Cost-Conscious Drinkers Drive Sales for Top Vintner in Pandemic

Wine drinkers looking to take the edge off lockdown stress have boosted demand for affordable premium wines in the $10 to $14 a bottle range. The timing couldn’t have been better for Latin America’s largest wine exporter.

Vina Concha y Toro SA’s flagship Casillero del Diablo or “Devil’s Cellar” label, which caters to that segment, helped the Santiago-based company post a 17% increase in sales in the second quarter, and 3.3% volume growth. On its own, Casillero, which accounts for 20% of total sales, posted a 36% increase in sales and 14% in volume.

“The market is asking for quality, but at a good price,” Concha y Toro Chief Financial Officer Osvaldo Solar said in an interview. “Our strategy is to continue to grow this segment of wine within our mix.”

Cost-Conscious Drinkers Drive Sales for Top Vintner in Pandemic

Favorable climatic conditions have allowed Chile to develop a strong wine industry, which now accounts for 3% of the country’s exports. Anti-government protests that started in October and the Covid-19 pandemic have weakened the Chilean peso about 8% since then, benefiting exporters. Foreign markets account for 80% of Concha y Toro’s total sales. In this scenario, the company’s stock outperformed the market, with a 9.9% gain in the last month compared to a 1% loss for the benchmark S&P IPSA index.

Consumers in Western Europe have been slowly and steadily willing to pay more per bottle, according to a 2013-2018 study by Euromonitor. Concha y Toro categorizes its wines as premium, super premium --between $15 and $25 per bottle-- and ultra premium --between $25 and $40.

Strong Financial Position

Given uncertainties surrounding the pandemic, Concha y Toro’s raised its cash position to 114 billion pesos ($142 million) in the second quarter from 72 billion at the end of 2019.

Now it plans to prepay debt to lower liquidity levels to more normal levels, Solar said. The company rules out new debt issuances even though borrowing costs are low.

The Chilean peso has strengthened more than 8% since March when the lockdowns were starting but is still 11% weaker than a year ago. Concha y Toro has hedged against a stronger peso as it used a dollar at 650 pesos to calculate its 2022 strategic plan, Solar said. The peso closed yesterday at 802.69 per dollar. The company launched in 2017 a plan to double profits by 2022.

Consumption Patterns

While sales in some key export markets such as the U.K., Brazil and Mexico rose, consumption patterns varied widely in Asian markets, with sales in China plummeting 80%.

“China’s taste for wine has recovered slower than expected because alcohol consumption in that country is very much associated with social life, something highly reduced by isolation measures,” Solar said.

Concha y Toro relied on its network of commercial offices and 14 distribution subsidiaries to keep its global sales strong during the pandemic, Solar said. The company operates a website for direct sales in Chile called descorcha.com but direct e-commerce accounted for only 3% of Concha y Toro’s sales. The company sees potential in online sales and that percentage may increase in the future, Solar said.

And while other industries continue to worry about potential outbreaks of the virus around the world with the reopening of economies, Solar isn’t concerned. “The last quarter demonstrates that not even a lockdown stops people from shopping for wine,” Solar said.

©2020 Bloomberg L.P.

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