PORTUGAL / WINE: Join the club

Although much loved by the trade, the quality and diversity of Portuguese table wine has yet to be discovered by the UK consumer. Fionnuala Synnott reports

There is no secret handshake or membership fee, there are no cordoned off areas or bouncers on the door, but the people who love Portuguese wine definitely constitute a club. Be they members of the press, independent retailers, multiple grocers or sommeliers, Portugal has many champions, all of whom have been instrumental in raising awareness of the category. This is particularly apparent in the on-trade, where sales of unfortified Portuguese wine leaped 32% in value and 24% in volume in 2006. This trend has continued so far this year with the latest figures showing a 25% rise in volume and a 30% rise in value (Nielsen MAT 19.05.07).

Niche category
Although interest in Portuguese wines has definitely increased among wine trade professionals, including – crucially – the buyers for the supermarkets that dominate the UK off-trade, the category has yet to be discovered by most consumers. With only 859,000 9l cases sold in the off-trade and approximately 1.5% of the UK market, Portugal remains a niche category, largely because of a lack of listings in multiple grocers. Nick Oakley, MD of Oakley Wine Agencies, explains: “Buyers like the idea of Portugal but don’t think they can sell it.”

According to Lorne Gray, marketing controller for wines at John E Fells, the key to converting consumers is to increase listings. He adds: “Where we do have wines listed, the rate of sale is quite slow unless we run a promotion.” In fact, promotions have played a part in Portugal’s UK strategy and promotions organised by Viniportugal in conjunction with Waitrose over the past three years have led to a 700% rise in sales. Paulo Amorim, president of G7, explains: “The category needs that kind of support as the consumer is not comfortable with Portugal yet”.

It is often said that Portugal lacks two things to be successful in the UK market: the ability to compete on price and large, iconic brands. Price is an issue for all wine-producing countries looking to penetrate the competitive UK market – and Portugal is no exception. The undulating topography of regions such as the Douro Valley makes mechanisation virtually impossible, pushing prices up, while indigenous varietals such as Touriga Nacional and Tinta Cão are notoriously low-yielding, adding to the bottle cost.

The price is right
The application of the Napoleonic Code means that legacies are divided equally among offspring, often leading to small, fragmented vineyards producing low volumes. As a result, few Portuguese producers have access to large marketing budgets. José Leitão of D&F says: “We have to be careful about how we use our funds. We are fighting against large corporations and cannot compete in terms of promotions.”

Even improvements in viticulture and investments in technology are unlikely to bring costs down, with bottle price likely to reflect the significant capital required to make these investments.

Tiago Alves de Sousa, winemaker for the Alves de Sousa winery, says: “Portuguese technology is definitely evolving, especially in terms of viticulture. But the cost of using new systems and building new vineyards is high so it will take a while before these costs are absorbed.”

But Oakley does not accept that it is more expensive to produce Portuguese wine and feels that Portugal needs to rethink its approach to pricing. “Much of Portuguese pricing is ambitious. Portuguese producers have to ask themselves whether their production costs are high because of business inefficiencies. If so, it is time for the sixth largest wine producer to get efficient.”

It is clear that, for Portugal, the UK market cannot be won on price. According to Amorim, the category’s long-term strategy is to focus on obtaining the kind of pricing on shelf that reflects the quality of the wine. “Our long-term goal is to get more margins into the wine industry. Portugal deserves to be higher priced on shelves.”

Regional focus
But for a number of observers, the question is not how to compete on price but how to create an image for Portugal with some members of the industry questioning whether the category should focus on promoting its regions rather than the country.

Thanks to its history of Port making, there has been a natural gravitation towards the Douro Valley from the UK industry, with many people discovering other Portuguese wines on the back of the Douro offering. Christian Seely, managing director of AXA Millésimes, explains: “The main interest in premium red wines from the Douro Valley seems to come from the UK, US and Canada – the markets that are most receptive to vintage Port. People are attracted to the Douro rather than to Portugal, but quality red Douro wines have a role to play in developing the perception of Portuguese wine and are bound to make people excited and curious about the other wines coming out of Portugal”.

Although the Douro is the best-known wine-producing region in Portugal in the UK market, according to Oakley “all of the serious volume” comes from regions such as the Alentejo, Ribatejo and Estremedura, which constitute “the engine room of Portuguese wine”. He adds: “The Alentejo has overtaken all other regions in the domestic market but it still does not have a reputation with the general public in Britain.” According to Amorim, this may be due to a lack of commercial knowledge among producers when it comes to exporting their wine. He says: “The Douro, the Vinho Verde and the Alentejo regions have the most potential. The Vinho Verde region produces great wine but its image suffered from the dishonest producers shipping low-quality wines 20 years ago. The Dão region was also popular in the UK 20 years ago.” Paulo Russell-Pinto, marketing director, IVDP, agrees: “Vinho Verde also has a very good export culture. In the 1970s, the region exported very good quality wines, they are now getting back to that standard.”

