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Regional Analysis |
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| December 20th 2007 |
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| Hungary: a brand new world of traditional winemaking |
by Zoltán Farkas
The Hungarian wine industry, once a supplier to European nobles, has been through several turbulent decades. But Zoltán Farkas discovers that, despite the obstacles posed by EU membership, the industry looks promising once again.
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Hungary has an ancient winemaking history, with large areas already under vine by the fifth century AD. Throughout the twentieth century, Hungary was a major supplier to communist nations. Today, it has not only lost those markets, but post-communist ownership of some vineyards is still to be determined. Yet thanks to growing numbers of quality-oriented winemakers, Hungarian wine is on its way.
Wine production
Before the political liberalisation of 1989, Hungary’s wine production was based on 30 state estates and 50 cooperatives over roughly 150,000 hectares. Today there are more than 12,000 producers over 82,000 hectares. Production is a third of the 1980s: it’s now 3.5m hectolires annually, compared to 10 to 11m hl. This is partly due to the reduction in vineyards and partly to yield drops, to around 45 hl per hectare. Hungary’s most significant grapes are white, of which there are 106 varieties, including Welschriesling, Furmint, Chardonnay and Pinot Gris, representing 71% of all plantings. The red include Blaufrankisch, Cabernet Sauvignon, Zweigelt, Merlot and Portugieser.
The Wine Regions
Hungary has six wine regions, comprising 22 individual appellations. These vary in size from Somló at just 700 hectares, to Kunság at 29,260 hectares. One of the most popular red wine producing regions is Villány, with a Mediterranean climate. Since liberalisation, local family wineries like Bock, Gere, and Tiffán have built some of Hungary’s best known brands, while the region has big producers like Vylyan and Csányi Wine Cellars. The prestigious Winemaker of the Year award most often goes to Villány producers, yet without a centralized marketing body, it is going to be difficult for this region to break through internationally. Hungary’s other well-known red wine region is the tiny Eger, where Hungary’s famous ‘Bull’s Blood’, (or Bikavér, a cuvee based on Blaufrankisch) is produced.
“Our biggest problem is probably that Bikavér is still trying to fit the market,” says György Lrincz, one of the region’s most successful young winemakers. “Yet shamefully we have not decided whether it should be positioned as a top quality premium or a less prestigious mass wine. This ambiguity is worse than anything.”
Tokaj, in the far north, is Hungary’s best known appellation. Its warm autumns induce perfect botrytis conditions, helping to create the shrivelled aszú grapes for which the region is famous. Also of note is Furmint, an indigenous variety that can claim to be the Great Hungarian White. After liberalisation, Tokaj attracted foreign investors, which funded wineries like Oremus, Royal Tokaj, Hétsz l, Királyudvar and Disznóko. These investors created a new style of aszú, of shorter maturation and less oxidative character. This created something of a divide, with |
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those who supported the new style joining the Tokaj Renaissance, or Union of the Classified Vineyards of Tokaj. Supporters of the traditional style, such as Kiss István, Tokajbor-Bene, Babits and the state owned Tokaj Keresked ház, gathered around Tokaj Vinum Hungaricum. Rita Takaró, manager of Tokaj Renaissance sums the situation up this way: “Disagreements have calmed and today we stand ready to enter markets as a region of unity and full export awareness”.
The most widely known of Hungary’s brands belong to Törley wine cellars, owned by Henkell & Söhnlein, which produces 10m bottles of still and 19m bottles of sparkling wine yearly. Another important producer is the 15m bottle Varga Wine Cellars, which has a mass market range. Other big names are Winehouse Kft. in Bócsa, Egervin in Eger and Tokaj Keresked ház.
Wine Exports
After the collapse of the Soviet Union, Hungary’s exports dropped dramatically. Between 1996 and 2005 they plunged from 400,000hl to 46,000hl. Today, 80% of Hungary’s wines are sold to Europe, though in the year Hungary entered the EU, shipments from fell 707,000hl to 531,000hl, a loss of 25% of the country’s total exports. Although the market bottomed in 2005, but the resurrection of traditional markets in the Czech Republic, Slovakia and Poland is improving the export outlook. Today, Germany is Hungary’s number one market, followed by Great Britain, the Czech Republic, Slovakia and Poland. Wine exports to Great Britain have shrunk by 46% over the last two to three years, which is a significant loss. In total, Hungary exported 74.5m litres in 2006.
Wine imports
The Hungarian wine market is relatively closed, with imports representing about 5% of all consumption. Imports grew between 2000 and 2003 from 30,000hl to 82,000hl but fell by 67% in 2004, the year Hungary entered the EU: now, they’re growing again. This is due to a two-year cutback in domestic consumption, as well as more educated consumers, the lower price to value ratio of some Hungarian wines, and the growing sales of cheap New World wines through international chains like Tesco, Auchan and Lidl. The biggest importer of quality wines is IFDT (International Food and Drink Ltd), in business since the early 1990s. Their 550 item range offers everything from Italian, Spanish and New World wines retailing for less than HUF1000 ($5.76/€3.96) to Chateau Petrus. They cater not only to consumers, but also to restaurants and chains.
“Seventy five percent of the imported wines is covered by those under 500 HUF price category mostly based on sangrias and cheap spumantes,” says manager Dr. Péter Szalay. “The category between 500 and 1000 HUF is 10 to 12%.” The category up to 2000HUF ($11.50/€7.92) represents 3 to 5% of wine consumption, with a “very thin layer on top of these”.
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At Bortársaság, a market leader, imported wines represent around 5% of all sales, yet could grow to 15% in the next five years. According to key account manager Botond Fejes, “the choice we offer falls between 2,000 to 15,000 HUF, although these products are mostly here to meet marketing challenges. One should recognise imported wines can make good profits.”
