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Regional Analysis |
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| February 7th 2007 |
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| Argentina: Taking the Bull by the Horns |
by Daniel Lopez Roca and Jürgen Mathäß
Argentinian wine producers are over the moon about last year. Producers rave that the 2006 harvest was of very good quality, and that their sales in both domestic and export markets had increased. If this trend continues, Argentina’s performance on the international market can only improve.
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As of 3 April 2005, there were 1,272 wine producers registered at the National Institute of Viniculture, of which 933 are active. The majority are situated in the province of Mendoza (893 producers registered; 671 active), and to a lesser extent in the province of San Juan (262 producers registered; 169 active).
During the last fifteen years Argentinian viniculture has undergone a revolution, triggered by the decline of wine consumption in the domestic market and the explosion of neighbouring Chile’s exports of modern, internationally styled wines. New vineyards, modern production facilities and better wines have improved export prospects. Investment in technology by some wineries forced others, who could not follow, to sell their cellars and vineyards. This attracted new local and international players who have made investments amounting, unofficially, to $1.5 billion.
International groups, such as Pernod Ricard and Donaldson and Lufkin & Jenrette, began to arrive, as did foreign investors. From France came Edonia (Alta Vista), LVMH (Chandon y Terrazas de Los Andes), J&F Lurton, Clos de los Siete, Catherine de Péré Vergé (Monteviejo), Laurent Dassault (Cuvelier Los Andes), Baroness Nadine de Rothschild (Flecha de Los Andes); from Austria came Swarovski (Bodega Norton); from Spain came Freixenet, Codorníu (Séptima), Ortega Gil-Fournier, Belasco de Baquedano, Berberana (Martins); from Portugal came Sogrape (Finca Flichmna); from Chile came Patricio Reich (Bodega Renacer), Holding de Bebidas CCU (Finca La Celia), Grupo Claro (DoñaPaula), Concha y Toro (Trivento); from Holland came Mijndert Pon (Salentein, Callia, El Portillo); from America came Paul Hobbs (Viña Cobos), Ward Lay (Andeluna); from Switzerland came Thomas Schmidheiny (Bodega Landelia) and Donald Hess (Bodega Colomé); and from Itlay came the Boscaini family (Masi). In addition to these, Japanese, Russian, and Brazilian companies also entered the fray. Several firms nevertheless remained in Argentinian hands, such as the Familia Arizu, Valentín Bianchi, La Agrícola, Grupo Catena, Bodegas López, and Goyenechea, among others.
According to a survey carried out by the Consejo Empresario Mendocino (Business Council of Mendoza) between 1999 and 2005, the viniculture sector saw investments of 1,800 million pesos. The prevailing stable conditions have allowed the continuation of planned investments, which are anticipated to be in the order of 600 million pesos between 2006 and 2010. These funds will be made up of 45% Argentinian, 37% European and 14% Chilean capital. Forty-one percent of the investments will be concentrated in Gran Mendoza, 26% in the Uco valley, 24% in the eastern zone and 2% in the southern partsof the province.
Argentinian wines continuing success has also impacted positively on related industries. Oenological tourism, developed in 16% of the wine cellars in Mendoza, enabled 85% of the approximate 2 million tourists |
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Regional Analysis |
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to Mendoza in 2006 to visit wine cellars, 10% of the travellers having arrived in the province exclusively for this purpose. Schools for sommeliers have been established in the provinces, specialised publications have appeared, and there are courses, fairs, and congresses complementing what is on offer.
Grape vines in Argentina sustain three very different businesses: grapes and raisins for consumption; must (concentrated sulphite and juice); and wine. The market for fresh table grapes follows the laws of supply and demand, and Argentina can rely on the advantage of being in the opposite season to the northern hemisphere, which represents its principal market. However Argentina’s location, far from the consuming markets, makes it difficult to control the prices, as transportation is expensive and refrigeration facilities can be scarce.
Must is an important business, accounting for about a third of the exportation of wines, and has increased significantly in recent years. A law obliges wine producers to assign a variable percentage of each harvest to the production of must. In 2006 an obligatory percentage of 24% was established, and for 2007 this will be 30%. This simple method guarantees that the best grapes are used for the production of wines, improving the average quality and controlling the stocks. The possibilities for the distribution of must and its price obey the rules of a market that has nothing to do with wine, being generally that of natural sweeteners and fruit juices.
