Absorptive Capacity and Future Prospects of Emerging Wine Markets in the Middle East: Especial Focus...

Salar Salahi

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Absorptive Capacity and Future Prospects of Emerging Wine Markets in the Middle East: Especial Focus on Iran Middle Class

Salar Salahi

Department of Financial Risk Management, Pars Development Center of Electronic Training Courses, Isfahan, Iran

Abstract

Current paper discusses the absorptive capacity of wine consumption markets in the Middle East and it especially focuses on Iran. Despite restricted application of wine in Turkey, Egypt and Lebanon, wine consumption is mainly forbidden in most Middle East countries due to religious and cultural beliefs. Although countries such Iran presently are not wine producing regions, they, however, may offer, absorptive markets for consumption. The purpose of current study is to investigate wine consumer behavior and wine market analysis to achieve an insight in to Middle East markets. Quantitative methodology along with a consumer survey was carried out in the specified locations in Iran. Near 90% of correspondents claimed, despite government bans, they had consumed alcoholic beverages at least once in a life time. Most correspondents agreed with the idea of legalization of wine consumption rather than excessive use of homemade toxic wine.

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Cite this article:

  • Salahi, Salar. "Absorptive Capacity and Future Prospects of Emerging Wine Markets in the Middle East: Especial Focus on Iran Middle Class." Journal of Finance and Economics 1.4 (2013): 105-111.
  • Salahi, S. (2013). Absorptive Capacity and Future Prospects of Emerging Wine Markets in the Middle East: Especial Focus on Iran Middle Class. Journal of Finance and Economics, 1(4), 105-111.
  • Salahi, Salar. "Absorptive Capacity and Future Prospects of Emerging Wine Markets in the Middle East: Especial Focus on Iran Middle Class." Journal of Finance and Economics 1, no. 4 (2013): 105-111.

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1. Introduction

During recent two decades, the export rate of wine from newly–developed wine industries has significantly increased. As domestic markets are inundated, wine industries look for new potential markets that they can easily invest in by the minimum value of financial risk. For example, in 1990s, 88% of New Zealand wine production was sold domestically and 12% of the wine production of country was exported. In recent years, only 24% of New Zealand wine sales are domestic, while the comprehensive majority of the country′s wine production is being exported [1].

Beyond the changes in target markets, the consumption behavior in most countries has been altered perceptibly. Boosted demands in emerging powers such as Brazil and India have made the attention of wine producers to use marketing strategies for rapid and safe investments [2].

Investigating recent wine industry’s developments in various countries around the world, researchers have found that every country has its own advantages and disadvantages to be assumed as an export or import location for wine producers based on political, agricultural, technological and also cultural potentials.

Considering inundated markets such as Germany, wine producers look forward to find some new innovative methods to appeal desperate consumers. Marc Dressler [3] declared innovation as a key to success in increasing competition. His study explored the innovation activities of German wineries and showed innovation portfolios with diverse activities. He claimed that Entrepreneurs in the wine business are urged to adapt to changes in customer behavior and to react to trends that they perceive to be important, resulting in diverse innovation ideas and change activities. He believed in that the self-reliance will push smaller companies in the wine industry to increase their innovation without regard for resource scarcity considerations.

Two major characteristics have currently taken great attention in wine industry of the New Zealand and Australia. Sustainability and environmental concerns in wine production have comprised most papers about the wine industry of Oceania. Gabzdylova et al. [4] investigated various sustainability issues in the New Zealand wine industry. A qualitative research approach supplemented by quantitative measures was adopted to answer the research questions. The research found that the most important drivers for practices are personal values, preferences and satisfaction with the profession followed by quality and customers’ demand. Their study also proposes a matrix that differentiates wineries’ involvement in sustainability based on the sustainability practices and sustainability drivers. Hughey et al. [5] reported that New Zealand’s wine companies have adopted at least one of three main environmental management systems: Sustainable Wine growing New Zealand, ISO 14001 and Bio-Gro. They carried out a qualitative survey based on comparative evaluation of these systems within 15 wine companies. Their main findings were that while each system appears to have its own strengths, generally, none of each environmental management systems were better than the other. However, they claimed implementation of an industry specific system, in combination with a generic process-based system, in the development of a more sustainable wine industry.

