ARTICULO ORIGINAL

Chilean wine in the european market. A positioning mapping approach from Germany

El vino chileno en Europa. Un análisis del posicionamiento en el mercado alemán

Jose Diaz Osorio ¹, Rodrigo Valdes ¹, Nicole Hernandez ²

1 Universidad de Talca, Facultad de Ciencias Agrarias, Departamento de Economia Agraria. Casilla 747-721, Talca. Chile. rodvaldes@utalca.cl - jdiazoso@utalca.cl

2 Riegos y Proyectos del Maule Ltda. Longitudinal Sur km 191, Curicó, Chile.

Originales: Recepción: 08/05/2014 - Aceptación: 25/10/2014

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ABSTRACT

Current wine marketing requires a rethinking of business strategy in order to increase the current market share and international prestige. This paper provides a comparative diagnosis of the positioning of Chilean wine in the European market, focusing on the case of Germany. The working methodology was based on the registering and market segmentation of the selection of wines on display on the shelves of supermarkets, hypermarkets and specialty stores. Subsequently, a comparative analysis was performed in order to evaluate the growth dynamism of this target market from 2001 to 2013. The results show an increase from one period to another in the prices of national wines, and both an increase in and diversification of the supply in the German market. Chile, with its share in a wide range of prices, has become a more prominent competitor, and has managed to attain higher price ranges as compared to 2001. Currently, when it comes to Carmenere and Merlot, Chile appears as it is the only country offering this varietal in the German market. This is a situation that should be strengthened using commercial strategies that allow for a more aggressive positioning of this varietal. Lastly, it is recommended to adopt a more aggressive positioning method for Chilean wine, using a country-strategy that improves its long-term competitiveness.

Keywords: Market strategy; Positioning; Competitiveness; Chilean wine; Germany

RESUMEN

La comercializacion actual de vino requiere de un replanteamiento de la estrategia comercial con el objetivo de aumentar la actual participación de mercado y el prestigio en el mercado internacional. El presente trabajo entrega un diagnóstico comparativo del posicionamiento del vino chileno en el mercado europeo, centrando el análisis en el caso alemán. La metodología de trabajo se basó en el registro y segmentación del mercado de la oferta de vinos en exhibición en las estanterías de supermercados, hipermercados y tiendas especializadas de la ciudad de Gottingen, Alemania. Posteriormente se realizó un análisis comparativo con la finalidad de evaluar la dinámica de crecimiento de este mercado objetivo durante el período 2001-2013. De forma general, se observa un aumento en los precios de un período a otro con un aumento en la oferta y en diversificación de los vinos en el mercado alemán. Chile a través del aumento en su espectro de precios se ha transformado en un competidor más relevante logrando llegar con precios de rangos superiores en relación con el año 2001. Se destaca la posición única de oferente de variadades Carmener y Merlot en el mercado alemán, por lo que se sugiere una estrategia de posicionamiento más agresiva para el vino chileno proponiendo la adopción de una estrategia-país que mejore su competitividad en el largo plazo.

Palabras clave: Estrategia de mercado; Posicionamiento; Competitividad; Vino chileno; Alemania

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INTRODUCTION

Wine cultivation is a very dynamic sector in Chile in terms of production, exports and job creation. Chile is ranked 11th among the major wine producers, with a production equivalent to 2.1% of the global volume (7, 13). Currently, Chile's exports account for 6.15% of the exported volume in the world, placing it among the top five global exporting countries (11). According to the Agricultural and Livestock Service (SAG), the total surface area in Chile dedicated to grape vines was 114.876 hectares in 2013 (15). Today, with the rise in the consumption, production and trading of wine from the New World (California [USA], Australia, Argentina, and South Africa), Chilean wine has not managed to achieve a prominent positioning in terms of brand and origin. This has affected its sales in the European market as compared to the rest of the aforementioned countries (9). Moreover, Chilean wines face very high levels of competition in the different world markets from many appellations and brands, and its average prices are substantially lower than those of its competitors. As a consequence, the industry's present profitability levels are low, and there is an urgent need to elevate the premium positioning and average prices to achieve a sustainable return in the long term. This situation is exacerbated by factors such as marketing strategies, commercial experience and access to distribution networks. For these reasons, it is necessary to evaluate the recent marketing and positioning dynamics of Chilean wine in the European market by focusing on its positioning aspects, considering that the country of origin is the encapsulation of the wine attributes of a winery/region and forms the basis marketing focus and is the vehicle that will ensure its future earnings (12). And that marketing should be concerned with creating pleasurable consumer experiences (16).

