WORLD> Europe
    Spanish wine industry set for big shakeup
    (China Daily)
    Updated: 2009-05-08 08:53

    ALBACETE, Spain: Pancho Campo knows of 30 to 40 Spanish wineries up for sale.

    The founder of The Wine Academy of Spain and the first Spaniard to be awarded the title of Master by The Institute of Masters of Wine believes the recession sweeping Spain will trigger a shake-up of its fragmented wine industry, pushing many smaller players to ruin.

    Spanish wine industry set for big shakeup
    A man drives his quad through the vineyard of Spanish winemaker Jose Maria Delicado in Ontur, southeastern Spain, on April 15, 2009. Many wineries are looking to sell up amid the global economic crisis. [Agencies] 

    "Small wineries will have to merge or be absorbed by large groups," says Campo. "It's going to be a tough time. Some guys will disappear."

    Global restrictions on credit paired with the end of a domestic property boom nearly trebled the number of Spanish businesses entering administration in 2008. Many wineries are looking to sell up to avoid the same fate.

    Businesses with a good bottled-wine brand and an eye for international expansion are the most likely to find a buyer, says Spanish investment bank OnetoOne Capital, which has advised on takeovers in the sector. Others will not be so lucky.

    "There are a lot of 'for sale' signs out there. Supply is escalating," said Fernando Malo, analyst at OnetoOne. "If it's a new project, it's going to be harder to find an investor; in fact, it's highly likely you won't."

    Spain has more land under vine than any other country in the world with around a million families dependent on the wine sector, according to the Ministry of Agriculture.

    Best-known for plummy reds from the cool northeast province of La Rioja, it overtook France as the world's second largest exporter of wine last year, and trails only Italy.

    Spain does have prestigious vineyards, such as those of winemaker Bodega Numanthia Termes of the Toro region, whose premium reds can retail for hundreds of dollars per bottle.

    Moet Hennessy, the wines and spirits business of luxury products group LVMH, bought the winery from its founders the Eguren family in February 2008.

    But over 85 percent of Spanish wineries are small, employing fewer than 10 people, and depend on selling lorry-loads as part of the bulk table wine market, which accounts for around half of Spain's wine production by volume.

    Tightening screw

    These are the most vulnerable to the slump, their finances crushed by plummeting demand, slashed credit and the scrapping of European Union subsidies under rules introduced last August aimed at curbing overproduction.

    The official price of bulk-sold wine was steady at 0.37 euros ($0.49) per liter in February, industry data shows. However, Albacete winemaker Jose Maria Delicado says the price has halved in recent weeks from a year ago.

    He has laid off half of his six staff and now just works with family members. He shakes his head in his newly built bodega, sitting among arid fields of stunted vines tipped with green leaves in the plains of south-east Spain.

    The building, with its attractive, antique-filled lobby, metal vats and small laboratory, was funded with his life savings and bank loans. But it faces an uncertain future.

    "It's like a tightening screw," says the 43-year-old father of two. "The time comes when it's breaking point. If the crisis continues we'll be ruined because we can't pay the bank."

    Demand for bulk-sold wine has slumped among foreign buyers. Sales fell nearly 40 percent in January and February from the year-ago period, according to recent industry figures, with total wine exports to major importers Italy and Russia falling 75 percent and 70 percent respectively.

    This collapse in demand means prices are falling by the day, says Delicado, whose father and grandfather cultivated grapes before him.

    "We started to notice it after harvest time, prices started to really drop," he says, his brother and business partner standing beside him. The red, white and rose bottled wine they started selling two years ago under their own label generates only 5 percent of their income.

    Many in the industry say recession has exacerbated a need for consolidation. A unified approach could better equip Spain to push its bottled wine abroad against aggressive marketing from new world countries like South Africa.

    "Once you convince the consumer to drink Spanish wine instead of Australian, French or Italian it's up to the labels to promote their own identity," said Master of Wine Campo.

    Becca Reeves, product development manager of wine at British supermarket chain Asda who recently returned from a tasting trip to Spain, agrees wineries should unite to market their wines.

    "A lot of customers will recognise Rioja as a Spanish wine and that's it," she said. "They are unlikely to have heard of the regions, unless they've been on holiday there."

    Reuters

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