PORTUGAL: Portugal’s away game

With domestic consumption falling, many of Portugal’s wine producers are focusing on exports, from Portuguese-speaking countries, Brazil and Angola, to the lucrative yet overloaded UK and US markets. By Fionnuala Synnott

There was a time when Portuguese wine producers focused solely on their home market but, now, with domestic consumption falling, many are concentrating their energies on building their export business. “The Portuguese market is very mature. We will try to grow our business to match inflation but don’t expect our market penetration to rise,” says Martim Guedes, consumer research analyst for Aveleda.

Traditionally, Portugal has exported wine to its former colonies, where consumers are already familiar with the Portuguese style and native grape varieties. Brazil and Angola, in particular, are attracting more investment, thanks to increased political stability and an emerging affluent class. Although it produces some wine of its own, Brazil still imports most of its wine – a huge advantage for its former ruler. Pedro Silva Reis, president of the Real Companhia Velha, says: “Although not very big, the Brazilian wine market has tremendous potential. Portuguese wine still enjoys the best reputation among Brazilian consumers.”

Angola is also an attractive market because of its fast-growing economy. The IMF estimates that real GDP grew by 23.4% in 2007, largely thanks to the production of 1.9 million barrels of oil per day. But 27 years of civil war has left its mark and corruption and economic mismanagement are still commonplace. Guedes explains: “Angola’s more stable than people think from outside but they have their own rules. We have had to team up with local partners because it is such a different reality. It would not be realistic to do it by ourselves.”

Strategic markets
In some Portuguese-speaking markets, pricing can be an issue. Luis Pato, chairman of the IWA and owner of Adega Luís Pato, explains: “Traditionally, the ethnic markets have not been value markets as emigrants often think they should pay the same price [for their wine] as when they left Portugal.” But, this is not the case in Angola. According to Miguel Azevedo, CEO and founder of Companhia das Quintas, Angola is a quality wine market and is a major African market for Champagne.

However, as José Ramos, export director, Sociedad dos Vinhos Borges, puts it, “The economy is stable but you can’t expect huge [volume] sales.”

Despite the potential of the former colonies, not everyone in Portugal is building their export strategy on them. Salvador Guedes, CEO, Sogrape, is one of the sceptics: “Step by step, we are growing out of the ethnic Portuguese market. It is not where the future lies.”

In fact, according to the Monitor Group’s Michael Porter, Portugal’s future lies in the UK and a few states in the US. But putting this strategy into action is proving difficult. Sogrape’s Guedes comments: “The report had merit but we have not put it into action. Portugal is not doing well in the US or the UK.” Paulo Marques, export director, Caves Aliança, explains: “After the Monitor report, 80% of producers believed that London and New York were waiting for our wines. But, in reality, it is not like that. First you have to produce the right product, then you have to understand the market. In Portugal, everyone thinks we produce the best wines in the world. But, just because we have improved our wines, doesn’t mean other countries have stopped developing theirs.”

If Portugal gets it right in the UK and the US, it has the potential to gain worldwide exposure. But, as we all know, competition is fierce in these near saturated markets. In the UK, the stranglehold of the supermarkets is a particular issue for Portugal, where production costs are often high. This is particularly true at the moment when the devaluation of the euro and the weakness of the dollar are putting additional pressure on wine producers.

Symington comments: “In the UK, an iron curtain has been put up by retailers. If we put up our prices we lose their business, if we put them down we will not make enough of a margin to absorb currency fluctuation.” Sogrape’s Guedes expects that, in the short-term, business conditions will remain tough in both markets. “The devaluation against the euro is putting pressure on Portuguese producers and, in the short-term at least, we have been badly hurt. The only solution is to increase our prices and risk losing out to the competition.”

Price pressure in the UK market has led some wine producers to prioritise the US over the UK market. João Nicolau de Almeida, chairman of Ramos Pinto, says: “The UK is an important window on the world but we won’t do our numbers there.” For some, even when their wines are listed in the UK, the future remains uncertain. “You can have success in a UK supermarket for two years but often it’s in today, out tomorrow. In the US, you build the brand and the brand is there. In the UK you never know where you are going to be the following week,” says João Ramos, CEO, João Portugal Ramos Vinhos. “In the US, consumers are more likely to spend money if they think the wine is worth it. It is therefore more profitable [than the UK].” The structure of the US market is also very different. Aveleda’s Guedes observes: “In the US, there are more smaller buyers. People tend to buy their wine in liquor stores – there is therefore more possibility of a hand sell. It is a fair market because if you put the work in you do get results. Our wines are distributed in around 30 states. It is up to us to support our brands with POS material and lots of market visits. We also give local support to the sales team.”

