INTERVIEW: Home grown

Considering it sources nearly all of its grapes from its relatively small homeland, Chile’s Concha y Toro is an unlikely international contender. Patrick Schmitt discovers the story behind the brand when he meets VP Rafael Guilisasti Gana

Just one hand, that’s all you need to count the number of mass market and truly global wine brands. Try it. First there’s Gallo, the thumb if you like. Second is Hardy’s. Then, in no particular order must be Mondavi and Concha y Toro. You could also add Jacob’s Creek. Where’s Torres you might be asking? Or perhaps Penfolds? They do have a broad market scope and widespread recognition, but they are not on the same scale of the first four at least, which are all over the 10 million case mark.
Of these leading labels, it is Concha y Toro that is the most unlikely international force. Why? Because it is sourced almost entirely from the slimline South American country that is Chile. In fact, this one company accounts for around a third of all wine exported from this corner of the globe and at the end of last year, was responsible for as much as 70% of Chilean branded wine growth in the UK. How has this business become so dominant in terms of domestic production and so influential when it comes to worldwide wine trade?
Concha y Toro’s success could be traced to a number of points in its 115 year history, for example, the founding family’s decision to begin selling shares on the Santiago Stock Exchange in 1923 or its first shipment to Rotterdam in 1933. However, real growth occurred in the 60s when a group of investors, led by Don Eduardo Guilisasti, took positions in the company. It was from this point that ambitious expansion plans were hatched and fast-realised, not just in terms of vineyard acquisition but foreign market development. Hence, by 1994, Concha y Toro could be found on the New York Stock Exchange, the first vineyard in the world to be quoted. And, by the end of last year, almost three quarters of its wines were sold abroad.

Secrets of success
For vice chairman, and Don Eduardo Guilisasti’s son, Rafael Guilisasti Gana, the company’s strategy and secret for global success is remarkably simple, and centred on three main points.
The first of these is to produce wines to particular price points – a vinous quality and cost ladder that is strictly adhered to. Secondly, the company aims to consistently expand vineyard area to ensure a reduced reliance on independent producers – which gives Concha y Toro price and quality control over the grapes it needs. Finally, the firm is always attempting to develop new and existing export markets by either building subsidiaries or strategic alliances with distributors. And in each case, the emphasis is on the Casillero del Diablo label.
Key countries for Concha y Toro, according to Guilisasti, are the US and UK, because they “are trend setters”. Then comes Europe, in particular Germany, Denmark and The Netherlands. South America, Brazil and Mexico are highly important, and while Argentina is the largest market on this land mass, consumption is made up of almost exclusively domestically produced wines, and hence Concha y Toro’s decision to build its only winery outside Chile, Trivento, which it began in 1996.
The company also does business in Africa – Guilisasti mentions Nigeria and Angola in particular – and has an office in China. In total, Concha y Toro exports to 116 countries, and is the only Chilean company with an office in the UK. This arm of the business, set up in 2000 with Cristián López, opened in Oxford when Concho y Toro shifted 260,000 cases in Britain. Now over 30 people manage a 4m case operation in the UK.

The Oxford office is Concho y Toro’s only market subsidiary. In other key countries the company has offices within its distributors – for example in Shanghai and Mexico. As for what Guilisasti terms “productive subsidiaries”, Concho y Toro has two. One is Argentina’s Trivento winery, the other Cono Sur in Chile. The latter, established in 1993, is championing Pinot Noir and following the acquisition of a 160-hectare estate in San Antonio, Cono Sur now has 360ha of vineyards, headed by winemaker Adolfo Hurtado.
Comparing Concha y Toro to some of the leading wine brands noted at the outset, Guilisasti sees increased global competition coming in particular from Mondavi and its Woodbridge sub-brand. However, when it comes to Australian labels, he notes how UK-centric they are compared to Casillero’s market spread. “It has fabulous distribution,” he says, “And if you travel to South America or the Caribbean you will see much more Casillero del Diablo than any other international wine brand.”
Further potential for growth is coming in particular from the US, where consumers are trading up, while Concha y Toro is still hoping to increase its presence in the UK. Germany too, is ripe for further development, however, it is Russia that has proved “the strongest market over the last two years,” according to Guilisasti.
This country’s consumption of international wine brands has increased along with its economy, helped by more stable distribution channels. And, compared with other emerging economies, Russia benefits from the fact that “the tradition of consuming wine is already in the culture”.
As for China, the wine market is split in two. Guilisasti records a market for imported premium wines, which are mostly French, and another dominated by domestic wine companies. The latter either sell wines made with Chinese-grown grapes or imported bulk wine, and “a significant amount of Chilean bulk wine is exported for that purpose,” he adds.

