As the international success stories of newcomers like Australia and Chile and traditional producers like France and Italy have made evident, a country’s image makes a big difference to wine sales. The truth is, few products flaunt their origin so openly in their struggle to differentiate themselves from their competitors. As Spain’s economy deteriorates and domestic consumption decreases, Spanish wine producers are compelled to look to export markets to survive.
In spite of its status as the world’s leading country in vineyard area and the third largest producer in volume worldwide, Spain has been unable to take its rightful place of leadership in international markets.
Among the reasons for this are the small size of Spanish wineries, a distorted country image at the international level, the low perceived value of Spanish wines and the lack of collaboration between the different Denominations of Origin that make up the Spanish wine map. Of course, some of Spain’s individual regions and brands have been on the international playing field for a long time; nevertheless, in a context of rising globalization, the industry as a whole must reconsider its approach to the market, find synergies among the different regions and producers in order to create a strong international image that will help the entire industry face the stiff competition from much stronger global country brands.
A country brand is a concept with many dimensions. People all over the world associate different qualities with different countries. These qualities are based on perceptions of a certain country’s identity (heritage, culture, values), political and economic stability. Spain was able to change the somber image that was perceived by the international community during the Franco dictatorship and reposition itself as a vibrant and modern country during the 80’s. The Olympic games celebrated in Barcelona in 1992 were the starting point for the country’s modern economic development and internationalization, turning the Spain of the 90’s into an example of success in the European Union. Only two decades later, the country’s economic crisis, record high unemployment, social unrest and corruption at the highest levels, have damaged the country’s reputation. Today, the “Marca España” (Brand Spain) status is tumbling at both the domestic and international levels. Spain’s country brand image has been devalued so much that companies rarely boast about their country of origin.
Despite the fact that selling “Marca España” is not easy, wine is one of the country’s best performing exports, reaching historic heights in 2012.
However, according to the OeMv (Observatorio Español del Mercado del Vino, a company that tracks wine statistics) wines shipped in bulk without a Denomination of Origin still account for over 40% of the total. As global demand shifts towards bottled fine wines, to be known as a leading supplier of low value bulk wines, puts Spain in a dangerous position, as it is always harder to build a brand starting from the bottom and then moving up to more premium price brackets.
Spain is one of the world’s most decentralized countries. Its wine industry, which plays a leading role in the country’s economic fabric, reflects this through a very important weakness: fragmentation.
Close to 80% of Spanish wineries are small family-owned companies (employing less than 10 people). Moreover, Spain expresses its diverse wine landscape through more than 65 protected Denominations of Origin (self-regulating wine regions in which producers are required to follow strict rules imposed by regulatory bodies) with their individual promotional and marketing budgets, while the country brand “Wines from Spain” suffers from lack of government funding due to the economic crisis. One of the most revealing examples of this fragmentation and lack of countrywide focus is Spain’s participation in international wine trade fairs. In Vinexpo 2013, for example, the country’s official pavilion organized by ICEX/Wines from Spain, hosted 74 companies from 36 different Denominations of Origin, while other regions like: Castilla La Mancha, Jumilla, Rueda, Ribera del Duero, Cataluña, Rias Baixas, Valdepeñas and Rioja were also represented in separate areas of the fair. Meanwhile, countries like South Africa, New Zealand, Chile or Australia showed cohesive images with all of their companies in the same pavillion and under the same country banner.
Spain’s strategy is consistent with the individualistic mentality of the country’s regional culture, but far from accomplishing the idea of communicating the diversity of Spanish wines, this approach blurs the country of origin message that has proved so successful by other wine producing countries.
Branding has always been a difficult challenge in a fragmented industry like wine. There are many famous brands -revered, highly sought after (and expensive) wines in most countries- yet there are few true global wine brands that can be found around the world. New World producing countries like Australia, Chile or South Africa have capitalized on this and become strong contenders by focusing on market scale and branding expertise; offering the consumer a reference –a starting point-, consistency, authenticity and a guarantee of value for money through their country brands and varietal labeling. Australian wines for example, are known internationally for their straightforward, bold flavors and perceived as good values, as being reliable and easy to drink, to the extent that they rapidly became a staple in the mid range category. Of course there’s a lot more to them than that, but the idea is that strong country branding and global thinking helped them gain shares rapidly in the world market, and the country’s industry as a whole benefited from it. The fact that the Australian wine industry is highly concentrated -only four companies are responsible for more than two thirds of production- makes it better prepared to take advantage of smart country branding and economies of scale.
This situation is far from new. As early as 2003, the Spanish government passed the Law of Wine (14/2003) intended to modernize the industry, adapting it to new market conditions. Among the changes were: greater flexibility in bottling regulations, simplification of labeling requirements (allowing the use of the same brand in different Denominations of Origin was to help develop a strong brand image), and creating the “Vinos de la Tierra”, and “Vinos de Pago” geographical indications. However, the law was widely criticized by traditional wine producing regions, because they believed that the Spanish Ministry of Agriculture and the FEV (Spanish Wine Federation) were against the D.O. System, whose highly regulated environment was seen as a barrier to the internationalization of the Spanish wine trade. As one of the world’s main suppliers of wine, Spain would be wise to adopt this strategy of allowing the same brand to be used in different DOs. This has worked for New World countries as a way to rapidly gain market share in the low and mid-range categories.
As consumption today shifts towards the “premium” and “super premium” categories, for some of today’s wine consumers, marketing country of origin and grape variety are simply not enough. Knowledgeable wine consumers want to know what part of a particular country or region the wine comes from, the producer who bottled it, even the plot the grapes were sourced from. In the end, it’s a sense of history, exclusiveness and mystique that give wines an identity and keep prices up. Ironically, producers from the New World are now shifting towards designations of place and region like their European counterparts. Australia defined the boundaries of its most important regions like the Barossa Valley and Margaret River, and producers from the U.S. know that wines from some areas, like the Napa Valley in California, are highly sought-after and sold at a premium. Quality gains importance as consumers become more knowledgeable about the various kinds of wines available in the market and trade up. Despite the Old World retaining some of the competitive advantage associated with tradition and heritage, it is increasingly difficult for wine producers there to depend on this because their New World competitors are home to vineyards and wineries that have gained equal prestige.
Spain’s diversity and multiplicity of wine styles and must be seen as an advantage as consumption patterns shift towards quality wine. In this context, better-focused institutional support for internationalization is key.
Spain must reinforce its country image as a quality wine producer and this can only be done by finding synergies between its different Denominations of Origin instead of deregulating the industry. One way to improve this collaboration is to convince the more dynamic D.O.s to promote their regions together. Nevertheless, because Spain is made up of different Autonomous Communities with their own strong regional sentiments, the road towards inter-regional collaboration is not an easy one. Leaving politics aside, well known wine regions like Rioja, Ribera del Duero, and Priorato for example, consider themselves competitors in the domestic market and don’t see the advantages of working together internationally at a time when wine exports are growing and they feel they can still compete at the individual level. What they fail to realize is that their comparatively small size in volume, company size and promotional budgets prevents them from facing current competition individually in today’s globalized market.