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Analysis of the Italian Wine Market

Group 2 (Blue Class): Bereslavski, Frigo, Gao, Mohacsi, Sorrentino

We decided to focus our attention on the market of the Italian wine in the world, not only reasons of
parochialism but also because Italy is one of the historical producers. The country is in the top of the
list of the global producers with a share of total world production close to 20%, with a large range of
products, as per the graph below:











Figure1: Wine world production breakdown

Our goal was to understand if that market is still profitable. Taken the global market as a
reference, the boundaries for our market are clear: all the other wine markets in the rest of the
In Italy, wine is the product of a very large, heterogeneous and complex sector that involves all
geographical regions (the graph below shows the distribution of regional production per region in

Figure2: Italian wine regional distribution

The supply of the Italian wine sector is extremely diverse, both in terms of types and unit value,
with consumer prices ranging from about 1to more than 500 Euros.
Being a very huge and complicated market, there are different ways to define and divide it: it is
possible to segment based on the year of production, wineries, vine, alcohol percentage and so on,
but the three most important classifications are related to the area of origin, type (red, white,
ros, sparkling, dessert and fortified wines) and price:

Figure3: Wine price classification

Each wine has even a quality certification:

Figure4: Italian wine quality certification and distribution

In the following table we can see the main players existing in our market (based on turnover in

Figure5: Italian main players revenues

Over the last years there has been an increase in worldwide consumption which was combined
with a radical change in the consumer taste. We will elaborate more about that market in the
demand and competitive paragraph, for the moment it is interesting to see that the key
characteristics of consumers are divided among sex (mostly male), age (rather older age groups)
and price (low price is always a goal).Today the level of consumption is mostly maintained by
people with over 60 years of age, accompanying daily meals with wine; younger members of
the population consume wine on different occasions instead, but definitely less frequently (average
prices are higher)
The structure of wine market is obviously characterized by a considerable variability in costs, due
both economies of scale (larger companies have a lower cost of production) and quality (grapes
used for wine DOP has a cost always higher than that of grapes for the common wine). The effect
of the economies of scale is greater in the production of lower-quality wines sold in bulk, rather than
in those of higher quality that are sold in bottles. The average costs depend on specific conditions of
cultivation and in part by the mechanization of models that are adopted. Obviously, in the larger
companies, where the number of machines and their capacity is greater, the costs reduction are
Figure below shows a typical cost structure of a company producing a broad range of wine types:

Cost structure
cost of grapes / growing

cost of winemaking

bottles, corks, boxes, labels


salesmen, distribution from the winery

administrative costs


taxes to government

5% 9%




Figure6: Wine industry cost structure

Most of these cost items are variable costs while the only fixed costs (in the short run) are the
labor costs, the aging of the product and the cost of PPE (cost of wine making minus raw
The entry costs (which represent barriers) are very high regardless of the sector of the market,
but differ considerably in absolute terms depending on the size of the company, as the below
graph shows:

Figure7: Entry cost for two different winery

The market price highly depends on the fixed costs (no economies of scale) and a bit less on the
variable costs (where economies of scale are possible).
The first factor in the choice of the consumer is without a doubt the price. This factor is common in
both traditional (Italy) and new (emerging) markets, where the general knowledge about wine is very
limited. Many surveys have shown that the consumers do not care as much about the brand or
quality, instead they are more focused on the price level. (A test conducted a few years ago showed
that 65% of consumers have no idea what to buy when they come to a wine store). Therefore, the
price elasticity of demand of the wine is relatively high, as an increase in price would result in the

reduction of quantities consumed. Nevertheless, despite the higher consumption of low quality wine,
the demand for high quality wine is increasing as well.
In addition to the above mentioned facts, a strict correlation exists between the wine consumption in
a given country with the countrys GDP level.
Finally, the market supply of wine is vulnerable to competition with other products such as beer and
liquors. For instance, if we compare the average spending on beverages for a typical Italian family
in 2007 and 2012,we notice a significant reduction in wine consumption(from 12.4 to 12), in favor
to other products such as beer (from 4.9 to 6). Looking at a survey of Coldiretti it becomes
clear that the main substitute of wine in Italy is water, which overtook wine as the most
popular beverage in Italy (20 monthly spending per family).


