Chilean Wine at the Crossroads

When Oz Clarke spoke at the Wines of Chile Awards seminar earlier this year, his theme was simple and clear: Chilean wine is at a crossroads and it was up to the people in that room to decide which direction to go. Would they make the same mistakes as winemakers in Australia, for example, or choose another path? Oz, who was a stage and film actor in a previous life, is a dramatic speaker, but if you watch the video I think you will agree with me that his message is even more powerful than the delivery.

Preaching to the Choir

Oz Clarke is not alone in this view and to a certain extent I’m sure he was “preaching to the choir.” Wines of Chile released its ambitious  Strategic Plan 2020  about a year ago (you can download a pdf of the full report here). The plans calls for Chile to become the #1 New World producer of “sustainable and diverse” premium wines by 2020.

The carefully devised Plan projects an average annual growth rate of 9.2% and is based on strengthening the recognition and appreciation of  “Wines of Chile” as a world-class appellation, which will in turn increase the average price, sales, and added value for all Chilean wine industry stakeholders, including small and large growers, suppliers, wineries, and exporters.

The plan focuses on four messages to drive the transformation:

  • Diversity and Quality. Chile has much to offer with respect to quality, diversity, and wines that over-deliver at every price point.
  • Sustainability. Sustainable Chile: Clean, efficient, and responsible.
  • Country Image. Chile is good for you.
  • Innovation. Chile: Moving above and beyond.

The plan’s ten year time horizon speaks to the sense of “Chile at the Crossroads” immediacy while the four “strategic pillars” indicate how much needs to be done in terms of recasting Chile’s image. Chile’s reputation as a producer of bargain Cabernet Sauvignon, Chardonnay and Sauvignon Blanc needs to be reshaped in terms of both wine types and price points. And the image of Chile itself must be updated or redefined, according to the plan’s analysis, so that the country sells the wine  (as Italy’s image obvious does for Italian wine) and not the other way around. (Whether a campaign built around the slogan “Chile is Good For You” can accomplish this is debatable.)

Audacious Goals?

Exports are key for Chile since domestic consumers drink up only about 30% of total production.  The idea that revenues might grow by 9.2% in the next decade is not as ridiculous as it might sound, given the current economic climate, although it is certainly an audacious goal.

Chile’s wine exports grew by a yearly average of 33% in the 1990s (according to data in the Wines of Chile report) and by 11% per year between 2000-2009. But whereas growth came through both increased price (7%) and quantity (25%) in the 1990s, the 11% revenue growth in the 2000s was due to volume growth (12%) offsetting 0.1% average price declines. The new strategic plan calls for a radical change, with rising price not higher production driving revenue growth.  Good idea, but easier said than done.

So (and this is the “crossroads” theme again), Chile needs to turn things around in a fundamental sense and this may be difficult in today’s market environment as an excellent interview with  with Rabobank’s Stephen Rannekleiv in a special September 2011 Chile Report  issue of The Drinks Business makes clear. Rannekleiv is an optimist about Chile’s wines, but very cautious about its wine industry’s ability to meet the 2020 goal.

 Something Completely Different

Rannekleiv suggests that Chile seek out new markets to supplement but not replace the UK, its largest export market today, where margins currently are thin or even  negative and where upward price adjustment is extremely difficult. Focus must be on price and quality, Rannekleiv notes, so major supply surges must be avoided.

It is very difficult to raise price (without dramatic loss of market share) for existing product lines in today’s market, so  “Chile needs to find something different, such as marketing around new varieties that are exceptional; it also needs to continually work on improving quality.”

There is no silver bullet, Rannekleiv suggests. It will take a combination of controlled output growth, continuing quality improvements, image development and new products and markets to turn the Chilean wine industry onto the right path.

Getting the Message Out

One element of the Wines of Chile strategy is a series of blogger wine tastings that are designed to educate, inform and persuade social media representatives and their audiences of Chile’s new direction. I took part in one of these programs last year that featured Chilean Syrah and Pinot Noir, stressing the diversity of Chilean wine.

This certainly is part of the 2020 strategy’s message (and the wines told that story pretty well), but Syrah is a problematic market these days and while Pinot is popular, it is hard to break in except at the bulk level. (Although both Chile and Argentina produce Pinot Noir, for example, neither country made the cut for inclusion in Benjamin Lewin’s recent book In Search of Pinot Noir.)

Is Carmenere The Key?

Which brings us to Carmenere, the focus of the most recent blogger tasting program.  Is Carmenere the key (or one of them) to Chile’s crossroads dilemma? Carmenere is (like Malbec) a Bordeaux variety that is now better known in the New World than the Old. Can Carmenere be to Chile what Malbec has become for Argentina, a signature variety that creates a new market and that serves as a brand ambassador for the entire country?

