Wine Distribution How Online is Changing the Off-trade World

8/12/2019 Wine Distribution How Online is Changing the Off-trade World

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WINE DISTRIBUTION: HOW ONLINE IS CHANGING THEOFF-TRADE WORLD

August 2011


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INTRODUCTION

CURRENT MARKET TRENDS IN WINEDISTRIBUTION

CROSS CHANNEL SHIFTS: NEW RETAIL

STRATEGIES

OPPORTUNITIES ACROSS THE PRICESPECTRUM

ONWARDS AND OUTWARDS: FUTURE

PROSPECTS FOR ONLINE WINE SALES


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Euromonitor International PASSPORT 3ALCOHOLIC DRINKS: WINE DISTRIBUTION

Disclaimer

Much of the information in thisbriefing is of a statistical nature and,while every attempt has been madeto ensure accuracy and reliability,Euromonitor International cannot beheld responsible for omissions orerrors.

Figures in tables and analyses arecalculated from unrounded data andmay not sum. Analyses found in thebriefings may not totally reflect thecompanies opinions, reader

discretion is advised.

In this global briefing

Euromonitor International analyses

the growth in wine sales via the

internet. Even though this channel

accounts for only 2% of global

wine sales, smaller wine producers

are using the internetand social

media in particularto push their

brands and connect withconsumers. Although todays

internet retailing of wine is limited

to only a few countries, emerging

markets are gradually becoming

more tech-savvy and are creating

new opportunities for online wine

sales.

ScopeINTRODUCTION

All values expressed in this report are in US dollar terms, using a fixed exchange

rate (2010). 2010 figures are based on part-year estimates.

All forecast data are expressed in constant terms: inflationary effects arediscounted. Conversely, all historical data are expressed in current terms:inflationary effects are taken into account.

Alcoholic Drinks - 239 billion litres

Wine27 billion

litres

Sparklingwine

Fortified wine

Non-grapewine

Still lightgrape wine

Beer187 billion

litres

Spirits20 billion

litres

RTDs/high-strength premixes

4 billion litres

Cider/perry2 billion

litres
http://www.euromonitor.com/http://www.euromonitor.com/http://www.euromonitor.com/http://www.euromonitor.com/


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INTRODUCTION

Key findings

Internet retailinggrows by 90% over2005-2010

Internet retailing was the most dynamic channel in wine distribution between 2005and 2010, benefiting from consumers quest for value and convenience.

Internet retailing stillvery small

Although dynamic, internet retailing accounts for only 2% of global wine sales.Supermarkets/hypermarkets dominate with almost half of off-trade wine sales.

Wine particularlystrong in alcoholicdrinks online sales

Compared to the overall alcoholic drinks industry, the wine category isdisproportionately strong in global online alcohol sales. Only in cider/perry doesinternet retailing have a larger share of off-trade sales.

Online wine retailing

limited to a few keymarkets

The geographic reach of online wine retailing is currently very narrow. Three markets

dominate sales within the channel: the UK, Germany and France, with WesternEurope thus leading the way in terms of regions.

Grocery retailerslead the way

Over the past few years, major grocery retailers have gone online and wine saleshave gone with them. They have a strong focus on price, although this is graduallychanging with some moves upmarket.

Online retailing offersopportunities forspecialist retailersand mail ordercompanies

As online retailing is a cost-effective channel, it offers opportunities for specialists,mail order companies and smaller producers which are trying to compete with themajor grocery retailers. They cannot compete on price with big grocery retailers, buthave the advantage of being able to offer expert advice, as they focus solely on wine.

Substantial futureopportunities foronline wine retailing

With more people going online in the future, there are more opportunities for onlinewine retailing across different price points and for different formats, from largeretailers to niche brands across developed and emerging markets. Social networkingsites offer an opportunity for word-of-mouth recommendations, either throughgeneral networks, such as Facebook or Twitter, or more specialist wine forums.


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INTRODUCTION



STRATEGIES





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Internet retailing was the most dynamic channel between 2005 and 2010, benefiting from consumers quest

for value and convenience. However, this growth was from a low base, with internet retailing representing only 2% of overall wine off-trade volume sales.

By contrast, the supermarkets/hypermarkets channel accounted for 47% of off-trade volume in 2010,highlighting the importance of store-based retailing compared to non-store.