To perform this evaluation, the German market was used as a reference. Specifically, the evaluation focused on the city of Göttigen, which given its socioeconomic characteristics is an appropriate location for assessing the national positioning of Chilean wine. Variables such as country, price, varietal, type of wine, and sales channel were considered. Subsequently, the results were compared with the study performed by Díaz and Llanos (2001) in order to evaluate the price and positioning dynamics experienced by Chilean wine in this period.

The objective of this research was to provide a diagnosis - using the data obtained of the aforementioned variables of the national product in the European market, focusing the analysis on the German case. Based on this general objective, the goal is to establish a foundation for a rethinking of the commercial strategy Chile has used thus far. This study is a first attempt to compare and study variation in terms of the penetration of Chilean wine in the German market over a significant time horizon; therefore, some conclusions can be verified in other Central European countries.

The Global Wine Market

International wine trade has experienced a boom in the last decade (3, 4). Since 2003, annual growth in global exports and consumption has averaged 3.1% and 11%, respectively (11). The global wine market has been characterized by a wide offering associated with an improvement in the unitary yields and technical innovations of the leading producers (1). Overall, Mediterranean producers, and above all countries like Australia and Chile, have experienced a growth in sales. According to authors (2, 8), this is mainly due to increased demand/ income elasticity in countries that are not producers or consumers, new consumer habits, marketing strategies and expansion of distribution channels. Chile is one of the top wine producers in the world, with annual exports of US$ 842 million in 2012, representing a volume of 455 million liters (10). Of the total wine produced in 2013, 64% was exported in bottles and 36% in bulk (13). Table 1 (page 162) presents the current Chilean export scenario.

Table 1. Chilean wine exports.

Tabla 1. Exportaciones chilenas de vino.

The share of Chilean exports in the global market has grown significantly in the past 15 years, increasing from just 0.38% in 1988 to 7.45% in 2012 (14). The change in the price per exported bottle has also been positive, evolving from US$1 per bottle in 1987 to prices close to US$ 3.10 in the last three years (11). Moreover global transactions and prices are increasingly more important in the wine sector. In the 5-yearly period 2001-5, from an average total of 72.2 million hl, they have risen to 103.5 million hl in 2011 (14). In terms of value, according to the GTA, which compiles data from the customs of various countries, the global amount of wine and grape juice exports will be 23.264 million Euros in 2011.

The global market, considered by the OIV to be the sum of all exports from all countries, has grown significantly over the last year, by 7.9% more than the previous season. In 2011, global exports of wine represent approximately 42.8% of global consumption (against 34.6% in 2006). At the European level, the German wine market is one of the most competitive in the world, with a high presence of brands and designations of origin. It also has extreme pricing, which make it difficult to penetrate (16).

The German wine market

In 2013 the per capita wine consumption in Germany amounted to 25.1 liters, which was an increase of 0.5% from 2010 (5).

Italy, France and Spain are the major countries from which Germany imports. Among the so-called "New World producers", South Africa surpasses the USA, Chile and Australia (5). The following table gives an overview of the presence of countries and/or regions in this market.

The big winner in the last five years was rosé wine, which saw an increase in consumption of 21.65%, while consumption of white wine decreased by 7.01%.

Red wine consumption remained relatively constant. The 2014 consumption forecast is 2.29 million hl of rosé wine, 9.13 million hl of white wine, and 10.26 million hl of red wine. In Germany, Chilean wines are generally known for being dry, or "trocken".

In recent years there has been a trend towards milder wines, which can be consumed on any occasion. Hence the strong growth of rosé wines, which, together with Riesling, Spätlese and sparkling wines, enjoy a very high percentage of preferences (10).

Table 2. Variation of the top 10 in the German market (2011-2012) in retail (excluding discount) and home, beauty and health stores (in % of market share).

Tabla 2. Variación en la participación de mercado (%) de los 10 principales países en el mercado alemán (2011-2012) en retail (se excluyen supermercados de descuentos), tiendas del hogar, belleza y salud.

MATERIALS AND METHODS

The working methodology was based on the registering and segmentation of the range of wines and real retail prices on display on the shelves of supermarkets, hypermarkets and specialty stores in the city of Göttingen, Germany. Subsequently, a comparative analysis was performed based on the study done by Díaz and Llanos (2001) of the same market, in order to assess its growth dynamic over the past 12 years. Göttingen is located in the geographical center of Germany in the state of Niedersachsen (Lower Saxony). With 258,166 inhabitants in 2013, it is characterized by its wide range of social strata, with income levels ranging from US$500 to US$ 15,000, and its status as a multicultural, cosmopolitan university town (3, 4). This set of features makes it a representative city of Germany.

