Spain’s growing pains

Spain must build more contemporary brands if it is to capitalise on its many advantages. Charlotte Hey reports

Add all of Spain’s wine products sold in the UK market together and you get something of a surprise. In pure wine terms, namely still red and white, Spain currently ranks just seventh on the league tables in the UK. However, chuck in sparkling, fortified and vermouth and the country leaps from seventh place in the league table to fourth. And Spain’s not the only one. If, for each wine producing country across the globe, you consider all styles including still and sparkling wines, fortified wines and vermouth style wines, along with both on- and off-trade sales – and their associated sales – you get a pretty radical shake up of the wine market. And for Spain at least, that shake up is very positive, because it means that it’s nipping at the heels of France, Italy and Australia, which is no mean feat.
In hard sales terms, measuring Spain’s total combined sales in the UK in this new fashion, means that consumers purchased almost 10 million cases of wine from Spain in 2002 – a figure that translates into one bottle in every 10 sold last year coming from Spain.

Off-trade peaks
Overall last year, total still wine sales for Spain, in terms of volume, were up by a relatively modest 2.1% – almost half the overall market growth of 5.9% – with value up by 2%. Few other Old World countries managed to achieve comparable figures in 2002. But while Spain is continuing to sell more and more each year in the UK, Spanish exporters are not necessarily responding as well as others in the market.
The top three New World wine producing countries are a prime example. They reported volume increases of 23% in the case of Australia, 26% in the case of South Africa and 17% in the case of the US. Clearly these countries are reaping the benefits of adopting strategies that tailor products to appeal to consumers in targeted key markets. The Old World, to a large extent, continues to produce, bottle and label their wine irrespective of the needs of the target market and then question why they do not experience the same level of growth as the New World producers achieve. It would be fair to say that Spain, perhaps more than France and on a par with Italy, is perfectly poised to buck this trend and follow the paths of its New World counterparts and exploit the opportunities currently available.

The challenge for Spain seems to be in balancing the benefits of tradition and the consumer trust associated with it, with the need to add a contemporary feel to its products. This takes in not only appearance but also viticulture, vinification and, most crucially, the adoption of a market orientated approach to business. Spain has made huge progress in this area and possesses many natural advantages in terms of quality, diversity, consistency and relatively low costs of production. To make the most of these advantages and optimise added value, each factor will have to be employed to maximum effect over the next two to five years so as to maintain its presence in the ultra-competitive UK market.
The big question is who will they have to fight off? In the Old World, Italy and particularly Germany are suffering in this climate, recording lower volume sales compared to last year. Both countries have the same opportunities open to them, but both are engaged in a struggle to maintain market share, let alone grow exponentially. Spain has a strong opportunity to capitalize on its underperformance by providing wines that offer better value on the one hand and greater diversity on the other. From the New World, the only real challenger is Chile which, with its Latin background, has given Spain’s traditional markets a run for their money over the last decade. Though Chile’s assault on Spain’s position in the ranking appears to be fading, with its market share in 2002 dropping to 5.8%.

The price and value challenge
However, while the window of opportunity is open, Spain needs to address a fundamental weakness before leaping through it – price and value. Over 76% of all Spanish sales in the off-trade are at prices of £4 or lower, compared to the 66% average for the market as whole. The figure has not changed notably for Spain over the last three years though it has cut back significantly on the level of wine sold at £3 and under. Over the same period, though, the market has been drifting towards marginally higher prices. Between the crucial price points of £4.01 and £5, Spain performs at just over half the market average –  approximately 13% of its sales fall into this price category compared to the average 24% for other countries. Most high volume branded products are positioned between these price points and Spain’s underperformance may be a reflection of the country’s need to up the branded offer in this area. But at higher price points – essentially the premium market of £5.99 and beyond – Spain is still relatively strong with crianzas, reservas and gran reservas and its sales in line with the market as a whole.
A big strength, however, is Spain’s price stability. The average price of a bottle of Spanish wine, which is currently £3.80, has varied by only 7p in the last four years. So many competitors have suffered wild fluctuations in the same period, with a series of highs and, more notably, lows. However, if consideration is given to Spain’s historical and increasingly redundant association with bulk wines, progress in terms of bottle price is pretty positive. The fact that 75% of Spanish off-sales occur in multiple grocers may explain further the relative low, but steady pricing. The decline of the independents, a traditional stronghold for the Old World, and consolidation among multiple specialists are, however, presenting new challenges for Spain within an ever changing marketplace.  db

REGIONAL PERFORMANCE

Cava
Spain continues to dominate the sparkling wine market in the UK with 52% of all off-trade sales and an overall  increase in sales volume of 14.8% on last year. The vast proportion of sales are own-label products in multiple grocers, though it is very encouraging to see the inroads made by branded products through sustained promotion and brand support (see page 47-48).

