Chilean wine market entry strategy for super-premium European segments

¶ … European Market with a Chilean Wine

Chilean wine marketing research and segmentation

European Market for Imported Wine

Criteria for Segmentation

Country Segmentation

Germany

United Kingdom

Scandinavia

Netherlands

Chilean Wine Promotion in Europe

Segmentation by Retail Outlet

National market, chosen retail segments

This marketing study focuses on a plan to identify and segment European markets, and to recommend which European markets would be the most promising for the entry of a medium-sized Chilean wine producer. This study will focus in particular on which markets are most open to Chilean wines, those which correspond best to the price points identified by the wine producer, and those which may bring the best return on marketing investment.

Given that the producer prices in the "super-premium" segment, which is over £5 per bottle at retail, some markets may be of greater interest than others. This survey will not cover each market in an exhaustive fashion: rather, it will cover some markets that could be of interest, and focus the Chilean producer on those markets which offer the best opportunity to gain share in its chosen segments.

Country Segmentation

The primary segmentation criteria for country selection include: wine consumption per capita, amount of wine imported from other EU countries as a percent of total wine consumed, amount of wine imported from non-EU countries as a percent of total wine consumed, and price points for wine consumption.

One can create an array of potential markets within Europe which would have lesser or greater receptivity to buying super-premium wines from Chile. The key factors and analysis of which countries are better or worse fits for Chilean export are outlined in the following table:

Likelihood to buy Chilean Super-Premium wines

Key decision factors

Countries in each grouping

Major producers of wine, little interest in non-regional or non-national wines

France, Italy, Spain

Large wine importers, historical ties to specific countries, little local production

Belgium, Switzerland, Poland, Russia, Austria

Produce little wine of their own, high average income, current large wine importers

UK, Norway, Denmark, Sweden, Finland, Netherlands, Germany

Some countries in the above "low likelihood" and "medium likelihood" categories will not be analysed in this document. France, to take an extreme example, has many non-tariff and cultural barriers to wines from other major European countries, with even greater resistance to non-EU countries. Auchan, a major hypermarche retailer, for example, proudly announces "1,000 Bordeaux," in order to attract cost-savvy French wine connoisseurs. They generally offer only one or two brands from non-EU countries, such as the U.S., Australia or Chile. Despite France's high consumption of wine per person, France is therefore not a market of interest for this Chilean wine exporter.

Germany

Germans are moderate wine drinkers per capita, and their consumption varies widely by region. Those regions growing their own grapes remain loyal to their own wines, in such regions as Baden, Wuerttemburg, the Mosel, Rhine and Main/Wuerzburg areas. In this sense, those regions are similar to wine-growing regions in Italy, Spain and France where local wines are favoured. The rest of Germany is more similar to British wine consumption in its habits. While there is a substantial demand for premium (U.S.$7-$10) and super-premium (over U.S.$10) wines, there is also a substantial demand for very inexpensive wines: Half of imports come from Italy and Spain, at the low-end of the market. Average importer price is Euro 1.10. The average German export price is Euro 1.83. (New Europe 2007).

Germans buy much of their imported wine in large discount stores. According to Hakansson and Wootz, professional buyers at such outlets "concluded that an industrial buyer very seldom reacts to higher quality when the minimum requirements are fulfilled...[however they] will be rewarded if they find a cheaper supplier because of the effects on the purchasing budgets (Knight 2007)." These discount stores' extreme price sensitivity makes it difficult for branded wine sales; perhaps the best that can be done with these buyers is to promote "wine from Chile" in a generic fashion. Given the low purchase prices, it is unlikely that a medium-sized winemaker will be able to break into this market with acceptable margins.

United Kingdom

Chile's wine production and exports have increased dramatically in the past decade. Its exports to the UK, Europe's largest wine importer, grew by 2,700% in the decade up to 2000 (Wine&Vine 2000). The UK and the U.S. each accounted for 20% of Chile's wine exports, which increased 10% from 2005 to 2006 (Reuters 2007). This means that Chilean wine exports to the UK in 2006 approximated 100 million pounds at current exchange rates. The strengthening of the Chilean peso vs. The dollar has resulted in a price disadvantage vs. U.S.$-denominated wines, while the strong UK pound and Euro have resulted in a relative price advantage for Chilean wines in the past year. Chilean wines knocked South African wines off the #1 pedestal in the UK in 2006, with supermarket sales climbing 31% by volume and up 29% by value in the year (FineWineWholesalers.com 2006). Supermarkets account for over 80% of all wine sales in the UK.

Scandinavia

As shown below ("Chilean Wine Promotion"), Australian wine sales have grown dramatically in Denmark and Sweden (from admittedly low numbers). The reasons are: high per-capita income, no local production, and a switch from harder alcohol to wine. Some countries in Scandinavia are dominated by state-owned retailers, who nevertheless cater to local wine consumers' growingly-sophisticated taste for good wine.

Scandinavian Wine Market

High local taxes on wine sales mean that the average price per bottle is inflated by up to 200% of "normal" retail prices in other countries. For this reason, a wine that would sell for 8 pounds in a UK shop might sell for 16 pounds in Systambolaget, the Swedish government wine shop. Thus, despite the high per-capita incomes in Scandinavia, consumers are value-conscious. Unlike Germany, Scandinavians are willing to pay more for wine, and recognize quality differences.