Producers can be divided in 2 categories: professionals (related to the commercial market) and
amateurs (mainly producing for self-consumption). Despite the fact that the latter category is
significantly and consistently determines the characteristics of the sectors production structure, we
intend focus on professional producers that produce the majority of output.
The producer structure includes more than 300,000 professionals, located at all the three levels
typical of the production process:

Grape production (240 000, half single producers half connected to cooperatives)
Processing grapes into wine (66.550)

The sector which processes grapes to produce wine can be further divided into 3 types (as per the
below graph)

Farm wine (grapes purchased intermediate market) or cantine agricole

Industrial winery(grapes purchased exclusively on the middle market or agreements with
wine producers up stream) or cantine industriali
Cooperative winery(wine grapes by their members or purchased on the intermediate market)
or cantine cooperative

Figure8: Types of industries

Farm wineries are numerically dominant but co-operatives, relying on a broad membership base,
generate about half of the Italian wine production (with higher average production).Therefore, a
strong duality exists in the market: while farm wineries are fragmented, on the other hand the
concentration of the other two types of producers is significant.
Bottlers are the smallest category within the manufacturing facility.
From an internal point of view, , it is evident that the market is very competitive and expensive
therefore entry barriers are very high.

From an external point of view, this is where real and tough competition really starts. Apart from
the historical competition between the old markets such as Italy, France and Spain, competition with
the relatively new markets like Australia, New Zeeland and US has intensified.
In fact, after the Second World War, a new production market appeared, featuring an industry
development different from its European counterparts. In these countries the availability of suitable
land and less expensive production led to the creation of new and less expensive wine products.
They also have been using innovative ways to produce wine, complemented with efficient marketing
distribution and packaging methods. The shock caused by the emergence of these new competitors
was enormous for the old producers. As we have mentioned before, the entrance of new consumers
to the market without any prior and sophisticated knowledge of wine also stunned the old producers,
who did not know how to have an impact on the new customers. The most dramatic decline was
experienced in the highest-consumption countries, namely France and Italy, with a radical shift of
the demand caused by an oversupply caused by new market entrants. This decline was partially
covered by an increasing demand in the premium quality wine. Pricing rivalry was and is a big issue
for our market and the entering of other markets is not yet finished.
Despite the above mentioned fact, we strongly believe that the market is still very profitable, and the
expected future is even brighter. Looking at the tables below it can be seen that despite the
intensified rivalry, Italian wine is not only responding well but is increasing its profits. Certainly, the
domestic demand decreased, but exports are considerably increasing and margins for growth are
remarkable, especially in markets such as the US and the UK.

Figure8: Worldwide wine consumption (Mhl)

Figure9: Italy, internal consumption (red) vs export (yellow) (Mhl)

Figure10: Italian export revenues (Millions)

Figure11: Revenues trend (Millions)

It is evident that the Italian wine market is not declining at all, on the contrary, it is growing. is the
market scenery has definitely changed: there is less domestic consumption but higher export
possibilities. Despite growing exports, producers have to do more. Obviously it is not easy to
penetrate new markets, for a number of reasons: there are different tastes, lifestyles and regulations,
intense competition, , but this should not be a limitation but rather a challenge to capture, a challenge
in which the Italian market can count on product diversification, a positive image in the world, history
and knowledge of the industry. What is required is an effort by businesses, which must point to
innovation and changing trends, both in the type of production (packaging, distribution, etc.) and in
targeting new consumers (women, youth etc.). The effort required in our view is minimal in
comparison to expectations of the future.
Considering that no brand has been able to capture as much as 1% of the global wine market, in
contrast to soft drinks, beer and liquors where global brands have been dominant, the strategy for
Italian wine producers is clear: create well-known brands in the world and leverage on the existing
broad range of products. We have to compete with new markets for the low quality wines, but at the
same time strongly focus on high-quality wines, as the industry is growing, competition can be less
severe which might consequently result in higher margins.


Professor Gabriele Troilo, SDABOCCONI Marketing Professor

Bulk Winery Investment and Operating Costs, Washington State University

Wine industry survey, by Mediobanca Research Department

Rabobank wine analysis

Le prospettive di mercato per il vino italiano alla luce dei nuovi scenari evolutivi,
Denis Pantini (Nomisma spa)

Il prodotto vino in Italia, Francesca Massini

Analyzing the US retail wine market using price and consumer segmentation
models, San Francisco State University, USA

La domanda di vino in Italia: analisi delle preferenze del consumatore, Anna


Osservatorio Italiano Spumanti

International Journal of Wine Research

Journal of Wine Marketing

British Food Journal

Aida Indicatori finanziari pubblicati

Global Wine War 2009: New World versus Old, Harvard Business School