A recent report by IBISWorld reveals that in 2016-17, domestic consumption of alcohol per capita is expected to reach the lowest level of the past 50 years.
This is part of a trend of consistently declining alcohol consumption that has played out over the past decade. Beer brewers have struggled, with negligible export exposure forcing them to rely on limited domestic demand. Meanwhile, many wine makers have found new growth as export demand for Australian wines booms, particularly in Asian markets.
IBISWorld expects per capita alcohol consumption will decrease by 0.8% over 2016-17, to 9.37 litres per capita. This trend is forecast to continue, with alcohol consumption in Australia expected to fall to 8.54 litres per capita by 2023-24, down from 10.57 litres in 1990-91.
“Domestic per capita consumption of beer, wine and spirits has slumped to a 55 year low, largely as a result of government legislation and increasing health consciousness among consumers,” said Mr Andrew Ledovskikh, IBISWorld Senior Industry Analyst.
Wine exports boom
According to IBISWorld, export markets represent the largest market for wine makers, and are expected to account for 41.5% of industry revenue in 2016-17, totalling $2.5 billion. Domestic wholesale wine merchants represent the second largest market for wine makers, and are expected to account for 27.5% of industry revenue in 2016-17.
“Rising exports to Asia are anticipated to drive export growth over the next five years. Free trade agreements signed with Japan, South Korea and China in 2014 and 2015 are expected to lead to new growth in Asian export markets, as Australian wines become more competitive,” said Mr Ledovskikh.
“Rising middle class incomes in China are also expected to contribute to strong demand growth over the next five years. As a result, China is anticipated to overtake the United States as the largest importer of Australian wine,” added Mr Ledovskikh. “Despite declines in per capita wine consumption, the wine production industry is expected to increase by an annualised 2.3% over the five years through 2016-17. Strong demand growth from Asia is improving world prices and easing global oversupply issues, which have plagued the industry over the past decade.”
The Beer Manufacturing industry is expected to decline by an annualised 0.7% over the five years through 2016-17. The domestic consumption of beer has been hit hard by increasing health consciousness among consumers. Traditionally staple brands, such as VB, are declining rapidly in popularity, proving a major challenge for local beer manufacturers looking for growth.
“Unlike the Wine Production industry, local beer brewers produce almost exclusively for the domestic market. This has compounded the effect of declining alcohol consumption for brewing companies,” said Mr Ledovskikh.
As most of the large Australian beer brewers are owned by foreign multinationals, which have extensive worldwide production and distribution facilities, there is little incentive for these companies to produce locally for export. Most exported brands are actually produced under contract in the destination country, rather than physically shipped overseas.
Crafting a future
One silver lining for the Beer Manufacturing industry has been growing demand for craft beer. Craft breweries have popped up around the country at a rapid pace. In 2011-12, there were just over 140 craft brewers in Australia. In 2016-17, there are expected to be almost 300.
The Craft Beer Production industry is expected to grow by an annualised 11.7% over the five years through 2016-17, to $454.2 million. This strong performance has helped offset some of the declines in the consumption of traditional mainstream beer brands.
Export demand for craft beer is a potentially lucrative market, although it is not without challenges. Exporting bottled beers tends to be expensive, and the transport process can harm the quality of the product. Some local producers, such as Australian Brewery, have switched to canned craft beer products to help tap into export markets.
Craft beer batches also tend to be small, making efficient transport difficult. This will likely drive craft brewers to create export groups among themselves, using export agents to consolidate shipments and reduce per unit costs.