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Regional Analysis |
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| June 12th 2007 |
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| Spanish eys seeing red |
by Victor de la Serna
For a country boasting the world’s largest vineyard surface, Spain has long punched below its weight in the international ring. In spite of a flurry of positive change, the world’s third-largest producer still faces challenging times. With production rising, consumption falling and exports stagnating, Victor de la Serna looks for solutions.
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The world’s third-largest wine producer is in trouble. Spain’s wine consumption is dropping as fast as its wine production is rising, and its overall exports are stagnating. Several large producers are in the red, and Spain’s overall production structure has been deemed inadequate by market analysts who point out that, although there are far fewer bottling wineries in Spain than in France or Italy, there is also a notable lack of large-scale producers who can compete on the worldwide market at mid-level prices.
However, there is also a flurry of positive change: new wineries and brands are constantly appearing at a New World pace; there is increased marketing activity; and Spanish wines are getting more attention and plaudits in the international media. But while there are numerous individual success stories, this has yet to translate into an improvement in the overall market situation.
For a long time, the received truth about Spain was that, despite having the world’s largest vineyard surface, its production was much smaller than that of France’s or Italy’s, due to much lower yields in a markedly drier climate. This has now changed spectacularly. The vineyard surface has shrunk since 1990 by about 100,000 hectares to just under 1.2 million, which is still far above that of France or Italy. More importantly, though, viticultural changes have increased yields exponentially, and production has crept much closer to French and Italian levels. Further, with almost 400,000 hectares planted to Airén, the drought-resistant but low-quality white grape of the Castilian plateau, Spain’s overall production is still over 60% white, which is much less in demand. For controlled appellation wines, however, reds now constitute over 50% of total production.
During the drought years of 1994 and 1995, Spain produced, respectively, 20.995 and 20.876 million hectolitres, or about 16 hectolitres per hectare. Even in a more clement vintage such as 1996, which produced 32,675 hl, the average yield was just 24 hl/ha. But in 2006 production reached an estimated 43.448 million hl – no longer very far from the 50.000 million hl figures usually recorded by the French and the Italians – with average yields of 36 hl/ha.
The main reason for the increase in production has been the European Union-funded vineyard re-structuring scheme, started in 2000, of which Spain has been the main beneficiary. More than 140,000 ha have been replanted to date, generally to highproduction clones in trellised vineyards with drip irrigation, and yields of up to 100 hl/ha are not uncommon in these vineyards.
In 2004, the secretary of the Cava regulatory council, Gabriel Giró, raised the first protest against a “well-intentioned, but ill-advised” scheme that had contributed to a glut in grapes for the Spanish sparkling wine. In that year production had suddenly reached 360 million kg, 100 million kg above the average of the previous |
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Regional Analysis |
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decade, due to the many new, high-yield vineyards just entering production.
Against that backdrop, the continued reduction in consumption is even more devastating. The latest data by the Agriculture Ministry indicate that in 2006 the drop was the steepest in 16 years, minus 5.2% in volume to 1.085 billion litres and minus 4% in value to €2.84 billion. The per capita consumption figure broke a new negative record with 24.9 litres (–6.9%) per person per year. The figures are much lower than in the other major wineproducing countries of Europe. Since 1987, when per capita consumption was 47 litres, consumption in Spain has almost halved. In both France and Portugal, Spain’s next-door neighbours, locals drink twice as much wine per capita as the Spaniards. No serious research has yet been conducted on the causes of such a comparatively low rate of wine consumption in a traditional Mediterranean wine-producing nation, though Spanish authors have drawn comparisons with Greece, where wine’s flagging popularity is possibly caused by the dismal quality of wine produced over the past several decades.
Due the lack of alternative nutritional choices in what was an impoverished nation, wine was a staple of the Spanish diet for most of the 20th century; but it was seldom consumed on its own – it had to be mixed with lemonade to become palatable. When living standards began increasing in the 1960s, large chunks of the population began switching first to beer and then to other d rinks, often not returning to wine, even when quality finally began to rise.
That trend has been accentuated by two recent developments. One has been the steep increase in population through immigration, about 5 million people since 2000, with most of the main immigrant groups from countries having little wine consumption tradition: North Africa, Ecuador, the Dominican Republic and Eastern Europe. The other development has been the new, stiff anti-alcohol controls and the points-based driver’s license adopted in July 2006. While retail sales remained almost unchanged (–0.8%), this has translated into a precipitous drop of ontrade sales (–8.3% last year) as restaurant customers developed a fear of alcohol controls and the possible loss of their drivers’ licenses.
