Emerging opportunities for Australian wine in Russia and Vietnam

Russia and Vietnam have been identified as presenting good opportunities for Australian wine exports: Russia because of its overall attractiveness as a wine market and Vietnam because of Australia’s particular advantages in that market.

Russia is the largest country in the world with a population of 144 million and a population density of 8 people per square km. In comparison, Vietnam would fit about 50 times into the landmass of Russia, but has a population density of 317 people per square km.

In term of grape-based wine, Russia consumes around 120.7 million cases per year, compared with 1.67 million cases in Vietnam. The per capita consumption is 9.8 litres per adult in Russia and just 0.2 litres per adult in Vietnam.

Russia: a major mover in wine markets

According to Wine Intelligence’s 2020 Global Compass report, Russia has jumped an astounding 23 places to be the tenth most attractive global wine market, equal with Canada. The IWSR reports average volume growth for imported wine of 13 per cent between 2015 and 2019, while average value has increased by an average of 7 per cent per annum over the same timeframe. Per capita consumption has nearly doubled in the past 5 years. This is a result of a rapid expansion in the country’s wine market driven by middle-class Millennials and supported by slight economic growth and a more favourable legislative environment.

In its recently released Russia Wine Landscapes 2021 report^[1], Wine Intelligence has identified a significant rise in Millennial imported wine drinkers since 2014 (see Figure 1). These drinkers are mainly centred in Moscow and St Petersburg, are well-travelled and are characterised by having an ‘adventurous spirit’ and a willingness to try new styles of wine.

Figure 1                                Age demographics of Russian imported wine drinkers and change over time

^{Source: Wine Intelligence Russia Wine Landscapes 2021}

Spain, Italy and Georgia dominate imported wine in Russia, while Australia has less than a 1 per cent share by volume. However, in its 2020 Vinitrac ® research, Wine Intelligence found that Shiraz was the fourth most popular variety in terms of the percentage of imported wine drinkers who had consumed it in the past 6 months, while it and other ‘niche varietals’ were experiencing significant long-term rises in consumption incidence, driven by the consumer trend of trying new styles of wine (Figure 2).

Figure 2 Top red varietals by percentage of regular wine drinkers who have drunk each variety in the past 6 months

^{Source: Wine Intelligence Russia Wine Landscapes 2021}

Russia accounted for just 0.1 per cent of Australian wine exports in the year ended March 2021, but exports to Russia grew by 12 per cent in value to just over $8 million and by 9 per cent in volume to 1.7 million litres. The average value was $4.72 per litre FOB. The top three variety label claims were Shiraz, Sauvignon Blanc and Shiraz blends^[2] (Figure 3).

Figure 3                                Top variety label claims for Australian wine exports to Russia in YE March 2021

^{Source: Wine Australia Licensing and Approval System}

Vietnam: high value market that favours red wine

Vietnam is classified in the Wine Intelligence 2020 Global Compass as a ‘new emerging’ market – one where wine is a relatively new and unknown product but showing potential. It jumped 4 places in 2020 to number 43 – benefitting from a positive economic outlook and long-term wine growth forecasts. While scoring relatively low on most wine market indicators, it was top in terms of IMF forecast GDP post-COVID and one of only five countries expected to have positive economic growth in 2020 (Figure 4).

Figure 4                                Expected 2020 GDP growth

^{Source: IMF data quoted in Wine Intelligence 2020 Global Compass}

According to IWSR (2020) 99 per cent of alcohol consumed in Vietnam is beer, with wine making up about one-third of the remaining 1 per cent. However, in a population of nearly 100 million people, this still amounts to an estimated 15 million litres, and the number of new consumers reaching legal drinking age each year is around 1 million.

Vietnam imported 10.6 million litres of wine in 2020. Australia is the fourth largest importer of wine to Vietnam and has an 11 per cent share by value. Of the top 10 importers, Australia has the highest average value apart from the United Kingdom, which exports small quantities of premium sparkling wine^[3] to Vietnam.

Australia’s wine exports to Vietnam declined by more than 50 per cent in volume in the year ended March 2021, a likely effect of COVID-19 reducing consumption by tourists in the market.  However, prior to that, it had shown several years of strong growth, with a compound annual average growth rate of 7 per cent since 2010.

Almost all of Australia’s wine exports to Vietnam are packaged, and 83 per cent are still red wine – making it similar in market profile to China. The average value of Australia’s wine exports to Vietnam is $8.11 per litre FOB, compared with $7.26 for packaged exports across all markets (year ended March 2021).

Opportunities for Vietnam may increase further next year. Australia has a free trade agreement with Vietnam, which is formed under both the CPTPP and the AANZFTA. As a result, tariffs for Australia will drop from 50 per cent to 20 per cent on 1 January 2022 and then to zero by 1 January 2029.