ARGENTINA – STRATEGY: Growing pains

Despite much enthusiasm from the UK’s wine trade, Argentina has yet to fulfil its promise. Fionnuala Synnott finds out why

Touted as the new Australia for many years, Argentina has so far failed to live up to its potential. Over the past three years, the country’s volume share of the UK off-trade has hovered around 1.5%, while its average 75cl bottle price has remained more or less static at £3.60 (ACNielsen).

Argentina’s inability to grow market share can be attributed to a lack of consumer awareness about the country, as well as an absence of strong brands. “Argentine wine is quite hard to buy due to a lack of listings. Also, consumers don’t know what to buy,” says James Forbes, head of the new Wines of Argentina office in the UK.

Even though the likes of Trapiche, Argento and Norton have built a UK following, Argentina does not have a strong image among consumers. Keith Lay, marketing director at Ehrmanns, says, “Argentina needs to find a hook with an emotional value. We have tried to give Elementos an emotional element over and above saying that it’s a really good wine.” He points to other countries such as South Africa which has successfully identified diversity as its key message.

Forbes says, “We don’t want to get too hung up on the imagery of the Andes. We prefer to concentrate on the quality of the wine and the value for money it offers consumers. Although some members of the trade are interested in high-altitude, desert viticulture, this won’t help us double our market share.”

Despite selling over 1m and 0.5m cases per year respectively, by global standards Trapiche and Argento are far from large brands. Lise Ewins, marketing manager for Las Moras distributor Chalié Richards & Co, the wine division of Halewood International, feels that Argentina needs a stronger brand to lead the category, just like Jacob’s Creek did for Australia. Lay, however, thinks it is more important to get people drinking the product first. “In order to be able to build strong brands, Argentina, like Chile, must first establish a reputation for good value, good wine,” he adds.

Commercial strategy
Historically, Argentina has lacked a focused commercial strategy. The category’s stop-start approach to marketing explains the lack of a consistent message within the UK market. Although Argentina can offer more than entry-level wine, it tends to lose out to Chile when it comes to supermarket facings.

Unlike Chile, which dominates the South American category, Argentina formerly lacked a dynamic generic body with a UK presence. However, the trade is optimistic that this will change now that Wines of Argentina has opened an office in London.

The new generic is looking to raise awareness among consumers by showing its wines at the BBC Good Food Show and The Wine Show. To increase Argentina’s profile further, it plans to link Argentine wine with beef by running a series of regional food and wine matching events.

Louise Perry-Sanderson, agencies director at Berkmann Wine Cellars, distributor of Norton and Doña Paula, says, “Consumer work is urgent and long overdue. There is no real identity or feel for Argentina among consumers. The Wines of Argentina office is vital for raising awareness and building an image for the country, as most Argentine wineries don’t have the funds to be able to engage with the consumer. Both Australian and South American producers were very unified in the early days – which was instrumental to their success.”

Forbes hopes that this month’s Argentine Wine Awards will yield an interesting set of results that Wines of Argentina will be able to use to raise awareness of the category. He explains, “Although the trade is supportive of Argentina, quality improvements that have been made within the category are not widely  known. We have to show them to the trade.”

Generic issues
However, some members of the industry feel that strong, financed branding is more important than generic marketing when it comes to sales. Jerry Lockspeiser, MD of Bottle Green, says, “Wines of Argentina is a good umbrella, but what will make business happen is a good, strong product, distribution and strong brands. Despite the good work done by Wines of Chile, the category is not doing well because of UK market conditions. Yet Concha y Toro continues to drive its own business.

There has to be cooperation between UK distributors and Argentine wine producers in order to produce an Argentine Concha y Toro or a Casillero del Diablo.”

Some members of the trade question whether marketing wine by country of origin can increase sales at all. Nikki Fletcher, brand manager for Thierry’s Wine Services, says, “When it comes to choosing a wine, country of origin is often at the bottom of the pile for most consumers.”

Lockspeiser adds that there is a tendency to think that you alwys have to promote wine by country. “But you have to think about what it is that people like about the styles from that country. When Chile started out, it was the style of wine that appealed to the consumer, rather than the fact that it came from Chile. Italian wine is also doing well at the moment because people like Pinot Grigio.”

It is also vital to get pricing right. Perry-Sanderson says, “Argentina has fallen into the cheaper price arena. This area is fraught with difficulties and doesn’t help the category to build a quality image. Argentina needs to focus on the £5-£7 bracket.” Greg Wilkins at Brand Phoenix, distributor of Trapiche, believes low pricing is not an issue. “Entry-point Argentine wine is sold at the same price as other New World wines at the volume end. But there’s quite a gap in between. Argentina definitely needs to build its presence in the middle area while maintaining its commitment to entry-level wine.” Lockspeiser agrees and adds, “From both a retailer and a producer perspective, the best place to be is in the middle, where you see the best cash return.”

Food for thought
Argentine wines may not yet be present on every wine list in the UK, but they are becoming more high-profile. However, most Argentine wine is still priced below £20 and is listed as a house wine, due to the innate conservatism of the UK market. Concerned that they might make an expensive mistake, consumers tend to stick with what they know and order French or Italian wine when spending over £25.