The concept of declining experimental investigation in to environmental concerns has been exposed with serious doubts. Is climate change a great risk to the industry over the next 21 years? Interviewing with the managing director of an Australian wine making company and asking mentioned question, Larry Lockshin was not encountered with strict answer. John Angove did not suspected serious dangers but anticipated that there would be lots more impediments to the use of carbon-based energy. He claimed that we would all be part of an adaptive process or evolution and we might need to expect change and all that comes along with it [6].

Backing to emerging powers, it is surprising that completely different concerns relative to Oceania are arising there. In recent years, emerging powers have intensively begun concentrating on the geographical indications as a tool to facilitate rural development and protect local products and traditions. Geographical indications (GIs) are place-based names that convey the geographical origin, as well as the cultural and historical identity of agricultural products. Would ‘New World’ wines benefit from protected geographical indications in international markets? Defrancesco et al. [7] has entitled an article with this name in order to investigate GIs impact for the Argentinean Malbec case. Their research features new light on this issue by estimating the implicit price of Argentinean GNs in four different markets: the United States, the United Kingdom, the Netherlands and Germany. Overall, the research highlights that ,according to the well established wine producing and consuming countries classification, New and Old World consumers differ in their willingness to pay for GNs when buying high-to medium-priced Argentinean wines in specialized shops. The paper was concluded by emphasizing the market access opportunities offered by an international agreement on GIs protection.

Bowen and Zapata [8] used the case of Mexican tequila to examine the potential for geographical indications (GIs) in developing countries to contribute to socioeconomic and environmental sustainability. They showed that persistent cycles of surplus and shortage of agave and changing production relations in the agave–tequila industry had caused economic insecurity, increased use of chemical inputs and overall declines in fertilizer application. They conclude by using this case to discuss more generally the relationship between the protection of place-based products and social and environmental sustainability.

Considering developing countries, we realized that there is a lack of investigation on potential markets in Africa, West Asia and especially the Middle East. However an attempt was made by Velikova et al. [9] to investigate the wine consumer behavior in the Caribbean Islands in the case of the Dominican Republic. They believe that despite the general understanding of the importance of studying emerging markets, existing literature focuses largely on developing wine producing countries. They found that those countries which are not wine producing regions are often being neglected. However, these markets may be equally important and though they do not produce wine of their own, they may comprise lucrative markets for export.

In current paper our focus is to investigate the absorptive capacity of wine consumption markets in the Middle East countries in which wine consumption is banned by government. Middle class of Iran was considered as the statistical sample and quantitative methodology was carried out. Social and cultural factors were found more important that we all expected.

2. Country Background

Iran is the 18th-largest country in the world in terms of area at 1,648,195 km2, it also is an ethnically diverse country and has a population of around 77 million [10]. With its location in three spheres of Asia, Iran has a specified geopolitical significance. Iran’s capital is Tehran, the country's most populous city and the political, cultural, commercial and industrial center of the nation. The massive reserves of petroleum and natural gas helps country to be a regional power [11], and to hold an undeniable position in international energy security and the world economy. Iran has the largest proven natural gas reserves in the world [12], and the fourth largest proven petroleum reserves.

Iran's economy is a complicated mixture of central planning in Tehran, state ownership of oil and other large enterprises, village agriculture, and small-scale private trading and services [13]. In 2011 GDP in Iran was $482.4 billion or $13,200 at PPP per capita [14]. In the early 21st century, the largest percentage of the GDP was allocated to the service sector and was followed by industry (mining and manufacturing) and agriculture. Iran is ranked as an upper-middle income economy by the World Bank [15].

