Seis Continentes / Fall 2000
By Larry Luxner
SANTIAGO -- Don Melchor, the 19th-century founder of Viña Concha y Toro S.A., grew tired of employees stealing from his private wine cellar. Installing iron bars didn't seem to help, so one day he christened the cellar Casillero del Diablo, Spanish for "dwelling-place of the devil." That, according to the legend, scared off the superstitious workers for good.
Today, Viña Concha y Toro is Chile's leading wine producer, Don Melchor is the company's most prestigious label, and the Chilean wine industry is thriving as a favorable climate, low labor costs, cheap land and an aggressive marketing campaign help the South American nation grab an ever-growing slice of the global wine market.
In 1980, Chilean wine shipments stood at only 93,600 cases, representing 0.3% of the U.S. imported table wine market. By 1999, according to the New York-based Impact Databank, Chile accounted for 13% of the 38.1 million nine-liter cases of table wine imported by the United States -- more than the combined wine shipments of Germany, Spain, Argentina, Portugal and half a dozen other countries. Last year, only Italy (37.6% of the total) and France (24.6%) exported more wine to the U.S. market than Chile.
Part of the reason for Chile's success is the country's availability of cheap, abundant land compared to Europe and California; another is Chile's relatively low labor costs.
"In Bordeaux, one hectare of land costs $1 million. Here, it's between $2,000 and $10,000," said Augustín Hunees Jr. of Errazuriz Panquehue, a major wine exporter. "In Napa Valley, a grape picker makes $15 an hour, while here it's $2 to $3 a day. We have a tremendous comparative advantage in wines. No other country can touch us."
Statistics appear to support Huneeus' unbridled optimism. After stagnating for decades, exports of Chilean wine began taking off in the late 1980s, doubling from 14.5 million liters worth $17.5 million in 1987 to 28.6 million liters worth $35.4 million in 1989.
Then, in the 1990s, wine exports took an even bigger leap, finally surpassing the $500 million mark last year. During the first five months of 2000, says the Asociación de Productores de Viños Finos de Exportación A.G. (Chilevid), Chilean wine exports came to 98.0 million liters worth $219.5 million, up 24.8% from the 78.2 million liters worth $175.9 million exported in the same period last year.
Asked to explain the phenomenon, Rodrigo Alvarado Moore, general manager of Chilevid, says it's simple: "We're working hard, prices are good, and our quality keeps getting better."
Alvarado told Seis Continentes that Chilean wine exports will likely top $600 million this year -- a factor he attributes to rising prices and greater attention to quality. In the last decade, he said, the per-case price of Chilean table wine has risen from $18 to $24, while more and more exporters are shipping bottled rather than bulk wine, further contributing to the sector's growth.
Rafael Guilisasti, export manager of Viña Concha y Toro, estimates that his company has 25% of the Chilean export market. In second place is Viña San Pedro (producer of Gato Blanco and Gato Negro white and red wines) and Viña Santa Rita, which produces the Medalla Real, 120 and Special Reserve labels.
In a recent interview, Guilisasti said Chile's wine industry has finally overcome the difficulties that began in the early 1970s, with the leftist Allende government, its eventual overthrow and the rise of the Pinochet dictatorship.
"The land reform of the early 70s meant a lot of changing of hands of property," he said. "The law also fixed the price of wine, and you couldn't plant new vineyards. In those days, domestic consumption of wine was 52 liters a year, and we exported nothing."
In the ensuing decade, Chilean vintners were focused only on the domestic market.
"There was no investment in the wineries, so Chilean wine became a little bit outdated, while California was advancing, mainly in white wines," says Guilisasti. "And some people felt it was wrong to buy Chilean wine. In some countries, where wine purchases were under state control -- especially in Scandinavia -- political decisions were made not to import Chilean wine."
