Feature: Argentina – Looking to score
Argentina has experienced the highest value growth of all wine exporters in the US market. Will the new dedicated generic Argentine wine office help to emulate such success in the UK? Julie Sheppard reports
So another World Cup is over. The goals, the glory, the infamous red cards… But while Italy pops open the prosecco, other qualifying nations are left with disappointed dreams of what might have been. And perhaps none of those dreams are more desolate than Argentinaâ€™s. Tipped for the top at the outset, its national team exited the 2006 FIFA World Cup in quarter-final defeat, despite playing some of the most outstanding football of the tournament. It makes you wonder whatâ€™s left to smile about in the land of the tango?
Well, for the countryâ€™s wine exporters at least, the answer is plenty. First-quarter figures for 2006 show that exports are up by almost half. For the period January-March 2006 total volume exports of Argentinian wine stood at 52 million litres, representing an impressive 43% growth compared to the first quarter of the previous year. In terms of value, there was an increase of 24% to US$74m, the lower percentage growth being due to a fall in average price from US$1.56 to US$1.42 per litre (source for all statistics: CAUCASIA/DGA).
Bulk wine was the driver for this growth, with exports increasing 67% in value terms and a huge 100% in volume. However, at 18m litres, bulk wine exports were still second to bottled wine, which stood at 24m litres. As the table on p.66 shows, the US remains the largest market for bottled exports, accounting for 654,140 9-litre cases in the first quarter of 2006 with a value of US$18m.
According to Alejandro Poffo, trade officer at the Argentine consulate in New York, Argentina is now number eight in the top ten wine importers to the US, with a market share of 2%. More importantly, it has shown the highest growth in market value, rising from US$34m in 2003 to US$59m in 2005.
Indeed, between April 2005 and April 2006, percentage value growth was 39%, in comparison with only 0.1% growth for Italy, the number one importer and a decrease of 6% for number two Australia.
This success is confirmation of the efforts of pioneers such as Alfredo Bartholomaus, who first imported Argentine wines to the US 14 years ago, in the shape of Catena Chardonnay and Cabernet. His company, Billington Imports in Virginia, is now the largest importer of Argentine wines to the US in value terms. â€œArgentina can offer good value because of its new technologies and low production costs,â€ he says. â€œConsumers have discovered that its wines are great value for money at all price points and at the moment its profile is very high.â€
â€œThese are very exciting times for Argentine wines in the US,â€ agrees consultant Nora Favelukes of New York-based Quantum Wines. â€œBut still, the trade and consumers have not embraced Argentina as they have Chile and Australia, for example.â€ She believes that the market is becoming more sophisticated, meaning that new marketing strategies are needed to ensure continued growth for Argentina. â€œThe generic organisations that are succeeding in the US are those that combine traditional wine tastings for the trade with special events that target consumers through key on- and off-premise accounts in diverse US cities,â€ she says.
New UK targets
Itâ€™s a message thatâ€™s equally relevant for the UK market, which from September 1 will have its own dedicated generic Wines of Argentina office, headed up by former Oddbins senior buyer James Forbes. Unlike the US, exports to the UK were in decline between 2005-6, with a drop of 17% to 393,414 9-litre cases with a total value of US$7m (just under Â£4m). Many hope that generic activity will reverse this trend, not least Forbes himself, who says, â€œA target of doubling Argentinaâ€™s market share in the UK in the next three years should be more than achievable.â€
Producers agree. â€œThe market share statistics make sad reading for our industry,â€ says Malcolm Falconer, MD of Martaâ€™s Vinyard. â€œHowever, a robust UK permanent presence offers a fantastic opportunity to grow substantially from a very low base.â€ The company, which exports all of its 700,000-litre production, opened its own office in London in 2004. â€œBeing here gives us first-hand market experience that has unfortunately been lacking among our fellow producers,â€ says Falconer. â€œThe Argentine industry has been too reliant on importers going to Argentina to buy and the majority of producers donâ€™t want to export.â€
Most of the wine produced in Argentina is drunk locally and with such a strong domestic market, the need to look beyond the borders simply doesnâ€™t exist for smaller producers. For bigger players a big difficulty is Argentinaâ€™s location both globally and in terms of the proximity of its wine-growing regions to shipping ports. â€œIt has the most challenging logistics of any wine-producing country in the world,â€ says Falconer. â€œTransport costs for a wine exported to the UK could be as much as eight times higher than for a wine exported from Australia.â€
Moreover, the Argentine government levies an 8% export tax on all wine leaving the country. (Compare this with neighbouring Chile, where the government has negotiated beneficial export rates and bilateral trade agreements that help the wine industry.)
The economy is also a problem. â€œThe benefits gained after the devaluation are being diminished by local inflation,â€ says JosÃ© Asensio, exports director at Familia Zuccardi. â€œWith annual economic growth of 9â€“10% in recent years, the high demand of many services and dry materials is not at the same level as supply. As a result, labour costs, energy, transportation and dry goods are increasing in price.â€ Due to the strong euro, other dry goods such as barrels and corks are also affected.