Iran is a diverse country, with people of many religious and ethnic backgrounds, which their bonding point is the Persian language and culture. Arabic is spoken in the southwestern parts of the country; despite Arabs are a minority in these regions. On the other hand, Turkish languages and its dialects, most importantly Azerbaijani language, are spoken in different areas in Iran.

Most of people in Iran believe in the Twelver Shia branch of Islam, which is the official state religion and about 90% to 95% [16]of Iranians belong to shia. About 4% to 8% of Iranians belong to the Sunni branch of Islam, mainly Kurds and Iran's Balochi Sunni[17, 18].

After the Islamic Revolution in 1979, the composition of the middle class did not change significantly in Iran, but its size doubled from about 15 percent of the population in 1979 to more than 32 percent in 2000[19]. Several prerevolutionary social groups still were identifiable, including entrepreneurs, bazaar merchants, physicians, engineers, university teachers, managers of private and public concerns, medium-scale landowners, junior military officers, and the middle ranks of the Shia clergy [20]. New groups also emerged, including technicians in specialized fields such as communications, electronics, and medical services; owners of small-scale factories, owners of construction firms and transport companies; and professional staff of broadcast and print media[20]. Merchants, especially those with ties to bazaar-based organizations but usually established physically outside of bazaar, gained access to political power that they had lacked before.

Most interpretations of Islamic law has forbidden drinking and usage of alcoholic beverages, including wine [21]. Iran had previously had a progressive wine industry that disappeared after the Islamic Revolution in 1979 [22]. In Greater Persia, Persian wine was a central base and theme of poetry long before the advent of Islam. Some Alevi sects applied wine in their religious ceremonies [18].

Certain exceptions to the ban on alcohol apply. Alcohol which are not produced through grape and the date [23] is allowed in very small quantities under some traditional Sunni sects, for medicine purposes. However, modern Sunni scholars characterize alcohol consumption as totally forbidden [18, 24].

3. Objectives of the Study

This paper aims to investigate the middle class Iranian wine consumption behavior and their preferences for consumption. It was our interest to find out that how the Iranian middle class could find adequate information about various wine brands despite the government prohibition.

4. Methodology

4.1. Research Design

As official statistics for wine market analysis was unavailable in Iran and even we can say such survey has not been carried out never before, it was impossible for us to use secondary data. Hence, primary data were collected via the intercept method at specified parties and ceremonies organized by middle class Iranian at north of capital, Tehran.

4.2. Data Collection Process

Consumer data were gathered in specified parties and ceremonies in north of Tehran, since we did not have access to wine stores and supermarkets due to prohibition of wine sales. In order to gather primary data, undergraduate students of University of Tabriz were trained to carry out pen-and-paper surveys. Trained students were familiar with middle class parties and were taught to make an intimate condition for correspondent to acquire accurate data. Data collectors were learned to contribute with correspondents for reducing possible misunderstanding of questions in the survey.

The researchers provided a detailed training script with proper procedures for data collection. Specifically, students were asked to properly approach potential respondents, introduce the intention of the study and emphasize the voluntary participation. In exchange for participation in questionnaire, correspondents were appreciated with a small gift. The data collection process was carried out in 5 separate parties in 5 different locations of Tehran. Correspondents were very willing to participate and a low rejection rate was observed.

4.3. Sample and Instrument Development

In our case, it was not possible to develop randomized sampling. Hence, non-probability, purposive sample was applied. The sample was characterized as wine consumers including consumers of homemade wines and industrial beverages with well-known brands in middle class of north of Tehran with acceptable monthly income.

Previous researches suggest investigating the appropriateness and the transferability of certain concept when using it for new business planning. Uma Sekaran [25] recommends more inductive research and the pursuit of appropriate, but not overambitious sampling designs, so as to increase understanding of cultures and encourage the building of richer theory bases. Taking an optimistic view of the field, he predicted contributions by researchers and enriched the art and science of cross-cultural management. Hence, a one-page questionnaire was provided based on previous wine consumer researches in established and in emerging markets. In order to verify the accuracy of translated questionnaire, it was first translated from English to local language by bilingual experts and then was translated back to English by separate individuals. Two English documents were compared to ensure accuracy of prepared questionnaire.

