CHILE EXPORTS: Coming of age

Chile has historically been known for producing lower-end wine, but in a growing number of export markets the category is rapidly increasing in volume and, more importantly, value.

Cast your mind back a few years, and the two words that immediately sprang to mind when you considered Chilean wine were most probably “cheap” and “cheerful”. During the past few years, however, the investment in both facilities and knowledge that has epitomised the past decade has begun to reach maturity, resulting in an unquestionably higher standard of wines. And this improvement is clearly being recognised, as a plethora of export markets from all corners of the globe are registering impressive growth in terms of both volume and value.

Chile, by its very nature, is an aggressive exporter – and not just of wine. The economy continues to grow fat from the yields of the copper mines in the northern deserts, while the excellent natural growing environment and rich Pacific waters make it one of the world’s principal suppliers of salmon, avocados, and other fruit and vegetables. As Anakena managing director Jorge Gutiérrez explains, domestic consumption (of pretty poor wine) declined enormously in the past few decades. While it has plateaued since 2004, Chile would have to be a serious alcoholic to consume the vast quantities of wine that its excellent soils can produce. So it was logical that the country looked overseas.

The UK continues to be the number one importer of Chilean wine, and the category’s gradual growth in this most competitive of markets must be viewed with envy by virtually every other wine-producing nation. But while the UK continues to top the sales charts, further down the list virtually every other importer nation is registering much higher rates of growth. As the chart on page 91 illustrates, the news is positive from virtually every market – double-digit rises dominate the table and there is only the lightest of smattering of minus signs.

Widespread growth
Virtually every market is showing the kind of growth that would make producers in most other countries turn green with envy, so it’s difficult to pick out a single territory as the star performer. It thus seems logical to begin this brief world tour of Chilean wine consumption in the US, ranked number two in the charts. The category sent large volumes to the north, but tended to trade at an unacceptably low price – today, however, value sales are on an encouraging upward curve. Aside from the improved quality of the output, this has been driven by increasing insight into consumer demand. “We understand the market much better,” explains Ventisquero export manager Américo Hernández, which has enabled the business to grow by 60% in the past year. The fragmented nature of the US means that good distribution is key. Commercial director Christian Wylie reports that Santa Carolina’s business was suffering through a lack of focus within the Constellation portfolio. Since setting up a joint venture and “taking control of our own destiny”, the company has generated substantial growth, focused almost exclusively on US$10-plus (£5) wines.

Among the suppliers there is universal praise for the exceptional work that Michael Cox and the Wines of Chile UK team have done in the past two years. Hector Torres, export director at Viña Carmen, speaks for many when he says: “We want to replicate this performance in the US.” Casa Silva managing director Mario Silva (a prominent figure in WoC) explains that – in light of the complexity of the market – the strategy is to appoint an agency to oversee the generic message. And as this marketing machine gradually cranks up the gears to top speed there is little doubt that the upward trend will continue in earnest.

North of the border, Canada has long been a key territory for Chile’s wine. It continues to register excellent numbers, but as Valdivieso export area manager Nicolas Vergara puts it, “the monopoly is a bit of a headache”.

Eastern promise
Alongside every other wine-producing nation (and, indeed pretty much any producer of anything in the world these days), Chile is keeping a close watch on the Asian markets. The category is only just recovering from a serious dent to its image that was dealt in the aftermath of the economic crisis in Japan. Away from this “hub” market, however, certain players are enjoying stellar growth in certain countries – and it appears that the “first movers” are at a particular advantage. High levels of investment are required to help guide consumers into the world of wine, so the key seems to be to focus attention and investment on specific territories: no Chilean brand owner has the financial clout to cover all of Asia, so it is far more effective to concentrate on specific markets.

Errázuriz president Eduardo Chadwick sums up the mood as he says: “There are lots of opportunities in the smaller Asian markets where there is real potential for premium wines.” His company is enjoying particular success in Taiwan and Singapore. Corpora, meanwhile, is in an excellent position in Thailand and Hong Kong, with CEO Jorge Goles pointing out that it is essential to build strong brands in Asia, so “significant, long-term investment makes good sense”.

Korea is showing a particularly strong tendency towards wine, and the strategy adopted by Viña Carmen is indicative of the kind of creative thinking that is sure to yield results across Asia. To increase confidence and make consumers “more comfortable” with wine, the company has recruited a popular soap opera actor as a brand ambassador and the concept is working wonders. This is currently the only market where a brand ambassador is employed, but Viña Carmen’s Torres reports that the company is considering replicating the tactic in China. Santa Rita is another player that has set its sights on conquering China (surely, it must be said, the holy grail of every company in the drinks business). Export commercial director Patricio Fernandez explains that the company is in the process of hiring a dedicated team based in Shanghai, and is aiming to hit the 60,000-case mark by the end of next year. Crucially, he says, success in China is dependent on “building strong partnerships and realistic plans together”.

