Brazilians may look back on 2014 with mixed feelings. It was the year when this football-loving nation hosted the World Cup and then disappointingly crashed out of it. Drought resulting from El Niño led to water rationing and protests and, after years of growth, the economy stalled, creating a mood of pessimism in the investment community. A general election, won by the incumbent Dilma Rousseff with 51.6% of the votes, made for a government with the weakest mandate of any since the reintroduction of democracy in 1985.
One group of people who had a really good year, however, were Brazil’s wine importers who – despite a 15% devaluation of the national currency, the Real – saw a 12.15% increase in shipments over the previous year. This was especially welcome, coming as it did after a fall of 3.22% in 2013.
That 2013 figure was, it must be said, something of a statistical blip, given the huge overall growth in wine import value of 93.45% between 2007 and 2014. Very few industrial Brazilian sectors achieved this kind of performance.
So how is one to explain the arrival of a wine-packed 20-foot shipping container every six weeks, an annual import growth of 8.6%, and a total import value that now stands at $325m?
What the research says
At Adega, we have been following the market since 2007, and, ‘looking at the forest’ we have been impressed by the resilience and operational competence of the best Brazilian wine importers through the ups and downs of that period. A professional approach to the market is now indispensible. Less-serious players have either disappeared or now exist as zombies in the wine market – mere shadows of their glorious past. Apart from the increasing professionalism of the trade, the strength of the overall Brazilian wine market can be explained by the growing wine culture of the Brazilian upper and middle classes.
Despite amazingly high wine prices (an entry level wine bottle costs an average of $10.00) there is a small base of loyal and frequent wine consumers with money to spare for wine.
Until recently Brazil was always a single-generation wine market, reflecting the rapid evolution of a middle class and the improvement in its income. Now, for the first time, our research shows younger consumers entering the market. This is undoubtedly partly the result of better marketing, but our preliminary inquiries show that today’s younger wine drinkers have parents who started to drink wine in the mid-1990s. They grew up in homes where wine was consumed. If these findings are correct, the young drinkers are going to bring a new market boom over the next decade, especially if they spread the wine virus among their friends.
Before anyone becomes too optimistic, however, there are a few clouds on the horizon. Economic forecasts for 2015 are for a fall in GDP of 1%, while interest rates have risen to 13.25% (the highest since 2008) in an effort to control inflation levels that reached 8% last year. Exchange rates are also swinging wildly from less than R$3.00 to the US dollar, to a peak of R$3.30 to the dollar.
These factors will surely affect importers that depend on credit or that lack a solid position in the market. I expect many of them to leave the market, willingly or unwillingly. New importers will find this a challenging market to enter. Even so, the market is progressing and many importers report Brazilian currency sales that are as high as or higher than 2014.
Import snapshot
A quick overview shows that fewer than ten countries dominate Brazil’s wine market.
Chile
The strategy of Chile’s big players focusing on five key markets (USA, UK, China, Japan and Brazil) is clearly paying off. In 2014, Chile continued to grow and its market share reached 35% in value and 44% in volume. It is possible to imagine that Chile could make up 50% of all Brazil’s imports. This is largely driven by two companies: Concha y Toro, whose subsidiary VCT Brasil, became the biggest wine importer in Brazil, and San Pedro. If the figures for all the labels of these two firms were combined (including the labels of their Argentine wines) they would amount to a 39.8% market share.
This growth comes at a price, however. The average FOB price of Chilean wine is now 25% lower than that of Argentina.
Argentina
There is no doubt that Argentina suffers from the economic and political policies of its president, Cristina Kirchner. Growth of 9.5% in 2014 does not disguise a decline in market share to an average 17% both in value and volume since 2011. Despite the advantages from Mercosur membership, the average FOB price per litre increased to $4.01, putting Argentine wines in competition with European wines on supermarket shelves.
France
Every wine-producing country would like to have France’s position in Brazil. It may only have a market share of 5.9% in volume terms, but this represents 15% in value. The average FOB price is $10.30 per litre. Much of this is based on Champagne, which represents 37.8% of French sales to Brazil despite a fall in volume last year. Total French imports grew by 4.6% in 2014, mirroring the figure for 2013.
Portugal
A common language helped Portugal to maintain its position ahead of Italy, if only by a narrow margin. Some companies, like Sogrape, are following the example of Concha y Toro by establishing their own offices in Brazil. In 2014 Portugal had a market share of nearly 12% in volume and 14% in value thanks to 4.5% growth in 2014 and average a price per litre of $3.88.
Italy
Reversing its 2013 fall in sales, Italy enjoyed 3.97% growth in 2014, reaching an 11% market share in value and 11.7% in volume. Lambrusco, which once represented almost half of the overall sales, is no longer so significant. Today, as elsewhere, Prosecco is the champion, making up 12% of Italy’s shipments to Brazil.
Spain
Surprisingly, after average growth of 15.5% from 2007 to 2014, Spain lost 1% in sales last year. This figure would have been far worse if it were not for a 16% hike in Cava sales. These sparkling wines now represent 26.2% of Spain’s shipments.
Other countries
The collective market share for these represents less than 5%, but some have enjoyed significant recent sales growth, with Germany rising 16.7%, the US growing by a whopping 48% and South Africa an even more impressive 55%. Imports from neighbouring Uruguay however, only grew by 2% to a 1% market share, despite the advantage it gains from being part of Mercosur, South America’s trade agreement. Still, they did better than Australia, whose imports plunged by 69%.
In conclusion, there’s only one certainty about the Brazilian market – nobody ever got bored doing business there.
Christian Burgos is the publisher of Adega, one of Brazil’s major wine magazines.
Focus on Brazilian bubbles
Brazil’s wine industry is also growing rapidly and spreading beyond its heartlands of Bento Gonçalves and Rio Grande do Sul, with new regions such as Campanha Gaúcha and São Joaquim being developed, and even improbable ones as São Paulo, Minas Gerais and Goiás. Domestic sales are handicapped by the Mercosur economic community agreements that exempt Chilean and Argentine wines from import duty.Sparkling wines are still the stars among Brazilian wines, with a 5.5% growth between 2013 and 2014, and 96.13% since 2007. Itʼs the only category in which Brazilian wines have a bigger market share than imports. At this rate, Brazilian sparkling wines are going to overtake the total amount of Brazilian red, white and rosé within three years.
An uneven playing field
Brazilian wines are heavily taxed, throughout the production chain, making Brazilian wines more expensive than those from neighbouring countries. While there are growing numbers of quality producers, the image of Brazilian wines still suffers from being associated with the poorly made wines of the past. In 2012, the Brazilian Ministry for Development Industry and Foreign Trade (MDIC) began consultation of measures to safeguard Brazilian wines from imports. Among the proposals supported by the Brazilian Wine Institute (IBRAVIN) and other industry bodies and leading producers, were a rise in import duty from 27% to 55%; a quota system regulating the amount of wine that could be shipped from any particular country; minimum pricing and obligatory Portuguese-language labeling. However, after protests – including sommeliers stripping wine lists of local wines – no action was taken to implement these measures. In any case, they would have had no effect on the wines of Chile and Argentina, given that they’re members of the Mercosur trade bloc.
Robert Joseph with Felicity Carter