â€œDry goods suppliers will not supply until they receive payment or a long-term forecast from an Argentine wine producer,â€ continues John Osborne, business development manager for South America at importer PLB, agent for Bodegas Escorihuela. â€œSuppliers will not hold floor stocks as this means cash tied up. This leads to much delayed reaction times unless wineries make very long-term plans and/or hold their own floor stocks,â€ he explains.
But despite such issues, there are encouraging signs that Argentina has the potential to be a major player, both in the UK and globally. â€œArgentina has several USPs,â€ says Nick Room, wine buyer at retailer Waitrose, which lists 21 Argentine wines. â€œIt is the champion of Malbec and TorrontÃ©s and produces good value wines with unique flavours, thanks to winemaking expertise and investment in wineries.â€
External investors have been placing their bets on the country since the 1990s, when joint-venture brands such as Argento began to appear. â€œArgento was set up with funding from Nicolas Catenaâ€™s Bodegas Esmeralda in Argentina, UK importer Bibendum and the International Wine Investment Fund of Australia,â€ says Amelia Nolan, general manager of the Argento Wine Company. The aim was to produce a global Argentinian wine brand, and since its launch in 1999 Argento has grown to become number six in the world.
Argentinaâ€™s number one slot is occupied by PeÃ±aflorâ€™s Trapiche, which sold more than 2m cases (9-litre) in 2005, of which 60% were exported. Regional export manager, JuliÃ¡n Orti, says, â€œThe biggest challenge for Argentina is to maintain double-digit growth in the export market.â€ The industry has now drawn up a long-term plan to reach a target of US$2 billion in the export market. â€œTo achieve this, the main challenge is to improve awareness of Argentina and become a true category in all the key markets,â€ he explains. â€œWe need to increase the amount of international trade agreements and we also need to build a couple of strong internationally recognised brands that can break the ice for the whole category.â€
This is particularly true for the UK market, according to Greg Wilkins, director at Brand Phoenix, the off-trade distributor for Trapiche. â€œUK consumers are polarising around brands in other categories,â€ he says. â€œArgentina needs to have two or three major brands driving the category to provide the consumer with familiar, consistent and reliable wines. For long-term category success brand owners need to be strategically and financially committed to delivering these brands to the UK consumer and realise that growing the category is a medium- to long-term objective, and not a short-term exercise.â€ Perhaps the same advice could be given to Argentinaâ€™s football team, as they look ahead to South Africa in 2010â€¦
James Forbes, Wines of Argentina (UK)
db: What are the biggest challenges for Argentina in the UK at the moment?
JF: Argentina needs to establish itself as the premier South American wine producer in the minds of UK buyers, press and consumers. I strongly believe that the seeds of future success have already been planted. But so far we have few plants and only a little fruit. To cultivate an environment in which Argentine wine can flourish and grow, with its integrity and authenticity intact, is the real challenge.
db: Will the UK retail environment change in the next five years?
JF: Yes. As interest in all aspects of food and drink grows in the UK and as concerns increase about production and manufacturing processes, I believe that wine will come under increasing scrutiny. Many European and New World countries, with their reliance on the anodyne, mass-produced and synthetic are going to get caught with their pants round their ankles.
db: Will Argentina be in a position to respond to changing market demands?
JF: Argentina can legitimately claim to be a wine producer that respects the environment, the land and those who work the land, much of which is farmed in near-organic conditions. Match that with the long, passionate history of winemaking (dating back to the 16th century) and a wonderful array of styles and grape varieties and Argentina is brilliantly positioned to react to these changes.
db: What advice do you have for Argentine producers looking to succeed in the UK?
JF: This market is the most demanding in the world. So at whatever level you are competing, you need to be at the top of your game. There is no doubt in my mind that Argentina has the breadth and quality of wines to challenge and win here â€“ the trick is to consistently put the right wines in front of the right people. By that I mean taking an approach that properly matches the quality, style and price aspirations of the prospective customer. But thatâ€™s just the start, the whole package needs to back it up; everything from the type and levels of support for each listing, the closures, presentation and labels, all aspects of quality control and the supply chain have got to be first rate. The last piece of the jigsaw, a flexible, â€œcan doâ€ attitude, will take you a long way down the road to success.
Wines of Argentina Annual Trade Tasting 2006
Date: 19 September 2006
Venue: The Nursery Pavilion, Lordâ€™s Cricket Ground, St Johnâ€™s Wood Road, London NW8 8QN
This yearâ€™s trade tasting is bigger than ever, with 75 producers exhibiting. Alongside established brands from Alta Vista to Zuccardi, there will be a number of new wineries including JoffrÃ© e Hijas (Great Western Wines). Among those seeking UK representation will be Bodega NQN, Bodega San Polo, Val de Flores and Mendel Wines. Other highlights include the unveiling of a new Reserve Range from Santa Ana (Enotria) and the latest release of Chacayes, the icon wine by Jacques & FranÃ§ois Lurton. Visiting winemakers include with JosÃ© Manuel
O Fournier and Victor Marcantoni.
Â© db August 2006