According to David Whan, sales and marketing director at HBJ Wines & Spirits, it is difficult for a new wine to dislodge what is already on the list unless it is significantly better. But Simon Farr at Bibendum thinks that niche categories such as Argentina can fare better in the on-trade, where lists are shorter than the off-trade. He explains, “In a restaurant serving international cuisine and international wines, Argentina can be a point of difference, whereas in Tesco or Sainsbury’s it tends to get lost among the 800 SKUs.”

He adds, “The on-trade is a fairer playing field. A restaurant or a hotel is a relatively neutral setting and there is a much better chance of getting pulled off the list, especially if the wine looks like good value. But the category is not immediately on the radar of consumers or sommeliers. At the moment, Argentina accounts for only 1% or 2% of overall on-trade sales. We need to show that Argentine wines can over-deliver.”

Whan says the level of interest varies according to the venue. “The Gaucho Grill wants grape and regional diversity, but gastro-pubs are more interested in having an Argentine representation at the right price. The different varietals Argentina has to offer are only an advantage in the more discerning outlets. Argentine wine is sold at around £12-15, so consumers are more interested in value for money than grape variety.”

Grape debate
When it comes to marketing Argentina’s indigenous varietals, opinion is divided. So far, Argentina has actively promoted Malbec as the jewel in its crown. Although consumer awareness in the UK does appear to be growing, UK consumers do not move with ease from one varietal to another. In fact, according to research by ACNielsen, the majority of UK consumers buy wine from six classic varietals. Marketing relatively unknown indigenous varietals such as Malbec and Torrontés may therefore put some consumers off venturing into the Argentine category.

However some feel that Argentina should lead its marketing with the indigenous varietals in order to put more of its identity on the shelf. Business development manager for South America at PLB Wines, John Osborne, says, “Argentina makes better Sangiovese, Tempranillo, Malbec and Viognier than Chile, but it can’t go head-to-head with Chile’s brand power.”

Others believe that Argentina should familiarise consumers with its grapes by marketing dual varietals such as Shiraz/Malbec. Ewins says, “It’s difficult to introduce consumers to new varietals and new countries at the same time. Malbec is strong enough to stand on its own two feet, but Torrontés isn’t. So it seems obvious to bring out a Torrontés/  Chardonnay; we would like to launch something like this soon.”

Growing in a static market
If Argentina can come up with a clear message about what it has to offer the consumer, it stands a good chance of increasing its market share. Wilkins says, “Argentina needs to establish its identity independently of Chile. The more quickly the category can do this, the quicker it will see its sales increase. Argentina should have a 3-4% share of the UK market. We need three or four brands operating at 50,000-200,000 cases to be able to do this.”

If the wine market remains static, producers are likely to focus more on building value into their brands. Argentina is well-positioned to compete when it comes to offering consumers value for money. Farr says, “If we continue to over-deliver, we’ll get Argentina into consumers’ shopping baskets.”

But, because Argentina has come to the market so late, it will have to work very hard to build market share. As Thierry’s Fletcher puts it, “People are open to Argentina, but not drawn to it.” Hopefully this will change as
the Wines of Argentina office stamps Argentina’s personality on the UK.

Government support
For the past 40 years, Argentina has been one of the top five biggest wine producers in the world. Previously it mostly exported bulk wine, but in the past 15-20 years, producers have focused on exporting better quality wine, thanks to both local and foreign investment.

But despite being one of the most important volume producers, wine is not one of Argentina’s biggest export industries. Estanislao Zawels, head of the economic and trading section of the Argentine Embassy in London, explains, “Wine is starting to become an important export activity, but it is still relatively small.” The entire Argentine wine export industry is worth around US$250m.

The Argentine government has been criticised by the wine industry for imposing a 5% tax on wine exports. (Since the economy collapsed, all manufactured export products have been subject to this.) But Zawels argues that this is a necessary measure. He says, “After the 2001 crisis it was necessary to tax exports as a short-term measure in order to ensure people’s welfare.”

According to Zawels, the Government is fostering the wine industry because it’s an important source of employment and helps to promote other industries, such as tourism. “There is a good business environment in Argentina. Exports have doubled in the past five years and trebled in the past 15 years. The Government is giving the industry the stability and the inflation-free environment necessary to be able to produce wine.”

He also claims that the wine industry has benefited from the Government’s network of embassies and consulates, which has allowed producers to penetrate new markets. At a provincial level, particularly in Mendoza, San Juan and Salta, the Government is helping wineries to attend international wine shows.

“We will do all we can to assist producers, but the bottom line is that we won’t subsidise the industry. Argentina has never subsidised its industries. We also have to tax exports because it’s not that long since the economic crisis. We hope the Government will reduce taxes if the economy continues to stabilise.”

Zawels is optimistic about the future. “Wine exports are booming everywhere in the world except the UK. We are developing regional economies and there are big possibilities for growth. Currently, there are around 100 wineries exporting abroad, but the possibilities for growth are endless because of the diversity of our terroir.”

© db February 2007