5. Results and Discussion

5.1. The Iranian Middle Class Wine Consumer

Near 90% of correspondents claimed, despite government bans, they had consumed alcoholic beverages at least once in a life time. After claiming the application of wine, correspondents were asked to fulfill the questionnaire. A total number of 533 surveys were gathered .The statistic sample consisted of 74 percent of men and 26 percent of women. This kind of distribution in gender of consumers was formerly observed in a survey in the Caribbean republic [9]. Our findings were contrary to wine consumers gender split in Australia and USA, but they were in great accordance with previous investigations in developing countries. As Iranian middle class is influenced by both European and American culture, it was hard to predict the gender tendency to wine consumption. However it was expected that due to mencracy manners in most Middle East countries, more men would drink alcoholic beverages relative to the women.

The dominant age range of wine consumers was between 21 and 30. It was observed that the sample frequency was almost overwhelmed with consumers in the age range between 21 and 40. There were few people younger than 20 and older than 51 in the assumed sample.

The socio-demographic profile of the sampled population of the middle class Iranian wine consumer is presented in Table 1. Comparing the general population, middle class of north Tehran has higher education, higher income and is more secular. Therefore, these characteristics were also observed in wine consumer assumed sample. 60 percent of correspondents have gained or were studying either undergraduate or postgraduate degree.

Table 1. Socio-demographic profile of the sampled population of the Iranian wine consumer

Average GDP per capita of Iran was about 6,815.57 USD in 2011 according to the World Bank [26]. Since most of this production is related to the oil and gas exports it is expected that mentioned value should decrease in 2013 due to oil embargoes against Iran. However, it was not possible for us to analyze whether consumers income was higher or lower than GDP per capita. On the other hand, presently it is not possible to evaluate the value of national currency (Iranian rial) due to its various rates for different applications. Reporting GDP has been stopped by the Central Bank of Iran since 2012, so it was really time consuming and hard to find GDP. However, considering every USD as 1224 Rials for exchanging money at official markets, near 90 percent of correspondent’s income was assigned to be higher than the GDP per capita. It was formerly revealed that Iranian middle class income at Tehran is relatively high in comparison with income of individuals in adjacent major cities.

5.2. Wine Consumption Behavior

Iranian consumer wine consumption behavior is summarized in Table 2. Among all alcoholic beverages it was found that beer was the most popular and preferred. Our additional question in the survey showed that most correspondents would agree with the concept of legalization of wine consumption rather than excessive use of homemade toxic wine. Recent news has reported that homemade wines contaminated with methanol has caused death of several Iranians [27]. In practice, there is a thriving trade in locally made or smuggled alcohol, with the temptation for unscrupulous or ignorant dealers to make more money by adulterating their products.

World Health Organization has reported the pure alcohol consumption among adults (age 15+) in liters per capita per year for 2011 in Iran [28]. Recorded value for Iran is 0.02 liter per capita in a year , while unrecorded value is predicted to be near 1 liter per capita. Wine and spirit (distilled beverage) consumption rate has not been announced. Beer consumption rate is as equal as total consumption. It is estimated that recorded consumption rate is related to non alcoholic beer industry sales that have been verified by government.

Backing to our questionnaire results, Iranian consumer wine consumption behavior is summarized in Table 2. 70 percent of correspondent claimed that they consume wine products at least once a week. Individuals with more monthly income tend to consume wine more often. It was a great attraction for consumption of red wine while just 25 percent of correspondents preferred white or blush wine. The Comparison between wine consumers who prefer dry and sweet wines is presented in Table 3. The men tend to like dry wine while the women preferred sweet wine in general. It was find that middle- age consumers tend to drink dry wine rather than sweet wine. In younger consumers no relation was developed between age and preference of dry or sweet wine. Consumers with lower income tend to dry wine more than the others.