Current market trends in online wine distributionCURRENT MARKET TRENDS IN WINE DISTRIBUTION

-20

0

20

40

60

80

100

0123456789

10

Supermarkets/hypermarkets

Independent smallgrocers

Drinks specialists Other store-basedretailers

Homeshopping Internet retailing Other non-storeretailers

%o

ff-tra

degrow

th2005/2010

Off-tra

devo

lume

(billion

litres

)Wine Off-trade Distribution 2010

Volume sales 2010 Growth 2005-10

90%

Growth in global off-trade wine sales byvolume generated via internet retailingbetween 2005 and 2010

2%

Share of internet retailing in global off-tradewine


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The quest for value is evident when looking at the most dynamic channels within off-trade alcoholic drinks.

Supermarkets/hypermarkets, discounters and internet retailing performed well over 2005-2010 asconsumers sought out bargains.

As with wine, internet retailing within alcoholic drinks showed the most dynamic performance between2005-2010, but from a low base.

As tech-savvy millennials are increasingly replacing baby boomers as the industrys focal target group,internet retailing will become key for the strategic planning of major producers, as well as smaller, less wellresourced but more innovative companies.

Gathering momentum and demonstrating remarkable resilience even in the midst of the economicdownturn, the internets potential is also leading to dramatic developments in marketing, promotion andadvertising.

However, supermarkets/hypermarkets, small grocery retailers and food/drink/tobacco specialists retaintheir dominance in retailing.

Supermarkets/hypermarkets lead but internet most dynamicCURRENT MARKET TRENDS IN WINE DISTRIBUTION

-20-10

01020

30

4050

60

0

10

20

30

40

50

60

Supermarkets/hypermarkets

Independent smallgrocers

Drinks specialists Discounters Homeshopping Internet retailing

%o

ff-tra

degrow

th

2005/2

010

Off-tra

devo

lume

(billionli

tres

)

Alcoholic Drinks Off-trade Distribution 2010

Volume sales 2010 Growth 2005-10


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0 25 50 75 100 125 150 175 200 225

Australasia

Western Europe

Eastern Europe

Latin America

Middle East and Africa

North America

Asia-Pacific

Million litres

Off-trade Wine Internet Retailing by Volume 2010

Although internet retailing has seen strong growth, its geographic reach is largely restricted to three

marketsthe UK, Germany and Francewith Western Europe thus being the dominant region. One of the reasons why internet retailing is bigger in Western Europe is due to the aggression with whichgrocery retailers have gone online over the past years.

North America is the second largest region for online wine sales, but sales are hampered by the state-by-state legislation in the US which restricts the opportunities for internet retailing.

There are clear differences between UK and US internet retailing in terms of the type of retailers which sellwine online, with the bulk in the UK being grocery retailers, whereas in the US specialist retailers lead.

There are so many laws and restrictions in the US that differ from state to state that a large grocery retailerwould have problems implementing a nationwide system for online retailing.

Online wine retailing currently limited to a few key marketsCURRENT MARKET TRENDS IN WINE DISTRIBUTION


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PASSPORT 9

Total online retail sales in the EU reachedUS$104 billion in 2010similar in size to the

US.

CASE STUDY: EU internet retailingCURRENT MARKET TRENDS IN WINE DISTRIBUTION


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PASSPORT 10

CASE STUDY: EU internet retailing

Internet retailing in the 27 EU membersposted a 21% CAGR over the 2005-2010period, slightly ahead of global growth, and isexpected to post an 11% CAGR over the nextfive years, slightly lower than the globalaverage.

While harmonisation and the single market

have been at the heart of EU growth over theyears, the same cannot be said of internetretailing, at least not yet.

There still exist a number of barriers whichare limiting the uniform development of onlinesales throughout the EU.

A recent study by Eurostat found that only9% of consumers ordered goods or servicesfrom another EU country, compared to 36%ordering from domestic markets in 2010.

Cross-border trade is growing at a muchslower pace than overall internet retail due toa number of constraints.

EU: A fragmented internet marketCURRENT MARKET TRENDS IN WINE DISTRIBUTION

20-35%

10-20%

5-10%

0-5%

0%

% of Western Europes Online Wine Sales by Market


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PASSPORT 11


In addition to the 23 official languages in the EU, consumers engaging in internet shopping frombusinesses based abroad need to consider different rates of VAT and other taxes which might beapplicable.

