US hispanic market a natural niche market for South American and Spanish wine producers, according to new Rabobank report; wine opportunities also exist in Mexico amid burgeoning middle class

Nevin Barich

NEW YORK , October 17, 2013 (press release) – Innovation and Market Diversification Needed to Drive Argentine Growth

Rabobank has published a new report on the global wine industry, looking specifically at the opportunities and challenges of the Argentine wine industry. In the report, the bank’s Food & Agribusiness Research and Advisory says that, following the decline of Argentine wine exports in recent years, Argentina must find ways to regain competitiveness, while maintaining the country’s brand image, through market diversification and innovation to drive growth in the domestic market.

Rabobank’s wine researchers say that the Argentine wine boom has been an impressive story. A growing demand for wines at higher price points saw Argentine exports take off from the early 2000s. However, in 2012, export volumes of Argentine still-bottled wine began to contract, unveiling the challenges the sector is currently facing.

“Wine production costs have increased as much as 100% over the last four years,” notes Rabobank analyst Valeria Mutis. “Movements in the exchange rate are also far from being on par with inflation rates. While the industry has little or no capacity to alter the current economic context, there are a number of strategic steps that it can undergo to improve its competitive position.”

Opportunity Among U.S. Hispanics and Mexicans

Rabobank says that in 2012, Argentina accounted for more than 3% of world wine exports, heavily weighted towards the U.S. The U.S. Hispanic segment, an expanding community, is a natural niche market for South American and Spanish wine producers. Additionally, opportunity exists in the Mexican market where alcohol consumption is relatively high and a burgeoning middle class exists. According to Rabobank, diversifying to these ‘natural’ markets presents potential for continued long-term growth. Elsewhere, exports to Canada and China have recorded strong pricing gains suggesting a growing market appreciation and an attractive target for future promotional efforts.

Adapting to New Consumer Trends

Argentine bottled wine can no longer compete profitably in the low-end market segments. According to Rabobank, the industry will need to adapt its wine offering without eroding its strong brand by identifying and adapting to new consumption trends. Though their preferences diverge from the typical wine consumer, the millennial generation are driving sector growth and brands that have successfully targeted this consumer segment have seen significant sales growth. Argentina’s domestic market, too, presents an opportunity, as consumption of higher end wines has gradually increased. If wine manufacturers can continue to convince the domestic market to trade up in their wine selections, a growing amount of “exportable” wines could be directed to the domestic market.

Pricing Declines

Internationally, bulk wine pricing continues to fall across many regions and varietals, with Chardonnay and generic white wine pricing remaining more stable than many others in recent months. Cabernet Sauvignon and other red varietals have seen some of the most notable pricing declines.

“In the current challenging scenario,” said Rabobank analyst Marc Soccio, “All eyes remain fixed on the U.S. Federal Reserve, as anticipation grows that it will pare back the level of monetary stimulus in the economy before the end of the year”.

Rabobank’s report on the outlook for the global wine industry in Q3 2013 is available to media upon request.

Rabobank Group is a global financial services leader providing wholesale and retail banking, leasing, real estate services, and renewable energy project financing. Founded over a century ago, Rabobank is one of the largest banks in the world, with nearly $1 trillion in assets and operations in more than 40 countries. In North America, Rabobank is a premier bank to the food, beverage and agribusiness industry. Rabobank’s Food & Agribusiness Research and Advisory team is comprised of more than 80 analysts around the world who provide expert analysis, insight and counsel to Rabobank clients about trends, issues and developments in all sectors of agriculture. www.rabobank.com/f&a

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