Chile: State of Play

Angelica Valenzuela has been the commercial director of Wines of Chile since 2016 and has been involved in the dramatic growth in global sales of Chilean wines. In  this exclusive interview, she frankly discusses with Robert Joseph the successes that have been achieved and the challenges to be overcome.

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Photo: Wines of Chile
Photo: Wines of Chile

Meininger’s: How important are exports to the Chilean wine industry, in volume and value?

Valenzuela: In 2021, after the significant logistical obstacles faced by exports and which still persist, shipments of bottled wine increased slightly in volume (+1.1%) to 53.6m cases, but they increased 8.2% in value, to $1,587.7m.
 

Meininger’s: Being part of the Mercosur Free Trade Region is obviously valuable to Chile, and Brazil remains an exciting young market. What do you see happening there?

Valenzuela: Brazil is our second destination market for bottled wine in value, and first in volume, with exports of 7.7m cases for a value of $183m. Although in 2021 this market did not grow, in 2020 it had explosive growth due to the pandemic  which made wine fashionable, bringing it closer to new consumers and accelerating consumption growth.

This market presents great opportunities. It is a market that still has a low consumption per capita (under two litres per capita); Chile is the main supplier and bottled wine exports have grown over the last 10 years at an average annual rate of 9.4% in volume and 7% in value.
 

Meininger’s: Shipments to the US seem to be exploding, moving Chile to third biggest country – from seventh a few years earlier. What is driving this success?

Valenzuela: There are two drivers behind this successful growth. In terms of bottled wine, it is important to note the changing trends in this market as well as the growth of higher value wines (>$60/case). This has been the focus of Wines of Chile's strategy and has been reflected in the growth that Chile has had in wines retailing at over $50, where sales are growing more than twice as fast as the market.

In bulk wine Chile grew in 2021 by 25% in volume and 27% in value, up to 134m litres and $104m mm, respectively. This was due to a limited and expensive supplies of California bulk wine in 2021, which drove buyers to seek wines from abroad - from Australia, Spain, South Africa, Chile and Argentina by buyers for brands that do not necessarily require Californian origin.

“In terms of bottled wine, …it is important to note … the growth of higher value wines (>$60/case).”

Meininger’s: Shipments to the US seem to be exploding, moving Chile to third biggest country – from seventh a few years earlier. What is driving this success?

Valenzuela: There are two drivers behind this successful growth. In terms of bottled wine, it is important to note the changing trends in this market as well as the growth of higher value wines (>$60/case). This has been the focus of Wines of Chile's strategy and has been reflected in the growth that Chile has had in wines retailing at over $50, where sales are growing more than twice as fast as the market.

In bulk wine Chile grew in 2021 by 25% in volume and 27% in value, up to 134m litres and $104m mm, respectively. This was due to a limited and expensive supplies of California bulk wine in 2021, which drove buyers to seek wines from abroad - from Australia, Spain, South Africa, Chile and Argentina by buyers for brands that do not necessarily require Californian origin.
 

Meininger’s: China is another success story that raises many questions. How much has Chile benefited from the virtual disappearance of Australian wine in that market? It is also interesting to see Concha y Toro increasing its range of super-premium wines in that market. What is happening to average prices?

Valenzuela: In bottled wine, China is the number one market in terms of value and number two in terms of volume after Brazil. This market finished 2021 with growth of 31.5% in volume, 38.1% in value and 5% in average price up to $35.3/case.

China presents great future opportunities, mainly due to the low per-capita consumption that in the market and the imposition of anti-dumping measures on Australia, which is opening up a unique opportunity for Chilean - especially premium - wines. Indeed, 38% of Australia's share is being taken up by France and Chile.
 

Meininger’s: And, at the other end of the scale, looking at China, what proportion of the exports is bulk? And how does that compare to the past.

In terms of bulk wine, in 2021 Chile shipped 58.6m litres valued at $69m to China. Bulk wine represents between 20-30% of exports there, depending on the year.
 

Meininger’s: China and the US (and Mercosur) particularly benefit from Free Trade Agreements. Are there any more of these on the way that may be good for wine exports. Will the UK’s post-Brexit FTAs with Australia and New Zealand challenge Chile in that market?

Valenzuela: Almost all the trade agreements that are being negotiated are modernizations or extensions. The most important, and with a lot of potential, is India, but historically, they have never been willing to incorporate wine in an FTA. And yes, the UK’s FTAs with Australia and New Zealand will challenge Chile. For Australia, the UK is its number one market. With the closure of the Chinese market, the Australians will seek to strengthen their sales to their other markets.
 

Meininger’s: Ireland has been a good market for Chile, with a share of over 25%. Why do you think Chile has – in relative terms - done so much better there than in the UK, which would appear to be a similar market.

