Is the world drinking less wine? Why the biggest brands are giving up on the business?

Pernod Ricard, the French multinational beverage giant known for its extensive portfolio of spirits and wines, has decided to divest a significant portion of its wine brands. This move comes as global wine consumption continues to decline, prompting the company to refocus its efforts on its premium spirits and champagne brands.

Pernod Ricard announced the sale of ten wine brands to Australian Wine Holdco Limited, a consortium of international investors backed by private equity firm Bain Capital. The brands being sold include Jacob’s Creek, Orlando, St Hugo, Stoneleigh, Brancott Estate, Church Road, Campo Viejo, Ysios, Tarsus, and Azpilicueta.

What is behind Pernod Ricard’s move?

Pernod Ricard’s portfolio includes iconic brands like Absolut Vodka, Jameson Whiskey, Olmeca Tequila, and Beefeater Gin. With wine sales accounting for only 4 per cent of its total revenue – down 2 per cent from the previous year – the company is redirecting its focus.

Last year, Pernod Ricard reported over £10 billion in sales and an operating profit of £2.8 billion, with its wine brands underperforming compared to its spirits and champagne. The company’s statement said that the divested wine brands would benefit from a more focused approach under their new ownership.

Why is global wine consumption declining?

According to the International Organisation of Vine and Wine (OIV), global wine consumption reached a 27-year low in 2023, dropping 2.6 per cent to 221 million hectolitres.

A 2023 report by OIV revealed: 

• Vineyard surface area: The world’s vineyard surface area continued to decline, shrinking by 0.5 per cent from 2022 to 7.2 million hectares. This trend, seen for the third consecutive year, was due to the removal of vineyards in major vine-growing regions across both hemispheres, encompassing all types of grapes.

• Wine production: Extreme climatic conditions and widespread fungal diseases severely impacted many vineyards globally, leading to a historically low global wine production of 237 million hectoliters. This represented a 10 per cent drop from 2022 and was the lowest output since 1961.

• Wine consumption: Global wine consumption in 2023 was estimated at 221 million hectoliters, indicating a decrease of 2.6 per cent compared to 2022’s already low figures. The increase in production and distribution costs, driven by inflationary pressures, resulted in higher wine prices for consumers, who were already dealing with reduced purchasing power. Despite these challenges, a few major markets showed resilience.

• International trade in wine: The international trade in wine in 2023 was also significantly affected by rising prices. Although the total volume of wine exported dropped to 99 million hectoliters, this was offset by a high export value, reaching 36 billion euros. The average price per liter of exported wine hit a record high of 3.62 euros per liter.

The decline in consumption has had severe repercussions on wine production. In Europe, extreme weather and fungal diseases have devastated vineyards, resulting in the lowest production levels since 1961.

In Australia, overproduction has led to the destruction of millions of vines, drastically affecting grape prices and threatening the livelihoods of growers and winemakers. France has spent over $200 million to destroy excess wine, and Australian vineyards are stockpiling production due to lack of demand.

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This decline is particularly stark in China, where consumption fell by approximately 24.7 per cent in 2023 compared to the previous year, totaling 6.8 million hectolitres. This marks a significant drop from 17.6 million hectolitres in 2018. Wine imports in China have also decreased for the sixth consecutive year, with a 26.1 per cent decline in volume to 2.5 million hectolitres and a 21.7 per cent drop in value to €1.1 billion ($1.18 billion).

What has Gen Z got to do with it ?

Younger generations, particularly Gen Z, are drinking less alcohol compared to previous generations. According to Nielsen data, 45 per cent of Gen Z consumers (21 and up) reported never consuming alcohol. A Gallup poll found that 52 per cent of people aged 21 to 34 believe moderate drinking is bad for health.

The World Health Organisation’s report stating that no level of alcohol consumption is safe has further fueled this trend.

Youngsters are increasingly opting for beer and spirits or avoiding alcohol altogether for health reasons. Economic factors, such as high inflation and reduced disposable incomes, have also played a role. Wine is generally more expensive than beer or spirits, making it less accessible, especially for younger consumers facing economic challenges.

What now for Pernod Ricard?

Despite the challenges in the wine sector, Pernod Ricard is doubling down on its American whiskey portfolio. The company recently announced plans to establish North American Distillers, a new US-based entity dedicated to supporting its American whiskey brands, including Jefferson’s and Rabbit Hole.

Richard Black, who will lead this new venture, said in a statement, “American whiskey is a dynamic spirits category, and our portfolio shows immense potential for future growth.”

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Joshua Hartz, a spokesperson for Australian Wine Holdco Limited, expressed confidence in the future of the acquired wine brands. He said, “Backed by AWL, the combined business will be better able to adapt to changing consumer tastes and meet the structural challenges facing the global wine industry.”