Payment options also vary widely. While credit and debit cards are widely used in the UK, Germanconsumers prefer to use bank transfers or the post office, and payment on delivery is a popular methodwithin Eastern European markets.

Deliverymore specifically lack of suitable delivery optionsis one of the biggest obstacles to EU-wide

internet retail. At present there is no unified approach, with each retailer offering different options andprices.

The European Commission has drafted plans to make delivery to any part within the EU mandatory.

Industry associations are worried that this and other provisions within EU Directives will increase the cost ofdoing business.

On the other hand, clear rules and costs to the consumer could increase cross-border trade, particularlywithin the smaller EU markets which might not be tempting enough for retailers from other EU countries to

establish a presence. Increased cross-border online sales could have the spill-over effect of increasingcompetition in local markets and for local retailers.

EU: Payment and delivery challengesCURRENT MARKET TRENDS IN WINE DISTRIBUTION


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PASSPORT 12


EUpayment and delivery challengesCURRENT MARKET TRENDS IN WINE DISTRIBUTION

0 2 4 6 8

Denmark

Switzerland

Portugal

Austria

Belgium

Sweden

United Kingdom

Turkey

Norway

Germany

France

Netherlands

Spain

Greece

Italy

US$000

Average Spend per Card WesternEurope 2010

0.0 0.2 0.4 0.6 0.8 1.0

Norway

UK

Turkey

Greece

Switzerland

Sweden

Portugal

Spain

Netherlands

Italy

Denmark

Austria

France

Germany

Belgium

Number of cards

Personal Credit Cards per Capita inWestern Europe 2010


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PASSPORT 13


Growth and development in internet saleswithin the individual EU markets remainsdisparate, with the northern and westernEuropean markets achieving the highestpenetration of online sales, while thesouthern and eastern European marketshave much lower penetrations.

At one end of the spectrum is the UK,with a significant US$580 per capitaspend, while at the other is Bulgaria, with

just US$5. Northern European marketsare seeing faster adoption of the internet,with Germany lagging slightly at the lowerend of the spectrum compared to itsnorthern peers.

EU internet retailing: The north/south divideCURRENT MARKET TRENDS IN WINE DISTRIBUTION

0 100 200 300 400 500 600

UKDenmark

FinlandFrance

LuxembourgSweden

NetherlandsGermanyBelgiumIreland

AustriaMaltaSpain

CyprusGreece

PortugalItaly

Czech RepSlovenia

PolandHungarySlovakia

LithuaniaLatvia

EstoniaRomaniaBulgaria

US$ per capita

EU Internet Retailing per Capita 2010

UK

Malta

Czech Rep

Bulgaria

Note: East/West division based on Euromonitor International geographic groupings

Northwest

Southwest

Northeast

Southeast


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PASSPORT 14


While the variation between markets is partly due to different purchasing power (which remains mostevident between the eastern and western EU members) this does not account for all variations.

Household PC ownership and penetration of faster ADSL (broadband) internet is higher within the northernand western markets. In addition, southern consumers still seem to have a greater preference for traditionalretail methods than their northern counterparts.

However, with lower prices available online, it is expected that consumers who are still reluctant to use theinternet to shop will be more tempted to move online.

The proliferation of member-only websites in Spain, for example, shows how consumers are embracingdeals online.

Technology at playCURRENT MARKET TRENDS IN WINE DISTRIBUTION

-

5

10

15

20

25

30

35

40

0

10

20

30

40

50

60

70

80

Germany UK France Italy Spain Netherlands Sweden Poland Austria Belgium

M

illion

PCs

PC Ownership in EU countries 2010/2015

2010 2010/2015 % growth

%g

row

th2010/2015

Note: chart only includes EU countries with a PC ownership of 5 million or above


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Wine category punches above its weight in online alcohol salesCURRENT MARKET TRENDS IN WINE DISTRIBUTION

Wine sales strongest inWestern Europe

Grocery retailing, drivingonline wine sales,

strongest in Western

Europe

Result: wine categorydisproportionately

strong in global onlinealcohol sales

...but this suggests thatthe majority of onlinewine sales by volume

are mass-market brands

0

10

20

30

40

50

60

70

80

90

100

All off-trade distribution (156 billion litres) Via internet retailing (0.9 billion litres)

%v

olume

Off-trade Distribution vs Internet Retailing by

Category 2010

Wine Spirits RTDs/high-strength premixes Cider/perry Beer


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INTRODUCTION



STRATEGIES





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Online food and drinks sales are still at a very early stage ofdevelopment, with overall sales of US$22 billion or just 7% of total internetretailing. Within packaged food, the internet retail share is even smaller,at less than 1% in 2010.

