CHILE: A question of allegiance

The US and UK dominate Chilean wine consumption worldwide, with the UK traditionally having the edge, supported adeptly by Wines of Chile. But is this transatlantic balance about to tip, asks Peter Richards.

The image of Chile as that of a rakish cad with a roving eye is not, I’d suggest, a natural fit. But it was used ingeniously by one high-profile export director to sum up Chile’s position when it came to servicing its leading two markets, the US and UK. “Chile is just not sure who it’s married to,” he mused, “and it’s trying to play the field.”

The US and UK have long been the leading markets for Chilean wine exports. Together, they account for around a third of exports both by volume and value, with a combined FOB return of US$446 million (£267m) (MAT 07.08-06.09) out of a total export worth of $1.4bn. To give an idea of the precedence these two nations enjoy, Chile’s third largest wine buyer is Canada, which weighs in at $76m – roughly three times less than the value of the US market.

In recent years, the UK has enjoyed a comfortable superiority at the head of the Chilean export charts, with the market showing consistent growth – a trend spurred on by the successful Wines of Chile UK campaign. But there are now significant indications that the old order is changing. Comparing the latest MAT data shows that, to June 2008, the UK was comfortably in the lead, taking 94m litres at a value of $229, versus the US’s 60m litres at $185m. But in the year to June 2009, while the US was behind the UK in volume (100m litres plays 108m litres, respectively), it had surged ahead in value, posting returns of $228m against the UK’s $218m. In short, it seems the US is leapfrogging the UK to become the top dog for Chilean wine exports.

Admittedly, this may not surprise the market watchers who have long noted the US’s growth potential versus the relative maturity of the UK market. But it is a significant moment for the Chilean wine industry. Especially given that, as of January 2009, Wines of Chile now has a dedicated US office, complete with an impressive showroom and retail outlet dubbed Puro Chile that opens in September in New York, to aid promotion of all things Chilean to a nation with little concept of Chile (even down to its approximate location, according to the incoming Wines of Chile US director, Lori Tieszen).

It is also a development that presents many questions. Will the Wines of Chile US office really be able to replicate the kind of success that its UK counterpart has enjoyed since it opened in 2003? Is there a risk that producers will simply ditch the margin-starved UK market for the more profitable US? Or could this be Chile’s ticket to the big time as demand surges in both its key markets?

The UK

There is consensus among Chilean importers that the UK still holds good potential for development and will remain a key focus for the foreseeable future. Yet there is also widespread recognition that the UK is an increasingly challenging market, with commonly cited negatives including an ever more consolidated industry thus fewer routes to market, the increasing tax burden, the discounting culture and dispiritingly low margins.

Michael Cox, Wines of Chile UK director, is not discouraged. He cites the latest Nielsen data, which show Chile growing at 7% by volume and 15% by value over the past year, enjoying its highest ever market share (8.2% by volume) and highest ever average bottle price (£4.13). “Chile still has lots of potential to develop in the UK market,” he comments. “For example, Chile’s sales are growing at 40% over £5, a sector that, while only 20% of the market, is showing growth of 19% versus -2% for under £5 wines.” He also notes Chile’s strong growth in the independent and on-trade sectors.

There is widespread praise of Cox and his team from the wineries. Errazuriz president Eduardo Chadwick asserts, “The WoC UK office has performed brilliantly since its opening, by giving a strong, united and clear vision of the potential for Chilean premium wines in the UK. The Chilean wine industry has a brilliant opportunity to fully develop itself over the next five to ten years in the UK and Michael has skillfully laid down very solid foundations for this to happen.”

Anakena commercial director Raúl Beckdorf notes the importance of the office in terms of its leadership for Chilean wineries. “In 2003 our market share in the off-trade was 5.7% and now it is more than 8%. Chile has seen consistent growth and this is because there is an office which is not only giving us accurate information on market trends, but also has been very efficient in coordinating and aligning the producers towards clear goals.”

