Wine Marketing: Segmentation and Export Strategy in Europe

Marketing Research and Segmentation

The wine market is typically composed of interconnected sub-segments with overlapping tendencies. The wine market differs from other agricultural product markets because it is more vertically differentiated — meaning it is easier to rank wine products according to objective criteria than it is for traditional agricultural goods. 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 is not particularly focused on quality criteria (European Commission, 2002).

A complete market analysis should identify those markets where individuals both drink wine and are willing and able to purchase the company's wine. At this stage, 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 psychographic factors (lifestyle, attitudes) to segment the market. Finally, a market analysis should take into account the competitive outlook, including information about competitors' pricing, distribution, product offerings, and promotion — the 4Ps — along with their strengths and weaknesses as revealed through a SWOT analysis.

Correct segmentation is essential for effective market targeting. It allows companies to focus their resources and competencies on a specific group of consumers and optimize their results. For instance, a company that knows exactly which consumer group it is targeting can create strategic promotional campaigns tailored to that group's characteristics. Once market targeting is established, product positioning must place products in consumers' minds and hearts.

Market Identification and Global Trends

World wine consumption has remained largely constant over the last ten to fifteen years. However, production in the New World Wine Group (NWWG) — comprising Argentina, Australia, Chile, New Zealand, South Africa, and the USA — has strengthened considerably (OIV, 2004).

The EU15 remains the major wine-producing region in the world, and according to the European Commission (2002), variations in global wine production are significantly influenced by EU15 output. The European wine sector accounts for 68% of the entire global value, representing approximately $200 billion.

Chilean wine enjoys a relatively good reputation in European countries, as many Chilean exporters have already entered these markets and created product awareness among consumers. In the UK and Germany, for example, the market share held by European wine producers has declined in favor of NWWG producers. NWWG wine — which includes Chilean production — grew by over 10% in the last decade, following an upward trend. This suggests that European consumers are both willing and able to purchase Chilean wine.

In Europe, the three major consumer markets are France, Italy, and Germany. Spain, the UK, and Romania follow behind these three. However, the latter group is geographically dispersed across the continent, which may translate into higher distribution costs.

A ten-year price trend (1994–2004) shows a red wine price increase across all three major producing countries, with France leading. In Spain, prices fell over the last five years of that period, although consumption remained stable. White wine prices fluctuated more than red wine prices over the same period. France again led price increases, while Spain maintained relatively stable pricing.

Market Segments: Price, Variety, and Demographics

Price segmentation provides Chilean producers with important insights into European market pricing strategies. It is worth noting that wine products will never deliver margins as high as spirits such as whiskey, which can reach 75%. This makes it challenging for wine sellers to remain price-competitive while maintaining attractive margins simultaneously.

A price analysis considering three of the largest consumers and producers in Europe suggests that prices are lower in the south of the continent, average in Italy, and high in France. Medium-to-low priced Chilean wine products would fit the Southern European market segment best, whereas higher-priced Chilean wines would be better suited to the French market. Accordingly, white wines — Nieved del Sur, El Chileno Blanco, and Terra Fria — as well as El Chileno Tinto, Terra Mia, and Monte Grande are more likely to find success in Southern Europe, with the remaining portfolio fitting the French market better.

On a general level, there are three types of wine recognized in European wine classification:

Table wine — In Europe, this designation refers to lower-quality wine that qualifies neither for a regional designation nor for an appellation. In the United States, the term differentiates ordinary wine from stronger types such as sparkling and fortified wines.

Sparkling wine — Wine with a superior level of carbon dioxide, which gives it its characteristic effervescence.

Fortified wine — Wine to which additional alcohol, such as brandy, has been added.

On a more specific level, table wine can be divided into four categories based on residual sugar content:

Semi-dry — Contains a maximum of 18 g of residual sugar per litre and a minimum of 4 g per litre.

Semi-sweet — Contains a maximum of 45 g of residual sugar per litre and a minimum of 18 g per litre.

Sweet — Contains at least 45 g of residual sugar per litre.

Dry — Does not exceed 4 g of residual sugar per litre, and total acidity is no more than 2 g lower than the sugar weight.

The Chilean producer's white wines would be more suited to the western and northern parts of Europe, where the percentage of wine consumption is higher relative to other regions (Business Analytica; EU Commission; OIV; wine association websites).

In terms of demographics, Europe is a heterogeneous and quite fragmented market. There are 27 countries that are part of the European Union, plus a number of others not yet part of the economic bloc. By income, Europe divides broadly into two groups: high-income countries in the western part of the continent, and medium-to-low-income countries in the central and eastern parts. Gender distribution is relatively homogenous across countries. Although some nations are traditional wine-drinking cultures (notably France and Italy), wine appears to be more popular among female and older consumers. Young people tend to consume more white spirits. Age distribution, like gender distribution, is relatively homogenous across the continent.

References

Comtrade — United Nations Commodity Trade Statistics Database Statistics Division. http://comtrade.un.org/

European Commission (EC). (2005/2006). Agriculture and Rural Development — Wine Consumption. http://ec.europa.eu/agriculture/markets/wine/facts/index_en.htm

European Commission (EC). (2002). Overview of the Wine Market. Tender AGRI/EVALUATION. http://ec.europa.eu/agriculture/eval/reports/wine/2.pdf

Green, R., Zuniga, R. M., & Pierbattisti, L. (2003). Global market changes and business behavior in the wine sector. Economie et Sociologie Rurale, Cahier n° 2003-02.

International Organization of Vine and Wine (OIV). (2004). Situational Report for the World Vitivinicultural Sector in 2004.

Zaheer, S. (1995). Overcoming the liability of foreignness. Academy of Management Journal, 38(2), 341–363.