5.3. Wine Purchasing Behavior

In general, the respondents consume 2.38 bottles of wine per month. The average amount of money spent on wine monthly is 18.10 USD. The summary of the Iranian consumer wine behavior in purchasing is shown in Table 4. The majority of respondents buy wine from dealers. Some buy their wines from second country and ask smuggler to carry their purchased wines in to Iran. It was apparent that men buy more wines than women. In preferences for naming wine from specific countries as their preferred location of production, 62% percent could not recognize the originality of their purchased wines. 22 % preferred Wine from France. 13% tend to consume wine produced in Italy and Spain. We also asked correspondent about how they acquire information about wine.

Table 2. Iranian wine consumption behavior (N=533)

Table 3. The comparison of wine consumers who prefer dry and sweet wines

Table 4. The summary of the Iranian consumer wine purchasing behavior

Most of correspondents rely on traditional recommendations by friends and relatives. Internet was popular source for younger correspondents and women most used tastings for choosing. Less information was gathered from TV/radio by consumers.

It is obvious that accurate insight on the current status of population and income growth can help us to analyze absorptive capacity for wine consumption in the next generation. The diagram of Iranian population between years 1970 and 2012 is shown in Figure 1. It is revealed that in recent years especially between the years 1980 and 1990, a population boost was observed. Based on World Bank database[26], Iranian population currently is growing in a moderate pace and population growth is controlled.

It is reported that population growth rate has been reduced significantly in recent years and it is currently near 1 percent per year. However, still a massive number of young individual between the ages of 20 to 39 are potential targets for international wine industries. Figure 2 indicates the population pyramid for Iranian population in which most of the population is in its early adolescence.

Figure 1. Population growth in Iran, 1970–2012. (Based on data from World Bank)
Figure 2. The population pyramid for Iranian population

Increase in gross domestic product (GDP) per capita leads to increase in the ability of nation to purchase and to consume goods. Figure 3 shows GDP per capita diagram for Iran. Based on World Bank database [26], GDP per capita in Iran for year 2003 was near USD2000 while this value was increased up to USD6815 in 2011. This increase shows a fundamental change in purchasing power of Iranian consumers.

5.4. Practical Implications, Limitations and Future Research

For developing a sustaniable business in an emerging market it is necessary to have access to reliable information about the target market. Mike Wright [29] has suggested that private and public enterprises had to develop unique strategies to cope with the broad scope and rapidity of economic and political change in emerging economies. His research forum on emerging economies examines strategy formulation and implementation by private and public enterprises in several different regional settings and from primary theoretical perspectives. Our current paper has tried to present verified information about Iranian wine consumption behavior which can be useful for wine Industries that tend to find export channels to Iran.

Figure 3. Per capita gross domestic product in Iran, 1966–2011. (Based on data from World Bank)

There were also numbers of limitations during current survey. Only five location in north of Tehran were considered as sample collecting locations. This area has relatively higher monthly income and education level relative to the rest of country. Further investigation can be made to analyze consumption behavior in other regions.

On the other hand, we were unable to access secondary data due to government bans for collecting and presenting data about wine consumption. This would disable us from predicting future demand for wine in Iran.

For future researches we suggest experts to concentrate on segmentation of consumer types .This would contribute to access about target markets more effectively. We also suggest that a comprehensive study would be done on the packaging of wine and label perceptions. It is claimed that recognizing which label is mostly preferred can be effectively applied in wine industries for marketing purposes [9].

Finally, it is concluded that Iranian wine consumer’s behavior needs more concentration on types of consumers and more investigation can be made on their attitude for wine consumption. Current paper was a primarily study on wine consumers behavior in Iran and we hope that it would contribute to more studies on this issue.

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