Selling Chilean Wines in a Recession: A Market Survey

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Are Chilean wines holding up during the recession?

A recent piece of research from Chilean investment bank Banchile concluded that Chile's ability to offer quality wines at cheap prices would see it gain market share from foreign competitors who generally have greater labour and raw material costs. It gave a "buy" recommendation for Concha y Toro shares and classed them as "medium risk" (the main risks being exposure to foreign exchange markets due to 80% of its sales being exports and climatic risk).

Wine Exports

Whilst Concha y Toro shares may currently be undervalued, data from inside the Chilean wine industry does not paint a wholly rosy picture. According to the monthly export figures of wine industry association Vinos de Chile, growth in exports of wine peaked in October 2007 and has since tumbled back down to Q2 06 levels.

Government statistical body ODEPA notes that, while the volume of total wine exported in 2008 was 3.5% lower than in 2007, there was actually a 9.6% increase in total value due to higher unit costs and a shift towards bottled DOC wines rather than bulk and non-DOC wines. In 2009, despite a 9.5% increase in volumes exported in the first 6 months, unit prices have decreased once more, meaning the value of 2009 wine exports to August is 2.7% lower than in 2008. From this it may be surmised that Chile is slightly increasing its export volumes, although prices are being squeezed. In terms of recession-proofing, this is not necessarily a bad sign, as despite lower margins, market penetration (and therefore brand development) is increasing.

Total Exports and the Price of Copper

Whilst total Chilean exports by value have fallen in the last 7 quarters (see table below - click on image for larger version), this comes on the back of 4 years of sustained growth, meaning they are still at Q1 06 levels. Chile is the largest exporter of copper, making the Chilean economy highly dependent on world copper prices.



From Q3 05 there was a pronounced spike in copper prices (see graph below), although they then fell sharply in Q1 08. The export data therefore needs to be read in the light of these fluctuations in the price of copper. Copper prices are important for the Chilean wine industry however, as they directly affect Chilean GDP and therefore the national wine market, but perhaps more importantly because several Chilean wineries are owned by companies or families with interests in the copper sector.

Wines of Chile Syrah & Sparkling Wines Tasting

The purpose of this tasting on Monday was to showcase two up and coming Chilean wine sectors. Syrah is increasingly being touted as Chile's Next Big Thing, especially that coming from more northern regions like Elqui and Limari. Sparkling wine is being produced in increasing volumes, although I have been underwhelmed by Chilean fizz in the past and this tasting didn't change my mind.

The northern Syrahs, though, were lovely. A lot of Chilean Central Valley wines are extremely fruit-driven. Too much so in my opinion, although alcoholic fruit juice appeals to the mass market, which is what Chile until now has concentrated on. Elqui and Limari, however, seem to be producing Syrahs with fruit flavours that, although present in barrel loads, are balanced by the wines' acidity and even have a touch of old world-like austerity to them at times.


The Elqui Valley (above) is Chile's northermost wine producing region and until recently was known more as the home of Pisco than for wine. It is sun-baked semi-desert, being the gateway to the Atacama, and has large day-night temperature variations. The clear, starry nights have made Elqui one of the best places for astronomy and there are several observatories dotted around the valley. Annual rainfall is just 70 mm (compared to over 700 in Bordeaux, for example). The most important moderating climatic influence is the 'Camanchaca Fog' which rises from the river in the mornings, enveloping the vines in a blanket of cool air.

For under a tenner, Mayu's 2006 Reserva was excellent value (Guy Anderson Wines) as was the Falerina 2006 Reserva (Great Western Wine), both from Elqui. Limari seems to be where the larger players have set up - Concha y Toro, Santa Rita and Undurraga all produce good Syrahs for around £10, although rather more commercial in style than those from the Elqui Valley.

Chilean appellation review

Chile is looking at renovating its outdated system of wine appelations in order to better reflect the country's increasing regional diversity. The present system, established in 1986, defines Chile's viticultural areas with reference to political boundaries.

The new approach would involve consulting wine producers and would attempt to create a series of DOs based on factors such as predominant grape varieties, soil types and climate. In a country which has such diverse topography and weather systems - ranging from the Andes in the east to Pacific coastal regions in the west, to arid desert in the north, to lush Patagonian vegetation in the south - this undoubtedly makes sense!

Whereas some Old World countries, notably France, have extremely precise delimitations based on centuries of knowledge of local terroir, Chile at present has only the broadest of regional classifications. The 'Central Valley' covers a vast expanse of land and includes regions as varied as maritime Casablanca and sun-baked, high-altitude Aconcagua. The Chilean government is apparently keen for these improvements to be made and is prepared to act quickly to make them law.

All of which is good news for the Chilean wine industry and another step towards becoming a more complex, interesting wine producing nation.

