Rabobank Chilean Wine Report: key points
Plan 2020 outlines a 9.2% CAGR over the next 10 years and 3% annual growth in average pricing, but at these rates Chilean wine sales would more than double over the next 10 years, and this estimate may be too high.
The Chilean wine industry should give priority to pricing and only focus on growing volumes once real pricing growth has been achieved.
Pricing for Chilean wines will be challenged by the strength of its currency and weaknesses in some of its most important markets.
Chile should invest in brand building (particularly higher priced brands), expand into markets with better pricing opportunities, diversify into higher valued varieties and appellations, and improve wine quality.
oversupply.” Europe’s vine grub scheme and gradual, if uneven, improvement in demand may bring it back into balance, while he says, “Australia still needs to work through their issues.” However, he adds, “most regions have gone through it [oversupply] because wine is an agricultural product and tends to be cyclical – it’s not easy to make that decision to pull out”.
Such cycles he says, “tend to be about 15 years, with six to seven years of undersupply and a couple of years balance, followed by six to seven years of oversupply”. “These used to be much more local,” he states, “but now they are much more global, more interconnected.” Hence, he continues, “You have to be confident navigating through the cyclical nature of the wine industry, which is why you’ve had a lot of spirits companies that are excellent brand builders but have significantly reduced their exposure to wine.”
investment to really move the needle with the consumer.” He believes too that “image gets built up over time on the back of good quality and good brand building – there is really no substitute for that”. But is there a wine-producing country that serves as the perfect blueprint? “Every supplier country has its challenges and its strengths,” begins Rannekleiv. “New Zealand has done a great deal right but also allowed production to get a little ahead of demand,” he continues. “The US industry is in an attractive position given the strength of the domestic market and the currency but it is over-reliant on its domestic market. And Chile has done a good job but there are a lot of small wineries that are struggling right now.” Nevertheless, Rannekleiv is bullish about the future for the global wine industry, although he admits it’s hard to make generalisations. “There is a global oversupply but there are regions roughly in balance, such as California, or Argentina,” he explains. On the other hand he picks out Australia and Europe as two places which “really need to deal with
OPPORTUNITIES OVERSEAS Then, Rannekleiv discusses the wine industry’s great hope: China. “It’s an important component with a lot of question marks,” he begins. “If it continues to grow consumption then it will alleviate a lot of this excess supply, and it could be the solution for some places with structural oversupply. It’s also a bit of a bifurcated market with an opportunity for bulk and the high end as well. On the other hand, he continues: “The challenge is that everyone is looking at it and it’s not a very easy market to tap into, there are lot of pitfalls: there are challenges in accessing distribution and just understanding the market.” Rannekleiv also picks out Russia, which he describes as “a high-volume market with generally high prices” and he adds, for example, “Australia seems to have done a nice job in developing a market there for higher-end products.” Overall, however, Rannekleiv suggests the opportunities worldwide aren’t necessarily where one would expect them. While he surmises that the growth in sales will come from the developing markets and emerging economies, he also says, “the opportunity is in less obvious places”. He supports this assertion by
Rabobank Wine Quarterly July 2011: key points
Major exporters such as Spain, Chile and Argentina are reporting substantial growth in export volume in the first quarter of 2011 vs the same period last year.
Improving sales coupled with weak to average grape harvests for most regions have helped to reduce excess wine inventories and bring supply and demand closer to balance.
Major import markets are showing mixed signs: UK volumes are growing but pricing remains a challenge; German import volumes are down 1.1% but value has risen 3% as there are indications of improvements in mid-priced wines.
For many exporters growth is not coming from the major markets such as the UK and the US, but from secondary markets such as Canada; emerging markets such as Mexico (for Argentina), or Kenya and Nigeria (for South Africa).
Global wine broker Ciatti Company shows that prices for bulk wine have been steadily increasing over the last nine months.
The US dollar has been the worst- performing currency in the G-10 in the year to date.
looking at the South African wine industry: “It’s greatest growth is in African markets.” Of course, these are also its closest sources of demand, and therefore places where it has a competitive advantage in terms of transport and awareness. It’s a similar story for Chile and its success in Brazil, mentioned above. But while the trade is focused on a few widely reported growth markets, Rannekleiv’s final piece of advice is that Chile or indeed any wine-producing country should be cautious about following the proverbial herd, but rather, he states, “look at the road less travelled”. db
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