This is a point that Cox himself picks up, noting that WoC UK “has been the catalyst for many wineries launching into the market. It’s even having an effect now, six years after we started, with new brands, packaging and styles being launched”. He adds, “There’s no reason why the same won’t be true in the US.”
Indeed, such has been the success of Chile’s UK office that some cite it as the reason behind the establishment of its US counterpart. “The only reason we have an office in the US is because WoC UK in general and Michael Cox in particular have performed so well,” explains Veramonte president Agustín Francisco Huneeus. “Without their success we never would have gotten [the Chilean wineries] behind the investment.”

The US

Talking to Chilean producers, the overall impression is that most are salivating at the potential prospects for growth in this highly touted market but are equally daunted by the structural challenges that the three-tier system in all its fragmented glory presents. All, however, are united in their support for the new Wines of Chile US office, though some candidly concede it is long overdue.

Tieszen is bullish. “It’s great timing for us: the US consumer is hurting and reevaluating everything, and this bodes very well for Chile, which clearly offers great value and over-delivers. We’re poised and there is lots of room to grow in what is an under-developed market. We’ve got very good momentum now.”
The figures bear her out. Import data from Gomberg, Fredrikson & Associates reflect positively on Chile, especially its performance in 2009. In 2008, Chile showed solid growth, up 12% by volume and 8% by value, while market leaders Italy, France and Australia all struggled. Statistics for the first trimester of 2009 also make for positive reading, with Chilean imports up 100% by volume and 24% by value (one of only three to manage the latter, along with Argentina and New Zealand). Though these figures are somewhat distorted by the boom in bulk imports of late (attributed to two short Californian vintages, leading to demand for blending wine), they are still undeniably positive for Chile.

So is this a direct result of the Wines of Chile US office opening in January 2009? “We’ve had a bit of an effect, but it’s more the fact that Chile is really on trend now: we’re newsworthy,” replies Tieszen. “There’s an added excitement and buzz because we’re expanding at a time when few others are. I’m getting more and more calls from importers keen to get behind us.”

Tieszen’s strategy will focus on raising the image of Chilean wine with an emphasis on the premium category over $10. She plans to target key trade figures as well as working closely with wineries and importers to improve distribution. The campaign will be rolled out beyond Chile’s historically strong markets (New York, Florida) and will include targeting on-trade chains for maximum impact, such as Legal Seafoods, and reaching out to millennials through on-line initiatives such as blogger tastings. Much of which is similar to the UK campaign in its hands-on approach, albeit diluted by the sheer scale and diversity of the market. As Tieszen comments, “I want to take what Michael’s done in the UK and use it to leapfrog and jump start the US market for Chile”.

Thus far, the wineries are fully behind the project. “It’s what we’ve all been waiting for,” comments Ventisquero’s export manager Américo Hernández. “We need to get some of the good recognition that we now have in the UK to transfer to the USA and revamp Chile’s image there, where it’s long been perceived as a producer of ‘cheap’ wines. The US is more brand-focused than the UK, which is potentially very valuable for us.”

Santa Rita’s global commercial director Salvador Domenech concurs. “Today Chile is booming in the US. The investment behind Wines of Chile is the absolute correct thing to do because our support is key for the industry to maintain this trend in the long term.”

The future

The future is looking more Stars and Stripes than Union Jack for Chile. When asked which country offered the best prospects for future development, most point to the US. As De Martino’s Guy Hooper comments: “Consumption per capita is growing at a healthy rate, and the US is forecast to be the largest consumer of wine by 2011. The barriers and mysticism surrounding wine are being broken down and the future development and potential of Chilean wines in the USA is enormous. Watch out UK, your days as number one for Chilean wines are numbered!”

At the same time, many are pragmatic about the need to court both shores of the Atlantic. Odfjell’s Pablo Canobra states: “Both markets are incredibly important for the future. Perhaps the US offers the best chance to expand in both volume and value. The UK will probably be more important for volume than value, but smaller wineries should still be able to increase in value with more work towards the horeca and independent segments of the market.” His views are echoed by Chadwick of Errazuriz, who describes the UK and US simply as “key markets for our future development and we will pursue our different strategies with equal focus on both of them”.

Peter Richards, September 2009