Brexit, currency and the evolving wine market

Brexit, currency and the evolving wine market

Rafael del Rey is the director of the OeMV, the Spanish Wine Observatory. Now in its tenth year, the OeMV is a private foundation that exists to do market research and understand the consumer and wine trends. 

What trends are you seeing in wine?
Global wine consumption is pretty stable, at around 243m to 244m hectolitres. But we think consumption is changing completely; consumers in the wine producing countries and Great Britain are not the only ones drinking wine –consumption is shifting from one place to another. Fifteen years ago, Great Britain had a market share of global wine imports of more than 20%; in 2017, its market share was around 12%. Wine consumption in producing countries has been reduced a lot, but there are new countries in which global consumption is increasing: China, the United States, Russia and Canada and the Scandinavian countries. One of the things we are realising is that new consumers do not approach wine in the same way that traditional consumers used to. In producing countries, we know the regions and brands, and we normally drink at lunch or dinnertime. We have an approach that is different to someone in China or Moscow. 

The international trade is changing quite a lot, particularly in the way that wine is being moved. Wine exports in bulk are increasing, both for normal wines and premium wines. We are sending wines to further destinations.  

What impact do you think Brexit will have on the wine market?
Great Britain was already losing importance in the last years, because it is quite a difficult market; it is highly competitive, because distribution is very concentrated. Selling was becoming even tougher because of local taxes, so it’s become a harder and harder market to sell in. We did a report right after the referendum and then with the figures of 2017, to see whether Brexit has already had an effect. The impact so far hasn’t been that big, but we are very worried about it. 

What is going to happen in March? I’m 90% sure that a transitional period will be approved, so even if the United Kingdom leaves the EU on 29 March 2019, nothing will really change in commercial terms up to December 2020, which is 21 months.  There are some signs that this transitional period will be agreed upon – 30% of everything that’s eaten and drunk in the United Kingdom comes from the European union. Are they going to stop eating? 

What do you think the impact on Spain will be?
It’s difficult to know. One is depreciation. When we talk about it, everyone thinks of depreciation against the euro, but as someone said, the euro will also be depreciated against the dollar  – then what may happen is that exports Europe will be better off than exports from Chile or Argentina, or any country whose currency is dependent on the dollar.

There may be new tariffs, and then competition will be harder for European wines against wines from third countries. 

There is a third effect, which is that there will be a period in which everything has to be done in a new way. Exporting to the UK will be similar to exporting to Mexico or Japan – there will be new papers, new regulations, new forms, new labelling. 

The other effect I am very concerned abuot is that in the medium term, Brexit will make the British people poorer. If people decide to spend less and they have less money to spend, wine in general may be affected. But, in that case, will it affect Spanish wines, or wines from somewhere else? What will be the competitive effect on our wines versus our competitors? In that case, I am optimistic. Our capacity to compete it very big. 

Or Britain could become a tax haven for the wealthy and there will be a huge demand for prestige wines.
Could be!

Nobody doubts that Spanish wines are high quality, so why is the average price so low? And why is so much being sold as unbranded bulk?
In recent years – the last ten years, let’s say – we suddenly we had to sell a lot of wine quickly and therefore at very low prices. The price is the effect of what happened between 2007 and 2009, when we had the combined effect of two things. One, of course, was the reduction of domestic consumption. It had been decreasing for many years and it decreased sharply from 2008 onward due to the economic crisis. There was another reason, which was a legislative change that took place in 2008. Traditionally, high amounts of alcohol were produced for distillation, for fortified wines and brandy. We used to distill around 10m hectolitres of our production of around 40m hectolitres. There was a transitional period between 2008 and 2010 and then in 2011, the subsidies [for that] completely disappeared. We still make some alcohol out of wine but only around 4m or 4.5m hectolitres. We still have brandy and fortified wines, but the difference between 4m and 10m hectolitres means that 6m hectolitres left over. Producers had to sell a lot of wine that had previously been distilled – and had to do it quickly. The best way to do it was to sell fast and cheap to other countries.

If that analysis is correct and I think it is, we have very good reasons to be positive. First,,production was not reduced and we are improving our distribution capacities and the types of wines being sold. The internationalisation of our wines has been absolutely amazing. The creation of brands is not an easy things and it doesn’t take places in a short period, but that’s the direction and that is taking place. Spanish companies are investing in distribution and promotion, and improving their commercial and export departments. The investment in market research has been amazing in recent years. 

How is the domestic market faring?
We are improving the way our wine is being connected to foreign tourists in Spain, while they are visiting and after. The on trade consumption of wine has also improved since 2015, which is a very good thing.

There is something fascinating taking place in Spain – we are now more open to innovation. Good white wines are doing very well. Look at Rueda and Albarino. Sparkling is going pretty well and you have new red wines. There is innovation in brands and distribution; in Madrid, you will see wine bars and many restaurants where you can see wine by the glass. The wine lists in those bars are amazing, with lots of new wines from different regions in Spain. It’s more appealing to new consumers.

We used to say that young people don’t consume wines. This is false – they’re back to wine.

Where do you see wine tourism in the mix?
One of the things that I like to say it that Spain is a wine producing country with a long history, but it is also one of the largest countries in the world for receiving tourists. We receive around 84m people every years and we know that most of them like what they eat and they drink in Spain. The question is how to convert tourists into customers. You have to promote the wines, you have to improve the service of food and wine and you have to promote it the best you can. You also have to try and move people from the seaside and classic tourist destinations to other interesting places. 

That’s the matter of promotion and distribution. Improving online sales will be a fantastic means to improve that. If a German tourist who spends a week in Palma de Mallorca comes back home to Germany and decides he wants a wine from Mallorca, our chances to increase exports will be greater if he can order it easily from Amazon or the local distributor.

What do you see ahead for the global wine market in the next 15 years?
I have had discussions with people who say that in the future it’s going to be high premium wines – premium wines all around the world are increasing. There are a lot of wealthy wine lovers and they select better wines, but it is also true that there are  millions of people who do not know very much about wine, but they like to drink. There are millions of people who just go to the supermarket and find nice wine and they want to share it with friends. So probably both the high premium end and the low end of the market are both growing.  
Interview by Felicity Carter


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