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ITALY OVERVIEW – Room to Grow

01 February 2007 By db staff writer

“standfirst”>Buoyed by healthy export figures and the Pinot Grigio phenomenon, Italy can be commended for its performance in the UK. But is it realising its full potential? Julie Sheppard explores the category

“All right, but apart from the sanitation, the medicine, education, wine, public order, irrigation, roads, a fresh water system and public health, what have the Romans ever done for us?” As Monty Python’s Life of Brian points out, the Roman Empire left an impressive legacy. Modern Italy too has made its mark around the world, thanks to the spread of Italian culture. Today there are pasta restaurants in Hong Kong and pizzerias in New York; Russians wrap up in Dolce & Gabbana, while Aussies stay cool in Gucci shades.

Italy’s wines and vines have also done their fair share of travelling since the Romans started spreading viticulture to northern Europe and around the Mediterranean in the 1st and 2nd centuries AD. Italian immigrants in the 20th century ventured even further afield – taking their Nebbiolo or Barolo vines with them to ensure they weren’t short of a drink in the New World. As a result you’ll now find Californian Dolcetto, Australian Barbera and even South African Sangiovese.

Meanwhile, the Italian originals haven’t simply languished in the mother country. For the past three years Italian wine exports around the world have been climbing steadily in both volume and value terms. Figures from the Italian Institute for Foreign Trade (Istituto nazionale per il Commercio Estero or ICE) to the end of October 2006 show a 12.5% increase in volume exports year-on-year and a 7.5% rise in value. Forecasts to the year-end predicted total export volume of 16.5 million hectolitres with a value of around E3 billion. Most of these exports were bottled, although ICE reported an increase in bulk shipments in the first half of 2006 “due to a stagnant domestic market”.

The rest of the EU was equally subdued, with average price per litre (FOB) dropping 7.8% from E1.42 to E1.31 last year. “Average price also decreased in non-EU countries by 1.8%,” says an ICE spokesperson. “But this was compensated by a strong increase in volume, meaning that companies are more likely to export to non-EU countries.” Regions showing the largest increases in export value were the Middle East (+54%) and Central Asia (+42%). However, the most important export regions for Italy remain the EU (55% of total exports) and North America (31%).

Great in Britain

Exports to the UK were up by 4.5% and at the end of 2006 the Italian category was worth £456m, an increase of 9% on the same period in 2005 (ACNielsen MAT 02/12/06). This represents volume sales of 10.8m 9-litre cases, another respectable rise of 7%. Set against the light wine category as a whole, which grew 1% in volume and 2% in value, Italy is making clear strides. More importantly, it’s growing at a faster rate than both Australia, number one in the off-trade with sales volumes of 20.4m 9-litre cases (up 4%), and its Old World rival France, which is at number two with 15m cases (up 3%). Although still in fourth place behind the US (14.6m cases, a rise of 8%), Italy can congratulate itself on a successful performance…

Or can it? “Consumers know very little about Italy as a category because it is still so fragmented,” says Simon Bradbury, associate sales director for Italy at importer Guy Anderson Wines, which is concentrating on developing an Italian portfolio this year. “They have strong opinions on Italy itself, but not Italian wine. So there’s a hell of a lot of potential.” Consumer research carried out last year by established Italian specialist Enotria – which imports almost one-fifth of all Italian wine sold in the UK – supports this view.

In the know?

The study, carried out by Wine Intelligence, revealed that although 1.6m UK consumers regularly drink Italian wine, two-thirds of them don’t understand it. They find Italian wine names, grape varieties and brands hard to remember. “Our research shows that while the consumer wants to discover new Italian wines, he or she is often confused by a lack of understanding, complicated packaging and names that they are not able to pronounce,” says Enotria’s chief executive Alison Levett.

She believes it is essential to give consumers a clearer picture of what Italy has to offer. “We need to simplify the offering by providing stronger signposting with clear, consistent packaging which encourages and reassures the consumer.” As a result, Enotria is repackaging its leading brand Inycon, from Sicily.

“We identified the need to reach out to consumers’ love for Sicily instead of competing head-to-head with New World offerings. Hence the new label draws on the cues identified as particularly attractive to those picking it off the shelf,” explains Levett.

The big brand question

Branding could certainly be instrumental in driving the Italian category forward. As Bradbury points out, “There’s only one Italian brand in the UK top 50. The big ‘brands’ are still Chianti, Soave and Pinot Grigio.” Despite a major push by Italian producers during the 1990s – which saw a host of wines launched in the UK in an effort to replicate the success of big names from the New World – most consumers would struggle to name a single Italian wine brand.

“Italy lacks strong, consistent brands which can compete with international wines,” says Enotria’s Levett. “Brands would increase the confidence of the consumer and provide a platform on which to base further marketing activity. Most importantly, they would help to win over the 60% of regular wine consumers who we have identified as not currently drinking Italian wines.”

