Rabobank Report: Wine Producers Look To Smaller Markets For Growth

Q1 2012 Report: Trends and Outlook for International Markets

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Apr 26, 2012, 10:53 ET

NEW YORK, April 26, 2012 /PRNewswire/ -- A new report from Rabobank's global Food & Agribusiness Research and Advisory department examines the global wine industry, assessing that traditionally attractive export markets are currently in scare supply, but that the Canadian market is increasingly interesting.

Rabobank's global wine research team acknowledges that Canada is not the first country that comes to mind when one thinks of global wine markets. Currently, however, many of the global wine trade's traditional core markets are seeing falling volumes and lower profits in the face of economic headwinds. Canada, however, is an example of the smaller markets which the wine-exporting countries are taking a harder look at because they offer stronger growth potential and better pricing.

Canada is the sixth-largest wine importer and consumes about 480 million litres of wine per year, making it roughly one third the size of the UK market. And while both sales and profits are on the wane in the UK thanks to high inflation, general economic recession and a sharp rise in excise tax, the Canadian market has real momentum, with consumption growing by 30% since 2006. Not only that, but prices are growing faster than volumes (dollar sales rose 8% in 2011, while volume growth was 5%).

This has allowed many exporters to attain average prices in Canada that are well above their global averages, although direct comparisons are difficult. This is because Canada tends to import higher quality wines than many other markets and suppliers have to deal with state-run provincial retail monopolies that can require them to pay part of the marketing costs for their brands. Although the Canadian market is expected to remain attractive, it may lose some of its shine as provincial governments look to provincial liquor monopolies to help cut their budget deficits.

Ontario, for example, has a CAD 15 billion deficit and as part of its deficit reduction plan, the Ministry of Finance has suggested that the Liquor Control Board of Ontario (LCBO), its retail monopoly, should "use its purchasing power more effectively and improve its markup structure for setting retail prices". This would lead to a squeeze on margins for importers and if it is effective in cutting costs, it will likely be replicated in other provinces. However, the effects of such a move could be offset if the provinces look to improve revenues by expanding the amount of shops they have, which would help to boost sales.

"On the whole, the Canadian market appears poised for continued growth in wine consumption, both in volume and value," said Stephen Rannekleiv, Executive Director, Food and Agribusiness Research & Advisory at Rabobank. "However, while growth is likely to continue, suppliers may soon begin to feel greater margin squeeze as global suppliers continue to look to the Canadian market in search of greener pastures and provincial monopolies are likely to apply greater pricing pressure."

Rabobank is a global financial services leader providing wholesale and retail banking for the food and agricultural industry, asset and investment management, leasing, real estate services, and renewable energy project financing. Founded over a century ago, Rabobank today is one of the largest and safest banks in the world, with more than $850 billion in assets and operations in over 40 countries. In North America, Rabobank is a premier financial services provider to the corporate food, beverage, agriculture and agribusiness industries. www.Rabobank.com

SOURCE Rabobank