The end of wine globalisation?

For centuries wine has been the consummate globally traded product as early as the 1600’s when the French traded their classic Bordeaux’s the French English, then in later years French to the American’s and this has only built momentum over the centuries.

For most of the time wine has enjoyed an interrupted lifestyle with very few barriers to the continued globalisation of its presence.

The system is broken- wine is the new political football.

Things have been tightening up for a while now and wine has been become to many an intended victim in the pursuit of the global economy

The banner of Free Trade has been wound back in, new taxes and tariffs have been imposed and all of a sudden international wine no matter where is coming from or going to is being impacted.

Late last year we saw Trump impose a new 25% tax on all French wines, why well because they the US and the EU have been in a long- term pissing match over cross subsidisation of aircraft- what wine has to do with this I do not know but it became a logical extension of the broader argument.

The immediate feeling with the election of Biden is that these tariffs would be removed but there are clear indications that this will not happen in a hurry as the new administration and the policy frame works are a long way from being formalised so these will be in place for some time to come.

But as one commentator commented there are bigger fish to fry here in the broader argument that the tax on wine imports

Of more recent times China has been seriously winding back Australia imports into China, claiming anti-dumping, price fixing and subsidisation and non- competitive industry practices like price fixing.

Australian wine imports into China which is Australia’s most significant trade partner here are in real jeopardy but what has wine really got to do with this as like the US its part of a bigger pissing match between the Chinese and Australian governments, wine has been swept into the conversation along with our lobsters.

Let’s not forget Brexit and the impact that had on European wine sales in the UK which have declined by as much as a 1/3rd from what they were pre-Brexit

Australia is not that friendly when it comes to taxes and tariffs on wines and Champagnes as we charge 27% Wine Equalisation Tax (WET) on all wine’s ex works, plus 5% tariff on all white and red wines, throw in GST at 10% and we have a very healthy wine tax of 42% added to our landed cost of wine.

This makes us one of the most highly taxed wine markets in the world for imported wines.

Don’t worry about trade embargos & tariffs!

Ask anyone who imports anything from outside Australia and ask them how hard it is to obtain regular stock and inventory.

COVID has rocked the global supply chain network, lock down closures in many of the world’s leading wine growing and producing regions means that the normal methods of distribution and transport have been turned upside down.

In the middle of this year, we saw our wine producers in France completely locked down for months and then upon returning due to social distancing requirements production capability was down to a 1/3rd of normal capacity.

Order compilation rates when from 10 days to 40 days creating further pressure and stress.

On top of this the availability of container and container space is increasingly under pressure to the point that there are no 40ft containers available anywhere in Europe.

their price has moved up in China from $1500 USD to $4800 USD pushing the cost of shipping and supply through the roof.

Port congestion has become a political football with delays of up to 12 days now happening in Sydney at the Patricks Wharves, how much of this is real and or another pissing match between Patricks and the MUA is yet to be revealed.

Whatever way you look at it the pressure on getting goods and especially wine is becoming more and more difficult and with France back in Lockdown 2 there is every reasonable chance that they will have to close once again before Christmas.

Things are not good in the world of wine and I start to question the long-term viability of wine as a globalised product which it has to be as the likes of Australia, France, Italy and Spain, Chile. New Zealand and South Africa have so much wine they could not sell this domestically as the demand is just not robust enough to absorb this excess capacity.

The German wine market would collapse as they import more than 60% of the wines they consume annually, Germany is Australia’s 5th biggest export markets imagine that disappearing.

Australia is the 5th largest Champagne market in the world and the 7th largest market for the wines of Burgundy, imported wine in Australia today is now greater than 20% of the entire wine market this is not an insignificant number

The very shape and nature of global wine markets would be very different.

Wine needs global markets to survive, it needs to be a global product by simply deglobalizing wine is a very slippery slope and one we may never recover from it is allowed to occur.

It’s not only the wine producers that are impacts, as Mike Veseth points out in his later post Wine Economist

“global markets for corks, capsules, winemaking services, bottles, labels “you name it are all likely to be impacted as most of these imported at one stage or another"

How boring would it be only drinking Semillon, SSB, Shiraz and Cabernet Sauvignon I would have to seriously have to consider giving up drinking wine if this was the case.