Meanwhile, exports have improved in both value and volume terms. In 1994–96, they averaged 700 million litres, and then hovered between 1 and 1.1 billion litres through the early part of this decade. In recent years there has been further progress in value, but not volume. The figures for 2005 were €1.560 billion for total value and 1.450 billion litres for volume. Then, last year, while an historic record for total value was established, with €1.642 billion, volume actually shrank slightly to 1.440 billion litres. Sill, even this development placed the average price of exported Spanish wine at only €1.14 per litre. Meanwhile, France was breaking its own yearly export record with over |
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€8 billion, a stark reminder of the difference in value-added between the productions of both countries.
While sparkling wine have stagnated (+1.7%), the 2006 export figures show a marked increase in Denominación de Origen wines (+8.3% in value terms) and bottled table wines (+4.5%). In volume terms, bulk table wines dropped significantly (–4.3%), to 665 million litres. This came after two positive years, which now appear to have been a blip, on a generally downward trend, due to the effects on international markets of two successive relatively small vintages in France and Italy.
The comparison between production and consumption only serves to highlight the importance of exports - and the increasing gap between what is produced and what can actually be sold on the domestic and international markets. The “crisis distillation” measures subsidised by the European Union have become a regularly needed fix, particularly for the large bulk-producing co-operatives in the Castile-La Mancha region, which, at almost 600,000 ha, has the largest vineyard surface of any producing region in the world. While small and large wineries scramble to adapt to this stark reality, official policy on wine promotion has been, according to industry sources, generally unhelpful since the current socialist government took office in April 2004. Just prior to this, in 2003, a new Law on Wine and Vineyards was pushed through by the previous conservative government. It defined wine, like food, as “a part of the Mediterranean diet” and opened the way to governmentfunded promotion of “responsible consumption” of wine. The new administration, however, soon made it clear that it was not in favour of such measures, but rather favoured antiwine lobbies. In 2004 Fernando Moraleda, then the Agriculture Ministry’s number two official, in an effort to explain why he wouldn’t commit any resources to counteracting the drop in consumption, told wine producers that “one can’t go against social trends. You will have to solve the situation through exports,” he added.
A “strategic plan” for Spanish wine was thus announced in 2004 by the Agriculture Ministry, and it should have been ready six months later. But by early 2007 there were still no news of the plan. Meanwhile, Health Minister Elena Salgado proposed an anti-alcohol bill that would include wine in the “dangerous drugs” category. Although she temporarily withdrew it as the wine industry mounted harsh protests, she has reserved the right to revive it after local elections in May 2007. Finally, Agriculture Minister Elena Espinosa has stated that “a larger production at greater prices” is the solution, adding that “the lack of marketing skills has been our only shortcoming” and was the main cause for the lack of sales. But the marketing situation, like the export picture, cannot be simplified in overly general terms. There are clearly distinct success stories |
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Regional Analysis |
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and failures. On the exporting front, the overall progress has been quite uneven. Some traditionally solid markets for Spanish wines have deteriorated, while others have shown marked improvement. Sweden and the United States provide leading examples at each end of the spectrum.
In 1999, Spain reigned over the monopoly-controlled Swedish market, with 50 million bottles sold and a 30.5% share of the sales. But by 2000 this had dropped to 22%, and by 2006 to 15%. Early on, it was the traditional-style Rioja reds, a stalwart since the 1970s, which suffered the most as Swedish consumers switched to fruitier, more powerful New World wines. Then, over the past couple of years, Spanish white wine sales have also dropped significantly. “Much of this happened,” says Andreas Larsson, the new world sommelier champion, “because the Spanish were far to late to jump on the Bag-in-Box trend, which is an immense part of the market today.”
By contrast, the situation of Spanish wines on the allimportant American market was improving quickly over the same period of time. Mired in the one-million-case bracket throughout the 1990s, Spanish wines have since 2000 steadily climbed to the three-million-case level and beyond, recovering some of the lost ground against New World competitors, particularly Chile.
According to Spanish wine-industry observers, these two contrasting stories reflect contrasting strategies. On the one hand, a foreign state monopoly that is slow in recognising changes in customer tastes and does not adapt its Spanish portfolio fast enough, and on the other hand a number of dynamic, private importers in the United States who keenly identified the Spanish producers – some of them quite new and almost unknown in their country of origin – that could appeal to the American market. These importers, led by Wine Spectator and The Wine Advocate, won the attention and the backing of the major wine outlets in the America and in so doing succeeded in correcting Spain’s somewhat stodgy downmarket image.
On other markets, Spain continues to grow at a snail’s pace. In the United Kingdom, where supermarket chains’ own-brands dominate, growth has been slow except for such groups as Torres, and Spain has been too slow in attacking the rapidly growing markets of Russia, China, Japan and India, losing valuable ground to its competitors in France, Italy and the New World.