Chilean wine boss dies

Ricardo Claro, chairman of Chilean wine empire Santa Rita, has died of a heart attack aged 74. Claro made his fortune in shipping and the media, before branching into wine with the acquisition of Santa Rita in 1980. A politically divisive figure, Claro has been labelled by some as one of the 'civilian generals' behind Pinochet's 1973 coup.

Politics notwithstanding, he will be remembered for his role in putting Chile on the international wine map. Click here for the El Mercurio obituary (Spanish).

Info Mine - Carmenère

The Wine Mine Blagging Toolkit - 5 wine nuggets with which to impress your friends...

1. Nowadays, Carmenère is grown almost exclusively in Chile, although pockets can also be found in northeastern Italy and California.

2. Carmenère in France was decimated by the phylloxera epidemic of 1867. The French never re-introduced it due to its susceptibility to pests and relatively low yields. In contrast, Chile has remained phylloxera-free due to its geographical isolation (it is sealed off by the Atacama Desert, the Andes and the Pacific).

3. Carmenère in Chile was for many years incorrectly identified as Merlot, until genetic analysis in the 1990s revealed it to be the distinct Bordeaux varietal, originally planted in the Medoc. Chilean winemakers appear to have suspected that the would-be-Merlot was not the real McCoy, referring to it as rather apologetically as Merlot Chileno.

4. Carmenère needs more time on the vine than Merlot. It requires a fairly warm climate and does not respond well to high levels of rainfall.

5. Carmenère is one of the original six native Bordeaux varietals (the other five being Cabernet Sauvignon, Merlot, Cabernet Franc, Malbec and Petit Verdot).

Wines of Chile 2008 London Tasting

A few stars of the recent Chilean tasting at the Royal Horticultural Halls:

1. Viu Manent Secreto Carmenere, Colchagua (Caves de Pyrene)

Probably my favourite of the lot. A bit of Pinotage-style burnt rubber on the nose. Dark fruit, chocolate and spices on the palate (although no burnt rubber luckily). 8 months in oak. 15% other grape varieties (not revealed - is this the secreto?)



2. Mayu Syrah Reserva, Elqui (Guy Anderson Wines)

Zingy red fruit. 14% abv.

3. Falerina Syrah Reserva, Elqui (Great Western Wines)

Big, rich, dark, luxuriant, velvety. 14% abv.

The best "commercial" wine I tasted was Cono Sur 20 Barrels Merlot, Colchagua & Maipo - very fruit forward so will appeal to the commercial palate, but has enough balance and structure to stand on its own as a good wine (whereas the Cab Sauv doesn't quite get there).

I came away with the impression that there were as many interesting wines from "new" areas such as Leyda and Elqui as from the more established Central Valley regions. A good sign for Chilean wine I would say...

Quality or Quantity: The Chilean Dilemma

A current hot topic is whether Chile is finally getting rid of its boring image as a source of cheap and cheerful wine which, whilst it serves a purpose and hits a price point, does not exactly set the palate racing. Obviously as wine drinkers we would like to see some new and exciting stuff coming from Chile. But I wonder if it really makes sense for Chile to move away from what it does best, i.e. off-trade targeted value-for-money varietals.

It is generally agreed that Chile has been slowly but surely emerging from the doldrums over the past decade and that it now has the potential to be far more than a cheap source of reliable plonk. When I first visited Chile in 1997, the nascent export market was almost entirely dominated by the three big players (Concha y Toro, San Pedro and Santa Rita) and the vast majority of the wines exported were straightforward Bordeaux varietal gluggers.

Quality - develop regionality and introduce premium varieties

A strong image is a prerequisite in order to break into the premium wine arena - think Argentinian Malbec, South African Pinotage, Barossa Valley Shiraz. Chile's image is currently badly defined (indeed, it has been said that more than a problem of bad image, Chile has no image). Its Andean neighbour Argentina, on the other hand, didn't export for many years during the era of dollar equivalency and high export tarifs and so was able to develop "behind the scenes" and present a fully-formed wine industry to the world once the impediments to exports were reduced.

Nonetheless, if Chile gets its act together with the right PR and marketing, it certainly has the ability to establish itself in due course as a producer of premium wines. The keys to this will be increased regionality and more imaginative planting and blending. The emergence of Carmenere as a "signature" premium varietal (a la Malbec) will also be interesting to watch, although Chile should probably not pin all its hopes on it. New up and coming areas include Elqui and Limari for Syrah (see 31 July post below) and Bio Bio for Pinot Noir and aromatics such as Riesling and Gewurztraminer. The main advantage of the south of the country is the cool climate and Pacific fog, although levels of rainfall can be rather high. Jancis Robinson has commented on the lack of fruit concentration in Chile's southern whites, but the vines are still young and if this remains a problem in future years winemakers will have the option to reduce yields (and so increase concentration in the remaining grapes). Importantly, vineyard sites remain relatively cheap in the sparsely populated south.

