Another barrier for the new entrants in German wine market is the access to good distribution channels. It unusual for wineries to integrate forward into selling to final consumers, an efficient distributor is thus a key factor to succeed. Currently, there are maximum 50-70 efficient distributors left for thousands of producers in Germany (Werner Engelhard, 2011). However, pressure on prices, margins forces distributors to define their key suppliers, which tends to put the new comers in German market into a more disadvantageous place.
Imports and market share in Germany’s wine market
Import market in Germany is very attractive but not aggressive. Currently Germany is the largest importing countries in the world. Around 68 per cent of the wine consumed in Germany is accounted for by imports, which is amount to 14.64 million hl by volume (AWBC, 2012). However, the average price of an imported wine is much lower (€2.06 per bottle) compared to other European countries such as the UK (average price per bottle €4.97) or Denmark (€7 per bottle) (Austrade, 2011). Among the imported wines, bulk wine takes up roughly 50 per sent market share (AWBC, 2012). The Germany Food & Drink Report recently stated that the low price tends to continually remain a predominant feature of the German wine sector. Also, value sales growth will be prohibited in the wine industry by the reliance on shifting large volumes of low-priced wine to some extent.
Currently, the German imported market is still dominated by the Old World irrespective of whether imports are measured in volume or value. The most important countries of origin of German’s wine imports are Italy, Spain and France, which account more than three quarters market share. Whereas the wine imported from the New world still take up a minor market share, albeit a slow increase has shown in recent years (Table 2& Table 3). On average, prices of non-EU imports are lower than prices of EU imports, as is indicated by the higher share in volume than in value of non-EU imports. Premium wines imported in Germany market are still mainly from EU ( Rolf A.E. Müller and Susanne Stricker, 2000).
Current Australian performance
Australia is still a minor player in German wine market place with 5.9 per cent of volume and 2.8 per cent of value (Table 4). Steadily growth has been seen the Australian wine that exported to German since 2008. In 2011, Australian exports to Germany increased to 41.2 million liters with a value of $53.7 million (Table 5 &Table 6). Germany has been Australia’s fourth largest export market and seventh by value (AWBC, 2012).
Bulk wine takes up the majority of Australian wine exported to Germany, amount to 88per cent of volume, while in value term these exports account to 60 per cent. By comparison, bottle wines consist 12 per cent of volume and 41 per cent of value. The Red wine possess slightly more market than white wine, 56 per cent vs. 44 per cent by volume and 69 per cent vs. 31 per cent by value (Table 4). This is properly influenced by the current trends that German households tend to favor red wines over white wine (Austrade, 2011). Within the variety, Shiraz or Shiraz blends win over more German market than others, which represents 63 per cent by volume and 36 per cent by value (Table 4).
The concentration of German wine sales at low price points defines the position of the Australian sales in German market. Around 90 per cent of Australian wine is sold in the lowest price segments - under €2.25 and €2.25-€4.49 (Table 4). Australian sales are concentrated in the Liquor Discounter channel - the most price sensitive sector in the market. According to Wine Austrlia, Australia is over-performing the market potential in this channel. This performance is likely to have been influenced by the pressure of the oversupply in recent years. In contrast, Australia are under-performing in the Supermarket, Convenience and Independent channels which yield slightly higher prices.
Consumer behavior in German wine market
Preference change in products and taste has been seen among German wine consumers. German households tend to favor red wines over white wine even though Germany is well known for its white wine production. Red wine German households purchased in retailers in 2009 accounted for 63 per cent, which is much higher than that of white wine and rosé, 29 per cent and 8 per cent respectively (Datamonitor, 2011). Furthermore, the lighter and low-alcohol wine are becoming more popular (Euromonitor, 2011). This might supply more market opportunities to the New World wine. The change of demography of German wine consumers, from traditionally middle-aged male consumers to young, particularly female consumers, might partly contribute to such situation.
German wine consumers are well known for their price sensitiveness. This gives an explanation why the discounter channels accounts for the majority sales of wine in German Market. In contract, brand loyalty is not particular among German wine consumers although their purchase is more quality-oriented. German wine consumers generally prefer wine that produced domestically or that imported from other EU countries as they are perceived to be of high quality (Euromonitor, 2009). Nevertheless, ten biggest brands in Germany represent just 3.5 per cent of the market (Wine Australia, 2012).
Marketing opportunities for Australian wine in Germany’s market
Current market suggests there are limited opportunities for Australian wine to enter the market or expand their market share due to price awareness and the mature nature in German wine market. Local production dominates the lower price points whereas Italy and France dominates the higher price points, at the same time they are strongly represented in the lower price points (AWBC, 2007).
The one exception is a relatively modest gain for white wine in the €2.25-€4.49 price segment of Liquor Discounters. Albeit relatively greater profits in this segment, still modest in comparison to the profits available in less mature market into which Australia exports wines. The major opportunity in respect to gains from expanding share is for whites through Liquor Discounters in the sub-€2.25 price segment while for reds, the remaining opportunities are through the other channels in low-middle price segment. There might be some interest for the up-market, but it usually requires unique offerings, e.g, wines with world-known awards. However, current data shows Australian wine has not even stepped in this price segment in Germany (Table 4).
