Spanish wine makers hunting for buyers as slump hits prices
May 8, 2009
By Sonya Dowsett and Tracy Rucinski
Pancho Campo knows of between 30 and 40 Spanish wineries up for sale. The founder of The Wine Academy of Spain and the first Spaniard to be awarded the title of master by the Institute of Masters of Wine believes the recession sweeping Spain will trigger a shake-up of its fragmented wine industry, pushing many smaller players to ruin.
"Small wineries will have to merge or be absorbed by large groups," says Campo. "It's going to be a tough time. Some guys will disappear."
Global restrictions on credit paired with the end of a domestic property boom nearly trebled the number of Spanish businesses entering administration last year. Many wineries are looking to sell up to avoid the same fate.
Businesses with a good bottled wine brand and an eye for international expansion are the most likely to find a buyer, says Spanish investment bank OnetoOne Capital, which has advised on takeovers in the sector. Others will not be so lucky.
"There are a lot of 'for sale' signs out there. Supply is escalating," says Fernando Malo, an analyst at OnetoOne. "If it's a new project, it's going to be harder to find an investor; in fact, it's highly likely you won't."
Spain has more land under vine than any other country, with about 1 million families dependent on the wine sector, according to the Ministry of Agriculture.
Best known for plummy reds from the cool north-east province of La Rioja, it overtook France as the world's second-largest exporter of wine last year, and trails only Italy.
Spain has prestigious vineyards, such as those of wine maker Bodega Numanthia Termes of the Toro region, whose premium reds can retail for hundreds of dollars per bottle.
Moet Hennessy, the wines and spirits business of luxury products group LVMH, bought the winery from its founders, the Eguren family, in February last year.
But more than 85 percent of Spanish wineries are small, employing fewer than 10 people. They depend on selling lorry loads as part of the bulk table wine market, which accounts for about half of Spain's wine production by volume.
These are the most vulnerable to the slump, their finances crushed by plummeting demand; slashed credit; and the scrapping of EU subsidies under rules introduced last August, aimed at curbing overproduction.
Tightening screw
The official price of bulk-sold wine was steady in February at e0.37 (R4.15 at yesterday's exchange rate) per litre, according to industry data.
However, Albacete wine maker Jose Maria Delicado says the price has halved from a year ago in recent weeks.
He has laid off half of his six staff and now just works with family members. He shakes his head in his newly built winery, sitting among arid fields of stunted vines tipped with green leaves in the plains of south-east Spain.
The building, with its attractive, antique-filled lobby, metal vats and small laboratory, was funded with his life savings and bank loans. But it faces an uncertain future.
"It's like a tightening screw," says the 43-year-old father of two.
"The time comes when it's breaking point. If the crisis continues, we'll be ruined because we can't pay the bank."
Demand for bulk-sold wine has slumped among foreign buyers. Sales fell nearly 40 percent from a year earlier in January and February, according to recent industry figures, with total wine exports to major importers Italy and Russia falling 75 percent and 70 percent, respectively.
This collapse in demand means prices are falling by the day, says Delicado, whose father and grandfather cultivated grapes before him.
"We started to notice it after harvest time; prices started to really drop," he says, his brother and business partner standing beside him. The red, white and rose bottled wine they started selling two years ago under their own label generates only 5 percent of their income.
Many in the industry say recession has exacerbated a need for consolidation.
A unified approach could better equip Spain to push its bottled wine abroad against aggressive marketing from new world countries such as South Africa.
"Once you convince the consumer to drink Spanish wine instead of Australian, French or Italian, it's up to the labels to promote their own identity," says Campo.
Selling the product
Becca Reeves, the product development manager of wine at British supermarket chain Asda, who recently returned from a tasting trip to Spain, agrees wineries should unite to market their wines.
"A lot of customers will recognise Rioja as a Spanish wine and that's it," she says. "They are unlikely to have heard of the regions, unless they've been on holiday there."
Spain is Asda's seventh best selling wine region, behind South Africa and Chile. Asda's range includes an entry-level Rioja for £3.98 (R50), and an Albarino, made from the Spanish grape that makes light, peach-scented whites.
Wine sales at Spanish restaurants and bars have slumped as people stay at home. Although domestic wine consumption remained steady by volume last year, there was a switch to cheaper brands.
Bottled-wine sellers are also whittling prices to tempt buyers.
Felix Solis, the eponymous chairman of the world's tenth biggest wine maker, says he is trying to trim production costs from the label to distribution.
The company, which started its export business in the 1970s selling to Spanish immigrents in Germany, and now has permanent sales teams in Tokyo and New York, grows about 5 percent of its grapes, buying in the rest from about 4 000 vine growers.
Felix Solis Avantis now gets half its sales from abroad, selling wines such as its Vina Albali brand to countries from the Czech Republic to Australia.
Its best-selling wine in Spain, a red from the Spanish Tempranillo grape, retails at less than e2 a bottle.
Solis says farmers cannot be squeezed further to bring down prices: "You can't ask the farmers to do more than they're doing already." Spanish farmers already say low prices are forcing them to sell below cost or plant less: thousands of dairy farmers took to the streets of Madrid last month in noisy protests.
Small wine maker Delicado says the effect of falling prices will filter down to grape farmers by the next harvest.
"The farmers will feel the pinch this year. They sold their last harvest and they still have money," he says.
"The problem is when the wineries will not be able to pay them this year. If the situation doesn't improve from here to October, I don't know what's going to happen, but it's going to be disastrous." - Reuters
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