The UK is the most mature market for food and drinks sales online,enjoying both the highest per capita spend and the largest overall sales,of US$5.5 billion. The UK market has been largely driven by strong onlinecommitment from leading grocery retailers, which have invested in thecategory over the years. With the help of the store pick-up and homedelivery model, grocery internet retailers have succeeded in reaching themajority of UKs population.

The remaining developed markets still have relatively underdevelopedonline grocery sales, as retailers are more cautious about investing ininternet retailing capabilities, in particular for perishable food items.

Different shopping habits make online shopping for groceries less popularin other markets, in particular in countries where grocery shopping isbased around smaller but more frequent trips to local grocery stores orsupermarkets. However, the market size reached in the UK illustrates thatthere is significant growth potential in other markets, particularly in thosewhere consumers typically make one or two big shopping trips a month tothe supermarket. Rising petrol costs are likely to drive consumers online.Major grocery retailers are already starting to enter the channel and totrial different delivery methods.

Early stages of food and drink internet retailingCROSS CHANNEL SHIFTS: NEW RETAIL STRATEGIES

0

10

20

30

40

50

60

70

80

90

100

2007 2008 2009 2010

US$percap

ita,

exc

lVAT

,fixe

dexc

hange

Food and Drink Internet

Retailing 2007-2010

US France

Germany UK


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Over the past few years, major grocery retailers have goneonline. In the UK, Tesco is the largest retailer overall andalso the largest internet retailer, offering both grocery andnon-grocery products. It benefits from a dense and well-developed store network that supports the development ofinternet retailing through store pick-up. Tescos stronginternet offer has allowed it to increase its reach both forgrocery and for non-grocery products.

Other major grocery retailers have equally ambitious

growth plans. Three of the top four UK grocery retailers (JSainsbury, Tesco and Asda) have already established anonline presence; however, Sainsbury and Asdas reach isconfined mostly to grocery products.

In the US, Royal Ahold and Wal-Mart are the key players,together with pure online player FreshDirect.

Royal Ahold is currently operational in 11 eastern statesthrough peapod.com. Wal-Mart has a strong share ininternet retailing due to the popularity of its in-storecollection service. In late 2010, it added a same-daycollection service on orders taken before 18.00hrs forconsumer electronics and video games in selected cities.This test launch demonstrates its confidence in itsoperational efficiency.

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

Tesco Plc J Sainsbury

Plc

Ocado Group

Plc

Wal-Mart

Stores Inc

US$m

illion,

exc

lVAT

UKInternet Retailing

2007 2008 2009 2010

Grocery retailers set the trendCROSS CHANNEL SHIFTS: NEW RETAIL STRATEGIES

0

400

800

1,200

1,600

2,000

2,400

2,800

Wal-Mart Stores Inc Royal Ahold NV

US$mil

lion

RSPexc

lsa

les

tax

USInternet Retailing


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Grocery chains go online, and wine sales go with themCROSS CHANNEL SHIFTS: NEW RETAIL STRATEGIES

Focus on price is a strong feature of the

online grocery offersales volumes mustbe high to make it pay

Some moves upmarket, eg Tescos Wineby the Case

47% of global wine sales go through

supermarkets and hypermarkets ...but online grocery retailing is stillunknown in many markets

The logistics of online grocery havebeen challenging, even in the US andEurope

...but more and more chains areentering the channel, and if allsupermarkets and hypermarkets hadonline shops internet retailing would beeven bigger

Masspositioning

Globalreach

Globalpotential?


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Specialists are the second largest channel for wine distributionglobally, after supermarkets/hypermarkets. A mixed offering andpersonalised customer assistance have historically been thechannels strong points. The relevance of these points to wine,

especially at the higher end, make specialists a popular channelfor many consumers.

Certain markets only or mainly rely on specialist retailers for theirwine sales, due to legislation. For example, in Canada, mostprovinces operate through government-controlled channels. Each

province has a government-owned liquor board which purchasesalcohol from manufacturers and sells it through its own outlets anddistribution network to the public and to licensed establishments.

