ITALY: After the rain

The forecast has been gloomy in Italy’s wine trade for some time now, and has worsened thanks to the UK’s recent tax hikes. It will likely get worse before it gets better, but there should be sunny spells ahead, writes Tom Bruce-Gardyne

“Piove sul bagnato!” (“It never rains, but it pours!”) declares Emilio Pedron, head  of the giant Gruppo Italiano Vini (GIV), about the UK’s recent tax hike. In Italy there was no shortage of reasons to ramp up prices, in some cases dramatically, well before Alistair Darling put the boot in. The Chancellor’s decision to make Britain the most heavily taxed wine regime in Europe could be the final straw for some in the Italian trade. The rest are bracing themselves for what promises to be one of the toughest years yet.
The pressure on price has been brewing since before last year’s harvest. When this came in short in many regions, and by as much as 30% in Sicily, the law of supply and demand kicked in. In the Veneto, excluding Bardolino and Soave, grape prices virtually doubled, according to Andrea Sartori, boss of one of the region’s “big five” producers. “I think pretty much every single category has increased,” adds Leo Addis, joint-MD of Eurowines. “It’s been a question of degrees, but the Veneto is up the most, led by Pinot Grigio, followed swiftly by Valpolicella and Amarone.”
Claudio Gambarotto, export manager for CAVIT, Trento’s biggest producer, says “it would have been a great year for Italy if Pinot Grigio prices had gone from e70-80 per hectolire in 2006 to e100-105  this time.” Instead they are closer to e140 per hectolitre, which has pushed up the price of the wine by around 20%. Next comes the runaway cost of bottles – what Stefano Girelli, sales and marketing director at Casa Girelli, calls “the glass crisis”. Then, to add to the woes of those exporting to Britain, comes the weakness of the pound which is down 15% on the Euro since last summer. “The exchange rate is really killing us right now,” says Girelli. “A year ago no-one would have ever guessed it would have fallen so low.”

Finally, having been hit by price hikes at every step of the way, each battered bottle of wine is welcomed into the UK with an extra 14p in duty to help pay for old people’s winter fuel allowance. And though that sounds a worthy cause, you could forgive Italian producers if they feel uncharitable or even that life has seldom felt so unfair. On the other hand there’s the bigger economic picture to consider and the fact the world’s 280m hl of wine is about 20% above demand. As Gambarotto says, “this is a consumer market, not a producer market. We’re not in the oil industry!”

Pinot power
Pinot Grigio has been here before. A shortage after the 2002 harvest led to big price rises, and predictions that the Pinot bubble would burst. Instead, Italy’s varietal superstar surged ahead with barely a wobble, though at first UK supermarkets doubted their customers’ loyalty. The buyers bought gallons of suspiciously cheap Pinot Grigio from previously unheard-of bottlers and flirted with cut-price versions from eastern Europe. Since then the Italian authorities have clamped down on rogue bottlers, though of course they can’t do anything about Hungarian Pinot Grigio which seems to be back in fashion.
At the time of writing, nine out of the 21 Pinot Grigios sold by Sainsbury’s on-line came from elsewhere, including two recent introductions from Hungary. “They could at least call it Pinot Gris, instead of something so Italian,” cries Emilio Pedron like a latter-day King Canute ordering back the tide. That said, naming such wines “Via Floriana” and “Villa Pendio” is misleading to say the least, and frankly no better than those Indian whisky labels draped in tartan, heather and misty lochs.

Whatever the retailers think, Nick Tatham of PLB feels the wine is still “seen as principally Italian” even if there is some “nibbling away at the edges”. Stefano Girelli is convinced that Italians have long underestimated UK consumers’ goodwill towards the country’s produce: “To say this Pinot Grigio is ‘made in Italy’ does add value.” While in the on-trade, Leo Addis expects buyers to stay loyal. “People will haggle about the price of Italian Pinot Grigio, but they’re not interested in an alternative from another country. But whether consumers are willing to pay an extra £2-3 a bottle for the same Pinot Grigio they’ve been drinking, is a big question mark.”  