Back in Chile, from a supply-side perspective, Concha y Toro is pursuing two particular trends. The first is viticultural, and involves the search for new vineyard area in cooler regions. These sites, primarily with a strong maritime influence, are being sought for the development of white wines and Pinot Noir, as well as cool climate Shiraz.
Over the last 10 years Concha y Toro has been heavily involved in the development of initially Casablanca, then Leyda and now Limarí, as well as Bío Bío in the far south of Chile. “Being one of the first in is important for ensuring better land prices,” stresses Guilisasti, taking Casablanca as an example, which was cheap when Concha y Toro began amassing land, but is now one of the most expensive vineyard regions in Chile.
The second trend the company has embarked on is the study of changing consumer tastes in Concha y Toro‘s primary markets, and it has identified a stylistic shift. In short, Concha y Toro records a demand for more balanced wines, with pure fruit and less perceptible oak influence. Guilisasti admits the company “fights with the problem of alcohol content when ensuring good tannin maturity” and reminds that the search for less heady wines has taken the company into the cooler climate areas listed above.  
In terms of varietals, Cabernet Sauvignon represents half of all grape production in Chile, according to Guilisasti, and it is key to Concha y Toro’s wines too. The company is also pushing Shiraz and, as already noted, Pinot Noir, while it is experimenting with Tempranillo and Semillon. However, in whites, the major investment has centred on Sauvignon Blanc, a variety for which “clonal selection is key,” points out Guilisasti. Presently, Guilisasti notes that Chile sells three times as much Sauvignon as Chardonnay and in Casillero’s case, 50% more.

In general, aromatics are a focus for Concha y Toro. Hence, along with Sauvignon, Viognier is an emphasis. “We do 20,000 9l cases in Casillero del Diablo and we sell half of that in the UK alone, although we could probably sell twice that volume.”
Back to reds, Pinot Noir has been a “phenomenon” for Concha y Toro, and one the company has attempted to serve using the Cono Sur subsidiary. Guilisasti believes this demand could cool if prices of Pinot rise too high, but so far increased prices have not slowed consumption. “We’ve put prices up from £4.99 to £5.99 for our standard range and we are struggling to cope with the demand. We are driving sales at full price, not just when discounted.” In short, Guilisasti thinks there is more to come with Pinot Noir in the UK at least, and it is an area for Chile to deliver value.

Fine wine
But what about Concha y Toro’s performance at higher prices, for example over £10? “Different markets react in different ways,” begins Guilisasti, noting that South America and the Caribbean are happy to trade up within Chile, “because they haven’t historically been exposed to French or Australian wine”. In the US, the impact of the Wine Spectator’s 100 scale has helped, while in the likes of Russia, “the market is divided from £10-up and £10-down”, and higher prices are the preserve of European products.
For Guilisasti, the difficulty with more expensive Chilean wines is not just a question of sales – Concha y Toro sells all its top-end stock each year – but perception, and changing this in the UK will be the hardest, Guilisasti says, along with China, where top-end wines are almost exclusively French. For Concha y Toro specifically, the company has an iconic wine offering, Almaviva, which has a strong image, boosted by its joint venture partner, the Baron Philippe de Rothschild Winery.

Aside from developing a reputation for fine wine, Guilisasti identifies a further challenge for Chile over the next few years. In particular, he cites an unbalanced supply and demand situation. “The global figures are not the problem,” he says, “it’s what’s behind them,” talking about the impact across the industry of the Australian drought. Whereas European regional surpluses tend to affect local markets, Australia is a leading player in mass-market wine brands for export, meaning cost increases and the resulting reduced promotional activity will have a widespread effect. “The challenge will be managing the sourcing of wine and grapes as well as pricing and consumer sensitivity to that,” says Guilisasti. After all, if Australian brands begin to source grapes elsewhere, we can expect prices to rise in those areas. And Foster’s Lindemans label, once inherently Australian, is already using Chilean grapes in its wine line-up.
For Concha y Toro alone, Guilisasti sees three long-term hurdles. One is finding the resources necessary to invest in building “real worldwide distribution to improve the management of our brands and sub brands”. Two, is the “trend of social responsibility and environmental consciousness”. This will mean “the industry must follow new standards, and this will affect profits”. In particular, Guilisasti stresses the need to reduce water waste and protect the soil, while reminding that “Chile is in a good position to take the lead on this”. Last is to develop “a reputation for Chile as a producer of high-class wines. This will take at least 10 years of working on producing great wines – we need vine maturity to deliver quality – and concentrating on the terroir concept.”

Overall, it appears Chile is fortunate to have a leading international wine brand in Concha y Toro and in turn Concha y Toro is privileged to have Chile as its source. The company can benefit from the country’s reputation for reliability and conditions for modern wine styles without high input costs. The country on the other hand can gain from the company’s strong brand image across the world and highly developed distribution network. A rare win-win situation in the wine trade.

© db February 2008