Finland, Sweden and Norway share similar regulatoryframeworks, structured around a rigid % abv barrier that is inplace in order to curb excess drinking and to moderateconsumption. The barrier is 4.7% abv for Finland, 3.5% abv forSweden and 4.75% abv for Norway, with state-owned specialists

controlling all sales of alcoholic drinks above this limit, resulting inalmost all wine being sold through this channel.

However, there are many markets with no legislative barriersimpacting sales of wine through a specific channel, and in thesemarkets consumers purchase wine through specialists out ofchoice.

Countries with Highest Share of WineSales Through Specialists 2010

% sales of wine

Pakistan 100.0

Algeria 100.0

Egypt 100.0

UAE 100.0

Sweden 100.0

Finland 99.7

Norway 99.2

India 98.7

Uzbekistan 95.0

Australia 95.0

Canada 88.2

Cameroon 75.2

Taiwan 62.5

Peru 62.4

Specialists offer product mix and product expertiseCROSS CHANNEL SHIFTS: NEW RETAIL STRATEGIES


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Specialists face mounting competition fromsupermarkets/hypermarkets and discounters. Competitive

prices based on economies of scale and steadily expandingportfolios are the key means used by these alternativechannels to challenge the position of specialists in marketswhere they dominate.

On the other hand, the markets where specialists have sofar failed to capture a big share of distribution hold thegreatest potential, since this operating model remainsuntarnished by maturity concerns and an out-dated image.Within these markets, specialists tend to focus on niche,affluent audiences and are expanding their penetrationrates on the back of Westernisation (since in many casesthese are emerging markets), and a more personalisedshopping experience.

The difficult competitive environment is forcing winespecialists online, and this provides them with significantopportunities.

Majestic Wine, in the UK, is an example of a specialist

which is increasing its focus on internet sales and newmedia. According to company results, in 2010 its onlinesales continued to show good growth and were up by 9.6%on the previous year. It is using social media to interact withits customers, and it has launched an online tasting counterwhich is a live representation of what is available to taste inany particular store.

Specialists ascend

Specialists descend

Novelty of format translates into afresh, progressive, modern positioning.

Specialists are expected to continueposting gains, moving in parallel withthe advancing alcoholic drinksconsumption culture in their respectivemarkets, as well as an increasingly

sophisticated distribution environment.

High distribution share but often anout-dated, conservative positioning.

Specialists are expected to continue

losing share as long as they fail toadapt to the evolving operatingenvironment, diversify their offeringsand expand their range of products toinclude mid and lower end varietals.

Maturity breeds declines, niche share spells future gainsCROSS CHANNEL SHIFTS: NEW RETAIL STRATEGIES


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Difficult competitive environment forces wine specialists onlineCROSS CHANNEL SHIFTS: NEW RETAIL STRATEGIES

Specialist channels wide range ofpositionings means a move online is notan obvious step for all

Mid/upper-market specialists offeringadvice or unusual ranges are themost likely entrants

As more grocery chains go online, mid-

market specialists in particular will beforced to follow

Smaller chains/ independents couldstruggle to achieve the scale for globalsales

Widepositioning

Globalreach

Globalpotential?


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Mail order is popular in markets suchas Germany, France and the UK.

In the UK, Direct Wines is a keyplayer, owning companies likeLaithwaites, Virgin Wines, TheSunday Times Wine Club and others.

Mail order companies are increasinglyalso selling wines online, which is amore cost efficient channel in which tooperate, and gives consumers theoption of a 24-hour shop.

Although major mail order companiesare moving into the online world andseeing growth prospects within it,there will always remain opportunitiesfor mail order, as the demographic forthis channel is different. It depends onthe age group, and not all consumerswill go online. Opportunities for mailorder lie especially with an ageingpopulation in many mature winemarkets. Some consumers also likethe human contact mail order canoffer them.

Mail order clubs explore new non-store potentialCROSS CHANNEL SHIFTS: NEW RETAIL STRATEGIES

Mid /upper

positioning

Globalreach

Globalpotential?

