Although wine consumption grew more than beer consumption in 2016, the economic outlook and ongoing pressure on consumer income growth may undermine further premiumisation in the local liquor market over the short term.
These are one of the findings outlined in the July 2017 issue of the South African Wine Quarterly, a combined publication of the South African Wine Industry Information & Systems NPC (SAWIS) and Bureau for Economic Research (BER).
According to the report, which covers the liquor consumption patterns of South Africa, Botswana, Lesotho, Namibia and Swaziland in 2016, the total volume of alcoholic beverage consumption increased by 1.1% to reach 4 160 million litres in 2016. This growth rate was slightly higher compared with the 0.6% rate achieved in 2015.
The good news for wine producers is that wine consumption expanded at the fastest rate (2.8%), followed by spirits (2.0%) and beer (1.5%). It must be noted however that the beer consumption figure applies only to South Africa.
The report compares aspects such as volume and price trends/price inflation, consumer preference and excise duties. International comparisons are also drawn but some statistics only apply to 2015.
General volume trends
At 76% of total litres alcoholic beverage consumed in 2016, beer remains by far the most popular alcoholic beverage in SA and internationally where it stands at 75%. Alcohol consumption per adult (defined as a person aged 15 or older) has been more or less stable over the past decade and in 2016 the average adult consumed 76 litres beer, 10.5 litres wine, 10.3 litres ready-to-drink alcohol (RTDs) and 2.9 litres spirits. Two decades ago, the total litres annual alcoholic beverage consumption was 15% higher.
South Africa still consumes less beer per capita than Mexico, Australia and traditional beer-drinking countries such as Germany, Romania and Ireland.
South African wine drinkers compare well (1.25 litres per capita in absolute alcohol terms) with Russia (1.1 litres per capita), America (1.6 litres per capita) and Chile (1.9 litres per capita), but other wine-producing countries such as Spain (2.1 litres per capita), New Zealand
(3.1 litres per capita), Portugal (6.0 litres per capita) and France (6.4 litres per capita) consume way more wine per capita than South Africans.
The bad news for spirit producers is that South Africa’s spirit consumption per adult is lower than the global average.
South African consumers’ beverage preferences have changed little over the past 10 years. The only shifts worth mentioning are small substitutions from beer and spirits for wine and RTDs. Over the past year there was virtually no noticeable shift at all. In terms of pure alcohol content, beer still has the largest overall market share at 56%, followed by wine and spirits at 18% each and RTDs at 8%.
A good reason to switch to wine is that over the past decade increases in the retail price of wine fell far short of the increases beer and spirit producers passed on to consumers. While wine costs 49% more in 2017 than in 2010, beer costs 72% more and spirits 61% more. Since early this year however there has been a significant decline in beer inflation. The drop is most likely as a result of a price freeze strategy which AB InBev implemented after its takeover of SABMiller last year.
Excise duties are here to stay and this year was no different when the excise duty of 6% to 10% on alcoholic beverages was announced. The excise duty on still wine increased by 9.1%, RTDs and beer by 9% and spirits by 8.5%. All these increases were significantly above the inflation rate as measured by the consumer price index (CPI) and targeted (to range 3% to 6%) by the South African Reserve Bank. The duty on fortified wines was hiked by only 6%. The real duties on still wine are 20% higher than in 2009, and on beer 22%, while duties on spirits hiked the most over time.
The spirits market
Brandy’s share of spirits consumption has stabilised, while whisky remains the largest. Vodka and gin have managed to regain share.
The wine market
Wine consumption grew at a slower pace in 2016 compared with the 7.5% increase in 2015. However disposable income growth also halved over the same period.
Still wines grew by 3.3% compared with 8.9% for sparkling wines. Fortified wines contracted by 4% to their lowest level since 2006.
The sales volume for white wine declined by 3.1 million litres (-1.2%), as white sacrificed some market share in favour of red and rosé wine. An increase of 11.5% in the volume of red wine consumption was mainly responsible for the overall growth in still wine sales volumes, followed by further growth in rosé wine volumes (up by 12.3%).
The trend where cheaper wine is losing market share continued in 2016 – the sales volume of standard-price wine fell by 5.4% and perlé by 1.9%. However slower growth in sales volumes was visible across the price spectrum.
South African consumers (most notably female and urban-based) have been moving into the premium-wine market evidenced by the growth of sweet rosé and sweet red (mostly boxed) wines, which are alternatives to RTDs and beer. This might prove to be a gateway to further premiumisation over time with these consumers possibly evolving into even more sophisticated wine buyers.
The Western Cape and Gauteng remain the largest markets, but growth in rural provinces was high in 2015/2016.
In terms of packaging, bag-in-box wine is continuing to gain share (up 10% from 2015), while wine sold in Tetra Paks, although comparatively small by volume, increased by a whopping 16%. Wine sold in glass bottles and plastic containers declined slightly. In 2016 a total of 52.1 million litres red wine was sold in glass bottles, of which 58% was blends or other red varieties, 13% was Merlot, 11% was Cabernet Sauvignon and 9% was Pinotage and Shiraz each. With the exception of Merlot gaining slightly at the expense of Cabernet Sauvignon, there have been no significant changes in these numbers since 2009.
Of the 43.2 million litres white wine sold in glass bottles in 2016, 36% was blends or other white varieties, 31% was Sauvignon Blanc, 11% was Chenin Blanc, 10% was Chardonnay and 12% was semisweet white wine. Since 2009, Sauvignon Blanc sales have increased from 25% to 31% and Chenin Blanc and Chardonnay from 7% to 11% and 8% to
10% respectively. This shift into cultivar-specific white wine points to premiumisation in the market for bottled wine.
Although beer consumption represents more than three quarters of all global liquor consumption, it is on the decline with 1.8% to 185 billion litres consumed in 2016. This decline in consumption is led by China, Brazil and Russia. Older Chinese drinkers are moving to wine and over-40s drink more baiju, the national spirit. Most of the wine consumed in China is domestic wines which have about 60% market share, however the expectation is that China will show a 79% growth over the next three years with sparkling wine at the forefront of wine consumption.
Wine and spirits’ global market share remained stable, although the volume of alcoholic drinks consumed globally fell by 1.4% in 2016.
It seems the UK’s quality-over-quantity trend is leading to a reduction in volume of alcohol consumed. The less-is-more ethos is now alive and well among these consumers, with both alcohol moderation and avoidance at play. This drives the premiumisation trend which benefits among others craft gin and beer along with premium wine.
Europe remains the largest wine consumer in the world (60% of global sales) although wine consumption is likely to contract by 33.9 million cases by 2020. The predicted decline comes on the back of the continued premiumisation of wines in Europe. At the same time, driving laws have become stricter, resulting in lower but higher quality alcoholic beverage consumption, echoing the trend in the UK. Despite the drop in global beer consumption beer and cider are squeezing the European wine market.
Africa’s four top wine-consuming countries are South Africa, the DRC, Cameroon and Nigeria, with SA topping the list with sales of about 195 million US$ in 2016. l