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RIOJA UPDATE – Moving with The Times
“standfirst”>With their ability to respond to changing consumer tastes, producers in Spain’s best-known wine region are enjoying continued success. But how is price discounting of reserva wines affecting the market? Patrick Schmitt reports
Rioja is unquestionably one of Europe’s great vinous success stories. Exports have increased, prices firmed and supply fluctuations ceased. It has weathered growing competition from outside Europe, as well as within. It has also survived changing consumer tastes, rising production costs and streamlining supply chains coupled with consolidating retail bases. However, it appears unable to resist the lure of a deep discount, an aspect of the region many find frustrating, particularly as Rioja’s more expensive styles – those that should represent a temptation for people to trade up – are experiencing the greatest price bashing.
In fact, so widespread is the price cutting on aged Riojas in the UK, one wonders whether the trend has the potential to undo a very effective pricing and quality ladder. In this respect Paternina’s export director Carlos Latas compares Rioja to Mercedes Benz. The car manufacturer has A- to S-Class cars – A being the smallest and least expensive model in the range, and S the largest and most expensive, with the likes of C- and E-Class in between. Similarly, Rioja has a step-like structure for the region’s wines, governed by the consejo regulador and based on ageing times and, indirectly, quality and price. The levels are well known: joven (unaged) to crianza (two years’ minimum ageing with at least one year in cask), followed by reserva (three years’ minimum with at least one in cask) and gran reserva (five years’ minimum with at least two years in cask).
The consumer may not know the exact definitions of each level, but certainly associates the likes of reserva and gran reserva with better and therefore more expensive wine. Like a liberal application of gold on a label or a heavy bottle, these terms are cues for quality. However, deep discounts on reserva-level labels are bringing such wines to crianza-level prices and below. To return to the Mercedes analogy, this would be the equivalent of selling an S-Class for the price of a smaller model like the E-Class. Such an approach would certainly increase volumes of S-Class cars on the road, but at the expense of profit margins and E-Class sales. The equivalent is happening with Rioja.
Discount deals
Just by looking at some of the UK’s leading supermarkets at time of writing the point is clearly illustrated. On Tesco’s website, Pernod Ricard’s Campo Viejo Reserva is discounted to £5.68 a bottle, exactly the same price as the brand’s Crianza. Which would you go for?
Also, Tesco Finest Viña Mara Rioja Gran Reserva (an exclusive Tesco brand supplied by United Wineries’ Berberana cellar) is selling at £6.64 a bottle, while the Reserva from the same brand is £7.58.
Of course these are temporary offers, but the reducing of reservas to entry-level Rioja prices or gran reservas to reservas or crianza is altering the make-up of the Rioja market in the UK. Rapid growth is coming at the reserva and gran reserva end of the market. This has meant that while the amount of sin crianza and crianza imports increased by 8% and 1% respectively (2005–6), reservas were up 37% and gran reservas almost 16% (see table above). So, by October 2006 the share of reserva wines had increased to 30% of imports, putting a greater distance between it and crianza’s share (21.5%), which reservas first bypassed as recently as 2005 (see table below).
Quality concerns
Judging by the stats alone, this trend appears to be a force for the good – we are witnessing an increase in demand for better-quality and higher-priced Rioja. The average price shows an increase of almost 13% and value is rising at twice the rate of volume when it comes to UK shipments. However, as noted above, not only is this trend devaluing the reserva term but also, there is a fear that a few producers in Rioja may be selling reservas that were previously destined to be crianzas. They are simply being aged an extra year in bottle before release, rather than being selected for extended ageing based on the fruit quality. Not only could the consumer’s price expectations for reservas be altered, but also their long-term view of these wines’ quality.
PLB’s business development manager for Spain, Alex Canneti, believes such a vinicultural practice is not widespread, however. “Most is genuine reserva, maybe 10% is extra-aged crianza.” He also suggests that producers will be putting aside more wine for reservas in the future. “They have seen how much you can sell and economically it makes sense – a wine at E1.40 that you can sell at E4, but have to wait two years…”
Supply shortage?
In the short term, Canneti wonders whether reserva might decline relative to crianza in the UK simply because the supply of aged wines has diminished. Tom Perry, managing director of the Rioja Exporters Association, doesn’t agree. Having studied the inventory of vintages that are most likely to be reservas he points out: “Looking at 31 October 2006 there are 157 million litres of 2002 and 2003 vintages (vintages destined to become reservas), and on 31 October 2005 there were 171m litres of 2002 and 2001 vintages. Although there are around 15m litres less, the figures don’t bear out the idea that there is a shortage. If you consider that annual sales of reservas will probably be 40m litres for 2006 and were 36m litres for 2005, and each vintage lasts for two years, there appears to be enough.”
Adrian Atkinson, wine development director at Pernod Ricard UK, owners of Campo Viejo, is sure the supply for this brand’s reservas will not be exhausted. “Our reserva is growing 23% in volume and 20% in value in the UK off-trade (MAT AC Nielsen to w/e 02.12.06). We have worked hard to secure more quality fruit to produce our reservas, which will allow us to continue the growth of the past few years.”
So the trend looks likely to continue: volume sales increases will come from reserva-level wines, fuelled by a healthy supply and consumer demand. The multiples in particular are keen to push reserva Rioja according to Perry, “because it provides something no one else is providing – vintages that are often not available from elsewhere and wines which are food friendly and have complexity from ageing”. And that’s for around a fiver.