Upmarket image (but often mid-

market stock) Differentiation is a risingchallenge as more wineproviders move online

Current market almostentirely dependent onWestern Europe

Reach has been limitedby reliance on printcatalogues and alsopersonal interaction withcustomers (languagelimitations)

Reliant on a older demographic

(shrinking) in core markets, butpotential in emerging marketsperhaps combined with directselling format, where there isgrowing demand but limitedknowledge


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Different pricing creates different selling environmentsOPPORTUNITIES ACROSS THE PRICE SPECTRUM

Mass Wines

Key challenge:Lower profit marginsrequire large-scale

volumes

Key online formats:

Bulk sellers, eg groceryretailers, warehouse

clubs, larger specialistchains

Strongest USPs:Price, marketing

Standard/PremiumWines

Key challenge:Differentiation from rivalbrands and mass-market

offer

Strongest USPs:Back story, value-added

qualities, localism

Key online formats:Wine clubs, winespecialists, socialnetworking sites

Super-Premium/FineWines

Key challenge:Supporting premium

brand image

Key USPs:Brand image, exclusivity,

rarity, provenance

Key online formats:

Wine clubs, sommelierservices, super-

premium/fine winespecialists...or not online at

all?


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For mass-market wines, the online efforts of large store-based chains, such as grocery retailers andwarehouse clubs, continue to offer the most obvious potential for growth. Using 6- rather than 12-bottlecases is also making the by the case model accessible to a wider audience, and may benefit some lowerend brands, while the entry of lower end alcohol specialists, notably leading UK chain Bargain Booze, whichhave been slower to move online, should also boost growth.

The online market for mid- to higher-end wines and niche brands is likely to see the most movement overthe next few years. Moves by supermarket retailers to stock more higher priced wines and exclusives, theongoing shift of mail order wine clubs online and more specialist retailers launching their own websites willall develop the market, but the potential goes further than that.

As the market matures and customers begin to look at value as well as price, the ability of the internet toframe a products backstory is coming into its own. This helps retailers such as wine clubs and specialists tosell products at higher prices, but also, tapping into this, smaller brands are becoming increasingly aware oftheir ability to market their products for themselves, using websites, blogs and email newsletters, as well asbuilding a presence on social networking sites to differentiate themselves from competitors and to engageconsumers.

Marketplace-style sites can give smaller retailers a larger gateway to sell through. Some of these sites,such as Amazon.co.uk, which launched a grocery offer, including alcohol, in the UK in 2010, are very

hands off, but others are bidding to be an integral part of the winemaking process. Naked Wines, forexample, not only offers wines from small independent wineries, but also helps angel members invest inthe vineyards before the wine has actually been produced, while its marketplace allows winemakers to selldirectly to the public at a price of their choice. The companys holistic approach to online wine retailing

extends to consumers as well as winemakers, boosting peer-to-peer interaction through product reviews,chat forums and wine tasting events.

Opportunities exist across the price spectrumOPPORTUNITIES ACROSS THE PRICE SPECTRUM


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Grocery retailers are continuing to expand online and are looking outsidetheir home markets, as well as sharpening their product portfolios.

In many cases, grocery retailers are bulk sellers able to offer mass wines ata more affordable price point.

Now that an internet offer is a common, even expected, aspect of most retailbusiness models, larger retailers have had to work harder to differentiatetheir offer by providing new or exclusive brands and background information.

Large-scale online grocery making steps towards global expansionOPPORTUNITIES ACROSS THE PRICE SPECTRUM

UK: online success ofthe first movers is nowtempting other grocerychains online. Thechallenge now is tosharpen their wine offer

Poland:Auchanannounced a pilot onlineshopping service, whichwas launched in June

2011China:Sams Club

pioneering mass-marketonline supplies

France: retailersfocusing their onlineefforts on collect-at-storerather than delivery, suchas drive-through format

Auchan Drive

Australia:Coles extendsits click and collect

shopping offer to includecollection from some ofits 600+ fuel stations


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New opportunities for niche and upmarket brandsOPPORTUNITIES ACROSS THE PRICE SPECTRUM

Niche,

upmarket

and premium

brands

Aggregator sites are gaining scale

and are a good option for smallerwineries from a cost point of view, asthese sites enable them to reach a wideaudience with minimal overheads.

Online members shopping clubs,

which generally feature heavydiscounts for a limited time period, are

a well-established route to market forproducts such as fashion andhomewares. Now sites such asSommelierCellar.com are extendingthis model to the wine category, withthe added attraction that the winessold have been personally chosen bysome of the UKs top wine experts.

