SPECIAL REPORT: Rioja

The province of northern Spain which has given its name to one of the most emblematic wines of Spain is a surprisingly little visited region of Spain. The Drinks Report journalist James Graham visited Rioja in September to meet producers and ancillary wine industry professionals to look at the state of the market.

He visited a packaging specialist, four bodegas and a wine industry research and development agency to get an overview of how people at the ‘sharp end’ of wine production in Rioja are seeing the current market conditions and the prospects for the future.

As multi-million euro investments are made in state-of-the-art bodegas (bringing in top-rate international architects like Frank Gehry to produce statement architecture; even if the locals are sometimes not quite so appreciative), the region is clearly determined to maintain its quality, not to compromise to steal market share as Old World sales tumble and not to reduce its price.

However, a number of growers told The Drinks Report they were determined to follow market trends of lower alcohol wines with more fruit, a growing trend in many countries.

While the new European wine regime kicks in to reduce the production of cheap, low value wine, Rioja producers are confident that quality will win out over lower price.

Boxing clever for Rioja

Since the 1920s, the Vargas family has been making wooden wine boxes to protect bottles of Rioja during transit and storage through its company Estucheria Vargas. The beauty of the boxes, and the skills of the artisans responsible for their manufacturer, means that they also often serve as to display and support the sales of the wine as they enhance the value of the wine they contain.

As the Gimileo-based company is not directly involved in wine production but serves an ancillary role, its fortunes act as a weathervane to the general state of the Rioja industry.

Antonio Vargas Montoya, sales manager and a fourth generation member of the family, is stark in his assessment: “The wine industry is in crisis. This is creating great stress on producers, many of whom have been loyal customers of Vargas since its start.

“My observation is that during this market stress, two types of producers are emerging as sales volumes fall. Strong brands are holding up while recent arrivals, trading off the name of Rioja, are suffering. They are recently-built brands with no track record. They are in big trouble.”

Core clients are suffering, he says, but are remaining loyal.

Vargas Montoya admits that “volumes are down” but is keen to point out the company is re-engineering its products to take advantage of new market opportunities.

Bordeaux looks to presentation
An interesting move has been to expand into Bordeaux, where producers are beginning to alter long-held practices in the face of economic uncertainty. One has been the long-cherished case of 12 bottles: Vargas has been denied business in the past in France as it has followed the long-established Spanish custom of a maximum of six bottles in a case.

He says: “The French tradition of 12 bottle cases has meant no market for us but they are significantly fighting their own recession now. Bordeaux is looking at smaller presentation boxes as presentation is important for them now.”

There has been a shift in the domestic Spanish market as drinkers turn away from drinking most of their wine in restaurants and instead buy from Bodegas directly to drink at home. This presents an opportunity for Vargas, says Vargas Montoya, as bodegas require greater numbers of boxes to support these sales.

Wider export activity has seen the company send its boxes to countries such as Switzerland and Greece, says Vargas Montoya.

Business remains brisk at the company’s workshop where the majority of output is produced by hand – every stage from the arrival of planks of wood to be dressed, through cutting and gluing to printing with the customer’s logo and information. The largest recent order has been for 50,000 three bottle cases.

The company is a medium-sized employer in the region, directly employing some 40 staff. Peak demand can see casual workers bring that total up to 70 people.

The pine for the boxes is sourced exclusively from 35 growers in the Basque country and Galicia, demonstrating its importance as a customer to a vital regional industry.

1 October 2009 - James Graham