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Regional Analysis |
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| February 28th 2008 |
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| A new wine industry emerges in Bulgaria |
by Elissaveta Velianova
Although it’s been nearly two decades since the collapse of the Soviet Union, Bulgaria is still dealing with the consequences of communism, observes Elissaveta Velianova. Although the future is still uncertain, the changes are already being felt.
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Despite its long history, the Bulgarian wine industry is still groping to find its way in terms of styles and approaches. For 15 years, it has had problems with grape supply, placing too great an emphasis on processing equipment rather than investing upstream, and has lacked a consistent, positive message to transmit to the consumers. But, several years after the end of land reform and in its first year as a member of the EU, Bulgaria has geared up to deal with some of its most acute problems. The expansion of vineyards, increasing the choice of grape varieties, finding the best sites and focusing on quality and the consumer, now describe what’s happening in Bulgaria’s wine industry.
The viticultural sector
Official figures from the Executive Agency of Vine and Wine reveal that Bulgarian vineyards covered 135,760 hectares in 2007. However, many claim that the viable area under vine is less than 100,000ha. The rest are neglected, poorly managed and non-producing vineyards that need to be taken out. While EU policy makers are trying to find ways to introduce more effective measures to cope with the European glut, the Bulgarian wine industry faces exactly the opposite problem. For 15 years, Bulgarian producers have endured a spotty grape supply and are only now initiating changes for the better. While the complex process of land restitution was an issue across all former communist countries of Eastern Europe, it’s been particularly acute in Bulgaria. More than 50% of citizens established valid land claims and the land reforms led to fragmentation. With no tax on agricultural land ownership nor penalties for non-cultivation, owners had few incentives to make business decisions.
Only after the end of the restitution in 2001, did things start to change. Low land prices, good funding opportunities and possibilities for land consolidation attracted investors. Most new developments occurred in the Thracian Plain region, favoured for its more predictable climate, which offers the opportunity to make commercial styles of wine. New plantings reflect the ubiquitous demand for market favourites like Cabernet Sauvignon and Chardonnay, but there is also an increasing presence of Syrah, Sangiovese, Zinfandel, Viognier, Malbec, Pinot Noir and Sauvignon Blanc. Plantings of the indigenous Rubin and Mavrud in the new vineyards speak of investors’ desire to achieve a different competitive edge. Most have a hefty share of red varieties within them, which reflects the 60:40 red to white split of wine drinking in Bulgaria and the international popularity of red wine. However, while reflecting current market demand, the red hegemony is creating an excessive demand for white varieties, which has lead to higher prices.
In terms of ownership, vineyard planting is mainly a priority for wineries that want to vertically integrate and secure supply with the desired varieties, quality and quantity of grapes. To date, the largest vineyard investors have been the main players on |
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Regional Analysis |
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the local market: SIS Industries, Vinprom Peshtera, LVK Vinprom Targovishte and newcomer Katarzyna Estate. In fact, each new winery owns vineyards or intends to secure at least part of its grape supply. The EU’s SAPARD funding and that from the State have played a major role in financing new plantings, which have increased by more than 7,000 hectares Investments in the wine sector are estimated at about €100m ($147m), where SAPARD funding totalled €70m ($103m). The positive developments are bound to continue through EU membership, with wine specific and generic agricultural programmes funding quality improvements both in the vineyard and the winery. Enira from the Bessa Valley Winery was perhaps the first to stir international debate on the character of carefully crafted, contemporary Bulgarian wine, but many industry insiders believe there will be more to come.
Interestingly enough, while the Law on Wine and Spirits and adjacent legislation details a system with 47 appellations for quality wines, new plantings mainly take place outside those regions. Vineyard investors generally prefer to carry out their own soil, climate and varietal research, rather than rely on existing appellations, since very few of them are known to the local, much less the international consumer. The ambitious vineyard investors have also hired some of the world’s leading consultants. The first wave of New World flying winemakers are now being followed by a second wave of French viticultural consultants, with Michel Rolland and Stéphane Derenoncourt among them, which is an indication that entrepreneurs are serious about the quality of vineyards and wine they want.
