Spain is – and will be – the rising star of world wine

Spanish wine exports have more than tripled in the last 17 years from 6.4 to 22 million hectoliters, showing the best performance, by large, among European wine producers. This high speed growth has placed Spain first as the world’s largest wine exporter, overtaking Italy in 2014. However, such a fast advance has taken place at the expense of price, which is one of the lowest in the market due to both, a large portion of cheap bulk wines sent to other large wine producers and relative cheaper prices in the bottled categories. Understanding the reasons behind this outstanding growth will allow to infer what the trend for Spanish wines in world markets may be in the future. The title of this article, itself, shows there are good reasons to forecast a bright future, not only in volume terms but increasingly in terms of value and quality image.

The key factors that have pushed Spain to lead world wine markets are a combination of lower domestic consumption with reduced wine distillations, facing a stable or even growing wine production. Domestic consumption has been falling in Spain since the 70s, first at home, but since 2006 also in the on trade. Up to mid-2014, a hard economic and consumption crisis was added to the previous legal changes to avoid alcohol consumption while driving, forcing a sharp reduction of wine consumption from more than 16 to less than 10 million hectoliters. Additionally, EU legal modifications introduced in 2009 put an end to public subsidies for wine distillation to produce alcohol for the brandy industry and fortification of wines. This change brought wine distillations in Spain from peaks of 10 million hectoliters to an average of 3.5 million with a further reduction of more than 6 million in domestic use. On the other hand, 10-year average production in Spain rose from 31.7 million hectoliters in 1987-96 to 41.9 in 2007-16, despite reduction of vineyards, largely compensated by increasing yields per hectare. Larger production facing lower domestic consumption of wine necessarily had to lead to increasing exports.

But exports are not an easy business for quick profits. Successful strategies to sell premium wines, based on a good image of high quality through well-known brands cannot be improvised. Therefore, most of the required new exports had to be done in bulk and basically to other wine producers with long-established distribution chains along the world, like France, Italy, Germany and Portugal, where Spain currently sells around 72% of all its bulk exports. Such a large portion of cheap quick sales to producing countries explains the low average price. Additionally, despite a consistent but slower increase of bottled premium wines of traditional brands, large amounts of improvised sales in containers up to 2 litres have also led to low prices as the fastest argument to get access to the markets. The great, high-quality premium wines from Spain remain relatively hidden behind this new flow of quick and lower price sales.

©JBNadeau/Vinexpo2017

However, things are already changing. The recovery of domestic markets in 2016, hand in hand with a more balanced production of higher quality wines focusing export markets rather than distillation, together with increasing experience of more professionalized teams and knowledge of international consumers, are key factors that will allow for a radical change in Spanish exports in the near future. Sales will move from other producing countries to final consumers and form bulk to more – but not all – bottled wines. The output will come in the shape of higher average prices, more premium wines and probably equal or less volume which will all lead to increasing revenues.

Better knowledge about the markets, increasing commercial teams and more frequent trips, together with better logistics (distribution chains, quality transportation of both bulk and bottled wines to long-away destinations) and improved financial services are key elements that will allow Spain to go along this road towards a still brighter future.

By Rafael del Rey – Spanish Observatory of Wine Markets