Rioja
2002 was an excellent year, seeing Rioja bounce back onto the shelves. Sales were up 21% on 2001 with significant increases achieved over all styles from joven to gran reserva.  Pricing stability is the key to sustained growth if the sector is to avoid the market fluctuations that dogged 1999 and 2000 vintages. To support Rioja in 2003, an independent promotional campaign will be rolled out involving advertising, a PR programme and trade support.

La Mancha
Export figures provided by CRDO La Mancha reveal an important fall in sales of 35% in 2002. Sales totals for bottled wine in 2001 reached 223,989 cases and fell to 145,245 cases in 2002. Given that overall sales for Spain were up for 2002, it must be assumed that UK retailers are looking to other regions to source wines offering excellent value for money and high volumes. On a positive note for the region, huge investment programmes by established Spanish wineries will soon come into play which should bolster the quality, diversity and potential of the world’s most extended single vineyard.

LEADING THE WAY – RIOJA
”The UK has been among the three leading markets for Rioja for as long as we can remember and has been the leader since 2000, overtaking Germany,” explains Tom Perry, managing director of the Rioja Exporters Group. ”Everyone here was excited in 1994 when our shipments to the UK surpassed one million 9-litre cases and in 2002 we reached 2.3m cases. Britain accounts for 29% of total shipments outside of Spain.”

He continues, ”Young Rioja has showed the strongest growth in 2001 and 2002, due undoubtedly to extremely competitive trading conditions, especially in the multiples, but also because of the weak economy in the UK, which has encouraged consumers to trade down. Shipments of crianza jumped from 2.9m litres in 2000 to 4.6m litres in 2001 but declined about 500,000 litres in 2002.  We suspect that this is due to heavy discounting of young wines in the multiples. Reservas have grown steadily throughout the 90s, with a five-fold increase since 1992 (722,000 litres compared with 3.6 million litres), while shipments of gran reservas stand at almost 600,000 litres.”
All good so far. But what are the plans for the future? ”As far as the immediate future is concerned,” warns Perry, ”I think we have to be cautious about predicting continued strong growth for several reasons. First, the 2002 harvest was quite a bit smaller than 2001 which is currently impacting prices of young wines, the products which always show the greatest volatility. Secondly, the economy is likely to remain stagnant in 2003 which will probably affect sales of non-essential goods.” Perry is, however, hopeful that this is merely a short term blip. ”In the longer term, we are extremely confident about Rioja’s future,” he insists.

PUSHING FORWARD IN 2003 
With relatively small growth in 2002 overall, 2003 will be a key year for Spanish producers to show they can compete with the big boys from the New World. Spearheading the drive for improved sales is Wines from Spain. So what does it have planned over the next 12 months?
”The third year of the UK generic campaign ‘Experimenta la pasion’ will see Wines from Spain continuing to target the consumer with a fully integrated, high impact campaign,” explains Graham Hines, director of Wines from Spain. ”The aim is to reach consumers directly through a consumer sampling, advertising and PR campaign and also through the trade with a focus on retail and restaurant and bar promotions.  

”Sampling is key to the whole campaign as this is the best way of showing our consumers the diversity, range and quality of Spanish wines,” Hines explains.
The campaign aims to sample in excess of 400,000 consumers in retail outlets and at consumer events. Sampling in the on-trade will also be key and Wines from Spain will be working with volume suppliers to this sector while also working closely with the top end of the on-trade by educating sommeliers.
”Spain has increased its total wines sales by 2.1% volume and 2% value over the last 12 months and we are in a strong position as we move forward,” argues Hines. ”The general campaign will continue to focus on all regions and promote Spain as a country that is unique, quality driven and world class, while Sherry and Rioja will continue to have their own separate campaigns funded and organised by those regions.”
Trade enquiries should be addressed to Robert Burgess at Wines from Spain +44 (0)207 476 2354 or  contact them via email robert.burgess@londres.ofcomes.mcx.es