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| October 31st 2006 |
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| Jorge Arpi: Revolution at Penaflor |
by Jürgen Mathäß und Daniel López Roca
Peñaflor, Argentina's largest wine exporter, is faced with the challenge of combining increased sales with higher case prices - and of establishing Trapiche as Argentina's number one brand worldwide. Jürgen Mathäß and Daniel López Roca spoke with export director Jorge Arpi.
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--------Wine Business: Argentina has set ambitious export targets for the coming years. In light of fierce international competition, the major economic crisis facing the country since 2001 and a relatively late entry into the international market, do you think these are realisable?
--------Arpi: Argentina ranks as one of the world’s five or six largest producers as well as consumers of wine. For a long time, the country was very cautious when it came to foreign markets – not only in terms of wine. There are a number of reasons why we were late in opening our doors to the world. Historically, Argentina’s economy was very inwardlooking. When your domestic market is highly profitable you don’t need to export. And the styles and quality we were making for the domestic market were not in line with what was wanted overseas. Then, two things, which were only partially related to one another, happened simultaneously
and had a striking impact on the market. First, the annual per-capita consumption in the domestic market shrank from 80 to just over 30 litres, with the most basic wines suffering a much bigger drop in sales than the premium segments. Secondly, general changes in Argentine economic policy have created a greater interest in overseas markets. Another important factor were the foreign investments and major changes in production, quality and wine style – in short, the modernisation of the wine industry - in the 1990s. I mention all of this because some believe that the devaluation of the Argentinean peso in 2001 was the primary reason for the
country’s increase in wine exports. In fact, export volumes have only truly increased since 2003. Of course, the favourable development in exchange rates certainly helped, but the process of changes that were crucial for export had already been initiated long before.
--------Wine Business: What were those changes?
--------Arpi: These were principally in the vineyards, the cellars and the attitudes of those involved, rather than wine prices. Previously we had many obsolete grape varieties in the vineyards, high yields and little modern agricultural equipment. Our cellars were outdated and inadequately equipped to meet the demands of internationally successful brands. Our oenologists and winemakers were highly trained, but did not know much about the international market or what wines to produce for it. The 1990s was a period of maturation in the wine industry, while the years since 2000 have been a period of international expansion. In the 1990s I was always personally frustrated when I compared our quality with that from other countries. Today, we are
delivering an internationally competitive value for money.
--------Wine Business: What are your expectations for export development?
--------Arpi: Argentina exported 5 million cases of bottled
wine in 2002. By 2005 we had already grown to 11 million
cases and anticipate, despite stagnating trends in the global
wine market, a volume of 26 to |
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28 million cases by 2010. We
are well below our potential at the moment because we were
so late in adapting ourselves toward the world market. I
believe that Argentina is now coming into its own. There is,
of course, room for improvement. A promotional fund, for
instance, lacking up to now, is currently being established to
help increase awareness of our country as a wine producer.
--------Wine Business: Buyers continue to criticise the fact
that Argentina fails to produce adequately stable quality in
its relatively simple wines and that bottling fluctuations are
too great.
--------Arpi: This was certainly true before, but our producers
have worked very hard on this problem. Anyone who says that
is probably unfamiliar with the current situation.
--------Wine Business: What is the Peñaflor group’s position
in the competition for market share
--------Arpi: Allow me to make three comments on this issue.
First of all, we are not a mixed group of companies. We focus
exclusively on wine. Secondly, we target the entire world
market. Argentina represents just one amongst many.
Finally, our objective is to produce wines to meet consumer
demand, in every price and quality category. Major changes
were necessary within the group to achieve these goals. A
kind of revolution, beginning in 2002, has taken place at
Peñaflor. We have instituted a range of key changes.
1. Whereas we previously focused little on the vineyards,
today this is a primary concern. We realise that good grapes
are crucial for providing wine the necessary clean fruit.
2. Our winemakers have begun to specialise in the individual
needs of specific markets. Today they travel with sales
representatives to visit customers around the globe.
3. Previously, we made wine according to a culling principle.
The best products were marketed in the most expensive
segment. What didn’t make the grade dropped to the next best
category, and so on. Today we employ in-house oenologists for
every price category. Instead of simply taking the leftovers
from more premium categories, they begin in the vineyards to
create, for example, an outstanding wine at $4 a bottle.
4. We have shifted our time-frames. Previously, new wine did
not enter the market until the old one had been sold. Now we
launch wines which are mature and ready to drink.
5. Our bodega more resembled a cabinetmaker’s workshop
than a modern wine-producing facility – we had too many
old barrels. Today we use less wood, but more new barrels.