For some Portuguese brands, the ex-pat community in the US has facilitated entry to market. Esporão exports 30-40% of its production to “the ethnic market” in New Jersey and Newark. “Based on this demand, we have been able to build a distribution chain and get into the American market.”

But the US market is not without its problems. Ramos says: “It is easy to sell to ex-pats in Boston or New Jersey but the Portuguese category has problems in the broader market. The US is not as tough on price but it takes more time.” Manuel Lança Cordeiro, commercial director of Herdade do Esporão, agrees: “You have to be patient and support everything with a good quality product. There are hundreds of thousands of wines out there so we have to build relationships and create synergies with agents, the trade and the consumer.”

Emerging markets
Tired of hearing about Portugal’s potential for growth, a number of producers are attempting to diversify away from the UK and the US markets.

At Lavradores de Feitoria, for instance, the UK is only the seventh most important market. The cooperative exports 65% to 16 different countries, the most important of which is Norway. Olga Martins, general manager, comments: “For a small country, Norway buys a lot of wines. We are currently looking at Sweden and analysing how to get the business growing there.” Sogrape’s Guedes also sees potential in Scandinavia; “It is a good stronghold for Portuguese wine.”

But not everyone agrees. “The Scandinavian markets have become very sensitive to price points. Denmark used to be a great market but Portugal didn’t export its new wine styles there so it lost ground to other categories. Sweden and Norway have been easier, however,” says Real Companhia Velha’s Reis. Aveleda’s Guedes, meanwhile, does not think Scandinavia is a market you can rely on. “We had huge sales in 2001-2002 but suddenly they evaporated. Because of the monopoly system, sales are easy come, easy go. We hope to sustain longer-term relationships in other markets.”

The US and the UK’s neighbouring countries have also attracted interest from some producers. Canada, for example, is an important market: “We have a new partner in Canada and are about to introduce Vinho Verde, Douro white and red under screwcap,” says Ramos at Sociedad dos Vinhos Borges. Ireland is also a growth market for a number of Portuguese producers. Reis says: “The Irish market is new for us and we have been successful in the on-trade. In Dublin, wines are presented in a more international way than in London. In addition, buyers are often more open as they are less established”.

Thanks to its diversity, native varietals and improved quality, Portuguese wine has potential in many export markets. António Maria Soares Franco, marketing and sales director, JM da Fonseca, comments: “With the right combination of packaging and price, Portugal could do well in export markets such as the US, Scandinavia, Brazil and Canada. The next challenge will be to build a presence in the emerging wine consuming countries.”

Everyone in the wine trade is trying to measure the potential of the Chinese and Indian markets and Portugal is no exception. “China and India will be important markets in the future but at the moment, wine consumption is still in its very early stages. At the moment, it’s mostly French wine. We have to pay attention and make sure we don’t come into the market too early or too late,” says Aveleda’s Guedes.

Current trading conditions mean that employing the right export strategy is more important than ever. The more difficult the market is, the more targeted you have to be.

In the opinion of José Neiva Correia, the owner and head winemaker DFJ Vinhos, you have to work with people who know what’s on the shelf if you want to be successful. In DFJ’s case, this means working with a local partner such as 10 International to create market specific products like Pink Elephant as well as making the most of local expertise. “We had our last three or four labels designed in England.”

Focus is also key. Ramos, of Sociedad dos Vinhos Borges, explains: “You need to define your priorities for each market – our strategy varies according to each country.” Meanwhile, Sogrape’s Guedes thinks it is essential to use one or two markets as a base for developing your export business. Although Sogrape is following the strategy that was agreed
with Michael Porta, it is not to the exclusion of all other export markets. “Obviously, you have to take opportunities where you find them and can’t disregard the other markets. We are also doing well in Angola, Canada, Sweden and throughout Scandinavia.” At Ramos Pinto, João Nicolau de Almeida is always on the lookout for new markets: “I now travel three times more than I used to. We are looking at Russia, Angola and Asia – who knows where we’ll be after this.” As the Douro Boys’ Cristiano van Zeller puts it, “If you want to develop an international brand you have to be everywhere.”

db © July 2008