Valenzuela: The UK is a bigger market than Ireland and much more competitive. It is where everybody wants to be:  the sixth largest in the world, consuming 109m cases, almost 100% of which is imported. The UK is also very important for its influence on other markets, thanks in part to the worldwide renown of its wide range of relevant critics and journalists. Chile did a great job in the UK last year. It is a market where, in 2021 Chile shipped almost 6m 9l cases worth 166m dollars, 0.8% and 9.4% higher, respectively; remaining as the 3rd most important market for bottled wine.

Ireland, on the other hand, is a less competitive market, where you can develop brands more easily than in UK because you have a lower presence of private labels. In the on trade, the presence of restaurant/pub chains is smaller too, so entry into this channel is easier too. In this market in 2021 was a negative year: it shrank by 15.34% in volume and 12.78% in value, ending up at 1.4m cases with a value of $42m dollars. Fifty wineries export to Ireland, but four wineries are responsible for 80% of Chile’s exports.
 

Meininger’s: In recent years, a lot of Chilean wine has been shipped in bulk to the UK and bottled there. Some of that wine has then been shipped to the EU. How has Brexit affected that model?

Valenzuela: In 2021 when Brexit became reality year, the UK increased wine imports in volume (+4.1%) but not in value which dropped 3.9%. Bulk imports grew while shipments of bottled and sparkling wines shrank. This is partly explained by investments in UK bottling facilities that have led to an increase in volumes of bulk wine for private label and entry-level winery brand wines. Some of this wine is then exported in bottle.

The UK has always been a key import market for wine and surprisingly, it is also a key wine exporter, given its role as world trader.

Bottled Wine Exports (2021)
Bottled Wine Exports (2021)

Meininger’s: What is happening in mainland Europe – in markets like Germany, Netherlands, the Nordics and Poland? How valuable has Russia been as a market?

Valenzuela: Russia represents 2% of total bottled exports in volume and value. In 2021 Chile exported 1.3m cases, valued in $27.8m.
 

Meininger’s: Which other countries are doing best, and which new markets are you developing? And which are most profitable (price per litre)? How do the top five: US, China, UK, Brazil and Japan compare in this respect.

Valenzuela: As I said, China presents great future opportunities as well as Brazil. Other important markets for us are the US, Canada and South Korea.

The United States imported 4.9m 9l cases from Chile with a value of $141m. The volume was similar to the previous year but value increased by 7.6%. It is important to note changing trends in this market and the growth of higher value wines (>$60/case), the focus segment of Wines of Chile's strategy. This has been reflected in sales of wines retailing at over $50 that are growing twice as fast as the market. The US is the fourth most important market for Chile and continues to be recognised as the world’s most attractive wine market.

Canada, is a market that is becoming ‘premiumized’ thanks to a change in consumption habits and the new opportunities that have emerged during the pandemic. This market is of special importance for Chile, as it has some of the best average prices for our wines, and a country where Chile's sustainability credentials represent an opportunity in the medium and long term. In 2021, Chile exported 2.1m 9l cases with a value of 76.2m dollars. Volumes dropped by 8.4% but value rose by 4.6%, with an increase in the average price of 14.3%. It was the third biggest export market for wines above $40/case, which saw an increase of nearly 30% in volume and value compared to 2020.

South Korea, still only represents a small percentage (4%), of export volumes, but in 2021 it showed great dynamism both in volume and value, growing by 21% and 36%, respectively. Today it is the seventh biggest export market for Chile and has the highest average price among our priority markets. Wine Intelligence classifies South Korea among the ‘growth’ markets where wine is a mainstream product and are experiencing increased sales. The wine market in South Korea should continue to grow and we are confident that Chile will be a relevant player in that trend, mainly thanks to the tariff advantage, the presence of Chilean brands with a strong and recognized image and good distribution.

Photo: Wines of Chile
Photo: Wines of Chile

Meininger’s: Eduardo Chadwick, head of the Errazuriz group, has talked in the past of the challenge of building a super-premium image for Chilean wine. What is happening to the average price of exports globally?

Valenzuela: In 2021 there was an increase in average price to $29.6/case, 7% the figure in 2020. In fact, shipments of all the wines selling at over $40/case grew on average by over 30% both in volume and value, while exports of lower-priced wines fell compared to 2020.
 

Meininger’s: New Zealand is known for its Sauvignon Blanc, Australia for Syrah, and Argentina for Malbec. Chile initially earned its reputation for the quality of its Cabernet Sauvignon, is this still your signature variety? Which other varieties are doing best today? And what are the trends? (Chilean Sauvignon Blanc seems to be filling a gap created by a short harvest in New Zealand, for example).

Valenzuela: Our positioning is based on 4 strategic pillars: diversity and quality, sustainability, innovation and country image.

