Wine Production in Chile

Wine production in Chile dates back more than 400 years. Its South American climate provides ideal conditions for growing rootstock (Chilean vineyards yield twice as much grapes per hectare than European vineyards do.) This expertise formed a brand name, which still today makes this wine best known for finest quality. European vineyards were affected by a plague, which left Chile untouched. This makes it the only country in the world to produce from original rootstock. This uniqueness is an additional cornerstone in forming the brand of Chilean wine.

The production got influenced by political sanctions . Therefore, consumption dropped in 1985 to 400 million liters (36,9 l per capita) and in 1997 to 211 million l (14,4 l per capita). It is expected for the market to recover and to grow by about 4% annually to 239 million l by 2001. Consequently, the growth potential is very limited.

The consumers are very price-sensitive, which makes the price-leadership strategy the only one reasonable. Only big wineries with a great economies of scale had a chance to survive in this highly competitive market. This lead to only three dominant firms: Concha y Toro (24% market share), Santa Rita (21.1% market share) and Vina San Pedro (VSP) having 10,7% market share. The remaining 54,2% are represented by a number of small wineries, the so-called "informal market". These producers avoid paying the 18% value-added tax and 15% alcohol excise tax, which is a good opportunity for the formal market in order to get additional market share by trying to force them to obey state regulations.

Chilean consumers are only little quality-conscious compared to consumers from importing countries like the US and Germany. Grapes of lower quality can be used. Packaging is another important business. Cheap and low quality wine, like Gato, come in cardboard containers, which dominate 70% of packaging, whereas 20% come in five-liter jugs or plastic/cardboard containers and only 10 in bottles. Packaging is an important part in the value chain.

Cardboard container packed wine are the best sold product, covering 87,7% of all domestic sales. Only 4,5% of all sales are bottled, 5,5 % in jugs and only 2,3% in plastic/cardboard containers.

VSP wine sells in average 5% below the price of its competitors. However, consumers perceive the quality worse than the wine of the competitors.

Marketing expenses vary a lot among the big three: Santa Rita spends about 46% of total Chilean wine marketing expenses on marketing, Concha y Toro 29% and VSP only 3%. This seems to be one reason for the fact that consumers consider its wine quality worse than others. The marketing channels are very limited and not used completely.

Distribution of VSP is a success story. By using the CCU distribution network, they managed to expand its customers from 6000 to 30000. Out of these, 37% go to retailers, 23% to wholesalers