Of the 20 global wine M&A deals tracked by Zenith Global, more than 40% were done in the U.S., Rabobank‘s lead beverage strategist, Steven Rannekleiv, notes in the latest Rabobank Wine Quarterly, which went out to clients yesterday (11/23). Typical was the sale of Chateau Ste. Michelle, Delicato Family Wines acquisition of the Francis Ford Coppola Winery and the sale of WX brands.
Rannekleiv and Stacie Wan, the lead beverage analyst at Rabobank, say they expect the U.S to remain the focus of most M&A activity, given the continuing trend toward premiumization.
Meanwhile, imports byChina, which has been the hope of the global wine market for most of the last century, are in a slump.
From a demand perspective, the volume of wine in China in 2020 was dramatically reduced compared to previous years, with wine imports for the first seven months of 2021 down 5.3% compared to the same period last year.
“The import slump can be attributed to several reasons. First, there was an overall slowdown in the pace of wine imports due to the recurring epidemic, disruptions in the global shipping market, severe shortages of containers, delays in shipping schedules, and rising shipping costs,” explains Stephen Rannekleiv, Global Strategist – Beverages at Rabobank. “Second, current policies have led to a plunge in Australian imports, and it will take time to fill this share.” In addition, a large number of Australian wines imported into the country are still in the restocking stage, and the market takes time to digest them.
But while the Chinese wine market has faced considerable challenges in recent years, the fundamentals for ongoing growth in the future remain strong. Younger consumers are still interested in wine, so Rabobank believes consumption should soon return to growth.
But “it is clear that the market will not return to the pre-pandemic status quo. The competitive positioning of suppliers in the market – both foreign and domestic – is being completely rearranged,” says Stacie Wan, Industry Analyst at Rabobank in China.
Australian wines, which had gained a dominant position among imported wines in recent years due to the free trade agreement, now face anti-dumping duties ranging from 117% to 218.4%, which directly resulted in an 88.6% drop in imports in the first seven months of 2021.
Following the tariffs imposed on Australian wines, wines from other countries have gained ground to varying degrees. French wine, as one of the biggest beneficiaries, has seen strong growth, both in value and volume. Chile is also on the rise with competitive advantages and is likely to gain further share to become China’s second-largest supplier of wine by 2025. Italy and Spain benefited from the drop in Australian imports as well, and are expected to further expand their share in the Chinese market.
“The assumption that France, Chile, and other countries have a long-term opportunity to gain market share in China is based on the current relations between China and Australia. The longer the anti-dumping duties remain in place, the harder it will be for Australia to reclaim all of its former share,” says Rannekleiv.
Production of domestic wine in the first seven months of 2021 saw a slight increase of 0.7% compared to the corresponding period of last year. Leading Chinese wine companies experienced strong revenue growth in the first half of 2021, he says. “Domestic wines are benefiting from Chinese wine consumers’ rising confidence in local products in terms of quality and brand itself,” concludes Wan.