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Crisis and Italian winemaking
Drinks+ Bars & Restaurants №3-4 2009

Global recession affected all industries, including winemaking.

Demand for wine is cooling worldwide, and wine companies are concerned with falling domestic and export sales. There are victims both amongst producers and specialised wine merchants.

Wineries are reviewing work strategies and pricing policies in order to stay in business. A good recent example was that illustruous Bordeaux First Growths cut their en primeur prices for 2008 vintage by half in order to attract buyers. Meanwhile, consumers are changing habits. They buy wine less or less frequently, switch to cheaper brands or replace wine altogether with other beverages or food.

How do Italian producers cope with current difficulties and what do they expect from the future? Their situation is more optimistic than for others. In 2008 Italian wine export shrank by 7% (this is better than in France or Australia), but grew in value by 2% as compared to previous year. Andrea Sartori, president of the national producer association Unione Italiana Vini says that "we can’t complain if we look at Italy in the international context". International organisation of vine and wine OIV estimates that Italy headed an export table in 2008, having beaten Spain and France. Total export volumes were 17,2 mln hectorlitres for Italy, 16,5 mln for Spain and 13,6 mln for France. A closer look on the structure of Italian export reveals that quality bottled wines suffered less than other categories. Bulk wines lost 16%, whilst bottled only 4%. Figures for table wines (-4% for whites and -10% for reds) are slightly lower than for DOC and DOCG (-4% for whites and -8% for reds). Last year sales were driven up by sparkling wines which showed a healthy increase of 15% by volume and 11% by value.

Paradoxically, despite strong euro, EU countries were the most vulnerable for Italian wines. Sales dropped by 10% in volume, whilst in other regions growth was sustained. The Emirates performed best of all, with volumes rising by 50% and value doubling, although analysists admit that the market is relatively small.

Statistical data helps review general trends, but scenarios in individual wineries will always differ.

Ferrari F.lli Lunelli from Trentino is best known as a producer of traditional method sparkling wines. Export director Federico Delvai confirms that there was good international demand for sparkling wines last year. He says that sales and turnover weren’t bad. "Last year was the second best ever for us after 2007. But if we look at the first two months of 2009, we have to say that the year started very slowly. We are around 15% less compared to the same period last year. Markets like USA and Russia suffering most right now".

The start of the year didn’t bring much consolation for respectable family company Tedeschi from Veneto, producer of high quality Valpolicella and Amarone wines. "Sales in 2008 were on the level of 2007, after continuous growth in 2006 and 2007. In the first two months sales were lower than last year, even if in January we sold more wine than last year. Local demand and export and both falling, especially in Canada, Eastern Europe and UK. One the other hand, sales in Germany and Northern Europe are higher than last year. Two months are not enough for defining a yearly trend, but it is obvious that the market is not stable and it’s less predictable than the past years", comments Sabrina Tedeschi who is responsible for marketing.

Meanwhile, Gian Alfonso Roda, president of the regional Emilia Romagna enoteca, notes only moderate slowdown both in domestic and in most established foreign markets (Germany, United Kingdom, USA). "Our wine production is made of a few high quality, full bodied wines and of a large variety of light bodied wines whose alcohol content doesn’t exceed 12% by volume — Lambrusco, Pignoletto, Malvasia and Fortana which are easier to sell at the moment", he says.

When analysing the situation in Tuscany, Alessandro Marchionne, managing director of leading Chianti Classico winery San Felice, says that everyone is suffering from the economic crisis, even producers with strong brands. "In the best case the market share can be preserved by lowering prices. Consumers by wines adhering to certain price categories. Wines up to 15 euros are now the upper threshold for purchases. Sales of super premium labels dramatically contracted". Chianti Classico wines have a good chance now as their image is supported by historic performance, good quality and correct prices.

The issue of pricing in the times of a crisis is one of the most sensitive for winemakers. There is a lure to achieve quick sales and secure new distribution channels by lowering prices for consumers, but there is a danger. As Alessandro Marchionne notes, consumers usually buy within a certain price range. If a brand is positioned in a lower price segment, it may attract more consumers in a short term (the old ones who are loyal to the brand and the new ones who buy in a given price segment), but the brand’s image will be negatively affected for a longer term. It will be much more difficult for a producer to position wine in the previously higher segment both from financial and marketing perspectives.

"Ferrari F.lli Lunelli will never do what many producers are, unfortunately, already doing — lowering the price. It leads to a loss of good image and, regrettably, to real reduction in quality", underlines Federico Delvai.

Gianluca Morino, owner of small Cascina Garitina winery in Piedmont, is firmly adhering to his original pricing strategy, too. "We are trying to optimize relationships with the importers we already have, but it is not possible for us to lower our prices. There are some producers that are following this policy, but those are cooperatives or wineries who found themselves in a desperate situation. For Barbera wines from Nizza Monferrato is quite a good moment, especially on the foreign markets. Our wines come as a surprise thanks to their optimum tasting profiles". Small quality producers bet on good value offerings.

"What makes us confident is the fact that the prices of our wines haven’t been calculated to suit irresponsible marketing actions, whilst quality has consistenly increased from year to year. Emilia Romagna producers can therefore take advantage of customers who became more selective because of the crisis", says Gian Alfonso Roda.

The crisis hit hard the sales of premium Supertuscan category, but "classical" Supertuscans are surviving it better. Elisabetta Geppetti from Fattoria Le Pupille who produces highly regarded Saffredi notes that prices were even increased for some labels, though only on the domestic market. Foreign partners get no discounts, but the estate agreed for prolong payment periods.

Crisis can be an opportune time, and smart producers are undertaking new action to keep their market shares and to launch new long term programmes.

San Felice, for example, developed new commercial and marketing plans, such as stricter management of overall production costs and supporting stable pricing, intensifying relationships with sales force and distributors abroad, attending the markets and monitoring opportunities for diversyfiying distribution channels and running targeted promotions.

Ferrari has a large scale programme for investing in production and supporting partners on various markets. "We feel very positive about the crisis. There are still hard times ahead, but are a solid, strong and family owned company. We believe that it is the right moment for us to push on the accelerator", says Federico Delvai. For production, the company continues to invest in processes which improve wines’ quality. Partners are offered longer payment periods and get support for wines’positioning. Promotional image actions continue, such as running or sponsoring prestige events, and a new restaurant programme offering Ferrari wines by glass is carried out.

"We are intensifying our promotional activity on established as well as new markets, looking for new grants that are available at the different institutional levels and developing joint actions for the promotion of Emilia Romagna wines and specialties such as Parmigiano Reggiano, Prosciutto di Parma and Aceto Balsamico Tradizionale", says Gian Alfonso Roda.

Small, highly reputed companies with international acclaim such as Tedeschi or Fattoria Le Pupille note that their previous efforts in building strong distribution network is helping them to live through the crisis. Elisabetta Geppetti sums up, "We try to instill more confidence in our importers and their vendors by being side by side with them on the markets and promoting visits to the winery for their network and clients. We are a small winery, producing quality products at a fair price. Let us continue on our path, even in the uncertain future, with confidence that those who work will be well rewarded in the end".