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Spain’s silver linings

Published:  26 November, 2020

While most areas of the trade experience decline, Spain still has the odd reason to be cheerful in buoyant UK exports and ever-robust Rioja. James Lawrence reports

If anyone wants an example of how a wine-producing nation can reinvent itself, they should look to Spain. In the 1980s, the Iberian peninsula was renowned for Rioja, supermarket Cava, and a thriving bulk wine industry dependent on rock-bottom prices. 

Yet contemporary Spain now boasts numerous fashionable DOs – Albariño is edging ever further up in the popularity and recognition stakes – while the value of bottled wine exports to the UK has been rising in recent years. The battle to promote diversity and premiumisation was being won.

Unfortunately, the Covid crisis may prove to be Spain’s defining moment of regression, narrowing the offer and bolstering demand for cheaper brands. Many of the nation’s esoteric styles have thrived in the UK’s hospitality sector, however, more recently, rising unemployment coupled with Tier 3 restrictions in many cities continue to enfeeble the restaurant industry. 

In addition, labels such as Rioja’s Ramón Bilbao have spent decades building a solid distribution in the UK on-trade. Everyone reliant on this once thriving industry is being squeezed. “Things are tough at the moment, there’s no doubt about it,” says Ramón Bilbao winemaker Rodolfo Bastida.

“Being a small family company with a long history of selling our wines mostly through the hospitality market, we have been badly hit by the pandemic in all export destinations,” adds Carlos Rubio, CEO of Bodegas Corral in Rioja. 

“The UK is our largest export market and sadly business has been severely affected. Our saving grace has been securing new importers in two European markets where we have not previously traded, Poland and Ireland.”

Rubio is unlikely to be alone. Like many countries, the majority of UK wine sales (more than 80%) are through retail channels. Yet prior to the coronavirus pandemic, the on-trade was your best chance of building an unknown Spanish brand. Sadly, there is no point of comparison in recent British history – a sizeable percentage of the hospitality sector has potentially been condemned to penury. This can only be bad news for boutique Spanish growers and niche styles.

“At the Oxford Wine Company, we have seen a couple of distinct trends over the past six months,” explains owner Ted Sandbach. “Overall sales of Spanish wines are down, driven mainly by the reduction in on-trade consumption. In addition, the summer weather more generally also affected sales of the bigger styles of Spanish red. To recapture the interest of consumers, we are in the process of rejuvenating our Spanish range.”

Of course, this phenomenon is not limited to Spain. According to CGA Strategy, in the 12 months to 5 September 2020, total still volume sales decreased by 40% in the UK hospitality sector, while in the same period value sales decreased by 38%. This is to be expected, as the data includes the 2020 period of lockdown. Spain’s performance is broadly similar: sales decreased by 38% in volume and 37% in value respectively during the past 12 months. 

However, CGA analyst Mark Newton argues that there is a silver lining for Spanish bodegas that export into the UK. “Based on the headline trends, Spanish wine has continued to over-index slightly in the hospitality sector against the total still category for volume and value sales,” explains Newton.

“This suggests that the category has been reasonably successful at retaining its market share since re-opening, maintaining its performance levels in that context from pre-lockdown.”

Others would argue that the Covid crisis has simply accelerated the progression of an established trend; many categories have experienced a decline in on-trade consumption for several years now. It is probable that the ongoing uncertainty, exacerbated by the ramifications of a post-Brexit UK/EU trading relationship, will see smaller Spanish brands disengage from the UK market. 

Yet there are reasons for Spain’s export-led producers to remain broadly optimistic about this key market. Overall Spanish exports to the UK have remained fairly buoyant, despite the unprecedented level of disruption. 

“Imports of Spanish wine have remained stable and have seen growth during this period: the volume of Spanish exports to the UK increased 2.3% versus the same period in 2019,” says Laura Fernández Piñeiroa, Foods & Wines from Spain.

Indeed, the analyst community is in broad agreement: Spain has outperformed its European neighbours in maintaining a robust presence in the UK retail sector, albeit at lower price points.

“Spain has done considerably better than France which suffered major volume and value declines during the Covid-19 pandemic,” observes IWSR analyst Daniel Mettyear. 

“There will have been inevitable losses in the on-premise for Spanish wines, but in terms of still wines in the off-trade, sales of Spanish wines in the first six months of the year were vaguely in line with the market and up in double digits,” he adds. 

“However, in value terms, Spain has been relatively flat (+0.1%) versus the same period last year.”