The wine producers
In production, the Bulgarian wine industry is not much different to any of the wine industries that developed from the 1960s onwards: there are a handful of large players and a large number of smaller ones. Of the 150 registered producers, no more than 60 actually have labels on the shelves. Despite being part of the Old World, most producers prefer to avoid Bulgaria’s strict quality wine regulations and develop their own wine brands. The percentage of ‘quality’ wines from the old appellations has been steadily decreasing; in 2006, only 7% of the wines produced declared such pedigree. The four largest producers are: LVK Vinprom Targovishte, Vinprom Assenovgrad, Vinprom Karnobat and Vinprom Yambol. On the other hand, some of the strongest brands come from producers like Domain Menada, Damianitza Winery, Domaine Boyar, Vinex Preslav, Buket Telish and Vinex Slavyantsi. With the exception of Vinprom Targovishte, which gained its leading domestic position on the basis of its early market entry, all generate some revenue from exports. Other wineries also export, but their names vary depending on the destination. The third type of producer is the maker of ‘limited quantity’ wine, which mainly supplies the domestic market. This category has seen the most exciting developments over |
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Regional Analysis |
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the past five years, though competition is increasing. Already the ten top wineries are carving out their own niches: Names such as Santa Sarah, Bessa Valley, Domaine Katarzyna and Rousse Wine House are well accepted for their brand image and quality.
While things are bright in production, sales remain ambiguous. Bulgaria is a net exporter, with off shore shipments varying from 80 to 120m litres. Less than 50m litres are consumed domestically. The country has recently experienced a major shift in its export destinations, which has affected average export prices, quality and style of wine exported. In 2000, the three major volume markets were Germany, the UK and Poland. Six years later, Russia accounted for the lion’s share of exports, followed at a distance by Poland and Germany. Russia offers volume opportunities and is likely to remain the largest market. Returns are not as good as those from the domestic market, nor is Russia as transparent as Western markets in terms of distribution channels and opportunities for development; nonetheless, it has played a much needed role as a revenue generator for the large volume producers. Currently most Bulgarian wines retail at around RUB100 ($4.50/€3) in Russia, but exporters believe that they can score better. However, given strong price competition among Bulgarian exporters, and within the Russian market, plus a lack of promotional spending, trading-up will not be a straightforward task. While the average export prices fall, the domestic market has been quite rewarding for those who have made the necessary investments in quality and sales. Currently, wine consumption stands at only eight litres per head, but the homemade wine market is equally strong. The positive sign for commercial wineries is that bottled wine consumption is slowly rising, encouraged by favourable attitudes, more marketing focus, publicity and to some extent, by product switching on the part of consumers. Changes on the supply side are even stronger, as shelf variety increases and other European and New World producers, which currently have only a marginal share of the market, are tapping into its potential.
Still, a significant 36% of volume sales are generated by wines in the lowest price levels of BGN2 ($1.50/€1) per unit, but this category is losing importance. Few producers are willing to invest in the future for products with such a low margin. Although the popular price band of BGN6-9.99 is expanding at the fastest rate, the premium range of BGN10 plus is also showing good development.
The future
The Bulgarian wine industry has not yet realised its full potential. At home, changes are expected to take place within the industry structure, product integrity and legislative domains. Internationally, Bulgaria needs to establish a new identity, as the ‘value for money’ proposition is no longer viable, and ascertain market priorities. The natural evolution of markets, shaped by competition and policy decisions, will also have a strong effect on the direction of Bulgarian wine. Specific emphasis needs to be placed on the weakest link – consumer communication and promotion. Equally high is the need for visionaries to create the finest possible wines that epitomize the changes taking place inside Bulgaria. It’s going to be a trial and error approach – copying has not helped Bulgaria establish a sustainable share of the world wine market. It’s a long-term development that means Bulgarian wine needs to learn to be flexible – just as any other business.
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