Be that as it may, the situation in Russia, for example may not as disastrous as it appears at first glance. “Producers such as Freixenet and Torres have blazed a trail,” thinks Eleonora Scholes, “that should enable lesser known producers to gain a foothold in the market through specialist importers like Interproduct 96.” The role of ICEX, the government promotion agency, remains a controversial one. It has had little to do with the developments in Sweden or the US, which were dictated by local factors. Its very expensive and largely |
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Regional Analysis |
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ineffective campaign in the American media in the 1990s, which touted Rioja as the right wine to accompany hot Mexican food, remains as an example of wastefulness. But in the past couple of years ICEX has changed tactics, foregoing generic campaigns in favour of presentations and tastings of the newly annointed and fashionable Spanish wineries, led by such star winemakers as Álvaro Palacios, Peter Sisseck, Mariano García and Telmo Rodríguez.
Some appellations – notably Navarra and Rioja – are also very actively promoting their own products abroad. Rioja, which has reacted well in marketing and image terms after its downturn in the late 1990s, saw its 2006 exports rise by 13.8% in value.
At the other extreme, the black hole of Spanish wine remains the immense Castile-La Mancha region, which accounts for half of the nation’s wine production, with its huge untapped potential masked by its outmoded, ineffective production methods. Since prices for grapes have dropped to around €0.20 per kilogramme, and dozens of mammoth co-operatives are forced by law to take in whatever grapes their members bring in, its thousands of small growers are interested only in getting as much quantity as they can from their vineyards. Not surprisingly, most are unable to produce the clean fruit-driven wines that today’s export market demands. There are only two or three Castile-La Mancha brands with anything of an international reputation and no guiding light.
A controversial new foundation, Castile-La Mancha Land of Vineyards, was created by the regional government in 2003 with the aim of helping the region’s producers market their wines. Producers and growers are obliged to pay fees to the foundation, which, by failing to mount any significant marketing drives, despite having started out with a massive €8 million war chest, has not endeared itself to its reluctant backers. The foundation’s most noteworthy effort to date has been a series of luncheons-with-wine with the media in Spanish cities, which end with a breathalyzer test aimed at proving that a meal with two glasses of wine does not cause the legal alcohol limits to be exceeded.
Distribution and imports
Traditionally on-trade sales have been dominant in Spain. Even after the severe drop caused by the new drivers’ license regulations, some 57% of the total in 2006 was sold in restaurants. The percentage is even higher for controlledappellation wines (73%). Off-trade sales are vastly dominated by supermarkets and hypermarkets (70%), with traditional wine shops accounting for only 12% of the volume. There are no national wine shop chains such Threshers, Nicolas, Oddbins or Jaques Weindepot.
Since 2000, imports have accounted for just 2% of domestic consumption, or 20 million litres, per year. Less than half of that amount, with fluctuations depending on the size of domestic harvests, consist of bulk wine from such producers as Italy, France or Argentina, and |
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Regional Analysis |
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the rest, at around 15 million bottles, represents but a small fraction of the internal market. In recent years, the big winners have been, at one end of the spectrum, dirt-cheap red and rosé sparkling Lambruscos from Italy, with about 7 million bottles a year, and, at the other end, the unexpected surging sales of Champagne. With some 3.6 million bottles in 2006, Spain has become the world’s ninth-largest market for Champagne.
Brands? Which brands?
Brand recognition is not a forte of Spanish wines, save for the mythical Vega Sicilia – a wine many consumers have heard about, but very few have actually tasted. Even major groups such as Pernod Ricard have failed to produce largescale single brands that can rival a Jacob’s Creek or a Lindemans Bin 65 on the worldwide supermarket scene. They tend to produce varied portfolios with no dominant name. Probably Spain’s best “brand” is a collective one – Rioja. For half a century, that region had a monopoly over quality red wines in Spain and used it well to develop its name as a soft brand guaranteeing a good product. “I’ll have a Rioja” was the common way of ordering in a Spanish restaurant until at least the 1990s.
Indeed, two Rioja brands dominate among still wines, as far as brand recognition goes, due to their relatively high production under one name: Marqués de Cáceres Crianza (10 million bottles per year) and Marqués de Riscal Reserva (4.5 million). The top Spanish brands are probably to be found in other sectors of the industry: they are Freixenet Cordón Negro and Codorníu Non Plus Ultra among Cavas, and Tío Pepe and La Ina among dry sherries. The leading brand among non-fortified white wines is, perhaps surprisingly, a vino de la tierra (vin de pays) from Andalusia, Barbadillo’s Castillo de San Diego, with about 2 million bottles produced yearly.
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