Netherlands

Like Scandinavia, the Netherlands is open to wine imports. With historical connections to Spain and Portugal, and without alliances with Italy or France, Dutch wine drinkers are friendly to imports and to the Spanish character found in Chilean wines. Like Scandinavians, the Dutch have high per-capita incomes are willing to spend for super-premium wines. They are unwilling to 'overpay' for quality, however, and are likely to compare the quality of an 8 pound Chilean wine to similarly-priced products from Australia, the U.S. And other major wine exporting countries.

Chilean Wine Promotion in Europe

Chile is not alone in wanting to increase wine exports to Europe. Australia and the United States have developed significant market share and see growing exports to European markets. The Wine Australia organisation has researched the European market, and predicts country- and segment-changes in wine demand. The UK has long been Australia's number one wine importer, but overall trends there are static. The biggest growth is coming from "secondary" markets, such as Belgium, Denmark, Sweden and the Netherlands. In those countries, Australian wine imports in which the per-case prices have exceeded AU$90 have changed as follows (Thomas 2007):

Country change

UK

Belgium

Netherlands

Sweden

Denmark

Chile signed a free trade agreement with China in 2007, which envisages a cut in tariffs on Chilean wine exports to China over the next 10 years. Chile's target is to become China's number one wine import source (Alcyon 2007).

Chile's largest wine producer and exporter by far is Concha y Toro, which has seen year-on-year growth between 12 and 30% in recent years (Food&DrinkEurope.com 2003). Concha y Toro has pursued a policy of emphasizing "super-premium" wines, which sell for over US10.00 per bottle at retail. As a result of their success in exports, the overall image of Chilean wines has been improving vis-a-vis other world wine exporters.

Segmentation by Retail Outlet

Wine is sold at significantly different prices in different retail venues. The lowest-priced (wholesale) prices come from sales for private label and bulk wines. Discount superstores (e.g. Tesco, Metro, and Carrefour) come next in pricing, although some hypermarkets attempt to use premium wines at lower prices in order to attract wine-savvy customers. Retail shops and liquor specialists are higher in pricing, while restaurants offer mark-ups of 2 to 4 times the retail "High Street" price.

The customer expects different levels of personal interaction and advice depending on the venue. One way to regard wine price vs. venue is the amount of interpersonal interaction and recommendation used in the wine purchase decision:

Venue

Price

Advice

Private label grocery store

Lowest (wholesale)

None -- depend primarily on store reputation

Bulk purchase (e.g. "wine from Chile")

Lowest (wholesale and retail)

None -- no personal interaction; sold primarily in hypermarkets

Corner grocery

Some, if store owner is enthusiastic

Corner wine shop

Shop owner and employees "push" favourite wines; know their customer and what they like Restaurant

Highest (2-4X retail)

Most important: most people try new wines at restaurants (Frost 2007)

Internet

High -- with tailoring to specific wants or needs

National market, chosen retail segments

This medium-sized producer has several positive trends in its favour in entering the European market now as opposed to a few years ago. The perception of Chilean wines as competitive on the world market, particularly through the active promotion of Concha y Toro, has opened retailers' and consumers' minds for other super-premium wines from the region.

Confusing brand images from major EU producers has made it easier for well-positioned non-EU wines to gain share, particularly in those countries which do not have significant wine production. Favourable exchange rates vis-a-vis the Euro and the UK Pound have made Chilean wines more affordable when compared to super-premium wines from Europe. The earlier success of the Australian and U.S. wine brands has also opened peoples' minds in some European countries.

As we've seen from the above analysis, some very large wine markets would not be wise choices for the Chilean producer; regional preferences and a high market-entry cost make it unlikely that a marketing effort in those countries would be a wise investment.

Given that this wine producer has no market share in Europe at the moment, it would be wiser to establish its brand and a loyal customer following in smaller markets. It should also choose markets where the marketing expenses are reasonable, while achieving a brand image.

This author would argue, therefore, for a triple market entry strategy, with some differences in positioning in each of the chosen market introduction areas:

For Scandinavia, the company should pursue country-by-country advertising in order to establish an image. Since there is only one buyer in 3 of 5 Scandinavian countries, it can efficiently pursue those buyers with an argument for taste and value.

For the Netherlands, the company can pursue a "value-pricing" strategy, orienting its advertising and in-store marketing to comparisons against other well-known, non-European and European super-premium wines costing a good deal more.

For the UK, which is arguably the largest 'prize' in Europe, the company may consider a regional roll-out, with a concentration at first on restaurants and wine bars, rather than going directly to the (very tough) buyers at the major supermarkets. The goal should be to build longer-term brand awareness, then use demand-pull to come to the retail outlets.

Conclusion

It is always tempting to go after the biggest markets (France and Italy), the most populous (Germany) or the markets with the highest disposable income (Switzerland, Norway, Luxemburg). In the case of this Chilean producer, it may also be tempting to pursue the Spanish market, given language and historical ties.

A better, market-driven strategy is to focus resources where they can bring the best return. Market share is easiest to gain in countries where the market (in this case, for non-EU super-premium wines) is growing fastest. Thus the best countries for market entry include the five countries of Scandinavia, the Netherlands, and, gingerly, the United Kingdom.