Wine Marketing Research and Segmentation

Wine Marketing

Marketing research and segmentation

The wine market is typically made of interconnected sub-segments with overlapping tendency. The wine market is different than other markets for agricultural products because this one is more vertically differentiated, meaning that in this market is easier to rank products according to objective criteria from the first to the last than it is for traditional agricultural products. For instance, the high quality - high price segment is very heterogeneous, showing increased product differentiation, whereas the low quality - low price segment is more homogenous, as it's not particularly focused on quality criteria (European Commission, 2002).

A complete market analysis should identify those markets that where on one hand individuals drink wine and on the other hand they are both able and willing to purchase the company's wine. At this point, the focus should be on market characteristics, such as: market size, growth and accessibility. The next step is to use market demographics (e.g. age, gender, income), cultural characteristics and psycho-graphics (life-style, attitudes) factors to segment the market. Finally, a market analysis should take under consideration the competition outlook, including information about competitors' pricing, distribution, product or promotion (4Ps) and their strengths and weaknesses (SWOT analysis).

A correct segmentation is essential for market targeting. That way companies can focus their resources and competencies on a specific group of consumers and optimize their results. For instance, a company that knows exactly what consumer group is targeting, it can create strategic promotional campaigns that mould the consumer characteristics. Once, the market targeting is made, product positioning has to place products in the consumers' minds and hearts.

Market identification

FIG. 1 - WORLD WIDE WINE CONSUMPTION - 1000HL

Source: International Organization of Vine and Wine - OIV, 2004

In the world, the wine consumption has remained constant for the last 10 to 15 years. However, the production in NWWG - New World Wine Group (Argentina, Australia, Chile, New Zeeland, South Africa and USA) has strengthened (see fig. 2).

Source: OIV, Eurostat in European Commission, 2002

The graph depicts EU15 as the major wine producer in the world and according to EC (2002), the variations in wine production in the world are significantly influenced by wine production in EU15. The European wine sector weights for 68% of the entire value which accounts for $200 billion.

Chilean wine enjoys a relatively good reputation in the European countries as many Chilean exporters already entered these markets and created product awareness among consumers. For instance, in UK and Germany, the share of European wine producers lowered in favor of the NWWG (see fig. 3).

FIG. 3 - SHARE of NWWG WINE in UK and GERMANY in 2005

Source: Comtrade, accessed 2005

The NWWG wine, which includes the Chilean production increased with over 10% in the last 10-year, following an upward trend. This suggests that European customers are willing and able to purchase Chilean wine.

Market segments

Price segmentation should give the Chilean producer an insight in the European market price strategies. In terms of prices, it is worth mentioning that wine products will never be able to deliver high margins such as whiskey - 75%. This makes it difficult for wine sellers to be price competitive and maintain an attractive margin in the same time.

A price analysis taking under consideration three of the largest consumers and producers in Europe suggested that prices are lower in the south of the continent, average in Italy and high in France.

Source: International Organization of Vine and Wine - OIV, 2004

The medium to low price Chilean wine products would fit the Southern Europe market segment, whereas its high price wine would fit the French market better. Thus, all its white wine - Nieved del sur, El chileno branco, Terra Fria - and El chileno tinto, Terra mia and Monte grande are more likely to have success in Southern Europe and the rest in France.

On a general level, there are three types of wine:

Table wine - in Europe this designates the low quality wine that qualifies neither for a regional designation nor for an appellation. In U.S. The designation is used to differentiate ordinary wine from stronger types of wine, such as sparkling and fortified.

Sparkling wine - it represents the wine with a superior level of carbon dioxide, which gives it the frizzy characteristic.

Fortified wine - it represents the wine to which additional alcohol has been added, such as Brandy.

FIG. 6 - WINE CONSUMPTION PER TYPES of WINE

Source: European Commission, 2005/2006

On a more specific level, table wine can be divided into four categories:

Semi-dry - it contains a maximum of 18 gr of residual sugar per litre and a minimum of 4 gr per litre

Semi-sweet - it contains a maximum of 45 gr of residual sugar per litre and a minimum of 18 gr per litre.

Sweet - it contains at least 45 gr of residual sugar per litre.

Dry - doesn't exceed 4 gr of residual sugar/litre and the total acidity is 2 gr lower than the sugar weight.

FIG. 7 - TABLE WINE CONSUMPTION PER TYPE of WINE 2005

Variety

Europe East

Europe West

Europe South

Europe North

Semi-dry

Semi-sweet

Sweet

Dry

Source: Business Analytica, EU Commission, OIV, wine association websites

The Chilean producer's white wines would be more suited for the Western and Northern part of Europe, as in these regions the % of wine consumption is higher than the other regions.

In terms of demographics, Europe is a heterogeneous, quite fragmented market. There are 27 countries that are part of the European Union and a number of other that is not yet part of the economic block. In terms of income, Europe is divided into two groups: high-income countries - located in the western part of the continent and medium-low income countries - located in the central and eastern part of the continent. The gender distribution is relatively homogenous among countries. Although some nations are traditional wine drinkers (France, Italy), this type of drink seems to be more popular among the female and gay population. Also, wine popularity is increased among older generations, whereas young people tend to consume more white spirits. The age distribution is like gender distribution, homogenous within the continent.

Competition

The European wine market is highly influenced by a reduced number of large multinational companies. In most cases, these companies are of Mediterranean and Anglo-Saxon origin.

The distribution trend is towards modern sales outlets: 75% of sales in France, 79% in United Kingdom and 65% in Germany (Green et.al., 2003). The importance of private labels varies a lot across countries. Thus, 60% of the British wine is sold under private label, whereas in France and Netherlands this percentage is much reduced: 26% and 19%.

