Wine

wineAfter years of impressive growth, the total UK wine market saw a 2% decline in volume sales in 2008 – a fall from grace for a market that has shown consistent growth for some years. In addition, the value of the market also dropped 1% year on year in 2008 to stand at £9.6 billion.

Whilst the underlying problems for the wine market have been bubbling under the surface, the recession has brought things to a head, resulting in the volume and value decline of 2008. With people’s incomes squeezed and wine being a non-essential item, the on-trade has been hit particularly badly, inevitably impacting on the wine market.

The effects of concern over binge drinking, a trend towards healthy lifestyles and heavy Government taxation have all had an impact on the market. In 2008 alone, duty on wine increased by 17%, meaning the British are now among the most heavily taxed wine drinkers in Europe. This, combined with rising production and manufacturing costs and the strength of the Euro against Sterling, has put added pressure on wine manufacturers. As a result of these factors, the wine market will not recover in volume terms until 2011, but will increase by 4% up to 2014 to reach 1.18 billion litres.

Within this challenging context, research demonstrates it is more important than ever that the wine industry engages more with younger consumers and amongst the 25-34s in particular to gain market share and loyalty for future consumption. Wine drinking amongst this age group has declined more than any other over the past five years, indeed Mintel’s consumer research found that a fifth of 25-34s find the choice in wine confusing, the highest for all age groups surveyed.

In terms of distribution, the market is increasingly reliant on supermarkets but their long-term strategy of discounting wine has intensified as a result of the recession, undermining the industry goal of getting people to trade up. Many specialists are closing stores in what looks like a fight for survival.  Meanwhile, on-trade alcohol licenses have been in decline since 2003, and closures have been exacerbated by the smoking ban in 2007, heavy government duty from 2008, heavy supermarket discounting, and the impact of the recession on discretionary spend.

An opportunity to reverse the tide lies in addressing the confusion surrounding wine, as this acts as a barrier to entry for younger consumers, as well as discouraging more experienced drinkers from trading up. Rosé is the one wine segment that is forecast to grow over the next five years, and is a particularly accessible way to attract younger drinkers into the category. While the wine industry as a whole suffers, Rosé has bucked this trend and seen excellent growth in recent years, increasing its market value from just £110 million in 2004 to £527 million in 2008. This means it now accounts for 6% of the value of the wine market and Mintel forecasts that it will continue to grow over the next five years, reaching £742 million by 2014.