A Carmenere boom would tick a lot of the Wines of Chile 2020 plan boxes. Is Carmenere the key? Come back next week for my answer.

7 responses

  1. In the 1960s the California wine industry was seen as the home of plonk. A study by a producers association said that if they wanted tos ell more they should raise their prices. It was seen at the time as a huge gamble. Some wineries changed their labels to look higher class, more expensive and raised their prices. It worked. Then more did. Not everyone could of course, but it changed the perception of California wine.
    There are many other possible approaches to marketing Chilean wine. If they seem logical, they’re probably less effective than those which take an approach which hasn’t been tried previously. Most marketign approaches fail. The trick is to learn how to fail cheaply so you can afford to try another, then another until you discover one that works for you.

  2. I’ll be interested to read your conclusion. I just returned from a wine tourism trip (consumer) to Chile and Argentina, and the Chilean winemakers we visited believe Argentina has made a mistake by putting all their eggs in the Malbec basket. They’re very aware of the trouble Australia has run into with Shiraz. Having said that, I do think Carmenere is an underexposed grape that most people would like if they were served it. Most people I know have never heard of it, although I like it better than most Malbecs.

    However, I can’t see in my local grocery stores and wine shops that either Chile or Argentina does better with shelf space. It’s just that Argentina’s shelves are all Malbec and Torrontes and Chile’s have a few varieties. I wonder if Chile might be better off trying to get its bottles also placed in the varietal sections.

    Other things we learned from our small sampling of wineries: Chile is extremely committed to exports, in part because the taxation structure of the country apparently makes it more expensive to sell wine in Chile than out of it. In order to export successfully and achieve pricing goals, they also feel compelled to get high ratings from the usual suspects, which leads to greater use of French Oak, etc., than they would otherwise do. All of them talked about their organic/sustainable/biodynamic practices.

  3. Interesting about the raising of prices. Let me preface this by saying that Australia is a high taxing country and we generally pay 30% more across the board for all wines.

    I was in the shop the other day and was looking specifically for a bottle of Chilian wine. There was not much to choose form but as I was looking for a syrah I bought a 2009 Montes Alpha Syrah for $19. Not a bad drop and value for money (but reductive like almost every Chilian Syrah I’ve tasted).

    There was also a $35 chardonnay and a $75 CS. Now I can buy a very good Yarra Valley chardonnay for $35 and a decent bordeaux with a bit of age on it for $75. I will never chose a Chilian wine at those price points simply becuase they don’t yet have the runs on the board.

    As with USA, get some reputation, win a stack of awards (doen’t hurt to have an influential wine writere talk you up) then boost the prices. There’s too much wine for each buyer as it is. Discounts are the norm not the exception so inflating prices to imply quality is a dangerous game.

    Don’y get me started on the Austraian wine marketing efforts

  4. A very well researched and written piece once again Mike. I enjoy reading your insights on the global wine industry’s market positions.

    I was on a 2011 media tour in Chile and Argentina with some very fine and established wine writers including Marguerite Thomas, Karen MacNeil and Blake Gray and I participated in the Carmenere blogger tastings in 2009 and 2011. From my observations, there are two key factors that will make or break both countries: 1) vintners being on the same page with a core message and a plan to execute it and 2) quality and taste. I’m not an economist but I’ve always suspected that Australia’s market ran off the cliff because they did not have tight reins on these factors.

    All of the writers on our tour had their own opinion, but for me the most interesting and best wines coming out of Chile are coastal climate wines like Chardonnay, cool climate Syrah and Pinot Noir. I also respect and applaud the vintners engaged in intensive terroir and aging experiments and believe the eco-friendly message is a good one.

    Which (as you wrote) brings us to Carmenere. In my opinion, the 2011 tasting showed a marked improvement in quality and taste over the 2009 event. By “taste”, I’m referring to presenting wine that is softer and richer for the American palate, as opposed to more austere wines that need a few years in the bottle to really come into their own. Quality (a different factor altogether) will create market sustainability and high critical scores which matter economically, right?

    I guess my conclusion is that Chile’s marketing plans are pretty much on target, but time will tell. If they’re nimble on their feet, well-financed and retain inspired, smart leadership, my bet is that they’ll continue to grow.

  5. Your point about carmenere is well made, though it raises any number of questions. It’s difficult to sell a grape that export markets don’t know, but what I find even more interesting is that the Chileans themselves don’t seem to know what do with the grape. Do they blend it? Do they make single varietal wines? If so, what do they taste like?

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