Price performance
In fact, ACNielsen records a healthy £5 average price for Rioja in the UK off-trade and 1.8m-case volume – more than New Zealand shifts in Britain. Hence some are defending the practice of selling cut-price reservas because at least the technique is helping to move relatively high-priced wine – reservas have yet to post on-shelf prices below £4. This is in stark contrast to Spain as a whole (Rioja comprises less than one-third of UK Spanish wine sales), which has an average price of £3.68 in the British off-trade. The market average for all light wines is £3.89.
“Reservas have indeed been strongly promoted by everyone,” says Anthony Collet, marketing manager at United Wineries, owners of Rioja’s Berberana, Lagunilla, Marqués de Griñón and Concordia brands. “But so are Champagne, Chablis, Châteauneuf du Pape, wines from New Zealand or California…. Discounting has become a component of the UK market and has to be included in your product mix. At the end of the day, it is better for Spain to promote Rioja reservas than offer cheap plonk at £2.99/£3.99. It is better for the image of the region and it actually encourages consumers to trade up. Let’s not forget that over 51% of all Spanish wines are sold below £3.50.”
Modern offer
However, whether or not heavily discounted reserva Riojas in the UK market are a force for the good, price is not the only mechanic driving the wines forward. Also proving effective is the ability of the region’s major producers to modernise their offer. If it’s not new packaging, it’s fresher, fruitier styles. In particular, Rioja has proved itself responsive when it comes to changing consumer tastes.
Reducing the influence of oak has been key to making the wines more appealing.
For instance, Sarah Pollard, brand manager, wines, at Gonzalez Byass UK, admits that the company changed the oak treatment for its Beronia Rioja to produce a wine with “a cleaner, fresher flavour”. After a recent tasting of Rioja brands sold in the UK, she recalls that “the fruit is so much more evident”.
Meanwhile Codorníu’s Viña Pomal “is deliberately modern in style”, according to the company’s marketing manager, Jo Maclean, “with a rich colour from increased maceration times.” Campo Viejo’s print advertising even centres on the wine’s fruit-driven style: “Campo Viejo with a hint of oak, not a sideboard full”.
New image
Visually, such wines have moved away from the metal cages and gothic script of more traditional Riojas. However, that’s not to say they are outrageous in their appearance. In fact, most are fearful of alienating Rioja’s perceived core audience – the older, more traditional drinker – and hence new brands tend to be modern in design, but not garish.
For instance, Guy Anderson’s rather conservative new branded Rioja, Gran Familiar from the Vivanco Group (on Tesco’s shelves from spring), or United Wineries’ sober but good-looking Marqués de Concordia.
Then there’s new entrant Viña Adrien from Bodegas y Viñedos XXI and represented in the UK by 10 International, which, like others, is a modern take on traditional Rioja packaging. An exception among these is Group Félix Solís Avantis’ new Rioja called El Círculo, which has a striking, round label. The group, which is behind Viña Albali, and Ribero del Duero’s Altos de Tamarón, has invested over E30m in the winery in Fuenmayor in the Rioja Alta.
This mostly cautious approach to branding Rioja fits with the region’s slow adoption of screwcaps. Although Perry assures “there has never been a restriction on screwcaps in Rioja”, few are considering using them. This is partly because they are associated “with low-quality wine and sangria in Spain”, and partly the fact that most Rioja is red wine that undergoes ageing in bottle – “and the current thinking in the region is that cork is the only closure possible for this”, comments Atkinson. Marqués de Cáceres has, however, offered the US market its young white and rosé wines in screwcap since 2005. In 2006, it extended this option to the UK – and it “has been well received by clients”, records Anne Vallejo, PR director, Marqués de Cáceres. Pernod Ricard is also apparently currently researching “the suitability of younger red wines to be sealed with screwcaps”, says Atkinson.
Finally, Rioja is taking important steps to ensure its white wines in particular remain relevant to today’s drinkers, especially in light of the growing demand for whites from other Spanish DOs, for instance Rueda and Rías Baixas. After a long-running discussion, the Rioja Regulatory Council has unanimously approved the use of Chardonnay, Sauvignon Blanc and Verdejo in a blend, but not as the predominant variety. This should help boost future sales of white Riojas, which have historically been based on the somewhat neutral Viura. Already though, the demand for whites from Rioja has increased, and Faustino’s Alonso records that “in 2005 there were new plantings of white varieties in Rioja for the first time in 15 years”. A move made in response to the trend of increased white wine demand.
Adaptation
In short, Rioja has proved itself able to adapt to the demands of the market. If the demand is for deep discounts, it can offer them. If the demand is for fruit-driven wines it will make them. If the demand is modern brands it can supply them. And on the subject of brands, Rioja has a clutch of surprisingly strong ones. Not only are they widely distributed, but they also have a high average price. Campo Viejo’s off-trade average (MAT to w/e 09.09.06) was £5.60, Faustino’s was £6.79, Marqués de Griñón’s £4.82 and Marqués de la Concordia’s £5.15.
However, Rioja in the UK off-trade is still rife with own-label wines and supermarket exclusives. Further, these, as well as producer-owned brands, are heavily reliant on discounting, although some choose deeper price cuts than others. And it should be remembered that while the UK consumer is highly responsive to discounting, especially when it comes to Rioja reservas, it is a retail technique available to wines from anywhere in the world.
© db Febuary 2007