By the early 1980s, there was a dramatic decline in wine consumption, and wine producers started looking outside for new markets. "We began ageing red wines in new casks imported from France. Those wines started to appear on the market in 1984. With these new wines on the market, Chilean wines started gaining attention, and since then, the demand for Concha y Toro has been increasing."
One of Guilisaste's competitors is Mario Pablo Silva, the 31-year-old managing director of Viña Casa Silva. He says Concha y Toro has succeeded "because they've been in the market for many years, opening markets all over the world. They have wines in all market segments. Their strategy has been successful because they're aggressively sought out markets around the world, and they offer very good quality at an affordable price."
Rodrigo Alvarado Moore is general manager at Chilevid, which represents 34 small and medium-size wine companies that export 15% of Chile's production (an unrelated group, Viñas de Chile, has 28 member companies that account for 80% of all exports).
Alvarado notes that today, local wine consumption comes to 19 liters, and that over 50% of the country's wine is exported -- mainly by 65 companies promoting as many as 300 individual labels.
One of those exporters is Silva, who also happens to be president of the Colchagua Valley Wineries Association.
Silva's home, office and vineyards are located 135 kilometers south of Santiago, near the wine-growing center of San Fernando. Getting there means taking a two-hour trip along the Pan-American Highway, passing towns with colorful names such as Rancagua, Los Maquis and San Francisco de Mostazal.
Silva, leading his visitor on a jeep tour of his 800 hectares of vineyards, says that last year, his company was named "best South American wine producer" at the International Wine and Spirits Competition in London. In fact, his best customers are the United Kingdom, Germany, Japan, Switzerland, Holland and Brazil, with domestic sales accounting for 20% of the total.
"This year, we'll produce around six million kilograms of grapes, which translates into 4.2 million liters of wine," says Silva, a fifth-generation vintner.
The Colchagua Valley has around 16,000 hectares planted with vineyards -- about 20% of total Chilean vineyards -- and is planed mainly with Cabernet Sauvignon, Merlot, Cabernet Franc, Carmenere, Malbec and Syrah varietals. Also found, though in lesser quantities, are white wine varietals such as Chardonnay, Semillon and Sauvignon Blanc.
In order to promote the Colchagua denomination of origin, nine wineries got together in December 1999 to form the Colchagua Valley Wineries Association. Besides Casa Silva, the others are Bisquertt, Caliterra, Casa Lapostolle, Luís Felipe Edwards, MontGras, Santa Laura, Siegel and Viu Manent.
Silva, who employs between 200 people year-round and up to 500 at the height of the grape harvest, between late February and late April, says wines from the Colchagua Valley are already recognized internationally for their excellent quality, especially the reds.
"People speak only of Chilean wine, but within Chile we have different regions," he said. "In our case, we're convinced we have the best varieties."
Silva noted that Chile is the only country in the world free of phylloxera disease, thanks to the country's geographical isolation. That means Chile spends a lot less on fertilizers and pesticides. In addition, the variation of temperature between night and day -- coupled with the lack of rain in Chile's dry season -- means the grapes have a much higher concentration of sugar and tannins.
Silva said his long-term goal is to be selling 300,000 cases a year within the next five years, while maintaining his company's current price of $31 per case (compared to $24 per case for Chile as a whole).
"Until three years ago, we sold only in bulk to other producers such as Santa Rita. But in 1997, we decided to enter the bottled-wine market, and our first bottle came out in August 1998. Since then, we're selling more bottled wine and less bulk wine every year."
This year, the mix is about 50-50 between bottled and bulk wine, though in 2001 Silva expects to be producing primarily bottled wine under his own labels.
"Wine sold in bottles is a lot more competitive," he says, "but if you can make it, it's much more stable, since the prices for bottled wine don't fluctuate as much."
He adds: "In Chile, our biggest challenge is how to position our products in the in-ternational market. We're looking mainly for quality, hoping to find new markets and con-vince the consumer that in Chile we have the ability to produce the best wines in the world."