For bulk wines, Argentina relies on the large players for production and sales. This market is sometimes seen to benefit from problems in other producing countries, which purchase bulk containers in order to meet their needs, as was the case in Spain in 1995. In other cases, there are large sales to bottling firms and international distributors. The five largest exporters of bulk wine account for almost 44% of the total, with the remaining 56% spread over 73 firms. Bulk exports don’t appear to affect the market for bottled wines, as they are distributed to different customers and generally aren’t labelled as Argentinean wines.
The rise of Malbec
Malbec is, without doubt, Argentina’s USP on most important export markets. “Malbec is an Argentinean variety that was once cultivated without success in France,” says Malbec producer Ricardo Santos, in a joking manner typical of his compatriots. And there is some truth in this: although it took a long time for the Argentineans themselves to notice its importance, today Malbec represents the most cultivated and exported variety.
The revolution of the industry in the 1990s was accompanied by an increase in the export of wines and a significant decline in local consumption. In 1970 domestic consumption was about 90 litres per capita; today it barely approaches one-third of that volume. However, the domestic market has seen a boom of boutique wineries in all of Argentina’s growing regions, |
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and new labels fill the shelves of sprouting wine shops and wine bars, a phenomenon that has overstimulated the consumer. While this boom set off a healthy process of educating the Argentinean consumer, who is now knowledgeable, choosy and opinionated about wines, the over-supply can frustrate him so that he returns to traditional, familiar brands whose distribution is efficient. In the coming years, according to market analysts, there will be a marked simplification of brands and wineries, and consumption will probably be concentrated on those with ample national distribution and consistent quality.
In a sense the process has already begun. According to a study commissioned by the Mendoza Viniculture Foundation and carried out by consultant group CCR, it is estimated that sales of bottled wines presently amount to 2,400 million pesos in the domestic market. And from a total of 2,500 existing wines, the study concludes that sales are concentrated on only 30, which account for 33% of the turnover. Twenty-four of these 30 wines are produced by only seven groups: Peñaflor (Trapiche Malbec, Frizze, Hereford Tinto, Michel Torino Selección Tinto, Santa Ana Selección Blanco y Tinto; Pernod Ricard (Colón Malbec, Colón Cabernet Sauvignon, Colón Borgoña, Etchart Privado Torrontés); Diageo (Los Árboles Tinto, San Telmo Malbec, San Telmo Cabernet Sauvignon, Cuesta del Madero Tinto); Chandon (Latitud 33º, Comte de Valmont); Nicolás Catena (Valderrobles Borgoña, Finca Los Quiroga Cabernet Sauvignon, Carcassone Tinto); Valentín Bianchi (Don Valentín Lacrado, New Age); and Nieto Senetiner (Benjamín Nieto Malbec and Benjamín Nieto Cabernet Sauvignon).
The 100 best-selling wines, barely 4% of all existing labels, account for half of the income from the market and 56% of the total volume commercialised. At the other extreme, 1,850 wines represent only 10% of total turnover and 8.5% of total volume. Only four wines in Tetra brick (Peñaflor’s Uvita and Termidor; Fecovita’s Toro and Resero) among the existing 259 command 29% of the market, which is estimated at 1,600 million pesos annually.
For the past 25 years the wine business lost clients to competitors such as beer, and low-price wines were most affected. However, a change can be detected, since this year sales of wines in Tetra brick increased by 6.7% in volume.
Wineries, and especially the larger groups, have resorted to diversifying wine ranges in order to compete in a larger number of segments and prices. In the table below the dynamics of the principal markets where Argentina sells wines can be seen. As the chart makes clear, the leader in the United States – the market in which the largest increase in sales in the world has been registered – is Bodegas Esmeralda, with Alamos. In the United Kingdom the leader is Peñaflor, with Fincas las Moras.