Beyond PG
In the off-trade, Nick Tatham predicts demand for sub-£5 wines “will remain pretty strong. I’d start to be worried above that.” Plenty of Italian Pinot Grigios are about to discover their fate as they float over this sacred price point for the first time. Those wines that have been pushed into the shade by PG could be poised for a comeback. In the on-trade it may be happening already. Two restaurant chains – Pizza Express and Prezzo – have re-listed the Verdicchio from Moncaro, much to the delight of its importer, Eurowines. Addis believes regions like the Marche and Sicily which have shown restraint, with price rises of around 5%, will be rewarded.
Sergio di Lucca, Italian buyer for the leading specialist importer  Enotria, dreams of a return for Soave. If the wine could somehow be given space on the supermarket shelves at £4.99, it would make him extremely happy. “In a perfect world that would be the perfect solution.” Yet though the wines have improved, sometimes beyond recognition, in the last decade or two, one would have to say, “dream on Sergio”.

Soave’s erstwhile brother, Valpolicella, is now in short supply and prices have risen accordingly. Wherever possible, producers are making it in a style dubbed “baby-Amarone” using the “ripasso” method. For now demand is strong, but some, like Andrea Sartori and Masi’s Sandro Boscaini, fear that Valpolicella is trying to move upmarket too fast, which could well undermine the reputation of Amarone. As the region’s grandest wine, Amarone is doing well globally, though in the UK importers like Addis feel prices are close to what the market will bear. “I wouldn’t push it much further. There’s a risk that it catches a cold like Barolo, which I don’t think has ever quite recovered here.”
Down in Tuscany, the price of basic Chianti DOCG has “gone up quite a lot”, says Sergio di Luca. As the 2007 vintage hits the shelves, he predicts prices will settle at around £5.99-6.99. “At the ‘Classico’ level, we haven’t seen much change, with rises of less than 5%.” Tatham says consumers are beginning to trade up. “Most of the Chianti we’ve been selling from Picini has been at the ‘reserva’ and ‘superiore’ level and that’s going extremely well.” At GIV, which owns the big Chianti Melini, Pedron believes “the consumer might buy a bit less, but he will keep buying even if it costs more”. GIV aims to restrain price rises as much as possible for its mainstream brands, by cutting back on promotions. Unlike Pinot Grigio, Pedron clearly feels more protected. “Anyone wanting to drink Chianti is not going to find Hungarian Chianti.”

Worst case scenario
Like Girelli, Tatham believes “there is enormous goodwill towards Italy out there on the street. I think there is too at the gatekeeper level [ie the buyers]. Whether they will assist in getting these prices through is more difficult, because I think they’re under such pressure from their bosses”. He quotes a recent interview with Tesco’s CEO, Sir Terry Leahy, who said the supermarket was “doing everything it could to keep the lid on prices”.

Britain’s hard-nosed buyers may be tempted to call Italy’s bluff and wait for this year’s harvest to arrive. If the cooperatives and big bulk producers have tanks full of unsold wine and grapes about to arrive, they may be forced to agree to whatever terms Mr Tesco dictates. “Well that would be the worst,” says Pedron. “First we lose customers then we drop the price and lose margin.” Or as Claudio Gambarotto puts it, “Once again we will show our weakness. That we bark but don’t bite.”
But this is to take a very UK-centric view of the world. We are not the only market for Italian wine. Germany may be economically depressed, but at least there is no issue with the exchange rate, and while the US dollar has devalued against the euro as much as the pound, America remains a far easier market for many Italian producers. Then there are the emerging markets in Asia and Russia, while closer to home, Ireland now offers better returns than the UK high street, according to Bridget French at Berkmann’s, which imports Antinori among other wines.

A silver lining
French has no doubt 2008 will be painful, but she reckons Italy will emerge in better shape in the UK. She says prices have been “too rigid for too long” and that a general shake-up “can’t be a bad thing”. If the biggest problem for Italian wine has long been its low average price in the UK, maybe this year it can smash through “those dreadful price ceilings”, to quote Tatham, and realign itself. Plenty agree, including Emilio Pedron. “This year will be very tough, but in the long-run it will work out well. We’ll lose sales, but afterwards it will be beneficial because we will have been able to position our wines a little bit higher.”

db ©  June 2008