Amazon could be big, but the jury isstill out on this. It offers opportunitiesfor small wineries, as it provides securepayments, and minimal investment witha maximum return,


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0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2005 2010 2015 2020

%s

hare

Half of All Internet Users Will Be in Asia Pacificby 2020

Western Europe

North America

Middle East and Africa

Latin America

Eastern Europe

Australasia

Asia-Pacific

Internet continues to reshape the worldONWARDS AND OUTWARDS: FUTURE PROSPECTS FOR ONLINE WINE SALES

0

500

1,000

1,500

2,000

2005 2010 2015 2020

Million

More Than 40% of the Worlds PopulationWill Be on the Internet in 2020

Internet users Internet subscribers

General internet penetration will increasesignificantly. By 2020, 40% of the global populationis expected to be online, reducing the digital dividebetween developed and emerging markets.

The biggest growth will be in Asia-Pacific. Forexample, China is expected to have 700 milliononline users, compared to 280 million in the US.

Higher numbers of online users will help increaseoverall growth in internet retailing over the forecastperiod, especially within emerging markets.


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Globally, internet retailing is expected to post a 13%CAGR between 2010 and 2015, which is far morethan dynamic than the 3% total volume CAGR globalwine sales are expected to see over the sameperiod.

Grocery and non-grocery store-based retailers willpost CAGRs of just 2-3% over the same period.

Internet retailing will be the fastest growing channel,outpacing other non-store channels.

Within the top 10 fastest growth markets, China willlead in both CAGR and actual increase terms, onthe back of a rapid increase in its online populationand the uptake of the internet not only for searchingfor better prices but also for shopping.

Top 10 Fastest Growing Internet Markets

Country % CAGR2010-2015

Absolute valuegrowth US$ million2010/2015

China 41.8 54,322Mexico 29.9 2,503Serbia 25.6 67Indonesia 22.0 18India 21.1 1,135

Hungary 18.1 534Portugal 17.8 525Argentina 17.7 1,153

Czech Republic 16.9 1,445

Brazil 16.6 9,462

Internet retailings strong growth to continueONWARDS AND OUTWARDS: FUTURE PROSPECTS FOR ONLINE WINE SALES

Grocery retailers

Non-grocery retailers

Internet retailing

Direct sellingHomeshopping

Vending

Global Channel Performance % CAGR 2010-2015


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Within new retail channels, it is m-commerce and, even more importantly, mobile phone apps that offer thegreatest potential. In stores, they give consumers instant access to product information, reviews andspecial offers, while, away from stores, they can transform liking a product into buying it at the click of abutton.

Instead of on-trade sales competing with off-trade sales, they stand to complement each other, and productmarketing campaigns should begin to take this into account.

Smartphones and social networking offer fresh potentialONWARDS AND OUTWARDS: FUTURE PROSPECTS FOR ONLINE WINE SALES

QR: Store-to-weboptions

Apps: Recommendations and foodmatching advice, any time,anywhere

Direct vineyard-to-consumercommunication and brand building

Apps: Reviews anddiscussions

Apps: Finding wines...and thebest prices


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Emerging healthcareconcerns Marketing

opportunity topromote wineover competingproducts such

as spirits andbeer

Healthbenefits ofanti-oxidants

Nicheopportunitiespossible forproducts such aslower ABV winesvia online sales

Emerging spendingpower Rising interest

in traditional[grape] wine

Producteducation:Information onwebsites;guided choicesvia wineclubs/directsales

Risingdisposableincomes

feeding intostrongpremiumisationtrend

New trends for online to tap into in emerging marketsONWARDS AND OUTWARDS: FUTURE PROSPECTS FOR ONLINE WINE SALES


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Consumers need to have access to the internetand, increasingly, via

a broadband connection, in order to shop online. Cash-on-delivery is a common payment option for online orders in some

markets, but payment cards are particularly useful for online alcoholsales as they can provide proof of age.

Phase one:the basicrequirements

Even with the basic requirements in place, most consumers need areason to change their established shopping habits.

Convenience and low prices are key factors, but the recent recession

also saw elements such as at-home consumption patterns and theability to control impulse spending come into play.

Phase two:driving change in

shopping habits

As online wine sales become more common, both retailers and brandsneed to finesse and develop their offer, for example by introducingexclusive brands, in order to differentiate themselves from competitors.

Social networking offers a valuable way to connect to consumers,particularly as consumers themselves seek out advice andrecommendations in order to choose from the mass of wines available.