Unsurprisingly, Europe is a major destination for the ever-increasing number of containers of wine that are pouring out of Valparaiso port, with five markets occupying a slot in the top 10 markets and a further four in the top 20. Ireland may be a relatively small country, but its inhabitants find plenty of room for Chilean wine alongside the Guinness and whiskey in their alcoholic repertoire. MontGras is a particularly strong performer, thanks largely to the longevity of its presence in the market. As managing director Patricio Middleton explains: “Ireland is our strongest distribution in the world.” The predilection for brands among Irish consumers means that, as Fernandez puts it: “if the brand is strong this is a great playground” – and he’s certainly qualified to comment: the market generates three times more sales for the brand than the UK. Casa Silva is also enjoying particularly buoyant sales there, though Silva points out that “there is still plenty of room for growth”.

Trading up

Germany has historically imported significant volume but suppliers have only been able to command rock-bottom prices. All this appears to be changing, however, as consumers are demonstrating a growing tendency towards better-quality wines. “It’s always been a very cheap market,” says Fernandez, “but they are rapidly trading up.” Viña Carmen’s Torres believes this trend is the result of a “positive economic situation” that is resulting in “growing consumer confidence”. The company now only sells branded wine priced E5.99-plus and he can barely suppress the smile as he reports his “big, big surprise” that the brand is up a stunning 400% this year.

Scandinavia in general – and Denmark in particular – also has a relatively long history of appreciating the fruits of Chile’s vines. The markets’ tendency towards strong, well-promoted brands is good news for a number of the bigger players in the category. San Pedro is one of the contenders that benefits from a long-established presence. As Turner says, “In Scandinavia, our brands really are brands, there’s been long-term investment that has given them a strong reputation.” MontGras, too, exports significant volumes to the Nordic countries. “Chile has a good standing there because we have the right varietals and styles of wine to suit the consumer.” Holland is the other European nation staking its place in the top 10. The market is one of the leading pack in terms of tending towards organic produce, and Emiliana export director Christian Rodriguez explains that one of the leading supermarket chains is taking a particularly strong stance in this direction. All of which is encouraging news for a growing rostrum of Chilean wineries that are able to produce wine that can be certified organic, thanks to the particularly rich natural environment that the isolated land provides.

To the east, Russia is becoming “really thirsty” for Chilean plonk, according to Vergara, and the market is generating strong sales for Valdivieso. Santa Carolina, too, is seeing increasing quantities of roubles boosting its bottom line. Though Wylie urges a modicum of caution for those trying to break into the market when he says: “It’s very difficult to understand where Russia is going. The growth is very strong, but it’s very unpredictable.”

Surprisingly enough, when talking exports with the suppliers, Africa crops up in the thoughts of more than a handful of companies. Ghana and Nigeria seem to be the most accessible points of entry and it is, of course, a particularly challenging continent in which to do business. However, it presents a possibility for the dwindling quantities of slightly lower-quality wine that simply will not shift elsewhere.

Near neighbours
While this positive environment gives ample cause for optimism in markets around the world, it is rather closer to home where many of Chile’s wineries are enjoying the greatest success. With the economic stability of the past few years, Latin America is drinking more and more wine – and it seems that consumers are particularly fond of “locally sourced” produce (relatively speaking, at any rate). In particular, the regional powerhouse of Brazil is generating exceptional volume growth and, Hernández points out, they are willing to pay up to 20% more than the UK. The middle classes are growing fast – wine is one of the first luxuries that people indulge in when their expendable income increases. And the next rung up the social scale is even more appealing – as Wylie puts it, “There’s over a million filthy rich people in São Paolo – they love luxury, and they love Chilean wine.”

South America’s trading group, Mercosur, is another major advantage for the Chilean exporters – it is the principal reason why the top two categories in Brazil are now Chile and Argentina. Customs may still be a rather difficult challenge to overcome, but the logistics are relatively simple, the transportation costs are lower and there seems to be a certain level of local solidarity in support of their neighbour’s output. If stability can be maintained and the economies of Latin America continue to grow, it can only be good news for Chile.

As the Australian crisis continues to deepen and the global oversupply that has hindered the trade begins to subside, Chile is perfectly positioned to take advantage. The maturation of the category means that it is consumed with increasing confidence the world over, and suppliers are almost uniformly able to shift growing volumes of wine at ever-higher prices and in July, the category punched through the $1bn barrier. Chilean wine is no longer perceived as “cheap”, but the suppliers are most certainly “cheerful”. 

© db September 2007