Alex Hunt, group wine buyer at Berkmann Wine Cellars, agrees that there is room for a stronger branded offering. “Although I would hate to see Italy dumbed down or its diversity threatened,” he says. “To retain a point of difference, vis-à-vis other categories such as the US, a branded offering would need to be high-quality, with real added value, rather than just another discounting opportunity.”

Equally concerned with discounting is Giacinto Giacomini, general manager at CAVIT – one of the top three volume producers in Italy alongside Antinori and GIV (Gruppo Italiano Vini). But he points out that brands can play a role in encouraging consumers to trade up, increasing average retail prices across the category.

Working together

Giacomini also believes that, as well as having more named brands in the UK, there is a need to develop a positive generic image for the whole of Italy. “The official generic bodies need to increase their marketing and advertising spend,” he says. “Promotional campaigns could use wine, food, fashion

and tourism elements to communicate Italy’s message in a more modern and clever way.” The reason why this isn’t currently happening comes back the fragmented nature of the wine trade in Italy. Currently, all activity in the UK is funded regionally and there is simply no vehicle for raising awareness of “Brand Italy”.

The problem is exacerbated since the majority of Italy’s producers are medium-sized, family-run wineries lacking the finances to mount a significant solo marketing campaign. Without generic marketing support, they can find themselves fighting a lone battle to break into new export markets or drive sales. An established way to solve the problem is via joint ventures with importers, as the success of Trulli, the range developed by Cantele and Waverley TBS, proves.

Alternatively, wineries can group together to increase their resources. “It’s very hard to grow as a private wine company in Italy,” acknowledges Stefano Girelli, commercial director of the Ethica group, which was formed by the takeover of Casa Girelli by co-op Cantina La-Vis in April 2006. “The advantage of being a group of wineries is that we can share expertise in areas such as marketing. It’s a more entrepreneurial way of conducting business and it’s more commercial.”

Ethica is now the fourth-largest producer in Italy, incorporating a total of 17 brands and eight wineries with varying scales of production, ranging from 80,000 cases up to 25m cases. Girelli describes it as a company developed purely to take care of sales and marketing. “The idea is to offer a one-stop shop for the whole of Italy,” says Girelli. No Ethica-brand wines are made – instead the focus is on the individuality of the wines and the regions they represent. “The last thing we want to do is bury all our hard work under one umbrella brand,” explains Girelli. “Instead we try to select some of the most interesting wines from around Italy and brand them in a way that’s understandable to consumers.”

Meet the locals

This is the crux of Italy’s dilemma. Its strength as a wine producer lies in the wealth of its indigenous grapes and regional individuality. But these are the very things that UK consumers, used to a diet of Australian Chardonnay, can’t get to grips with. “Because the New World has educated consumers in that way, people now look at what’s in a wine and know what they like,” comments Fabrice Guercio of importer Friarwood. “Italian labels should clearly indicate the grapes in the bottle and that way people will discover that they like Nebbiolo or Nero d’Avola,” he adds.

“The real point of difference for Italy is indigenous varieties,” agrees Girelli, “but at the moment the world is run by international grapes.” Current IGT legislation offers a solution to this problem by permitting blends of indigenous and international varieties. It also allows producers to experiment and develop styles that are suited to individual export markets.

Red alert

“Italy could certainly increase its market share in the UK by producing more commercial red wines,” says Alex Canneti, PLB’s business development manager for Italy, highlighting a real gap in the UK market. “At the moment red wines outside of the classic regions are more difficult to understand as the grape varieties are less well-known to the consumer,” adds Jonathan Butt, head of global sourcing at Thresher. While Chianti and its ilk occupy a safe niche in the UK market – Marco Pallanti, president of the Chianti Classico Consorzio, reports a 20% growth in exports from 2005 to 2006 – they aren’t volume drivers.

Instead the whole Italian category is being driven by white wines such as Soave, Frascati and the ubiquitous Pinot Grigio. Thresher’s Butt confirms: “Pinot Grigio is by far our biggest seller.” He believes that many customers see Italian white wines as a safe, comfortable choice. “Pinot Grigio, Soave and Frascati all deliver fairly neutral, inoffensive flavours,” he adds. Enotria’s research revealed that young female consumers are behind this trend, which indicates the potential to recruit a very much broader cross-section of drinkers to the category. “We have identified that 60% of regular wine consumers are not currently drinking Italian wines,” confirms Levett.

It’s up to producers, importers and retailers to address this situation. If Italian wine is to leave a legacy as lasting as Monty Python’s Romans, the category needs to diversify and broaden its appeal. By reacting to the realities of the UK market and exploiting its potential, Italy could become an all-conquering category: veni, vidi, vici.