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Spanish winery shake-up on tap

By Sonya Dowsett and Tracy Rucinski | June 7, 2009, Sunday | Print Edition

PANCHO Campo knows of 30 to 40 Spanish wineries up for sale. The founder of The Wine Academy of Spain and the first Spaniard to be awarded the title of Master by The Institute of Masters of Wine believes the recession now sweeping Spain will trigger a major shake-up of its fragmented wine industry, pushing many smaller players to ruin.

"Small wineries will have to merge or be absorbed by large groups," said Campo. "It's going to be a tough time. Some guys will disappear."

Global restrictions on credit paired with the end of a domestic property boom nearly trebled the number of Spanish businesses entering administration in 2008. Many wineries are looking to sell to avoid the same fate.

Businesses with a good bottled-wine brand and an eye for international expansion are the most likely to find a buyer, said Spanish investment bank OnetoOne Capital, which has advised on takeovers in the sector. Others will not be so lucky.

"There are a lot of 'for sale' signs out there. Supply is escalating," said Fernando Malo, analyst at OnetoOne. "If it's a new project, it's going to be harder to find an investor; in fact, it's highly likely you won't."

Spain has more land under vine than any other country in the world with about 1 million families dependent on the sector, according to the Ministry of Agriculture.

Best known for plummy reds from the cool northeast province of La Rioja, it overtook France as the world's second-largest exporter of wine last year, and trails only Italy.

Spain does have prestigious vineyards, such as those of wine maker Bodega Numanthia Termes of the Toro region, whose premium reds can retail for hundreds of dollars per bottle.

Moet Hennessy, the wines and spirits business of luxury products group LVMH, bought the winery from its founders the Eguren family in February 2008.

But over 85 percent of Spanish wineries are small, employing fewer than 10 people, and depend on selling truck-loads as part of the bulk table wine market, which accounts for around half of Spain's wine production by volume.

Falling prices

These are the most vulnerable to the slump, their finances crushed by plummeting demand, slashed credit and the scrapping of European Union subsidies under rules introduced last August aimed at curbing overproduction.

The official price of bulk-sold wine was steady at 0.37 euros (US$0.49) per liter in February, industry data shows. However, Albacete wine maker Jose Maria Delicado says the price has halved in recent weeks from a year ago.

He has laid off half of his six staff and now just works with family members. He shakes his head in his newly built bodega, sitting among arid fields of stunted vines tipped with green leaves in the plains of southeast Spain.

The building, with its attractive, antique-filled lobby, metal vats and small laboratory, was funded with his life savings and bank loans. But it and the business faces an uncertain future.

"It's like a tightening screw," said the 43-year-old father of two. "The time comes when it's breaking point. If the crisis continues we'll be ruined because we can't pay the bank."

Demand for bulk-sold wine has slumped among foreign buyers. Sales fell nearly 40 percent in January and February from the year-ago period, according to recent industry figures.

This collapse in demand means prices are falling by the day, says Delicado, whose father and grandfather also cultivated grapes.

"We started to notice it after harvest time, prices started to really drop," he said, with his brother standing next to him. The red, white and rose bottled wine they started selling two years ago under their own label generates only 5 percent of their income.

Many in the industry say recession has exacerbated a need for consolidation. A unified approach could better equip Spain to sell its bottled wine abroad against aggressive marketing from countries like South Africa.

Meanwhile, Spanish farmers already say low prices force them to sell below cost or plant less.

Small wine maker Delicado says the effect of falling prices will filter down to grape farmers by the next harvest.

"The farmers will feel the pinch this year. They sold their last harvest and they still have money," he said. "The problem is when the wineries will not be able to pay them this year. If the situation doesn't improve from here to October ... it's going to be disastrous."

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