As a mature market, Germany offers few opportunities in the growing segment. The over-performing of discount channels constrains the major part of the trade to a low price point with poor revenues. Currently, wine exporters from Australia are suffering more pressure not only from the fierce competition but also the high trade barriers in German wine market. This report provides an analysis of German wine market in different aspects, aiming to give Australian exporters some implications on their market strategy.
Introduction Germany is the world’s fourth largest wine market after the US, France and Italy (AWBC, 2012). The total revenues generated in German wine market reached $26. 6 billion in 2009 (Datamonitor, 2010). Wine represents around 30 per cent of the total alcohol consumption. Around 2. 1 billion liters are consumed annually. The per capita consumption of wine in Germany is approximately 24. 6 liters in 2009 (AWBC, 2012).
Still wine is the largest segment of the wine market in Germany, representing 84.4 per cent of the market’s total value, whereas the sparkling wine segment takes up a further 12. 4 per cent of the market (Datamonitor, 2010). The German market has been very stable and highly mature. During the worldwide economic crisis in 2008, the German market shrunk by only 2. 7 per cent and it recovered fast in 2008/2009. The volume increased by 1. 8per cent and almost reaches the formal level (Werner Engelhard, 2011). Growth will continually be seen in German wine market by 2014 with annual rate not exceeding 0. 4per cent (Datamonitor, 2010).
The main factors driving the slow growth in the wine industry include ageing population, low levels of economic growth, high unemployment and stagnating population growth (New Zealand Trade & Enterprise, 2006). Competition within German wine market The German wine market is very competitive and highly fragmented with the top three players holding a market share of 28. 9 per cent by volume (Datamonitor, 2010). Revenues generated in German market are very poor in recent years (Datamonitor, 2010), which tends to intensify rivalry.
Major domestic players can offer their customers a wide range of wines with consistent quality and supply, resulting in them successfully defending their market share. This usually involves high fixed cost for the mass-production, which is some small wineries cannot compete. Another factor that tends to intense the competition is the substitutions for wine in German beverage market available to consumers, and the switching cost is very low. Market feedback from retailers and on-trade business in Germany shows the per-unit-volume prices of beer are much lower compared with that of wine (Datamonitor, 2010).
A heavy reliance on the discount sector to fuel sales is the main characteristic in German wine distribution system. Currently the off-trade accounts for roughly 68. 3 per cent of wine sales in volume terms in Germany; the on-trade sales take up the remaining 31. 7per cent. In the off-trade segment, Supermarkets and hypermarkets form the leading distribution channel in the German wine market, accounting for a 49. 8 per cent share of the total market’s volume, whereas merely 9. 5 per cent of market volume is sold in Specialist Retailers (Figure1).
The predominance of these discount channels has developed the market’s price profile towards the low end. An average price of bottled wine in the German off-trade is merely i?? 1. 61 (AWBC, 2007). The ease of market entry for new comers is contained by government regulations. The German wine industry is characterized by stringent government regulations and complex rules (Datamonitor, 2008). Imported goods from countries outside the European Union are subject to higher import duties (Euromonitor, 2009).
German also complies with EU policies in terms of labeling and other ingredient speculations, such as additives. German importers demand exact compliance with EU/German standards and do not tolerate deviations (New Zealand Trade & Enterprise, 2006). Wine imported from non-EU countries also requires Common Agricultural Policy Import License and must be accompanied by VI1 documents till they are put to free circulation (Datamonitor, 2010). Undoubtedly, the high import duties and stringent rules has been a major challenge for exporters in its entry into the German market.
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.