent) and Pinot Gris (up 5 per cent). Chardonnay increased by 1 per cent, while Shiraz and Cabernet Sauvignon both declined. These changes reflect the trend towards white (and rosé) varieties and away from reds.

Premiumisation trend may have stalled

The past few years have seen some indication of premiumisation, with the volume of wine sold in higher price points increasing, while the volume sold in lower price points decreased. This trend is forecast to continue for the next five years, according to IWSR. However, in the 12 months to June 2023, commercial bottled wine performed better than premium bottled wine, driven by growth in commercial red bottled wine (Figure 2).

This trend is consistent with the finding by IWSR that the ‘long-running premiumisation trend in beverage alcohol’ weakened significantly in the first half of 2023. This is likely due to short-term economic pressures on consumer spending rather than a reversal in preference.

Figure 2: Change in volume for commercial vs premium wine by colour – year ended June 2023

Source: Circana

Mid-priced wine may be the sweet spot for growth, as sales in the middle price segments – from $15 per 750 ml to $29.99 per 750 ml have shown the strongest growth during 2023. This growth may be a result of consumers trading up to higher price points from the $10–$15 category (premiumisation) or trading down from higher price segments ($30 and above) due to cost concerns. The same trend is evident for both imported and Australian wines (Figure 3).

Figure 3: Change and percentage change in off-trade volume by origin and price segment – YE September 2023

Source: Circana

E-commerce and wine tourism both expected to grow over the next five years

IWSR forecasts that wine e-commerce will continue to grow in Australia over the next five years. However, this is likely to be at the expense of sales in off-trade retail, because overall wine consumption is declining.

The share of wine purchased online is expected to grow from 15 per cent in 2022 to 18 per cent in 2026. The advantage of this channel is that it is less dominated by the major retailers, and nearly half (40 per cent) of regular wine drinkers spend more online than when making a purchase in a retail outlet (Wine Intelligence 2023). This is likely to reflect the demographic composition of online wine buyers, which include more Gen Z and Millennials as well as higher earners. It may also relate to the motivations for using an online retailer, which include ‘good special offers/promotional offer’ and ‘wider range of the products I like’ and ‘they stock hard-to-find products that I like’. Online purchases are less likely to include basic everyday purchases of lower-value wine.

The direct-to-consumer channel is unique to the Australian market as a source of revenue for Australian winemakers. It is a relatively high value channel, estimated to account for more than 50 per cent of revenue for most of Australia’s 2000 wineries. However, costs are also relatively high, and the channel is under pressure after a volatile period for wine tourism and in light of cost increases and pressure on consumer spending.

Cellar door sales depend on winery visitation, which in turn depends on tourist numbers. Both international and domestic visitor numbers have been steadily increasing since the end of 2020, but have not yet returned to 2019 levels. However, Tourism Research Australia (TRA) estimates that total visitor expenditure in Australia will be 23 per cent higher in 2023 than in 2019. It forecasts that total visitor expenditure will increase by an average of 6 per cent per year to reach $223 billion in 2028 (61 per cent above the pre-pandemic level – see Figure 4).

Figure 4: Historical and forecast tourism spend in Australia

Source: Tourism Australia and Tourism Research Australia

The on-premise channel is challenging for wine but good for reaching younger consumers

Despite only accounting for around 20 per cent 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 buying a bottle for home consumption.

The CGA by NIQ ‘On Premise User Survey’ (OPUS) has found that younger people (18-34) are over-represented among regular on-premise visitors, making this a good channel to connect with Gen Z consumers.

Overall, 36 per cent of visitors to the on-premise report that they ‘typically’ drink wine (noting that they can select multiple alcohol options). Wine is the leading choice during visits to casual dining restaurants and formal restaurants, and the second most popular choice for hotels, pubs and RSL/sports clubs (CGA by NIQ – October 2023 – see Figure 5).

Figure 5: Percentage of on-premise visitors nominating each type of alcohol as a ‘typical’ drink for each venue type

Source: CGA by NIQ

The number of wine drinkers in Australia is declining and they are reducing their consumption

Since 2019, the number of regular (weekly) wine drinkers in Australia has decreased by half a million, despite the population increasing by 1.7 million (9.3 per cent) in that time. The reduction in numbers has led to a reduction in volume of wine consumed, which decreased by an average of 2.3 per cent per year from 2017 to 2022, under-performing against all other alcohol categories except cider. Wine is also expected to decline by more than all other alcohol categories in the next five years.

Reduced wine consumption is driven by three key trends: alcohol moderation generally, competition from other alcoholic beverages (particularly RTDs) and ‘economic moderation’ as a result of reduced discretionary income.

Up to 20 per cent of regular wine drinkers report reducing alcohol by choosing lower alcohol options (20 per cent) or non-alcoholic drinks (14 per cent) on some occasions (Wine Intelligence 2023).

While beer accounts for 72 per cent of no-alcohol products and 92 per cent of low-alcohol products, IWSR forecasts that low- and no-alcohol wine will grow by an average of 6 per cent from 2023–2027 (compared with a forecast decline of -2 per cent for full-strength wine) – reaching over 1 million cases (2 per cent share of wine) by 2027. Gen Z and Millennials are over-represented in this category, making up 52 per cent of buyers of no- and lower-alcohol wines compared with making up 40 per cent of all regular wine drinkers.

Read the full Australian Wine Market Insights report (levy-payers only).

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.