The market segmentation (type of place of purchase) and the definition of the evaluation/ comparison parameters (price and varieties) was performed in 3 hypermarkets (Karstadt, Kaufland, Real Supermarkt), 4 discount supermarkets (Aldi, Aldi KP, Edeka, Netto Supermarket), 1 beverage supermarket (Getränkmarkt) and 2 specialty stores (Jaques Depot, Bremer) which are the most representative wine commercialization channels of Germany (5).

Hypermarkets absorb a significant fraction of the demand, with a variety of products, origins and brands at differing levels of quality. Discount supermarkets are characterized by a scant variety of brands and types of wines, which in most cases correspond to low quality and low-priced wines. Specialized supermarkets have a range of brands and types of wine equivalent to the sum of the two above types of establishments, with a presence of some fine varietal wines. Finally, specialty stores offer numerous types of wines from a wide variety of vineyards around the world, and they use promotion techniques like tastings, catalog production and internet publicity as part of a customer education program concerning wine knowledge.

RESULTS AND DISCUSSION

Figure 1 (page 165) shows the range of wine prices in Germany and the respective location of Chilean wine for the years 2001 and 2013.

Figure 1. Range of wine prices and the position of Chilean wine. (Comparison 2001-2013).

Figura 1. Rango de precios de vino en el mercado alemán en relación con el vino Chileno. (Comparación 2001-2013).

In the first case, the values range from US$ 1.75 to US$ 34.48 per bottle, with France as the only country occupying the majority of this range.

Germany also occupies a significant part of this range, with prices of up to approximately US$ 18.50 per bottle.

Spain and Italy, major producers at European level, are not present in the entire range; Spain has prices of US$ 5.00 to US$13.00 per bottle and Italy has prices of US$ 2.00 to US$ 14.00 per bottle. Using the same framework, in figure 1 (page 165) and table 3 (page 166), Chile falls between US$ 3.45 and US$ 19.00, and Australia has a similar position, peaking at US$ 17.50.

Table 3. Distribution of products classified according to their country of origin and sales channel. Evolution 2001-2013.

Tabla 3. Distribución de productos clasificados de acuerdo con su país de origen y canal de venta. Evolución 2001-2013.

California wines start at US$ 2.00 per bottle and go up to US$ 11.00; South Africa begins at the same base, but goes up to US$ 5.00 per bottle. Argentina showed a narrower range of supply, varying between US$ 5.00 and US$ 10.00 per bottle. In 2013, one can observe a wider range of prices and countries of origin. For example, Croatia, Greece and Switzerland did not have a share in this market in 2001, so we only have price values for 2013. The opposite is true for Romania, where we only have price values for its wines in 2001; in 2013 no presence of wine from this country is observed.

In all the cases studied, one can observe an increase in prices from one period to another, along with an increase in the supply and diversification of the wines.

Chile has become a more significant competitor, attaining higher price ranges than in 2001.

Figure 1 (page 165) shows the distribution of the types of wine available on the shelves in different types of stores in Germany. Among the European producers, Germany, France, Italy and Spain stand out, with a variety of types of wine available. With respect to the competing countries, although Chile has a presence in all types of stores, California wines (USA) are also present in all segments, but with a wider selection in each. Potential competitors, that is, Eastern European countries, are still not present in all types of stores, and their wines are concentrated mainly in supermarkets.

Table 3 (page 166) shows that the largest increase in the number of products took place at discount supermarkets and specialty stores, while in supermarkets and beverage stores there was a decrease in the number of products on the shelf between 2001 and 2013.

The supply of Chilean products increased in discount supermarkets, beverage supermarkets and specialty stores, and decreased only in hypermarkets. This situation has been a trend in the German wine market over the last 10 years (16).

Table 4 (page 168) and 5 (page 168) show the distributions of red and white wine, respectively, in the German market. France, Italy, Germany and Spain have the highest offerings of red wine, although in the first three countries there is a high presence of non-varietal red wine (Rotwein).

Table 4. Distribution of red varietals in the German wine market.

Tabla 4. Distribución de variedades tintas en el mercado alemán.

Table 5. Distribution of white/rose varietals in the German wine market.

