Q&A on the German wine market with Owen Bird, wine consultant and international winemaker
Wine consultant and respected international winemaker, Owen Bird, who helps make wine in various countries including Italy, Australia, New Zealand and South Africa, shares his insights with Richard Siddle on the German wine market.
How would you describe the current state of the German wine market?
From the perspective of domestic production the current market conditions are buoyant. Demand has continued to outstrip supply. Value of sales (export and domestic) is up.
What is driving those changes?
Germany’s new generation of winemakers have travelled overseas and returned making changes to their styles, blends, and packaging. There is a lot less fear now in the country of breaking with tradition. For now many of these changes in the styles of wine and image and designs being used have only been seen in the domestic market. That’s a pity as there’s a lot of fun stuff in the market presently without any risk to the nobility of Riesling.
What are the dynamics of the domestic German wine market? From a sales perspective the market has certainly evolved, but it is not seeing the same level of waves of challenges that you are seeing in the likes of the UK, with news of the recent proposed Sainsbury’s-Asda merger, the impact of the discounters, debt ridden importers, and implosion of the casual dining sector.
This is not to say it is an easy market. Far from it, particularly from the entry point-of-view. The German market has to be seen in the light, or shadow, of the powerful discounters who are not sitting still. You also have the added factor in Germany that so many consumers have easy access to cellar door sales.
It is a generalisation but the HORECA sector, let’s say from decent pubs upward, have now less of a focus on overseas wines and have stopped being embarrassed about a list heavily weighted to German. Obviously, the Italian/Spanish restaurant scene remains focused on wines from their origin.
What demand is there then for imported wine?
The market in general terms for overseas wines is weighted towards Italian, Spanish, and French. There is no real big noise being made about rosé wines and the Prosecco factor has been around and served in hairdressing salons for 25 years or more.
There is not the same level of interest you are seeing in Scandinavia for over sugared “Appasimento” wine.
Whilst wines with origin are still important, there is a definite feeling that generic blends and varietals are starting to make more impact with people less concerned about a DOC that not even 1% of Italians have heard of.
Tetra and bag-in-box wines are still seen as inferior, but there is a greater tolerance now for screw cap, but it still suffers in Germany from a hangover from the days of Apfelwein. Screw cap is better accepted from New World wines, if not slowly expected.
What other trends are you seeing?
Organic is becoming increasingly more important. The success of organic themed supermarkets has forced the discounters and traditional supermarkets to develop organic ranges and that means an increase in focus on organic wine. There are people who will only buy organic in any case, but German shopper increasingly associate organic wine as being of good quality.
Germans also see glass as being environmentally friendly and easily deposited for recycling. I am not aware of any multiples setting targets on organic wines or glass weights. The free market is doing an effective job on its own.
What dynamics are seeing you in the supply chain and main routes to market?
Each sector of the market has what I would describe as a well established pattern of supply. That is, the discounters are responsible for taking the vast volume of wines imported in bulk and packed in Germany. The volumes are as frightening as the margins.
What’s changed considerably is the quality of the wine now available in bulk and packaged in market wines in Germany. There is also a customer demand for them. It has to be said that a lot of these wines outshine the more expensive options.
The discounters are also very active in looking to raise the image of their range with higher end wines by working with bigger, more established and well known wine producers and winemaking names.
What about the major supermarkets?
The non-discounter majors have adapted their strategies in recent years. They have realised it’s simply a war of attrition and is pointless to try and compete on price matching. It will see you thrashed like a ginger haired step-child. This is now a major sector for branded wine. Own brand is not playing a significant role as yet, instead what we are seeing is a push towards regionality.
This isn’t necessarily relevant to overseas producers, but it helps supermarkets connect more with their customer base and helps them to become a little less corporate.
The major supermarkets are also re-working their wine aisles to make them more open plan with a wider use of wood and wine bins so that the fixture becomes more like a wine shop within a shop. It’s all helping to add a little more value to the overall wine buying experience. Instead of moaning about discounters making their lives hard for them, they’re coming up with strategies to protect their market share.
What about the independent and specialist sector?
You have to remember that Germany hasn’t really ever had a nationwide chain of high street stores. Many wine shops are also combined with deli and gourmet food and are as individual as their owners. They source from traditional agents as well as direct from wineries.
In larger cities and towns many of these type of wine shops are working hard to become social centres in their own right. They recognise the fact that people have limited free time and are keen to combine going out socially with also enjoying new experiences and learning new things at the same time.
The combination of food and wine means they more of a cross-over between a wine shop and restaurant. Probably better described along the lines of an Italian Enoteca.
What are importers and distributors up to?
A really interesting trend is for major importers and wholesalers to start up their own retail shops as a way of seeding new products into the market, rather than just acting as a traditional distributor.
The HORECA sector in Germany is served by traditional agents of various sizes even down to the one-man band. Given the tax structure and open borders it is relatively easy for people to import and distribute from Italy, France, and Spain.
There is also rapid expansion taking place for on-line sales. Given the familiarity and affinity that Germans have for catalogue shopping the transformation to on-line has been seamless and will, in my opinion, make major inroads to the wine market in the next five to 10 years. This is a game changer in my opinion.
In what way?
In Germany you have a new generation of wine drinker who basically only shops online combined with an older age group, who we could refer to as established drinkers, who are already shopping via catalogues and online. It will not take much to make them comfortable with an on-line wine buy.
Rapid expansion in this channel will place pressure on the current independents, cellar door, and also have an impact on supermarket sales. Initial data, depending how you read it, indicates this has already started.
Taking your shop or supermarket and suddenly plastering the internet with your offering will not, likely, be successful. In the long run, there will be a few key players in the online market that have invested in their model, technology, distribution, and portfolio.
My feeling is that they will refine their operation in Germany and then target the rest of Europe, in the same way the German discounter has spread.
Given the state of play in the UK market I would say it is ripe for the picking and must look very attractive. The UK supermarkets now sell basically own label wine, the high street chains have collapsed and none of the traditional importers have the liquidity to start an effective online model. But there has always been an affinity for wine clubs and societies.
What advice would you give a producer looking to gain more distribution in Germany?
Whilst it sounds obvious, producers need to know exactly which market sector is best for their business. Time and time again there are producers who look at the German market and think if they can crack the discounters they will have solved their problems without seemingly knowing they cannot hit their prices.
Others think that getting a major distributor is the key, and it can be. You just need to be prepared for how much it costs to follow the market.
For the majority of producers who cannot supply volume/price to the discounters and are not being handled by one of the few key national importers the option is to work with a number of smaller importers around the country. Those producers need to be prepared for a market that requires a lot of their attention.
Producers might need to be more flexible in their approach to the market. In the same way the production and marketing sides of industry might need to take some lessons from the fashion business, those in sales need to be more flexible in how the deal is done and with whom.
Finally, no comment on any market at the moment can be made without some reference to Brexit. Yes, it is having an impact. Already. Overseas producers are looking to concentrate more on markets such as Germany.
Are German producers worried about it? Not from a point of wine sales. Demand for entry level wines domestically and in other exports markets is exceeding supply. Premium wines will feel some pinch, but are not really price sensitive.
* If you would like to contact Owen Bird you can do so at email@example.com and find out more about his consultancy business here.