Bloomberg News

Spain Wine Drinking Plummets as Rioja Sees Future Abroad: Retail

November 09, 2011

Nov. 3 (Bloomberg) -- Fernando Tato still wants to enjoy Spanish wine after retiring as a secondary-school teacher.

Spending 2.95 euros ($4.10) on a bottle of red Vina Albali at El Corte Ingles department store in downtown Madrid, he lamented that the same bottle might cost as much as 20 euros in a restaurant.

“I like dining out often and don’t like beer, but wine prices are just out of hand,” the 68-year-old said. “It’s really a shame, but I can’t imagine eating without wine.”

As Spain struggles to cut the highest unemployment rate in the European Union at 22.6 percent, many consumers are switching to cheaper wines and staying home more, while a new generation finds that it can indeed imagine eating without wine. As a result, Spanish winemakers are increasingly focusing their efforts on exports.

“Wine consumption in Spain is very weak, especially in restaurants,” said Luis Zapatero, chairman of Bodegas Riojanas SA, a La Rioja, Spain-based winemaker founded in 1890. The company’s shares have dropped 26 percent this year compared to a 5.6 percent decline at rival Rioja maker Baron de Ley SA.

Wine consumption in restaurants, hotels and bars fell 12 percent to 66.8 million liters and 14 percent in value to 263 million euros in the first quarter from a year earlier, said Observatorio Espanol del Mercado del Vino, a private foundation that compiles wine statistics from the Agriculture Ministry.

Jose Reidara, manager of Madrid restaurant La Terraza de Suchil, said total sales have decreased 20 percent to 30 percent since an economic crisis started in 2008.

Drinking More Beer

“People don’t drink expensive vintages anymore,” Reidara, 64, said. “Consumption has declined significantly, more so at night, and people now drink more beer.”

Spain’s wine consumption has been dwindling for decades and is now about 20 liters per person per year, down from 70 liters in the 1970s, according to Observatorio.

Spain isn’t alone. Many traditional wine-drinking countries, including France, have seen domestic consumption drop significantly for a number of reasons, including a turn to other beverages and concerns about alcoholism and drunk driving.

Wine consumption in France dropped 14 percent to 45.2 liters per capita from 2006 to 2009, according to the Wine Institute, an association for California wines. In Italy, wine drinking fell 10 percent to 42.2 liters per capita during the same period.

“I see more and more young Spanish people drinking beer instead of wine,” said Malena Fabregat, a wine journalist who runs the blog Observatorio del Vino, Walking on the Wine Side. “Spain is losing wine as a national culture.”

Export Market

The depressed domestic market is prompting Spain’s 375,000 grape growers and 4,200 winemakers to look abroad. Spanish wine exports through August climbed 31 percent in volume to 1.43 billion liters and gained 21 percent in value to 1.36 billion euros from a year earlier, Spain’s wine foundation said.

Bodegas Riojanas opened commercial offices in the U.K., Mexico and the U.S. as it aims to double exports to 30 percent of total sales in two years from 15 percent now.

Baron de Ley wants to boost sales from exports to 50 percent in 2012 from about 46 percent. The Navarre-based company gets about 70 percent of foreign sales in the U.K., Germany and the Nordic countries. The company wants to expand in the U.S., China, India, Brazil and Mexico, Chairman Eduardo Santos-Ruiz Diaz said.

“People who used to spend $50 a bottle are now looking to spend less,” said Lauren Torres, a New York-based global beverage analyst at HSBC Securities Inc. “They are more willing to pay closer to $10 a bottle, so premium, higher-priced brands are struggling.”

Cheap Reputation

Even as Spain might bulk up its exports, selling loads of cheap wine won’t really solve the winemakers’ problems and Spain’s reputation is in some ways a liability. Spanish winemakers have traditionally focused more on volume than quality, wine journalist Fabregat said.

“Spanish wines are known for being cheap in other countries,” she said. “Asian customers, for instance, buy Spanish wines because they aren’t expensive.”

Chinese consumers buy a lot of Spanish wine in bulk, said Rafael del Rey, general director of Observatorio Espanol del Mercado del Vino.

“Spain not only needs to sell more abroad but also more premium brands,” he said. “Discounters such as Aldi, Tesco or Wal-Mart offer good wines at cheap prices and it’s difficult to counter that.”

Bodegas Riojanas gets almost 60 percent of its sales from more expensive “reserva” and “gran reserva” wines. As a result, Zapatero said his wines don’t really compete with cheaper wines from Chile, Australia or South Africa.

Costly Proposition

Producing a higher-quality product is an expensive proposition, often requiring new vines, more expensive oak barrels and lengthy aging. All of that might not do much for the domestic market except bring back fond memories.

Manuel Regueiro, who lost his 5,000-euro-a-month job as a construction manager four years ago, is one of the discount supermarket wine shoppers. The 43-year-old, who had a temporary job as a waiter in Cadiz this summer, said he used to spend 100 euros on a bottle of wine once a week.

“I just felt as if I were God,” he said.

--Editor: Sara Marley, John Brecher

To contact the reporter on this story: Manuel Baigorri in Madrid at mbaigorri@bloomberg.net.

To contact the editor responsible for this story: Angela Cullen at acullen8@bloomberg.net.


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