In addition to this, opportunities for innovative products or new technologies developed in wine industry from Australian exporters exist. Innovations are not restricted to product itself but also extended to the packaging and labeling. Australian wine has made advances in its packaging and labeling in comparison to other European countries, that is, they are more ‘consumer friendly’, which are more likely to put them into advantageous place in German wine market, particularly among its targeted young customers and females. In respect to this, the Australian wine technology company Zork has made us a good model. It has succeeded in German market with its innovative wine and sparkling wine closures (Austrade, 2011).
Meanwhile, the positive ‘word of mouth’ of Australian wine in Germany might benefit Australian exporter in future market. According to AWBC, Australian wine has made advances with German consumers in past years with positive growth across the range of consumer measures including penetration in the market, the frequency and amount of purchases of Australian wine and loyalty to Australian product but not including price. More importantly, German consumers are recognizing the consistent quality provided by Australian wines, combined Australia’s clean and green image, should see Australian wines continues to grow in German wine market(AWBC, 2012). Given the current position of Australian wines in Germany, consistent quality and supply is therefore of great importance for repeating consumption. This is not difficult to approach in Australian wine industry as the mass-production has been adopted in many wineries.
Marketing into Germany
According to Dunning’s Eclectic theory, international business must take into three decision factors, that is, location advantages, ownership advantages and internalization advantages, (Malhotra, Ulgado & Agarwal, 2003). In respect to this, the competitive advantages of Australia in German wine market are evident. Despite of the higher customer duties and strict regulation in Germany, the availability of grants and new tax scheme give incentives to foreign investment (Datamonitor, 2008), so the German market is still favorable market for Australian wine exporters. Australia is experienced in the global market, combined with their brand image give Australian exporters a better reputation in the international business. In addition, Australia has well established its market in European countries, particularly Italy, France. This can reduce its transaction costs such as tariffs if as no custom duties are levied on products that are made within EU.
Understanding consumption behavior of German wine consumers is of great importance for Australian exporters. A better understanding of consumers’ needs enable the exporters to conduct more appropriate communication with their targeted customers, which can help ensure their survival and growth in this highly competitive wine market. German has a long wine drinking history and their consumers are being more knowledgeable about wine (Mahmood Hussain, 2011). Plus, they are more price-conscientious. As a matter of fact, except proving wines with higher quality-volume ratio for their German consumers, more attention might need to be paid to their promoting strategy.
Furthermore, identifying an efficient distributor is also a key factor to success. As indicated above, the distributing system in German market is dominated by the discount channels. Better performance of wine in German market would be more likely to be ensured by the major players in this channel, such as Aldi. In addition to this, given the Australian wines are still under-performed in high price segment, more attention should be given to the specialist stores as they generate comparatively higher profits
Last, a joint venture strategy has been recommended recently. Undoubtedly, the joint venture would reduce the trade barriers for the entrants in German wine market; also, the local companies can help exporters to operate their business more efficiently as they have a better understanding and knowledge about their domestic consumers. However, this pattern is not realistic for many exporters not only because of complexity in management but also because of the long-term benefits involved in acquisition.
Conclusions
German wine market is very competitive and mature. The domestic wine industry consists of a large number of small wineries who often market their wine themselves. Most wine consumed in German market relies on imports. Wine consumption is expected to continually growing slightly in following years. However, the trade barriers because of the strict regulations and higher customer duties have made many of exporters suffer more pressure, particularly in the lower price segment.
Heavy rely on the discount channels is the main characteristic of the distributing system in German wine market. This reflects German consumers ‘price conscientious’ in their purchase. The predominance of these discount channels has driven the market’s price profile towards the low end, resulting in more fierce competition in German wine market.
Currently, the Old World wine are taking the majority market share of Germany’s import market, and performing better in the high and middle price segment. By comparison, the New World wine presents a minor market share, majority of which they exported to German are bulk wines with comparatively lower revenue. The German wine consumers generally prefer wine from EU countries as they are perceived as high quality, but they are recognizing the consistent quality of wines that are imported from the New world, such as Australia.
Consumption patterns in terms of products, taste has shown changed in German wine market. Red wines are winning over more consumers. Also, light wines, e.g. Rosé, are on their way in gaining more popularity. Demography change, from middle aged males to young and female consumer, might contribute to such situation.
Australian wine stands for a minor market share in Germany, and most of which is in the low price segment. Better performance is expected in the low-middle price segment with comparatively higher revenues. Marketing opportunities also exist in innovative products or up-market. Australian wine has competitive advantages in terms of consistent supply with high quality/volume ratio, experience in international wine market, positive ‘word of mouth’ etc, continues growing will be seen in German wine market if appropriate marketing strategies are adopted.
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Reference
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Figure 1. Germany wine distribution: per cent share, by volume, 2009(e)
Figure 2. Exporting countries to Germany by Volume
Figure 3. Exporting countries to Germany by Value (USD)
Figure 4. Australian wine export market snapshot-Germany, 2011
Souce: Wine Australia
Figure 5. Australian shipment to Germany- Volume
Souce: Wine Australia
Figure 6. Australian shipment to Germany- Value
