Chile, like Diageo and Manchester United, just seems to keep going from strength to strength. Nothing appears to get in the way of its progress. Fortunately for the South American producer, it doesn’t have a sole leader so, it doesn’t have to worry about the likes of Paul Walsh and Sir Alex Ferguson moving on. 

While Diageo and United face slightly uncertain futures as their defiant, indefatigable leaders step down, Chile just has to worry about the strong peso and where to sell its wines next as established, mature markets – primarily in Europe – flatline economically.

The Chileans, being the Chileans, worry – but need they? Felipe Bravo, area manager for Europe at the VSPT Wine Group (San Pedro Tarapacá, Santa Helena, Misiones de Rengo, Leyda, Altair, Vina Mar, Casa Rivas and La Celia and Tamari), says: “After years of growth the Chilean wine industry is starting to feel the pressure of: the economic crisis our main buyers from Europe are facing; incredible higher costs of labour, electricity and raw materials; and a challenging US dollar/Chilean peso exchange rate. 

“As a result, in 2012 our bottled goods segment closed the year with similar figures to 2011, showing almost no growth. Regarding markets, shipments to nine out of the 20 most important ones declined both in volume and value with a higher impact in the two major ones, the US and the UK which together account for 28% of the value and 32% of Chile’s exported volume,” he says.

Fastest growing

The fastest growing countries are China, Brazil and Japan, with the latter two pushing the Netherlands down to fifth. The average price decreased in 10 of the 20 major export countries, particularly Europe. The one exception was the UK, which grew 2%, according to Bravo.

Matetic Vineyards general manager Arturo Larrain is equally pessimistic. He tells Drinks International: “My perception is that 2013 will be a difficult year for Chilean industry – rising costs of labour and energy, very strong Chilean peso against the dollar and week demand from Europe, our number one export region in the world. Having this in mind, we will continue our strategy to focus on Asian markets, Canada, US, Brazil and also the domestic market.

“Chile must focus on producing quality wines but also to educate consumers about our potential to produce high-quality wines and not only value wines. Chile is all about diversity. We are able to produce from top-quality Sauvignon Blanc to red varieties such as Pinot Noir to Cabernet Sauvignon,” says Larrain.

Carolina Wine Brands is one of Chile’s main winemaking groups. It is part of the Watt’s SA agroindustrial group. It manages 2,000ha of vineyards in Chile’s Maipo, Casablanca, Colchagua and Curicó valleys, as well as seven winemaking facilities. Carolina owns five Chilean brands, the main one being Santa Carolina, with boutique winery Casablanca, Ochagavía, Vistaña and Antares.

Commercial director Christian Wylie, says: “We need to educate all over the world that our wines are top quality. In many countries when consumers need to buy a US$20 bottle or more, they go straight to the French shelf. Many Chilean wines have been well ranked with good accolades and scores. We need more. We need to innovate.”

It sounds doom and gloom in the long thin country on the lower western side of South America. But not so. Concha y Toro is the continent’s largest wine producer. It is opening an office in Shanghai this year to complement the one it opened in Singapore in 2010.

Corporate export director Thomas Domeyko says: “This move illustrates the potential we are seeing in Asia for Chilean wine, a market which in 2012 proved to be the most dynamic, led by rising consumption and new consumers. Growth was led by China, Japan, Korea and Singapore, among others. Also we are seeing opportunities in other emerging countries such as Brazil, Russia and some markets in Africa, although these are still small.

“For Concha y Toro the UK market is relevant for the development of the premium category. The company continues investing, with particular focus on Casillero del Diablo. A new in-market merchandising team significantly improved distribution and positioning of the brand in retail outlets, resulting in sales growth of 12% in 2012. Casillero del Diablo also broke through the one million case mark and entered the top 20 branded league table for the first time,” he says.

“The US market is also important for the company – the US is the largest market for Chilean wine exports, above US$40 per case FOB (free on board). Currently, our sales and marketing strategy is focused on improving the mix. The company has seen significant results and large opportunities in the most profitable segments of the market. The group has strengthened its position in the US market through its acquisition of Fetzer and the development of a separate and dedicated sales force,” says Domeyko.

Different spin

Héctor Torres, director of Luxury Wines, Santa Rita Estates, has a different spin on the US. “Many Chilean wineries were forced to increase prices during 2011 and 2012, which affected the entire portfolio, but primarily the entry label wines, the ones sold below US$6.99 retail. Simultaneously, California had a bad vintage in volume during 2011, so they substantially increased imports from Chile during 2012, which were sold under domestic brands such as Corbett Canyon or Cupcake.

