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Portugal struggles to crack the UK market

Published:  23 July, 2008

There should be great opportunities for Portugal in the UK, but despite the fact that the country's winemakers have started to make great red wines and decent whites, it has yet to fulfil its potential. At this month's 50 Great Wines of Portugal event there was more interest than ever before - the wines had run out by 4 pm - and the event will move to a bigger venue next year.

But making good wine is not enough - the rest of the world is doing that too. Portuguese wines do not sell themselves, no matter how good they may be, and Potugal has done little in the past to improve its image.

Although on-trade sales increased in 2006 - an impressive 32% by volume and 24% by value - this is from a low starting point. Nick Oakley, president of the Association of Portuguese Wine Importers (AWPI), commented: The on-trade has been a bit of a disaster area for Portugal and it's share of the market is infinitesimal. The growth figures may seem impressive but they don't represent much growth by volume when you're starting from such a small base.'

Off-trade sales are much more significant in terms of volume, but were down by 4.4% in 2006, a drop of 39,000 nine-litre cases. The country accounts for 0.8% of UK sales by value and the market share has dropped steadily in the past decade.

But as sales drop, the standard of wine has improved. Between 1994 and 1999 about 64 million was spent on modernising wineries (about half of which came from European grants) and around 20 million has gone into improving vineyards. Many young winemakers now have winemaking degrees and have vintage experience abroad, but Portugal continues to play catch-up with its much-improved Spanish neighbours and the leading New World producers.

The past decade has seen the rise and rise of branded wines. Ask a consumer to name five Australian brands and it doesn't cause too many problems. Ask them to name five Portuguese brands and it's a different story. They might name Mateus, Lancer if you're lucky and think Vinho Verde is a brand. Beyond that it is a struggle. Even the brands that do exist in Portugal do not have the associations of quality, reliability and quaffability that the consumer has come to expect from the New World brands.

Effective marketing might have improved the situation. ViniPortugal realised that marketing is crucial to boost sales and commissioned a 500,000 marketing report, which was published in 2004. The report by the US-based Monitor Group identified the US and the UK as the key export markets for Portuguese wines. In 2006, ViniPortugal spent 2 million on the If someone asks what you are drinking, say it's a magic potion' campaign. It has been a flop, doing nothing for Portugal's reputation or its sales. The Monitor Group survey claimed that Portugal had the potential to boost exports from 19 million in 2004 to 73 million by 2010. With off-trade sales down, a lot of work will have to be done to reach that target.

Yet the incentive for producers to push their exports is not compelling. Since Portugal joined the EU in 1986, the inflow of investment has led to urbanisation and the growth of a wine-buying middle class, with gross domestic product rising from US$9,100 to US$16,600 between 1994 and 2004. Portuguese importer Charles Hawkins of Charles Hawkins Wines said: The Portuguese home market is very strong. If you sell something at 10 in the UK, you can sell it for 15-20 over there because the demand for high-quality wine is huge and the supply is small.' Ex-colonies have also been a strong - and perhaps easier - market for Portuguese wines. For example, it exports more wine to Brazil than any other European country.

Supply is small and this is crucial to the failure of Portuguese wines in the UK. Progress has been hindered by fragmentation - with the average holding 1.15 hectares, according to European Commission data. Hawkins said: There has been an increase in the number of growers leaving cooperatives to set up on their own, but most still go to the co-op with their grapes and they haven't focused on improving quality.'

The Monitor Group survey reported that there are only about 14 companies big enough to maintain export relations with more than one market at a time and the majority of these are cooperatives. Jamie Hutchison, director at The Sampler wine merchants, said: When we were sourcing our list we expected to be able to find a decent number of good-quality reds. The country's reputation is going up and up but we struggled to get supply - perhaps they should invest in better routes to market.'

The country also suffers from a lack of identity. Many importers agree with Joel Lauga, trade sales director at Great Western Wines: Portugal is somewhere hot and sunny where people go on holiday. It's not thought of as a wine-producing country. Mateus Ros and Port are still considered to be the only wines Portugal produces by many.'

Ken Sheather, Wines of Portugal merchant of the year for 2007, said: The typical comment I get at Portuguese tastings is "I can't believe it's Portuguese." I think too many people have had a bad experience on holiday or in the bad old days.'

Even for James Griswood, Tesco's product development manager for Portugal, the bad old days' are not such a distant memory. In general, and up until recently, most wines from Portugal have been made in a fairly traditional style: rustic, old wood and lacking upfront fruit - not what the UK consumer is looking for.'

Inevitably, there are wines still made in this way, but Suzie Cornwell, senior buyer at Morrisons, commented: The quality and fruit-forward style have developed over the past five years. The whites particularly have improved - Vinho Verde and heavily extracted, oily styles are now fresh and clean, produced using varieties such as Arinto and Ferno Pires.'

Portugal's indigenous varieties are a factor in its struggle to break the UK market. The wide palette of varieties could be seen as a boon or a burden. Castelo (or Periquita), Touriga Franca and Baga are the most-planted red varieties, with Ferno Pires (or Maria Gomes) and Codega the most-planted whites. Not exactly household names and difficult to pronounce. Said Griswood: Customers just don't know what to expect from these wines, so choose a safe option such as Chilean Merlot or Rioja.' But this diversity could also prove to be its trump card, as its wines improve and consumers join the Anything But Chardonnay' brigade. Oakley remarked: At the Wine Show in Islington we were opposite the Jacob's Creek stand. It was empty, but we were inundated because Portuguese wines are interesting and the consumer is hopefully starting to take note.'

Though the great potential and high hopes for Portugal in the UK are yet to be realised, the window of opportunity remains open. If it gets its marketing right, it might finally fulfil its potential.