On Track

Chile is transforming its image from that of a competent bulk wine producer to a genuine £5-plus contender with the on-trade in its sights. Robyn Lewis reports

IT MIGHT be considered tempting fate to say it, but the fact is the UK economy is in no bad shape at the moment and this has translated into an excellent performance in the wine market.

Overall last year the sector was up 7% in total wine sales in the year to end of September 2004, up to 125m cases, according to ACNielsen, and many predict this to continue.  One of the biggest market winners last year was Chile which, according to stats from Wines of Chile (WOC), saw a 27% increase in exports to the UK, growth in both the on- and offtrade sectors and an increase in value over volume growth overall. Not bad at all.

By volume Chile has grown above the market average of 4% with a 9% rise to just over 5m cases (MAT to w/e 27.11.04) and by value it has posted a 10% rise to just over £227m (MAT to w/e 27.11.04).

This puts Chile in 8th place in the volume by country charts, 7th in the value (MAT to w/e 29.11.04) and gives it an average price per bottle of £3.74, an increase of 2p over last year.

One of the more interesting elements of the Nielsen results this time, though, is the statistics concerning wines sold above and below the magic £5 price mark.  Here Chile posts some positive results: below £5 sales of Chilean wine are up 11.3% but, above the watershed price point, sales are up 17.4% for the thinnest of the South American countries (year to 04.12.04).

This accounts for 8.6% of total sales for Chile and while New Zealand with 73.3%, Australia with 19.6%, France with 15.6% and Spain with 14.6% of their total retail sales over £5 (all year to 04.12.04) all put Chile’s figure on the shade, you still cannot help but marvel at the metamorphosis of Chile from decent bulk wine producer to this position in a relative blink of an eye – and there are even more positive results yet to share.

A WOC-commissioned report by Wine Intelligence on UK consumers’ attitudes toward Chilean wine confirmed that there was an increase in the percentage of respondents willing to pay over £5 for a bottle of Chilean wine, now 46%; and an increase in the percentage who were loyal to the category, albeit just 2%.

And Chile is now in third place behind Australia and South Africa when it comes to consumer perceptions of value for money.  There was also growth in the number of consumers willing to spend over £6 on Chilean wine for a special occasion; 22% of people thought the country offered great diversity and choice, and 17% thought it had a reputation for highquality wines.

The big question now then, as Michael Cox, managing director of the WOC UK office puts it, is, "Is it time for Chile to increase its prices? Chile is undoubtedly making solid progress and there is real momentum," he continues.

"The time now is for focus and perseverance to continue on this road.  We need to try and be more aggressive in our positioning, we must try to attract more of a growing number of white wine drinkers and we need wider distribution – in the on- and off-trades – at all price segments.

The market is tough and getting tougher and there is no time to waste."  While Cox is obviously keen to work in both the on- and off-premise sectors he has, in the past, emphasised the ontrade in particular, seeing this as an excellent way to grow value for Chile and this has thus far been an acclaimed strategy.

The Nielsen stats for the on-trade (as reliable as they can be) show a 15% increase in Chile’s market share in the on-trade (year to Sept 04), giving it the 5th largest share by country up an impressive 1.2% in two years – up from 5.2% in 2002 to 6.4% (year to Sept 04).

"The on-trade is perhaps the most important area for development of Chilean wines as it is the image-forming sector of the trade," says Alistair Stevens, chairman of Stevens Garnier, the UK importers for Viña Carmen.

"Chilean wines are gaining credibility by appearing on wine lists in increasing numbers of restaurants and bars.

The off-trade is the more significant market in terms of volume but because of promotional demands it can be an expensive choice."  Another advantage of ontrade development is the opportunity that is there for smaller wineries and boutique wines, as Hans Liebbrandt, export manager at Montgras points out.

"This sector is a vital channel for smaller wineries that would not normally have access to mainstream off-trade distribution channels. 

It also represents an excellent tool to showcase a wine and gain a certain prestige for a specific country, winegrowing region or winery. In addition, there is the opportunity to encourage trial of the less commercial varietals such as Carmenère or Viognier, so, in short, it is a vital sector."

It is not, however, a magic solution for the Chileans and there are limitations to the category. "The on-trade is, by and large, a more traditional sector by definition," points out Cliff

Roberson of Buckingham Vintners, "and, based on recent customer research, consumers do not appear to want to pay more than £15 per bottle for Chilean wine in pubs, bars and restaurants."

Thus the off-trade, as competitive as it continues to be, remains essential to the art of wine selling and as, John Osborne, business development manager for South America at PLB wines, says, "You simply cannot afford to not be in there."

Osborne argues that with 80% of wines sold in the UK going through the off-trade it is crucial to perform well there if a country wishes to gain market penetration.  "A winery with large overheads and/or stocks cannot miss the opportunities the off-trade offers.

At the end of the day winemaking is a business, which must generate profit so most wineries these days have to focus on all sectors of the market, though that of course means lots of challenges.

Next year we think the biggest challenge might prove to be further duty increases, white wine shortages, increased grape prices, BOGOFs becoming increasingly less good value due to retailer margin demands and also increased competition from the multiples."

Yes, the demands of the multiples, and in particular the multiple grocers, continue to plague the wine sector in 2005 and not least because, like it or not, they are a vital element of the off-trade.

"Whatever else is said, the fact is that most people who drink Chilean wine shop in the multiple grocers and this is not a situation unique to the UK, either," says Jerry Lockspeiser of Bottle Green.

"Every major European country, apart from Italy, has the same pattern of market domination by the top four retailers.  This is the way most of the markets of the world where wine is drunk are heading.

Australia is dominated by just two retail chains, for example."  With this challenge in mind, Bottle Green last year launched PKNT onto the market, "a radical and groundbreaking brand, which gives consumers what no other brand does – the message ‘I am Chile’.

It has huge shelf standout and total recall for the consumer," says Lockspeiser. "Apart from PKNT, all others are just versions on a few themes.  The brand offering in general from Chile is thus monotonous, conventional and totally forgettable."

I’m sure there are those who would disagree and there does seem to be some emerging Chilean brands that are doing rather well.  Are brands what the category needs to increase its prices, then? "Isla Negra and Concha y Toro have found themselves in the Nielsen top 20 brand charts and are beginning to make an impact," says Katherine Higgs at Western Wines.

"Through them consumers are becoming more aware of Chile as a wine producing country, and with strong, well known brands it builds consumer confidence in experimenting with other wines from that country.

Our objective certainly is to get our brand [Cono Sur] into consumers’ drinking repertoire." So, there is still much left for Chile to do. Concentrating on the on- and off-trades, on small and boutique wines, big brands and raising prices, while keeping margins profitable will keep them busy for another year.

And that’s without worrying about a change for the worse in the UK economy.  Then again, with a set of results like last year’s, they look well prepared for it.