The consensus within the industry is that the regions don’t compete with each other from a style or a price point perspective as they are so different. Amorim observes: “Portugal is so small that everyone is trying to work together. For most consumers, the region is not that important. The wine is first from Portugal, the next priority is the grape variety and then the producer.” Meanwhile, Gray sees any sales in the category as a positive development: “If the success of different regions leads to an expanded category with opportunities for everyone, then it is good.”

Strength in variety

Greg Sherwood, general manager for fine wines at independent retailer Handford Wines (which has been named independent retailer of the year by Wines of Portugal in previous years and was runner-up this year) wonders whether Portugal would do better to promote the grape varieties from each region rather than the regions. In fact, Portugal’s distinctive indigenous varietals are often seen as one of the category’s strongest attributes.

AXA Millésimes’ Seeley feels that these varietals make Portuguese wine unique and thinks that Portugal should make the most of them: “Grapes such as Touriga Nacional, Tinta Franca and Tinto Cão give the wines a sense of place.” Russell-Pinto adds: “Although the native varieties are sometimes difficult to pronounce, they are nevertheless one of our best assets. They make our blends more complex, fruity and floral.” Portugal’s indigenous grapes are also a way for the country to differentiate itself in lieu of an enormous marketing budget.

Apart from a range of distinctive indigenous varietals, Portugal has another weapon in its armoury: a natural advantage when it comes to making rosé wines. Portugal has a long tradition of producing rosé, making it even when it was deeply unfashionable. But, with the exception of Mateus, Portuguese producers have been slow to capitalise on this opportunity. De Sousa explains: “People don’t tend to associate Portuguese rosé with quality because there are some blockbusters at entry level. But the market is more and more attracted to rosé and Portugal should take advantage of this trend.”

Sherwood is convinced that Portuguese producers can produce really high quality rosé wine, with Douro rosés able to deliver the deep colour and flavour that the market favours at the moment. “Producers could use them to pull people into the Portuguese category, then move consumers onto red wine. But they have to be well-made and well-presented.”

United voice
In the past, Portugal has been criticised for its lack of a generic body, with some claiming that the number of groups representing different interests has led to a confused message about what Portugal has to offer. Salvador Guedes, CEO of Sogrape Vinhos, feels that a lot of work still needs to go into this area. “As an industry, we haven’t been able to have one common message. Five years ago, we came up with a strategy based on research carried out by Michael Porter. We agreed to focus on a simple, premium, conceptƒ and focus on the key markets but no one is following it.”

However, there are signs that the Portuguese wine community is improving its communications strategy with Viniportugal and ICEP now working closely together to represent the whole country. De Sousa continues: “In the past, we have tended to be quite self-absorbed and have had a range of very small associations with no one representing Portuguese wine. We have ended up losing some energy as all of these efforts worked separately. Now that Viniportugal is taking the lead in promoting Portuguese wine it will definitely benefit everybody.”

Yet some critics feel that the current communications strategy does not address the demands of the UK market and that the category has yet to develop the public relations efficiency of other generic bodies. Fells’ Gray observes: “Portugal’s communication needs to become more streamlined so that the decision-making can become quick and effective, like Australia and Chile. Unless it can get to that level Portugal may lose out.”

Strike a balance

But AXA Millésimes’ Seely doesn’t think this is an issue: “Given that the essence of Portuguese wine is its extra richness of variety it is unlikely to have a unified message.” Meanwhile, Anthony Silva, director of ICEP, feels there is no harm in having different groups as long as they are promoting Portugal as well.

There is no doubt that Portugal has to work harder at getting its message across to the consumer. Given the difficulty it has in competing on price and the degree of hand-selling required, it makes sense for the category to focus on the on-trade and independent retailers. Ken Sheather, MD of Ken Sheather Wines (this year’s independent retailer of the year in the Wines of Portugal awards) has seen Portugal sales go up: “Most people cannot believe how good Portuguese wine is when they first try it and are surprised at how low the price is. But what we sell wouldn’t support the industry – Portuguese wine needs to be in the supermarkets.”

Although the volumes sold through these channels won’t be substantial, they may filter through to the off-trade. ICEP’s Silva comments: “Being such a different offer and such a competitive market, we must play at different levels. We have to work in the mass and the niche markets and strike a balance.”

© db July 2007