Consumers should brace themselves for rising wine prices in 2013, with wine production falling to a five-year low and producers starting to raise their prices.
While oversupply conditions have characterized the $102.2-billion wine industry in recent years, keeping wine prices low and damaging the wine industry's profitability, that's starting to change, says a report by U.S. market research firm IBISWorld.
Global production has fallen during the past five years at an estimated 1.8 percent annualized rate to 248.2 million hectoliters in 2012. Much of this production decline occurred in Europe, because the European Union offered incentives to growers to reduce winery acreage, and removed distillation subsidies, which supported unviable producers.
IBISWorld reports that this reduction in supply and rebounding demand mean that grape and wine producers are now raising prices.
Consolidation is also set to be a major trend of 2013. The majority of wineries, particularly in Europe, are small local operations. However, weakening consumption in these traditional wine-growing regions is leading to a shift in ownership.
IBISWorld industry analyst Agata Kaczanowska explains: “Many wine regions are undergoing consolidation in the face of heightening regional competition, especially because wine consumption in emerging markets – such as in China and India – is growing quickly.”
Due to consolidation, the number of wine producers worldwide decreased at a 2.2 percent five-year annualized rate to 21,183 in 2012. On top of that, some vineyards closed completely or halted production in under-performing locations, which depressed the number of industry establishments. Vineyard closures also contributed to the decrease in production volume.
IBISWorld expects that the number of industry participants will diminish during the next five years, as major brands merge or acquire smaller producers. Regulation changes in Europe are also stimulating some consolidation, as certain assistance is withdrawn and the industry aims to become more market oriented.
The report also states that the already-powerful supermarkets will continue in their dominant role, reducing a “winemaker's bargaining power,” and leading to “mass-produced, unlimited availability, consistent-tasting and heavily advertised brand wines.”
The good news comes from the Far East. An improving global economic climate and rising wine consumption in Asia and other emerging markets are projected to lead to stronger sales of higher-value, premium wines. Due to its large consumer base, China's presence in the industry is projected to explode during the next five years, as domestic vintners vie to compete with importers.