“During 2012 an important switch occurred at the Chilean entry level from bottled wines in Chile to Chilean wines bottled in the US. The same happens for Argentinean wines, which increased their sales of bulk wines but decreased in bottled exports,” he says.

“The surviving Chilean brands up to $7.99 are the larger and better recognised, eg Concha y Toro Frontera, Santa Rita 120 and San Pedro Gato, plus the domestic brands with Chilean wines bottled in the US as mentioned. Therefore, the Chilean wine industry has focused its promotional efforts during 2012 in the US$10-$20 retail, which is a segment where the entire wine industry is presenting the strongest growth, with rates of 10% between $10 and $ 11.99 retail,” says Torres.

Santa Rita Estates export director Andrés Lavados adds that Chile’s Merlot and Chardonnay volumes are down due to the popularity of other varieties such as Malbec, Moscato and Pinot Grigio, which are not strongly represented by Chile. Nevertheless, volumes of Cabernet, Pinot Noir and Sauvignon Blanc are up.

As to trends in the vineyards and wineries, Felipe Tosso, head winemaker at Viña Ventisquero says: “Trends we’ve noticed include the global interest in Chile’s cooler-climate wines from the coastal valleys. Soils in the coastal valley areas are really interesting and giving fascinating results. We planted a new vineyard a few years ago in the Leyda Valley – an area which has really built a reputation for itself over the past few years – just a few kilometres from the sea. We are already producing Sauvignon Blanc, Chardonnay and Pinot Noir from these vineyards that exhibit a great level of quality, freshness, lower alcohols and great acidity. We also have plantings of Syrah, Gewürztraminer and Viognier here, which we’re very excited about.

“Our most exciting and extreme project is in the Chilean desert, in Atacama. We have a small vineyard in this cool desert which has a huge coastal influence where we produce white and red wines under our new Tara Brand. We had to draw on – then question and rewrite – every bit of viticulture and winemaking knowledge we had to find a new way of doing things here. It’s a completely different proposition to anything we’ve done before. Initial feedback is really positive and we expect this wine to do well globally”, says Tosso (see Chilean wines to watch).

Right direction

Adolfo Hurtado, Cono Sur general manager and chief winemaker, says: “I feel Chile is headed in the right direction and that consumers are open to buying more of our expensive and premium wines. Our country is no longer perceived as only a producer of good price quality wines. New varieties such as Pinot Noir, Syrah and aromatics like Riesling, Viognier and Gewürztraminer are an important part of what Chile has to offer. Also, sparkling and late harvest are more popular each day.”

Terramater export manager Camila Valdivia says: “We have increased our sales in the premium area, especially in countries such us Canada, the UK, US and Germany. Our clients are changing from entry-level wines, or medium quality wines, to more premium quality wines, opening their portfolio of products.

“We have seen that our clients and also potential clients are now more open to looking for interesting blends and different grapes, and we have the opportunity of giving them what they need because of our big portfolio of products. We have also noticed that clients are relating to Cabernet Sauvignon and Carmenère more and more with good Chilean wines.”

Challenges

Ben Gordon, commercial director of Colchagua boutique winery Estampa, does not think Chile is quite there yet. He sees two challenges: “The average consumer still portrays Chile as the perfect category for more inexpensive wines, but for special purchases will automatically default to Old World producers with more prestige but not always the same level of quality.

“The increase in wine becoming more of a commodity as supermarkets gain market share means the bigger players are getting bigger and the valuable message Chile has to offer of diversity and quality is not always getting to the shelves as buying different brands at different price-points is an easy way to solve the majority of your category issues in one fell swoop but doesn’t do Chilean wine justice.”

O Fournier group chairman Jose Ortega Fournier says: “We are experimenting with a slow but constant shift in the Chilean wine sector by focusing more on quality and finding the right areas for the right varieties. It is critical that the search for the right terroirs and the abandonment of the ‘industrialised’ grape growing process, where anything goes as long as the grape is a ‘commercial’ one, continues. 

“There is a need for smaller, more focused wineries which will focus on better vineyard practices and more personality-driven wines. There is also a need for institutional bodies to highlight these boutique producers and reduce the exposure of the large, commercial wineries.”

So the Chileans continue to agonise as to the way forward, but that, along with their strong work ethic, makes Chile – and its wines – what it is. Anyone in the trade who still thinks Chilean wine is just about easy-to-drink soft and fruity wines which are ultimately bland must have been living in a cave for the past 10 years.

The development of new regions and the move to cooler-climate vineyards, particularly coastal ones, has resulted in more diverse, more interesting wines.  Diageo’s Paul Walsh and Manchester United’s Sir Alex Ferguson were great leaders. Fortunately Chile doesn’t need that sort of inspirational leader. There are enough leaders in the country’s vineyards and wineries.