Seeing the trees instead of the forest

 

Most of what we’re reading about the current situation of Rioja wine in the media is macroeconomic in nature – the forest instead of the trees, so to speak. Sales are down, production is up and consequently, the inventory to sales ratio – the yardstick with which the overall state of the Rioja business is measured internally-  is high:  over 3,5 years of sales, when it should ideally be somewhere between 2,8 and 3,2 years.  We’ve already discussed that here. As of today, no solution has been agreed on by wineries and growers, so let’s move on.

 If we start to look at the trees instead of the forest – the microeconomic point of view – some interesting things are emerging that I want to share with you, because they’re not only what you, the consumer, will see in shops, but what will ultimately help Rioja move ahead in the market.

Last week I was invited to the 2010 Web Awards ceremony sponsored by LA RIOJA, our local newspaper.  For your information, Marqués de Riscal won in the winery category (www.marquesderiscal.com) but for me, the really interesting part of the evening was a new brand that was served at the cocktail party afterwards – Viña Bujanda.

Carlos and Pilar Martínez Bujanda, Pilar’s daughter Marta Santander and managing director Pedro León have just launched Viña Bujanda, made from a selection of grapes from the winery’s estate near Fuenmayor – Finca Valpiedra – that had, up to now, been sold to other wineries.

Finca Valpiedra originally launched a reserva, Finca Valpiedra, followed by a crianza, Cantos de Valpiedra, ostensibly to appeal to a wider audience. I haven’t had the chance to talk to the family in depth about the new brand, Viña Bujanda crianza 2007, but it seems logical that with a strong euro with respect to the pound and the dollar, it’s hard to keep established brands at sensitive price points (£6,99 in the UK and $9,99 in the USA for crianza).  This creates a dilemma for wineries:  do they lower the ex-cellars price of their established brands and cajole the distributor to reduce their profit to meet the price point?  Short term, this works, but how do you raise the price again once market demand picks up?  Studies show that once you lower the price of a brand, it takes at least three years to increase it.  A more reasonable solution is to create a new brand to hit the price point and/or enter a new segment of the market (supermarkets, for example), to keep the cash flow going.  When the market picks up, you play down the ‘crisis’ brand and emphasize your main brand again.

This makes perfect commercial sense – you protect the image of your leading brand, you give your distributor a product to run with at an attractive price and more importantly, you give the consumer a good price.

Álvaro Palacios, who wrote the rules for selling high-priced Spanish wines with Clos Dofí and La Ermita in Priorat, surprised wine writers (and was soundly criticized, sad to say) in Spain when he released Camins de Priorat, an attractively priced, crisis-busting wine with his signature.  Other wineries, including Viña Bujanda, have followed his lead.

While politicians are trying to redefine the forest, wineries are busy planting new trees.  This has to be good for Rioja.

 www.familiamartinezbujanda.com

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