Mueller, Simone6; Lockshin, Larry4; Louviere, Jordan J.5
1 Department of Management - MAPP - Centre for Research on Value Creation in the Food Sector, Department of Management, Aarhus BSS, Aarhus University2 Department of Management, Aarhus BSS, Aarhus University3 MAPP - Centre for Research on Customer Relations in the Food Sector, Aarhus School of Business, Aarhus BSS, Aarhus University4 Ehrenberg-Bass Institute for Marketing Science, University of South Australia5 Centre for the Study of Choice, University of Technology Sydney, Australia6 Department of Management, Aarhus BSS, Aarhus University
Purpose: The study examines the demand for low and very low alcohol wine products under the current Australian volumetric alcohol system and under an increase of excise tax for wine under an alcohol tax equalisation. The penetration and market share of normal strength and low alcohol wine are estimated under both tax conditions. Consumers’ alcoholic beverage purchase portfolios are analysed and own and cross-price elasticities are estimated to allow conclusions on consumers’ short term demand reactions to the tax increase and their change in substitution patterns between alcoholic beverages. Background: Contrary to volumetric taxed spirits and beer, wine is currently taxed on a value basis in Australia. This has led to cask wine being the cheapest way to get drunk, resulting in high social and health problems, particularly in Australia’s aboriginal communities in the Northern Territories, where the per-capita alcohol consumption is 50% higher than the Australian average and likelihood of dying from alcohol is ten times the national rate. As a consequence, a comprehensive review of the Australian tax system has recommended wine to be taxed on a volumetric basis and that all alcoholic beverages be taxed to the same extent per litre of alcohol. Even though Australia has somewhat unique circumstances, the quest for moderate alcohol consumption has become of global importance. Reducing or limiting the level of harm from alcohol consumption has been the focus of government intervention, national alcohol taxation and licensing regulations across many countries, including the European Union. The currently approved Global Strategy of the World Health Organization (WHO) ‘To Reduce the Harmful Use of Alcohol’, which is currently implemented by the member states, has further fuelled worldwide interest in this topic. From the wine industry’s perspective this global strategy deserves special attention as it includes a number of very restrictive recommendations in the areas of alcohol availability, marketing of alcoholic beverages and pricing policies. The alcohol industry is requested to contribute to progress in the reduction of alcohol consumption by considering effective ways to prevent and reduce the harmful use of alcohol, including self-regulatory actions and initiatives. Among several potential measures to be taken by the alcohol industry, the development and marketing of new high quality products with lower alcohol strength is seen as particularly promising direction to enhance consumer choice for lower alcohol alternatives. Over the past twenty years, average alcohol strength of wine has increased due to a growing viticultural and oenological emphasis on riper fruit and more expressive taste profiles. Although supermarkets start to offer more low alcohol wine alternatives in the UK, providing consumers with lower alcohol strength wine has largely been neglected in the past and there are currently hardly any choice options available to consumers in most markets. Because of a lack of actual market sales data of low alcohol wine products, a stated preference approach had to be adopted in this study. Methodology: In a discrete choice experiment, based on their last purchase, consumers select one or several different alcoholic beverages into a purchase basket. Consumers could choose from a number of currently available alcoholic beverages: premium bottled wine, several full strength cask wine volume sizes, full strength and light beer in six-packs and cartons, ready to drink beverages and spirits. As products new to the market, low alcohol strength (9%vol) and very low alcohol wine juice products at 6%vol were offered to consumers as choice alternatives. An experimental design controlled the beverages’ price variation. Applying an intra-individual research design, respondents’ purchases were simulated under current and increased excise taxes. Findings: A market potential for low and very low wine products of up to ten percent of the wine market volume is estimated under the current tax regime. Between six to eight percent of consumers are expected to adopt low alcohol wine alternatives as part of their alcoholic beverage portfolio. Consumers of cask wine and light beer are more likely and consumers of medium-full strength beer and spirits are less likely to buy low alcohol wine. Although the absolute number of items per purchase of low alcohol wine decreases under higher taxes, its relative market share rises. Implications: The study provides the wine industry with estimates on the expected demand potential for low alcohol wine and identifies those alcoholic beverage consumers, who are most likely to adopt them. Thereby it contributes towards the wine industry’s required response to the WHO reduction in alcohol consumption strategy, demanding the development and marketing of lower alcohol strength beverages to prevent stronger industry regulation.