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Global Economic Crisis and Spanish Wine, Portugal Pay Attention

I received today a press release that I want to discuss with the caveat that you please provide feedback and thoughts in the comments.

FEV, The Spanish Wine Federation, is a private group dedicated to tracking, promoting and defending the image of Spanish wine both nationally and abroad. In Spanish, they emailed me a decent newsletter full of information on Spanish wine sales and conferences which they host to discuss issues relevant to the industry.

In today’s press release from the FEV:

“Márgenes y Estrategias en la Industria del Vino” – Las empresas del vino analizan en Madrid los efectos de la crisis en el sector

“Margins and Strategies in the Wine Industry” – Wine Businesses analyze in Madrid, the effects of the economic Crisis on the Wine Industry

The “crisis”, as it is called in Spain, refers to the downturn in world markets that we are all surely aware of. However, it is far beyond a crisis here in Spain, and getting worse. High unemployment, expensive housing and immigration issues are all starting to take a toll on the Spanish economy. So far, we have not seen this become a huge issue within the wine industry, but it will eventually, so any preemptive talk is welcome in my opinion.

To the release: It states that 150 businesses in the wine sector helped support a study at the international level, focused on both the competitiveness of the Spanish wine sector and the current key markets for wine sales. They first took a look at a new report presented by Rabobank on the need for wineries to balance profitability and investment to ensure a healthy future. I believe you can find information on the report here, though there is no link to which report mentioned.

Through this analysis, they came up a with several factors which they felt were fundamental to the future success of European wineries, but more importantly, zeroed in on the Spanish market and singled out the following:

  • that Spain has huge stocks of wine – Ever been to a Rioja or Cava house?
  • a long return time on investments (one of the highest in the study)  – Can you say Gran Reserva aging in my cellar?
  • and a large investment in fixed assests – Maybe they mean stupidly big hotels?

The report then went on to say that Spain, above all else, needs to focus on brand building, while at the same time, maintaining sales growth. And as a result of a lack effort during boom times to both build strong brands and consolidating overall brands, wineries are now left in the position of having to do it now, during a “crisis”.

Finally they looked at both the North American and UK markets as potential areas to exploit. With respect to North America, they pointed out the need for distribution, selling wines at a good price and a nice range of products, which are all good points. But with respect to the UK, they were focused on restaurants and the food sector as a whole; which could be considered strategic, with the art of cooking currently enjoying a renaissance and restaurants continually improving their offerings. The Gastro pub could mean big bucks for the industry!

Finishing the newsletter, I was left with 2 images of the event and a conclusion that went something like this:

In conclusion, the Spanish wine sector is facing a national and world crisis; which although is complicated, offers great potential to compete for those who are willing to grow with the creation of strong brands and the increase of distribution capabilities.

Ta-da!! Anyone see anything missing? A conference on how to survive the economic slowdown and that brand builiding is ever so important, seems to be missing one very importent word? Anyone see it?

Yes, the word is the Internet. According to the Internet World Stats webpage:

As of June 30, 2008, 1.463 billion people use the Internet

Now if that number is even off by a billion here or there, it’s definitely a number that should not be ignored. But the report, from what I can see in this release, fails to mention it even once.

The US alone shows internet usage at: 248,241,969 individuals which is over 73% of the total North American user base. Seems like a great place to start if you:

  1. want to do some brand building
  2. don’t have a lot of money to invest

But you could make the argument that those billions of people are only young kids playing World of Warcraft and wasting time, thus not of interest to a Spanish winery. Well, that is until you see this: Direct to consumer wine sales topped 2.8 billion last year in the USA, with the internet seeing a 3% growth. The website, Digital Lifestyles quotes:

Investment firm Cowen & Co. put the total sales figure for 2006 slightly higher at 108 billion dollars, predicting that it will hit 225 billion by 2011.

Now granted, this is a figure for all internet sales, but what it shows me is that people are shopping online. And if your shopping online, you most likely are doing a few other things while your at it like researching information and communicating with friends and family; which are all things that could lead to people finding your brand.

Why would you NOT be online?

When you look at Europe the users are still impressive albeit not at large. 384,633,765 users were online last year in Europe, which equalled approximately 43% of the population. For the purposes of their focus on the UK market, you’ll see that it’s almost at 70% of the population plugged in. You can even dig a little deeper into this graph and find that there are some countries in Europe with as high as 90+% usage! WOW!

Seems like the Internet may be a good strategy for a winery looking to weather the economic crisis. Low start up costs, elbow grease investment, and great brand building all seem to be pluses as to why this might be a topic that should be looked at. But knowing Spain, they’ll wait till it’s too late and then point out the obivious benefits if you had done it. They’ll hold up the two or three wineries who did do it and hail them as pioneering examples, and then explain why their plan worked. Or not.

Portugal, you could do it. You could trumph your bigger neighbor, and actually begin the conversation on the web. Talk about Portuguese wine, and spread the news fast. But then again, you wouldn’t want to get your neighbor mad. Better to continue ignoring the web, avoid causing waves, and continue to leave the consumer high and dry when it comes to good information.

What do you think?

Ryan Opaz

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