Phase three:finessing the offer

As the market for online wine becomes more sophisticated, value-addedproducts such as organic wines could see a rise in demand.

The biggest development is going to be the rise of smartphones, whichcan blur the division between on-trade and off-trade sales and may wellbecome the most common form of internet access in emerging markets.

Phase four:future

development

Online wine retailing: The development cycleONWARDS AND OUTWARDS: FUTURE PROSPECTS FOR ONLINE WINE SALES


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Internetpenetration

Choice/exclusivebrands

Value formoney/pricepromotions

Homeconsumption

Convenience

Productbackground/provenance

Socialnetworking

Smartphonepenetration

Value-addedproducts

Online wine retailing: Changing driversONWARDS AND OUTWARDS: FUTURE PROSPECTS FOR ONLINE WINE SALES

Early market driversMature market drivers

Paymentoptions

87%

Forecast valuegrowth for all

internet retailingbetween

2010-2015


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Wine

This is the aggregation of still and sparkling lightgrape wines, fortified wine and vermouth and non-grape wine. In terms of alcohol content, light wineusually falls into the 8-14% abv bracket, whilefortified wine ranges from 14-23% abv. For thisstudy, low- and non-alcohol wine is also included inthe data (attributed to each category asappropriate).

Fortified Wine and Vermouth

Fortified wineswines treated by the addition ofbrandy or alcohol, such as port, marsala andsherry. These products include Muscat (France)and Tio Pepe. Vermouthany of several winescontaining aromatic herbs and some otherflavourings.

Non-Grape Wine

These wines can be made from a variety of otherproducts, including cereals, as well as from a wide

variety of fruit flavours, eg plum, apple, etc. One ofthe most common types is rice wine (such as sake)which is widely consumed in many Asian countries.

.

Other Sparkling WineA sparkling wine (white, ros or red) not produced

in the Champagne area. Examples include Sekt inGermany, cava in Spain, spumanti and lambruscoin Italy and many varieties from Australia and theUS. Also included is semi-sparkling wine thatcontain no more than 2.5 atmospheres of carbondioxide. The carbon dioxide may be endogenousthrough secondary fermentation or through gasinjection. Semi-sparkling wines are referred tolocally as vino de aguja (Spain), agulha (Portugal),

ptillant (France), perlwein (Germany) andfrizzante (Italy).

Champagne

A sparkling wine (white or ros) produced in theChampagne area (around Reims and Epernay inFrance). Only products made in this area can becalled champagne.

Still Light Grape Wine

Still light grape wine is the total sum of still red,white and ros wine. Light wine is so calledbecause of its alcohol content, which usually fallsinto the 8-14% abv bracket and thus excludesfortified wine. Semi-sparkling wines are includedhere. These are sparkling wines that contain nomore than 2.5 atmospheres of carbon dioxide.

Product definitionsREPORT DEFINITIONS


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Retailing coverage: Grocery retailers, non-grocery retailers and non-store retailing.

Non-store retailingretail sales of new and used goods to the general public for personal or householdconsumption from locations other than retail outlets or market stalls.

For the purposes of this study, non-store retailing is the aggregation of vending, direct selling,homeshopping and internet retailing.

Internet retailingsales of consumer goods to the general public via the internet. Consumerspurchase goods online through the web platform.

Sales data are attributed to the country where the consumer is based, rather than where the retailer isbased.

Also includes orders placed through the web for which payment is then made using a store card or anonline credit account subsequent to delivery or on delivery of the product. This payment may be byany mode, including postal cheque, direct debit, standing order or other banking tools.

Includes mobile retailing (m-commerce), whereby consumers use wireless devices, such as a mobilephone, PDA or smartphone to connect to the internet and purchase the goods online.

Internet retailing excludes sales of: (a) products using consumer-to-consumer sales sites, such aseBay. All sales over such sites are excluded, even if they were generated by companies operatingthrough the site; (b) sales of motor vehicles, motorcycles and vehicle parts; (c) tickets for events(sports, music concerts, etc) and travel; (d) sales of holidays; (e) revenue generated by onlinegambling sites; (f) quick delivery services of food, magazines, household goods and DVD rentals, forexample: MaxDelivery.com, LicketyShip.com, Netflix.com, LoveFilm; and (g) returned products/unpaidinvoices.

Channel definitionsREPORT DEFINITIONS


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Wine Distribution How Online is Changing the Off-trade World

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