As the IWSR Compass model celebrates ten years of tracking the global wine market, we find ourselves with a decade’s worth of data reflecting wine’s evolution across diverse markets.
The Compass model, designed as a robust measurement tool, evaluates the relative attractiveness of global still and sparkling wine markets by leveraging extensive socio-economic indicators and wine market metrics. This method has allowed the wine industry to identify long-term trends and unexpected shifts, shaping strategic decisions for businesses around the world.
Over the past decade, the wine landscape has been transformed by macroeconomic forces, changing consumer behaviors, and evolving international regulations. Let’s explore some of these factors and the implications for wine markets worldwide.
Key Economic and Social Drivers Shaping the Wine Industry
1. High Inflation and its Enduring Impact
Over the past several years, inflation has reshaped the global alcohol and hospitality sectors. With inflation eroding household purchasing power, consumers have become more selective about their wine purchases, leaning toward quality over quantity or opting for more affordable options. As inflation levels out in some markets, its influence lingers, particularly in terms of altered spending habits and cautious consumption patterns. This economic pressure is set to continue influencing demand and preferences for wine.
2. Pandemic-Era Shifts in the On-Trade Sector
The effects of the pandemic on the on-trade sector have been profound. Even as other industries recover, the on-trade wine sector has faced challenges, particularly with high operating costs. Nightclubs have seen limited recovery, but the pandemic did pave the way for less formal, earlier drinking occasions, where wine has gained traction. This shift suggests a realignment in on-trade opportunities, with new potential in venues that encourage relaxed, social wine consumption.
3. Moderation Trends and Health-Conscious Consumers
Younger generations are increasingly embracing moderation, driven both by rising health awareness and economic constraints. Across many markets, wine consumption is decreasing, especially among younger, legal-drinking-age individuals who prioritize quality, lower alcohol levels, or non-alcoholic options. The social acceptance of moderate drinking is reshaping the market, reducing the stigma of abstaining and pushing demand for lower-alcohol and premium-quality wines.
4. Political and Regulatory Impacts on the Wine Market
Wine market dynamics have been notably influenced by tariffs and changes in alcohol duties. The new UK alcohol duty structure, introduced in August 2023, led several brands to reduce their wines’ ABV or launch mid-strength products. Additionally, the end of tariffs on Australian wine in China in March 2024 offers Australian producers renewed market access after a challenging period. Political developments like these underscore the need for agility in navigating international wine trade.
Wine Market Attractiveness Rankings: Key Insights
Based on the Compass model’s attractiveness rankings, several markets have demonstrated resilience, while others have faced setbacks. Here are some of the highlights:
United States: Leading but Evolving
The U.S. remains the largest market for still wine, though it is experiencing slight declines in wine volumes. The demand for premium-and-above price points in still wine has risen, with over a third of the country’s wine sales now within this premium segment. Forecasts suggest that, even with moderating wine volumes, premium wines will continue to dominate as consumers seek to drink "less but better."
Canada: Recovery and Premiumisation
The Canadian wine market, which saw a pandemic-driven dip, has rebounded to the number two position. Population growth and a steady economic recovery have contributed to this comeback. Premiumisation trends in Canada are now nearly on par with the U.S., supported by falling inflation and an improved economic climate.
Switzerland: A Stable Performer
Switzerland’s resilience is tied to its high GDP and low inflation, both of which make it a highly attractive market for wine. The Swiss market favors premium and imported wines, maintaining a high per capita wine consumption that has consistently bolstered its rank.
Scandinavian Markets: Quiet Resilience
Norway, Denmark, and Sweden have all climbed significantly in the rankings, even though wine consumption in these regions is gradually declining. Their relatively mild consumption declines compared to other mature European markets reflect a steady demand, especially for premium wines.
Western Europe: Inflation Dampening Demand
The economic pressures of inflation, combined with high living costs, have continued to challenge Western European markets. Both the UK and Germany have seen declines in attractiveness, as these markets struggle with issues like excise duty hikes, economic fallout from Brexit, and low levels of premiumisation.
Asia-Pacific Markets: Constrained by Economic Factors
Formerly ranked as the second most attractive market, South Korea has now fallen to eighth, as economic slowdowns, tighter budgets, and regulatory pressures impact wine consumption. Similarly, in Japan, the popularity of ready-to-drink (RTD) products provides fierce competition for the still wine market, signaling challenges for growth in the APAC region.
UAE: A New Entrant with Growing Opportunities
The UAE has emerged as a significant player in the top 10 for the first time, driven by its expanding tourism industry and rising wine consumption among Western expatriates. The on-trade sector is capitalizing on this trend, with a growing range of fine wine options contributing to the premium segment’s value growth.
Looking Forward: Key Projections for the Wine Market
As we look toward 2025, several emerging trends are poised to shape the wine industry:
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Ongoing Impact of Inflation and Cost-of-Living Increases: Inflation remains high in various markets, constraining consumer budgets. Although inflation is tapering off in Western markets, it is rising in some APAC countries, influencing purchasing behaviors.
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Continued Moderation among Younger Drinkers: As younger generations mature, their trend toward moderation is likely to persist. This shift creates opportunities for premium, lower-ABV, or non-alcoholic wine products as consumers opt for quality over quantity.
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Political Disruptions and Regulatory Changes: Future political changes, including the anticipated increase in UK alcohol duties in 2025 and potential impacts from the U.S. election, may add uncertainty to the market. Additionally, ongoing conflicts and tensions in regions like Ukraine and the Middle East are likely to influence international trade.
Navigating Market Dynamics with IWSR’s Compass Model
It is essential to remember that the Compass model is intended as a guide for a neutral investor, offering a snapshot of market attractiveness that can be adapted to individual strategic needs. Companies already active in certain regions or with specific routes to market may find greater or lesser opportunity depending on existing assets and relationships. Adjusting the model to reflect a business’s unique positioning will enable them to unlock the most promising opportunities in today’s ever-evolving global wine market.
Source: IWSR