A key characteristic of Chile is its ability to produce a wide range of high quality wines, in terms of grape varieties and styles. This is the result of an unusually privileged diversity of geography, climate and soil. There are 18 distinctive wine regions across 1,400 km from north to south, subject to climatic influences from the coast and the Andes mountains and perfect conditions in which to grow healthy and high quality grapes.

For us, each grape variety has a different role. Our ‘flagship variety’ is, of course, Cabernet Sauvignon, which has won global recognition for its quality. As a ‘signature variety’, we are the premier source of world class Carmenère. We also have ‘discovery varieties’ like Carignan, País and Cinsault. Today, Chile excels in making some of the best wines from these grapes. On the other hand Sauvignon Blanc and Chardonnay are our ‘Classics’ that consistently over-deliver on quality for the price.
 

Meininger’s: When selling in export markets, how much awareness is there of regional designations? Does this vary from one country to another?

Valenzuela: That depends on the market and the stage of the development of the wine category. In more mature markets, where wine consumption is higher, knowledge about wine and about Chile and its wine producing valleys is much higher than in ones where it is still developing. In the case of China for example we had to start talking about the country and to introduce Chile and its advantages as a wine producing country.

"Turn Chile into the largest producer of premium, diverse, and sustainable wines in the New World."

Meininger’s: Chile was an early adopter of sustainable viticulture. How important is that in export markets? And how much of the industry is moving further into certified organic production?

Valenzuela: Sustainability is one of the pillars of the Chilean wine industry’s 2020 Strategic Plan. This is a declaration of principles: to turn Chile into the largest producer of premium, diverse, and sustainable wines in the New World. While it is true that Chile has geographic and climate conditions that are ideally suited for growing grapes naturally, the objective of the industry is to go much further, and to pursue an approach that goes beyond being environmentally-friendly.

This is why for the past 9 years the I+D Vinos de Chile Consortium – the technical arm of the industry – has been developing its Sustainability Program for the industry, which represents a set of projects that focus on making the wine chain value environmentally friendly, socially responsible and economically viable. The projects are focused on topics such as water management, pesticides, energy, biodiversity, geology and climate change, social responsibility. The improvement of the current version of the Sustainability Code is an objective for everyone.­­­

The Sustainability Code is the cornerstone of this program. It provides a common framework to guide all Chilean wineries towards more sustainable growing practices and to keep track of their progress in this area through a process of recognized and validated certification. Additionally, wine production involves many steps beyond the way in which the grapes are grown, and the Code is not only focused on this phase. Its scope includes everything a business does­­­­­­­­­­ and everywhere in operates: vineyards, wineries, bottling plants and other facilities, and corporate offices.

The Sustainability Code has four areas:

  • Green - vineyards: management of natural resources, pests, diseases, agrochemicals, and worker safety.
  • Red – process: saving energy, water management, waste reduction and recycling, occupational safety, environmental pollution prevention.
  • Orange – social: sustainability policy, ethics, environment, economic sustainability, relationships with suppliers, work conditions, community, marketing and commitment to clients and consumers, economic sustainability
  • Purple– Sustainable wine tourism: quality and service, environment, social aspects, general management, economic sustainability.

The certification is a transparent and independent process carried out through certification agencies registered in the Sustainability Code list of certification agencies. Currently 80 wineries are certified, representing over 80% of exported bottled wine.

Maule View (Photo: Wines of Chile)
Maule View (Photo: Wines of Chile)

Meininger’s: Wine tourism suffered globally during the pandemic. What are your expectations for this sector over the next year or so?

Valenzuela: The reopening of this sector is now a fact and the wineries have adapted their offer by proposing alternatives for safe visits under specific defined protocols. This has been a gradual process. Efforts are maintained to give visibility to the offer through digitization, positioning campaigns, among other efforts. There is also greater diversity thanks to an increase in the wine tourism offer linked to small businesses in emerging valleys.

Today there are around 146 wineries (small and large) open to wine tourism. Before the pandemic, these were receiving 941,000 tourists a year, 15% of the total number. In 2022 we expect to return to those figures.
 

Meininger’s: In export markets, do you see Argentina as a competitor or a neighbour with whom you can cooperate when working in markets outside South America?

Valenzuela: It’s a neighbour with whom we can cooperate in different markets. We have a very good relationship with Wines of Argentina - WoA - and we are always looking for ways to work together to our mutual benefit.
 

Meininger’s: Finally, what are your export aspirations for Chile over the next five years?

Valenzuela: Our goal is to strengthen the image and premium and sustainable positioning of WoC. We want to consolidate our position as the number one producer of sustainable and diverse premium New World wines, promoting and positioning the appellations of origin and contributing to the development of the sector as a whole.

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