The rising threat posed by imports is a frequent topic of discussion when I meet with California winegrowers. With the volume of domestic sales declining in several market segments (especially below $10 retail), it is natural to be suspicious of the impact of international competition.
Home Court Advantage
Imports account for about a quarter to a third of US wine sales, a proportion that been relatively steady for the last few years but is higher now than it was 25 years ago. Recent Nielsen data, for example, indicate that imports of still wine accounted for about 26% of sales in the channels they measure when calculated by value and 24% by volume. Imports take a larger proportion of sales in sparkling wines and in channels that the Nielsen figures do not measure, such as on-trade sales.
Is this a lot (or too much, as my winegrower friends would have it)? It depends on how you look at it. OIV data tell us that the United States accounted for about 8.5% of world wine production volume in 2018, so a two-thirds domestic market share is a very substantial “home court” advantage that domestic producers naturally want to defend.
The slowly rising import market share has many causes. The US is the world’s most attractive wine market, so foreign producers put a great deal of effort into cracking the market. Technology is also a factor. The advent of efficient bulk wine shipping has facilitated increased competitiveness of foreign wine producers and allowed domestic brands to efficiently add foreign wines to their portfolios. Some brands, such as Cupcake, have had great success by offering wines from around the world under a single brand umbrella.
A Fragmented Market
The intensity of import competition depends on which market segment you are looking at. The U.S. wine market is incredibly fragmented and so it is dangerous to generalize. This is true in many ways including simple geography. Because it is costly to get distribution in all 50 states, many medium and smaller foreign wine companies have learned that it is better for them to focus on a few local markets, say, New York, Florida, Texas, and Illinois, instead of attempting national distribution. These are among the states with the broadest and most intense import competition.
The tables shown above, which tell more of the story, are taken from the latest edition of Wine by Numbers, a publication of the Unione Italiana Vini that tracks international wine trade. They tell part of the story of 2018 imports in the U.S. market. Looking at bottled wine imports, for example, you can see that import penetration is dominated by three countries, but which three is different depending upon whether you look at the volume of imports or their value.
Globally the top three wine producing nations — France, Italy, and Spain — account for more than half of all wine production, so you would expect that to be true in terms of U.S. wine imports. But it is not, in part because Spain punches below its weight here.
Looking at the volume of bottled imports, Italy is far ahead in first place with more than a third of total wine imports. France is number two, powered by the rising Rosè market, while Australia is in third place ahead of Chile, Argentina and then finally Spain. Italy and France account for more than half of all bottled imports measured by volume.
The picture changes when you look at the value of imports. Italy and France are still the top two import sources, accounting for more than half of all import spending by themselves, but New Zealand rises to third place on the basis of its higher average bottle price — second only to France in the table.
A Tale of Two Wine Import Categories
Looking at the most recent Nielsen figures published in Wine Business Monthly, t is fascinating that wine imports, as measured by dollar value, are so influenced by two categories — New Zealand Sauvignon Blanc and French Rosè. Both categories have experienced rising sales at premium prices. Obviously sales of these wines come at the expense of U.S. products to a certain extent, but the market is not perfectly competitive here. Marlborough Sauvignon Blanc and French Rosè are powerful brands — differentiated products we saw in economics — that are difficult to challenge, which undoubtedly helps account for their premium prices.
Big in Bulk
Bulk wine imports tell a very different story. Chile, Australia, and New Zealand are the top bulk imports measured by volume in 2018. More Chilean and Australian wine is imported in bulk than in bottle according to these figures.
New Zealand’s higher average price means that it ranks #1 in bulk wine by value despite markedly smaller import value. About a third of all Kiwi wine imports arrive via bulk shipments.
Are imports a rising threat to U.S. producers? Yes, if I have to generalize, simply because all the important foreign wine producers I have talked with in the last few years are trying harder and harder to move their U.S. export needle. Their efforts have had and will have an impact. U.S. producers are wise to study their efforts and try to learn from them.
But, in practical terms, the actual surge in imports has been more narrow than broad — Marlborough Sauvignon Blanc and French Rosé. And there is something to learn from that, too. The most successful international competition has come at premium prices, with focus on quality, reputation, and product differentiation. Value not volume drives their success.