Digging for Rhinegold

In volume terms German wines continue their decline in the UK, though rising value at the top-end of the market is providing a glimmer of hope, says Chris Orr

ON THE FACE OF IT, things don’t look very good for German wines in the UK. A quick glance at the most recently available figures for 2003 shows volumes are down again, market share dropped again and, even in the country’s strongest positioning, the white wine sector, percentage points are slowly but steadily being stripped away.

However, skim beneath the surface and there are some very positive signs that, while the country may not be winning the war, it is winning some crucial battles that could help it to achieve the desired long-term turnaround in fortunes that it so desperately craves.

From the strictly volume perspective, the slippery slide downwards appears to be continuing.  This year Germany saw a 0.8% drop in total volumes of light wine in the off-trade, falling from 9.4% to 8.6% (MAT May/June 03).

It was slightly less than the fall in volumes in the corresponding period in the previous year (MAT May/June 02) where the country saw its volume position eroded from 10.4% to 9.4%, but it was nevertheless worrying. Likewise, for the same period and category, value also fell, dropping from 6.5% to 5.7%.

The previous year the slip in value had been similar, falling from 7.2% to 6.5%.  To put this into context, however, competitors such as Italy, France and Spain have all suffered similarly over the last year as the onslaught of Australian gains continues.

The latter saw total volumes rise by 2.2% for the corresponding period, from 18.4% to 20.6% of the market, while France, Italy and Spain dropped 1.1% (down from 21.7%), 0.9% (down from 12.5%) and 0.4% (down from 7.7%) respectively.  In value terms, it’s a similar story.

Australia whacked an impressive 2.3% on its figures, hitting 24% of the market in value terms, overtaking the French, who dropped by one percentage point to 21%.  Likewise, Italy and Spain saw losses of 0.9% (down to 10.2%) and 0.3% (down to 7%) respectively.  In the on-trade, the news seems no better for Germany.

For total volumes of light wine, the country has seen a fall over the past year (MAT May/June 03) from 11.9% to 9.6% – a drop that beats even the French who, with 39.5% of the market, are in a considerably better position to weather such unfavourable figures.

This compares with Australia which rose from 12.6% to 14.2% and Italy, which saw a rise from 14.1% to 15.7%.  And it is a similar picture in terms of value.  Total value for the period (MAT May 2003) shows that Germany saw a 1.9% fall in value, while France saw a drop of 2.4%, down to 38.4%.

Though Spain managed to tread water and, in line with its volume rise, Italy saw a 1.7% increase.  All of which can make pretty depressing reading from a German perspective. However, a look at one crucial area of Germany’s performance shows evidence that, while it will never retain the volumes or position that it held in the UK market in the late 1970s or early 1980s, the Germans are managing to steer themselves in the right direction, ie profit.

Looking at Germany’s volume share of the market by price, there is a corresponding rise in the percentage of volume concentrated in the £4 to £5 sector of the market to the gradual fall in the under £3 sector.  It’s not massive by any means.

More than 60% of the country’s wines still fall into the latter category, but this has slowly fallen from 66.7% in 1999, to 62.4%.  And the £4 to £4.50 category has risen from 1.8% to 3.3%. Likewise, in the £4.50 to £5 bracket, there has been a small, but positive rise from 1.01% to 1.3%.

Not exactly cause to start popping the corks on bottles of Sekt just yet, but it does offer small nuggets of encouragement. 

Perhaps more encouraging is a look at the export figures for Germany, which seem to tell a similar story. While total volumes are down significantly for the period between August 2002 and July 2003 compared to the same period the previous year, the value of exports is up significantly.

For the period to 2002 volumes of wine exported from the country hit 905,890,000 hectolitres, with value at €107,607,000 in total, hitting an average of €119 per hectolitre, whereas in 2003 volumes dropped to 877,042,000hl, but total value rose to €111,164,000 and to €127 per hl.

A similar boost in value can also be seen in the export figures for France, where the majority of German wines go to the Calais superstores and are sold to UK consumers. The French market saw the average price per hectolitre rise from €151 to €159.

This indicates, to some extent, that the German Wine Information Service’s claims that its aim is to concentrate its marketing and promotional initiatives on increasing the number of quality German wines sold in the UK, and the value of those sales, preferably in the £3.99 bracket and above, is beginning to bear fruit.

"For us," explains James Craig-Wood of the GWIS, "the key to success is to achieve the ultimate goal of raising the value of Germany wines."  He intimates that below the £3, and indeed even £3.99 threshold, brands can look after themselves and there is little the GWIS or, for that matter, any other generic can do to control that end of the market and the volumes associated with it.

The export figures suggest that the wine making it out of Germany to the UK is, indeed, seeing a rise in value, even if total value figures for sales off the shelves and in the UK’s on-trade have yet to catch up.

A crucial question is, does all this offer enough return on Germany’s investment? Also, is it proof that recovery for German wines is on its way? Is it a fair return for the many millions of pounds that the German Wine Information Service has spent in the UK over the last five years?

Does it validate all the consumer tastings, the listings intiatives and the marketing programmes that have been laboured over? Well, the obvious and most simplistic answer would be no.

You can’t escape the fact that overall volume, market share, and value is indeed falling and these are the key performance indicators on which the trade will judge Germany’s performance.

However, a more prosaic, and perhaps realistic interpretation would also attempt to look at what would have happened if Germany hadn’t spent the last five years investing in the UK market? If it had accepted the decline in the UK market with a fatalistic resignation.

Would Germany still be shipping almost one in every two bottles it exports to the UK? It seems very unlikely.  Craig-Wood perhaps sums up the challenge he and the GWIS face after five years of graft, and in the face of somewhat depressing trade figures, by posing the latter question in a slightly more inventive and illuminating way – "Have you ever tried to turn a supertanker around to face the opposite direction?"