FIG. 8 - MAIN COMPETITORS in EUROPE - WINE MARKET

Company name

Operations in wine

Wine Brands

DIAGEO (UK) Diageo

Chateau & Estate Wine

Co.

Total sales: 20.527 euros in 2001

Baron & Guestier, 1st exporter of Bordeaux, exports 2 million boxes a year.

Mo't & Chandon, in association with LVMH

Barton & Guestier (France), Piat d'or

France), Mo't & Chandon (France),

Tanqueray, Beaulieu Vineyard (USA),

Blossom Hill (USA), Diamond Mountain

USA), Three Palms Vineyard (USA),

Winery Lake (USA), Sterling Vineyards

USA)

LVMH (F)

Total sales: 12.229 euros in 2001

2.232 euros in beverages in 2001

Mo't & Chandon, in association with Diageo

Operate in St. Emilion,

Sauternes, in the United

States, Australia, New

Zealand, Argentina and Brazil, particularly in sparkling wines

Cheval Blanc (St.Emilion), Chateau d'Yquem (Sauterne), Mo't & Chandon

France), Newton (USA), MountAdam

Australia), Cape Mentelle (Australia),

Cloudy Bay (New Zealand), Terrazas

Argentina).

ALLIED DOMECQ

UK)

Total sales: 4.548 euros in 2001 (371 euros in wine in 60% in 2002)

811 euros only in Spain with Allied

Domecq Spain +

Bodegas y Bebidas)

Buena vista (USA)

Racke (Germany)

238 euros 2001

Bodegas y Bebidas (S)

210 euros in wine in 2000

14% Spanish DO Wine

Montana (NZ)

1st group in New Zealand

57% of local market in value)

Sales: 23 million wine boxes (super premium and premium mainly)

Buena Vista (USA), Callaway (USA), Clos du bois (USA), Atlas Peak (USA), William Hill

USA), Montana (N. Zealand), Campo Viejo

Rioja), Siglo (Rioja), Vina Alcorta (Rioja),

San Ansenio (Rioja), Casa de la vina

Valdepenas), Marquez de Arienzo (Rioja),

Marquez de Villamagna (S), Las Campanas

Navarra), Tarsus (Rivera del Duero),

Villarei (Rias Baixas), Azpliticueta (S),

Graffigna (Argentina), Balbi (Argentina),

Col n (Argentina), Mumm (France),

Blanchet (F), Scharlachberg (Germany),

Dujardin (a), Racke Rauchzart (a), Viala

A), Vitae (a), Amselfeder (a).

PERNOD RICARD (F)

Total sales: 4.382 euros in 2000 (40% wine and spirits)

Total: 114 million wine bottles. Orlando Wyndham, 282 million euros sales in 2001.

Selling of 45 million bottles under Jacob's

Creek brand (50% in England).

Alexis L (France), Fontenoy (France),

Premier de Lichine (France), Palacio de la

Vega (Spain), Jacob's Creek (Australia),

Wyndham Estate (Australia), Etchard

Argentina), R'o de la Plata (Argentina),

Long Mountain (South Africa)

Source: Green, et.al, 2003

2. Criteria ranking

Wine type: table/sparkling/fortified wine should come first as this reflects the Europeans' tastes for wines. The statistics show that the table wine enjoys the largest popularity of all wines. Table wine is not just a tasty, but also handy. Its level of alcohol is reduced compared to the other two types, which explains why its consumption in litres is higher than for the other types.

From this point-of-view, virtually all European countries qualify as exporting countries, although their wine consumption in general is higher in the southern and western part of the continent.

Wine variety: semi-dry/semi-sweet/sweet/dry should come second as it reflects the European attitude towards the different types of table wine. The statistics show that different countries in Europe have different tastes when it comes to wine variety.

From this point-of-view, given that semi-dry and semi-sweet wines are popular in Europe as their taste is not extreme so it satisfied a wider range of tastes, El chileno branco qualifies as a popular product. Moreover, the export regions should be restricted to the western, southern and northern part of Europe as the income level is higher in these regions.

Price should be the third criterion taken under consideration. The Chilean wine has a good price/quality ratio and it can be exported to any region in Europe. However, in France the consumers are more sophisticated, which means that the Chilean company may have to allocate a larger amount of resources to increase costumer awareness.

From this point-of-view, the southern part of Europe qualifies as the most indicated export market for the Chilean wine. Spain and Italy are traditional wine drinkers and the wine prices are medium to low as a consequence of more reduced customer sophistication.

In terms of market demographics, the Western part of the continent is a more appropriate market for the Chilean wine producer as the population's per capita income is higher than the central and eastern part of Europe and this translated into higher returns.

The market competition should be taken under consideration as well when entering a new market. A market that is very concentrated is a mature market that is likely to offer few opportunities for exporters in terms of returns. Moreover, exporters with little experience in the European markets, such as the Chilean producers are likely to pay a premium price for their "liability of foreignness" (Zaheer, 1995). Thus, France is a market where only an experienced exporter would have good chances to succeed.

From this point-of-view, the southern and central part of Europe qualify as good exporting markets. The consumers come in a large number and there are not particularly sophisticated and the producers are not used to develop unique product characteristics to gain competitive advantages.

3. Pest opportunities

The European Union block has a stable political outlook, which makes all 27 members qualify as an exporter market for the Chilean wine.

From the economic point-of-view, the Western part of Europe offers more opportunities to exporters as these countries are more developed. The supply chains are more oriented towards trade, bureaucracy is reduced and the population income is higher, which translates into higher returns.