Tabla 5. Distribución de variedades blancas/rosé en el mercado alemán.

Chilean wines have a strong presence of Cabernet Sauvignon (26) and Merlot (8). Comparing the 2001/2013 dynamics, it is found that Germany, Australia and Chile show an increase in total red varieties, while Spain, France, Italy and Portugal decrease their share in the total supply of red varieties.

When it comes to Merlot, Chile is currently the only country with this varietal in the German market and thus has no competitors (13). This is a situation that should be strengthened further, using commercial strategies that allow for a more aggressive positioning of this varietal, especially considering that South Africa and the USA are the only other New World countries to produce this varietal.

With regard to white wines, Germany has the greatest offering (227 total, 181 varietal), but a large percentage of this comes from non-varietal white wines (5).

The French and Italian supply is significant, with 135 and 39 types, respectively.

Chile is present in white wines with 15 types, six of them Sauvignon Blanc and nine Chardonnay. Germany and Spain are the only countries that had a decrease in their supply of Sauvignon Blanc wines, while countries like Australia and Italy increased in this varietal.

France, for its part, went from 40 bottles in 2001 to 0 bottles in 2013, joining Portugal, which had no presence in this varietal in any of the years studied (11).

Between 2001 and 2013, Chile and Italy experienced a decrease in their offering of Chardonnay, while Spain remained constant and Germany increased its offering. It should be noted that Germany has the greatest variety of white wines, with the Riesling varietal as one of the most prominent.

Table 6 presents Chile's location in relation to its competitors in the New World.

Table 6. Distribution of Chilean wine by varietals, as compared to major New World competitors.

Tabla 6. Distribución de vino Chileno distribuido por variedades y comparado con productores del "Nuevo Mundo".

Regarding red varietals, in 2001, the largest supply came from California (USA), Chile and Australia, the difference being that Chile's products were largely Cabernet Sauvignon and Merlot. The USA, Chile and South Africa dominate the white wine market, with a concentration of Sauvignon Blanc and Chardonnay varietals. In 2013, the USA and South Africa held the greatest share of this market, followed by Argentina, Australia and New Zealand, which had a share with varieties such as Pinot Noir and Sauvignon Blanc, entering into direct competition with Chile. Argentina, for its part, increased its supply of Sauvignon Blanc.

CONCLUSIONS

The increase and diversification of the global wine supply has had an effect on prices in the German market. This trend has been growing since 2010, and therefore a common strategy is necessary to position Chilean wine in international markets. Currently, positioning strategies abroad are aimed at opening and positioning in new markets, as well as a strategy of constant quality improvement. In general, an increase in prices in the German market is observed from one period to another, along with an increase in the supply and diversification of wines. Chile has become a more significant competitor, with an increase in its price ranges as compared to 2001. The types of wine available on the shelves in different types of stores in Germany mainly come from countries like Germany, France, Italy and Spain. With respect to Chile's main competitors, California (USA) wines, like Chilean wines, are present in all segments, but have a wider offering in each. Currently, when it comes to Merlot, Chile has no competitors among its "New World" peers, as it is the only country offering this varietal in the German market. This is a situation that should be strengthened using commercial strategies that allow for a more aggressive positioning of this varietal. Taking into account the 2001-2013 dynamics addressed in this study, it is recommended that Chile adopt a more aggressive positioning strategy for Chilean wine that does not include the price/quality ratio as the only positioning strategy. It is also recommended to adopt a country-strategy that improves the country's long-term competitiveness in the German wine market.

Another consideration present since 2001 is how Chile should position the Carménère (Carmenere) varietal in global markets, before Australia and New Zealand increase their production. This varietal should be made a "flagship" varietal, distinguishing it as a unique product of the Chilean "terroir". Similarly, the Malbec varietal, typical of Argentina and well promoted by this country's producers, and which has achieved international recognition, could, in the short term, secure for itself the category of a 'special wine' that is desired for the Carménère varietal in the target markets, thus displacing this varietal. Despite its success in term of market share increase and positioning efforts, Chilean wines face very high levels of competition in the different world markets from many appellations and brands, and its average prices are substantially lower than those of its competitors. As a consequence, the industry's present profitability levels are low, and there is an urgent need to elevate the premium positioning and average prices to achieve a sustainable return in the long term. Making decisive progress toward positioning Chile as a world-class appellation for the production of premium and superior wines, gaining additional image and value is the only possible response to the competitive challenges the industry face today. This is a key requirement for the health and long-term sustainability of Wines of Chile.

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