Tesco, the market leader, earns 15% of its profits from imported wines. It intends to reposition its range with a list of 95, mostly imported, wines and will push its prices higher. The lowest imported category will be in the 600-800HUF range, rising to 850-980 HUF for the ‘Finest’ segment, according to the head of PR, Mihály Hardy.
Wine trading
The bulk of the national wine trade is concentrated and has been managed by supermarkets, hypermarkets, and discount retailers since the arrival of the big chains in the mid 1990s. In the first quarter of 2007, hypermarkets booked a profit increase of 14.2%, with C&C chains reaching an even higher 18.2%. Since quantities sold did not increase proportionally, these results may indicate an increased interest in higher priced products. Chains have also begun to invite participation by the previously poorly treated small producers, which may be due to consumers seeking out such wines. There are no exact numbers for HORECA, but their estimated share of the total wine trade is about 10 to15%. Budapest, the biggest market, is covered by the big wine merchants: Bortársaság, Corvinum, Veritas and Zwack, among others. Most of them have exclusive contracts with winemakers, but due to growing difficulties in retailing the agreed quantities, wine producers often call off their commitment. There is aggressive competition for the restaurant trade.
“The trader is almost naturally expected to provide glasses, wine lists and coolers with the wines,” says Törley’s key account manager Dezs Diószegi. Wine lists are often created by the wholesale trader, who favours producers who offer high margins. Committed restaurants have up to 90% of their wines provided by their contracted partners, with the rest covered by smaller merchants or producers. The restaurant trade shows great growth potential, since many ordinary restaurants do not understand the business possibilities of wine.
Consumer attitudes
A survey in 2003 revealed that only 10.5% of Hungarians associated restaurants with wine consumption. Rather, they associated wine drinking with private celebrations (70%), home parties (67%) and dining at home (36%). Wine drinking is a tradition, with Hungarians drinking an average of 31 litres, compared to the European average of 21.7 litres. The domestic market consumes around 3m hl, soaking up most of the country’s 3.5m hl production. White wine consumption represents 71% of the market, the rest shared by reds and rosés. Although semi-sweet wines are |
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in decline, they still represent half of the total consumption. Dry and naturally sweet wines are slowly gaining popularity, while the semi-dry category stagnates.
Overall, consumption is growing. In 2004 wines sold by the litre had 70% of market share, but a year later it had dropped to 55% while the share of bottled wines had increased from 30% to 45%, reflecting a growth in both consumption and value. Wine purchases for home consumption grew 4% in 2004, 5% in 2005 and 13% in 2006. Hungarians buy more wine and they do it more often than in the past.
Grape shortages – daily hardships
The latest major grape harvest was in 2004, which produced 4.5m hl. A year, later weather conditions were poor, while the drought of 2006 results in great losses, and a domestic production of only 3m hl. The amount of land available to plant vines has also diminished by around 10 to 15% per year, exacerbated by Hungary’s entry to the EU, when reduced grape prices saw whole vineyards destroyed. The removal of customs barriers encouraged buyers from Slovakia, Poland, the Czech Republic and the Ukraine to clear Hungary of its grape crops and must base. According to Attila Geönzeöl, editor of Wine and Market, most cellars have run out of stocks this year, though this mostly applies to export oriented producers who buy in big quantites. But one consequence of the situation is that grape prices have almost doubled in the past three years. In 2004, white grapes were sold for 30-40HUF, which by 2007 had doubled to 60-70HUF. The popular Irsai Olivér can even reach 80-100 HUF/kg. The price of red wine grapes varies between 100-200HUF, depending on quality. Huge amounts of 30-40 Eurocent Italian wines are imported to cover the lower price segment of the domestic market, under various brand names. Grape growers are not in a good position in Hungary, despite the rises in price. Due to poorly prepared negotiations when Hungary entered the EU, growers have to be satisfied with only a fraction of the support other EU producers tend to get. Even worse, the new EU wine reforms, based as they are on historical production, takes the present situation as a basis for the future, thereby giving preference to older and more established EU members. Since Hungarian entrepreneurs started their ventures only in the late 80s and early 90s, they were not able to enter the EU in as ready a state as their Spanish, French, Italian and German counterparts, who were supported by the Common Agricultural Policy (CAP).
Marketing
Hungary has no mature, common wine marketing strategy. While there is a state organisation, the Agricultural Marketing Centre (AMC), its budget is so modest that it can only finance a few fairs and exhibitions. In 2006, the wine industry could afford a total of 2.62m HUF ($1.5m/€1.03), compared to the beer industry’s 11,386m HUF (43 times more!). “Hungarian wines have the potential to offer unique characters and exciting product features that could win a more advantageous and favorable recognition for the country in international markets,” says Richard Nemes, managing director of the recently established Hungarian Wine Marketing Agency. He adds that such products already exist, including Tokaji wines and indigenous varieties such as Furmint, Juhfark and Hárslevel. These and other wines offer a firm platform for the wine marketing strategy that is due by the end of the year. The timing is right because it’s now fashionable for Hungarians to talk about it or even make it their business. Many celebrities have become wine producers, such as Sándor Csányi, head of Hungary’s National Bank (OTP), or Sándor Demján, Hungarian millionaire and venturer, or the owner of Béres Pharmacy who built a model farm in Tokaj, to name a few. But while a wine drinking elite already exists, the Hungarian wine industry still needs the trend to spread nationally. At present, it is mostly the thin top layer of wine that attracts all the attention, while the majority of wines in the lower price ranges still get little or none.
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