We talk about the way imported wine brings to world to our door, god knows in these times of COVID with travel bans and restrictions in place it is nice to know we can still get access to some of the wonderful things we most enjoy about travelling and for me that is experiencing and drinking great wines.

There has to be some light in the world surely.

The impact on COVID and Behavioural Change in wine.

COVID really did a number on us all and the world.

As the on-premise trade closed and collapsed globally here in Australia, we lost nearly 65% of the fine wine drinking market overnight or about 40% of total wine sales.

Drinkers were pushed more and more to retail and online sales, prices plunged, selections became less focused on quality and more on quantity, the average basket dollar size crashed, the average bottle cost plummeted from $25.00 to under $8.00.

With the easing of restrictions, life being breathed back into the Victorian economy and other wine economies around the country we are starting to see wine sales and basket sizes increasing but with reservation, yet they were and are nowhere near the levels of earlier this year.

We still have quiet restrictive social distancing rules in place for venues and this is impacting on now may people each venue can hold the impact is up to a 1/3rd less than normal trading conditions.

We are a long way off normal and will be for some time to come but you have to wonder about the longer-term effects of events like this on wine lover behaviour when it comes to the selection and drinking of wine

It will be interesting to see what happens here especially as the imports of international wines become more and more difficult where and how this will push Australian wine lovers in their future drinking and purchasing choices.

Some retailers we have spoken to are reluctant to stock any international wines as they are unsure of how they will sell, citing COVID as the primary reason for not expanding their range and wine offer.

To me this seems somewhat counter intuitive as we are in a time where home-based consumption is on the rise, people either electively or forcibly are taking more and more opportunities to stay at home at enjoy their wine experiences focusing on sharing this with a select few friends and or family.

Its disruptive and we live in a disrupted world, please don’t talk to me about the new normal or pivoting or whatever bloody new buzz word there is out there let’s admit the world is forever changed and we are in a brand-new landscape for wine.

The rise of canned wine.

Overall sales in Australia of canned wine represent 0.2% of the total wine market, sparkling canned wine represents about 75% of all sales in this format.

Which does not seem a whole lot to get excited about but in real dollar terms this equates to an uptick of over 140% in the past 6 months.

Wine in cans is a relatively new concept but is fast gaining traction.

In the USA it currently represents over $40 million dollars of sales annually, and in both the USA and the UK sales have increased significantly, up 43% and 30% respectively from in 2018.

As it becomes increasingly more difficult for us to attend more traditional opportunities to drink and experience wine, the greater focus on casual drinking opportunities is once again on the rise 

The attractiveness of cans due to COVID has been driven by access and convenience and is being driven largely by Gen Z and Millennials as traditional wine drinkers still seem somewhat fixated with the 750 ml format.

That being said there is a push towards moving away from this format size in favour of smaller formats but the economics of this are hard to justify as we witness with half bottles which in real terms equate to around 2/3rds of the standard price of a 750ml bottle to produce

Retailers seem more attracted to this format as it allows them to obtain greater in fridge facings in the same way RTD’s are represented but we have a long way to go as canned wine only represent 0.7% of all items available in most larger format wine merchants.

It is hard to judge is this is a passing fad or a real trend , one might assume that this may become a slow burning trend in the next few years.

Personally, I am not a big fan of canned wine and my mind boggles to thing a Grand Cru Chablis might end up in this format one day, god forbid please shoot me now …. but that being said who knows where this format will end up and a format of drinking choice.

Restoring Global Reach

I agree with Mike Veseth's observations in respect to this issue:

“the process of restoring wines global reach seems likely to be a process and probably a slow one…the faster the global economy returns to normal and back to health may be these clouds will disappear”

One can only hope so, but we are in for the long run.

The world of wine has been disturbed, the frameworks and channels that have supported it for many years are at best disrupted if not broken, wine has become a political football and is being punted pretty darn hard at the moment.

My feeling is that it will be at least 2022 before we start to see any real positive change in the global wine market, maybe longer as the world is nowhere past the impact of COVID both now and going forward.

Time to open the world to good wine, let’s have an open and transparent global wine market where the best wine wins and quality reigns supreme…. you can keep you cheap Kiwi cats piss and you nasty cheap Spanish, Italian and French wines just please let me have a bloody good bottle of wine please.

No, the sky is not falling in Chicken Lick ‘in but its bloody close.