United States
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Argentina has seen the largest increase in sales in the United States of all producing countries. The systematic effort of several producers, in particular Catena, has significantly elevated their reputation in that country. Total imports into the United States from the ten principal wine-producing countries in the third quarter of 2006 increased only 2.9% in value ($1.15 billion) and suffered a decrease of 1.3% in volume (202 million litres) in the same period. The average price per nine-litre case ($51.30) is 5.7% lower than the previous quarter ($54.27). At the same time, Argentinean exports increased 29.2% in value (from $15.7 million to $20.3 million) and suffered a decline of 11.6% in volume in the third quarter (from 5.9 million litres to 5.2 million litres). This indicates a continuous “Flight to Quality” policy, whereby the average price per litre has increased from $1.88 in the first quarter, to $3.57 in the second quarter, to $ 3.88 in the third quarter, putting it now in eighth place ahead of Australia ($3.43) and Chile ($3).
United Kingdom
England is a strategic market for Argentina. For this reason, Wines of Argentina (WofA) launched a generic promotional campaign several months ago to associate the wines with major Argentinean themes such as polo, tango, the favourable terrain for the production of great wines, and, naturally, the scenery. Also in 2006, WofA opened an office in England, which has allowed a great development of the wines in that country. According to a study by Mintel, the average price of a bottle of Argentinean wine in the off-licence sector of the English market was 5.17 in 2005. Meanwhile, another study carried out by the French Interprofessional bureau for fruits, vegetables, wines, and horticulture (ONIVINS) indicates that the average price for a bottle of still wine in the UK is 3.27 for French wine, 2.34 for Italian wine, 3.09 for Australian wine, 2.24 for Chilean wine, and 2.19 for South African wine.
In order to take full advantage of this situation, Wines of Argentina is organizing the Argentina Wine Awards on 19–22 February 2007, a contest of Argentinean wines exported to the United Kingdom that will take place in Mendoza and will be judged by an international jury including Jancis Robinson MW, Oz Clarke, Peter Richards, Robert Joseph, Adrian Atkinson and Henri Chapon.
Brazil
The other important market for Argentina is Brazil. It is the only place where Argentina is the leader, having surpassed Chile in sales last year. Argentinean wine is seen as good quality by the Brazilian consumer, who prefers it to those of other origins, despite prices three times higher than in Argentina. All hope that the consolidation of MERCOSUR will lead to more accommodating prices for the consumers in the member counties.
Matías Bauza Moreno, export manager at the Salentein Family of Wines (SFW) began exporting its |
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Regional Analysis |
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Bodegas Salentein range and Finca el Portillo in 2001, to which were added, in 2004, the wines from Bodega Callia and, in 2005, the new portfolio from Bodega el Portillo. Today Bodega Salentein exports to 45 countries and its external sales have increased in volume from 2004 to 2005 by 115.5%. From November 2005 to November 2006, exports grew in volume by 182%.
According to Manuel Lanús, export manager at Diageo, with Navarro Correas and San Telmo he is closing the year 2006 with growth of 40% due to increases in the United States and Latin American. “Navarro Correas, in contrast to other wineries, always had the Caribbean, Central and South America as a priority, whereas other wineries and brands put enormous effort into breaking into the European market,” he explains. “Today we are reaping the benefit of this decision, since America is waking up when it comes to wine consumption and Argentina is one of the two first choices of the consumer. In the United Kingdom or Germany and other continental European markets, Argentina is the eighth choice for the majority of consumers.” Lanús is also troubled by the “absence of commercial agreements with potential consuming countries. “Argentina does not have, nor is it working to obtain, accords that would make our wines arrive at competitive prices,” he says. “In this aspect we have much to learn from Chile and its vocation to export.”
Where is Argentina going?
While Argentina might have been the last of the larger wine-producing countries to focus on exports, it finally seems as if more and more companies are concentrating on more than just production. Undoubtedly the possibilities are there, not least of which are a desert climate producing aromatic, concentrated, fruity wines in a more masculine style than Chile’s, and the decision to promote Argentina’s wines on the most important markets. Wines of Argentina will be able to promote in some key markets, and so creating a “brand Argentina” should not be too difficult.
Argentina is becoming a reliable supplier looking to confirm itself in the markets in which it is contending. Its producers have set themselves the long-term goal of gradually increasing their exports to $2 billion in 20 years. For this the Strategic Argentina Wine Production Plan 2020 (PEVI 2020) was drawn up with the following objectives: to create the trademark “Argentina”; to consolidate the image of the country as a producer; to integrate the wine producers; to expand technology; and to reposition basic wines within the internal market. While these goals have been criticised in some quarters as being unrealistic, everybody in Argentina’s wine industry is willing to wait and see.
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