Quantity - stick to the popular grapes and sell, sell, sell!

The bigger companies in the more established areas are pursuing a different tack by going after the mass market. Concha y Toro and Viña Ventisquero, both based in the Central Valley, have recently thrown down the gauntlet to Italian producers by introducing Pinot Grigio. Casablanca could offer excellent growing conditions for the fashionable grape. Whereas Italy is incredibly reliant on Pinot Grigio, Chile's breadth of wines would allow its larger wineries to take on the Italians without exposing themselves unduly. There are synergies with their existing portfolios too - buyers of Concha y Toro's Sunrise brand are also likely to be in the market for some gluggable Pinot Grigio and will probably be more concerned about its drinkability than its country of origin.

Chile's export volumes are growing. According to market research company Nielsen, it has now overtaken Spain to become the sixth biggest importer to the UK. It is predicted to overtake South Africa by the end of 2008, and is breathing down the neck of Italy. The comparison with South Africa highlights the million dollar question for Chile. Both countries export similar quantities of wine to the UK, but whereas Chile has a strong off-trade offering, largely built around Bordeaux varietals, South Africa also includes the premium end of the market in its portfolio. Should Chile try to compete in this premium arena or stick to pursuing volume by offering discounts to the off-trade? Daniel Hart, senior New World buyer at Enotria, acknowledges that this is a "tough choice in tough market conditions", but notes that if Chile decides to pursue volume in the off-trade market, it could do so at the expense of its drive for regional and premium recognition.

So...

The fundamentals of Chile's wine industry (infrastructure, economy, training) are all in place. The big companies are getting better and better at pursuing volume. Quality winemaking is developing in interesting new directions and the wine map is being stretched both north and south. The greatest impediment to the premium market is image: if Chile wants to play the premium wine game, it will need a combination of the right marketing (both by individual wineries and national trade bodies) and a shift in focus by the big producers towards the upper end of the market. As far as the second of these goes, the need for profitability in the big players may prove to be the sticking-point. What may well develop over the coming decade is a two tier system of big producers of cheap table wine and smaller wineries targeting the premium market. Which is workable in theory but doesn't make solving the image problem any easier.

Sources: (1) Edmundo Bordeau and Gonzalo Vargas, "Prospects for the Fine Wine industry: Competitiveness and development for Chile 2010"; (2) Jancis Robinson, "Hot Spots for Chile's Vineyards"; (3) Mark Lewis, "Chile pins hopes on Pinot Grigio"

Wallaby and Condor - Southern Hemisphere Syrah

A touchstone southern hempishere debate is currently being played out between Chilean Syrah and Australian Shiraz. There has been of late - or so the Chileans would have us believe - a consumer trend away from big, powerful Aussie Shiraz a la Barossa Valley, towards “cool-climate” Syrah of the sort currently found in the Chilean Central Valley and emerging in one or two other promising pockets of the long thin country. If such a shift in the consumer palate is indeed on the cards, Chile is currently looking like the most serious pretender to Australia's new world Syrah crown.

All of which could make very good marketing sense for Chile, which is currently trailing Andean neighbour Argentina by a country mile in the premium wine game. Argentinean Malbec is simply more of a selling point than the Chilean alternative - Carmenere - which is currently the only credibly unique Chilean offering. Were Chile to establish itself as a new world source of quality cool-climate Syrah, some of this lost ground could be recovered.

In terms of regions, the north of Chile seems to have the most favourable combination of sun and breeze. To describe areas such as the Elqui Valley (pictured below) and Limari as cool-climate may seem counter-intuitive, being as they are on the fringes of the Atacama desert, but the cooling sea mist rolls in off the Pacific and tempers the heat. Elqui, which lies just inland from La Serena, one of Chile's most popular seaside resorts and also a functioning port, is the traditional Chilean growing area for pisco, the national grape spirit, and has so far largely been overlooked by wine producers. The combination of climate, relative cheapness of land (compared to more established regions such as Maipo and Colchagua) and access to transport could prove a winning formula.

Corporate relations between Chile and Australia appear to be cordial. Witness the recent joint distribution agreement between the UK arm of De Bortoli and Chilean producer Undurraga. Both outfits are long-standing family companies. Undurraga had not previously found a place in the UK market, which made it stand out among Chilean wineries of its size. With its route to the UK market now secured, it will be interesting to watch the development of Undurraga over here and see if the De Bortoli agreement sows the seeds of further southern hempishere couplings.

Whatever the business synergies, just as our palates were wooed away from the Rhone valley by muscular Barossa Shiraz, we may now be seeing a shift back towards a more refined Syrah style. The Next Big Thing in the Syrah story may well be happening in northern Chile. Watch this space...