This is the unfortunate but undeniable reality of the coronavirus pandemic; it provides a significant boost to certain categories, while severely damaging others. The overwhelming beneficiaries in Spain’s case appear to be widely recognised brands and styles.

“It is difficult to accurately dissect Spain’s performance with data this year as our sales are pretty skewed due to closure of some of our sites during lockdown,” explains Kate Goodman, owner of Reserve Wines in Manchester.

“However, if we compare the last six months with the same period last year, then we’re almost 30% up, selling affordable styles. Albariño, entry-level Tempranillo, Verdejo and our entire Rioja range are continuing to prove popular.”

Reliable Rioja

Mirroring the situation in Spain’s domestic wine market, Rioja’s renown and popularity during this difficult period has only been to the category’s benefit. 

As Berkmann Wine Cellars wine buyer Alex Hunt MW so eloquently describes: “The UK market for Spanish wine has long been Rioja – and then everything else. The Galician whites such as Godello have made enormous headway in recent times, but now, more than ever, Rioja remains the benchmark for the UK consumer’s entry into Spanish wine.” 

Indeed, Rioja’s overall performance in the market has been mightily impressive, particularly as the on-trade has shrunk so dramatically. 

According to the IWSR, Rioja exports to the UK increased by 25% in volume in the first six months of 2020. Moreover, although on-trade reliant brands such as Ramón Bilbao report a difficult period, the vast majority of Rioja is sold in retail.

“The widespread recognition of the Reserva/Gran Reserva hierarchy and the category’s immense recognition has really helped Rioja to thrive during the lockdown periods,” agrees Jeroboams wine director Peter Mitchell MW.

“Even before the crisis, our Rioja sales were dominated by ‘traditional’ styles and I don’t get the impression from our shop staff that customers are looking for single vineyard expressions. This trend has continued and strengthened.”

Richard Cochrane, MD of Félix Solís UK, adds: “Over the last six months we have seen our Rioja sales perform well at two levels. Our Castillo de Albai Rioja Reserva has seen sales jump 179% over the same period. Consumers appear to be hunting for great wines that retail at £8-10.”

Sherry has been another noticeable beneficiary of the crisis – González Byass reports that sales of iconic brand Tío Pepe have performed very strongly over the past six months. Other categories, though, have really faltered. According to a cross-section of the trade, Cava sales have significantly declined since lockdown began. “Overall, Cava has performed poorly with a noticeable drop-off year on year,” says Mitchell.

Undoubtedly, Spain will be a victim – at least in the foreseeable future – of a globalised phenomenon regarding the lowering of the average consumer spend. Many nations have seen the value of their exports decline over the past six months according to the IWSR’s data. Covid-19 lifestyle changes and a savage global recession are likely candidates to stop the premiumisation narrative in its tracks. Or least, stifle its development.

“Based on previous economic downturns, we believe that consumers will gravitate towards value products, while average-priced brands will represent the squeezed middle,” observes the IWSR’s CEO Mark Meek.

But on the plus side, the UK’s independent sector remains relatively healthy, aided by the meteoric growth of online sales. Wine buyers such as Mitchell report a growing polarisation, with the demand for certain luxury labels remaining healthy. In that sense little has changed – popular Spanish icons and luxury labels distributed through specialist channels are seemingly winning the 

Covid war. It is always the middle ground that has the most work to do.

“Ribera del Duero has performed particularly well for us at higher price points,” says Mitchell. “Normally we have Vega Sicilia in the fine wine section and occasionally Pingus/Flor de Pingus. All of these continue to sell well at their price points, considering the context at the moment. The luxury segment is far from moribund.”

Spain has made tremendous progress over the past decade in marketing its higher-priced wines to a broader swathe of drinkers. The coronavirus has clearly pushed that progress back. Belt-tightening and stay-at-home drinking will not necessarily encourage professionals – especially younger consumers – to up spend on premium Spanish wine. Yet brand Spain, led by Rioja, remains as potent as ever. If Spain can increase its export base during a global pandemic, then it can likely recover lost value once the dust settles. The premiumisation fight is not over – it’s just on temporary hiatus. 

Spain data round-up [to go with figs]

CGA has provided a snapshot view of Spanish volume and value between P02 (this is the last full pre-lockdown period and a clear snapshot of the market as it was prior to the trade closing in March) and P09 (to 5 September), which is the latest available MAT period and includes the majority of the Eat Out to Help Out campaign.