6. We no longer distinguish between national and international
wines.
Of course staff changes and new thought processes were
necessary to achieve these ambitious goals. Our head oenologist,
Daniel Pi, ideally embodies this new approach |
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to
quality production.
--------Wine Business: These changes are especially evident
in recent vintages of the Trapiche wines. Has this also had
an impact on the market?
--------Arpi: The answer is apparent from the sales figures. In
the past two years we have grown almost twice as fast as the
market – 45 per cent versus 26 per cent. With more than 15%
of all exports, we continue to expand our already dominant
position within Argentina – similar to that of Concha y Toro
in Chile.
--------Wine Business: The Argentinean Concha y Toro subsidiary
Trivento has achieved rapid growth and could soon
become one of Argentina’s largest export brands.
--------Arpi: After pointing out that we have grown even more
than they have – and at higher prices – we welcome their
strong commitment to Argentina. I see Trivento’s development,
like that of Catena, in a positive light. It helps break
the ice for Argentina internationally. We need these kinds of
strong brands to have worldwide impact.
--------Wine Business: You’ve had great media interest in your
wines in the US. Are you satisfied with your presence there?
--------Arpi: Following slight stagnation, we have experienced
two consecutive years of excellent growth. This is an outstanding
market for Trapiche in the medium-priced and premium
segments, where we are experiencing significant volume
increases. Consumers have discovered Malbec, which has
now developed into the strongest export grape variety. Weare also doing extremely well in the top-end categories and,
so, dramatically improving our average prices.
--------Wine Business: What were the main reasons for the
growth you achieved?
--------Arpi: Due to the nature of the US market, there is no
single deciding factor in our growth, but three things certainly
played a significant role: the fact that our importer,
Frederick Wildman and Sons, Ltd in New York, focuses his
activities on our brands, the superior value for money our
wines represent, and bottle and case designs which appeal to
American consumers.
--------Wine Business: Are there regional differences between
your performance in particular states?
--------Arpi: Our brands are sold throughout the United States.
We have been in the market for 20 years and have a strong
presence there, but – as for many of our competitors - sales
volumes on the east and west coasts are by far the largest.
--------Wine Business: In the UK, your second biggest market,
the average case prices are lower than elsewhere and a
significant portion of your sales are as buyers-own-brands.
--------Arpi: Although buyers-own-brands still account for
some 50 per cent of our sales in the UK, we are currently
experiencing more rapid growth with |
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our branded wines.
The most rapidly growing segment is the range from £3.99
to £5.99 (5.90 to 8.90 Euro, $ 7.50 to 11.50). In the case of
both Trapiche and Las Moras we benefit from the strong promotional
effect of tastings held by opinion leaders, shops
and consumers – combined with an aggressive presence at
major retailers.
--------Wine Business: Canada plays a very special role for Peñaflor.
--------Arpi: Canada is the third largest market for Argentina
overall, recently overtaking Brazil, where sales stagnated
last year. For us, it is the market with the largest sales
volume overall. Through years of hard work on the part of
our agencies we have established a dominant position for
Trapiche and supply 50 per cent of all Argentinean wine
sold in Canada.
--------Wine Business: What about Scandinavia?
--------Arpi: We have achieved a number of key new listings
in Scandinavia and are growing quickly – as are Argentinean
products overall.
--------Wine Business: You have not been as successful in
Germany, the world’s largest import market.
--------Arpi: Germany is a challenging market, which consists
of two distinct worlds. On the one hand, we market Trapiche
through a small but well-connected importer, JM Höfferle
Int. in Hamburg, who delivers to specialised merchants and,
in particular, the hospitality sector; but this segment is
small. On the other hand, we have started with Santa Ana to
reach the food retailers, a sector dominated by discounters
such as Aldi and Lidl. We have yet to find the right solution
for the discount sector.
--------Wine Business: What are your export targets for the
upcoming years and in what countries will you increase your
sales presence?
--------Arpi: Our expectation and goal is for Grupo Peñaflor to
maintain its position as the top Argentinean wine exporter. Our
average annual growth of more than 20 per cent makes it
realistic for us to set an export target of 5 million cases by 2010.
An ambitious investment programme of more than $10 million
(8 million Euros) per year will help cement that position - and
we plan to invest in all 60 markets which we supply.
--------Wine Business: What other investments does the group
plan for the future?
--------Arpi: We have established an investment programme of
$ 40 million (31 million Euros) over the next 5 years for our
bodegas and fincas. These plans include establishing several
small, new bodegas in different choice locations, where we will
produce exclusively premium-quality wines.
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