WINES OF CHILE STRATEGIC PLAN 2020 INTERNATIONAL MARKET

Transcription

1 WINES OF CHILE STRATEGIC PLAN 2020 INTERNATIONAL MARKET NOVEMBER 2010

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3 CONTENTS 1. INDUSTRY DIAGNOSTIC STRUCTURE OF THE WORLD WINE INDUSTRY 9 Global Consumption 9 Surface Area Planted to Vine 10 Production 11 Exports 12 Imports 14 CHILE S NATIONAL WINE INDUSTRY 15 COMPETITION 18 United States 18 Australia 20 South Africa 21 New Zealand 23 Argentina 25 France 27 Italy 28 Spain 30 EVOLUTION OF THE CHILEAN INDUSTRY IN THE GLOBAL CONTEXT 32 Evolution of Exports 32 Generic Investment 38 CONSUMERS 39 Wine Consumers 39 Image of Chile in Target Consumer Market 39 SWOT ANALYSIS (STRENGTHS, WEAKNESSES, OPPORTUNITIES, AND THREATS) OF THE CHILEAN WINE OFFER 41 Strengths 41 Weaknesses 41 Opportunities 41 Threats VISION & MISSION VISION OF THE CHILEAN WINE INDUSTRY 45 MISSION POSITIONING COMPETITIVE ENVIRONMENT 47 COMMUNICATIONS TARGET 47 INSIGHT 47 BENEFITS 47 VALUES AND PERSONALITY 48 ESSENCE 48 UNIQUE SELLING PROPOSITION 48 TAG LINE 48 STRATEGIC PILLARS 49 Diversity & Quality 49 Sustainability 51 Country Image 53 Innovation STRATEGIC PLAN 2020 GENERAL STRATEGIC OBJECTIVE 57 SPECIFIC STRATEGIC OBJECTIVES 61 Corporate Level Objectives 61 Market Level Objectives 61 STRATEGIC PLANS 61 Corporate Level Strategies 61 Market Level Strategies 62 Product 62 Price 64 Target Markets 66 Channels 66 Promotion 67 ACTION PLAN THE STRATEGIC IMPORTANCE OF THE INDUSTRY ECONOMIC IMPORTANCE 71 SOCIAL ROLE 72 LEADERSHIP AND PARTNERSHIP 73 THE WINE INDUSTRY S CONTRIBUTION TO DEVELOPING THE COUNTRY IMAGE 73 MICROECONOMIC INDICATORS FOR THE WINE INDUSTRY 74 CONCLUSIONS REQUIRED INVESTMENT HISTORIC INVESTMENT IN PROMOTION 77 PROJECTED INVESTMENT & FUNDING SOURCES 79 RETURN ON INVESTMENT MANAGEMENT CONTROL SYSTEM CORPORATE LEVEL KEY PERFORMANCE INDICATORS (KPI) 83 MARKET LEVEL KEY PERFORMANCE INDICATORS (KPI) 84 ANNEX 1: GENERIC PROMOTION EUROPEAN UNION 87 Sopexa 88 ICE 88 Spain 88 ICEX 88 Rioja 88 WINES OF SOUTH AFRICA 89 NEW ZEALAND WINE GROWERS 89 WINES OF ARGENTINA 89 WINE INSTITUTE OF CALIFORNIA 90 WINES OF AUSTRALIA 90 ANNEX 2: ANALYSIS OF TARGET MARKETS UNITED STATES 93 CANADA 97 UNITED KINGDOM 98 BRAZIL 99 ASIA 102 China 102 Japan 104 Korea 106

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5 INTRODUCTION Dear Friends: The Chilean wine industry has undergone numerous and profound transformations over the past 30 years its quality revolution led by the complete technological renovation during the 1980s, the export boom of the 1990s, and the new terroir developments during the 2000 decade. This transformation has allowed a new generation of talented viticulturists and winemakers to capitalize on Chile s viticultural paradise and to produce World Class Wines of unique character and personality. Chile is the world s eighth largest wine producer and the fifth largest exporter, reaching a market share of 8% by volume of the global international wine market at the close of However, and most importantly, Chile exports 70% of its wine production, making it the world s most globalized wine industry, with great flexibility, innovation, and a long-term commitment to quality and service second to none. With 150 destination countries and 1.5 billion 1 consumers per year, Chilean wines are positioned as the country s most emblematic and best known world ambassador. Despite this undeniable success, Chilean wines face very high levels of competition in the different world markets from many appellations and brands, and its average prices are substantially lower than those of its competitors. As a consequence, the industry s present profitability levels are low, and there is an urgent need to elevate our premium positioning and average prices to achieve a sustainable return in the long term. Making decisive progress toward positioning Chile as a world-class appellation for the production of premium and superior wines, gaining additional image and value is the only possible response to the competitive challenges we face today. This is a key requirement for the health and long-term sustainability of Wines of Chile. The Chilean wine industry s Strategic Plan 2020 delivers the guidelines for a vigorous ten-year course of international development and defines the industry s vision, mission, positioning, strategic objectives, necessary investments, opportunities, plans of action, and more. We have developed the Plan in conjunction with the wineries and key industry members, and with the conviction that we can and should advance toward a more significant participation in the world s premium wine segment. 1. This publication uses the American English definition of a billion (1,000,000,000), which corresponds to the British (and Spanish) thousand million. Wines of Chile Strategic Plan 2020 International Market 5

6 We have set the objective of becoming the Number One producer of premium, sustainable, and diverse wines of the New World by 2020, increasing the value of bottled wine exports over the course of the decade to US$3 billion. This is based on the opportunities and capacities explained in the text and sustained by the historic growth of Chile s wine exports. We want to play a key role in Chile s progress. This is the best contribution we can make to the future of our country to transition to a modern, developed nation, eliminating poverty, and enhancing the well being and opportunities for all of our citizens. We are convinced of the enormous potential of Chile s wine industry, its importance at the global level as a world-class producer, and its multiplying effect on the image of Chile. Over the past decade, wine has become the major ambassador of Chile in the minds of foreign consumers as is reflected in the latest studies conducted by the Fundación Imagen de Chile regarding the perception and knowledge of our country in its principal markets of interest. Wine adds positive and valuable characteristics to the country image and facilitates the export of new products. In addition to the very positive effects the growth of our exports has had on our country s economy, Vinos de Chile A.G. and its various areas of work, Wines of Chile and the Vinnova and TecnoVid Technological Consortiums have been pioneers in associative work in key areas for the development of the country and the agricultural sector; international promotion and market development; research and development in viticulture, enology, and marketing; the wine industry s Sustainability Program, and social responsibility. The ongoing and generous contributions of strategic institutions has been essential in these initiatives, and we are grateful to ProChile, Corfo, the Ministry of Agriculture, and the Fundación Imagen de Chile, whose support we value and will need in the future. We are confident this Strategic Plan will serve our wine industry and the government s promotional and development bodies to work together toward achieving the objectives, strategies, and commitments set forth, aligning our efforts to ensure their effectiveness. The success of the Plan depends upon it. The future looks promising for Wines of Chile and the overall development of the country. It is up to us to capitalize on our great opportunities. Viva Chile! René Merino President Vinos de Chile Wines of Chile 6 Wines of Chile Strategic Plan 2020 International Market

7 WINES OF CHILE STRATEGIC PLAN STEERING COMMITTEE Eduardo Chadwick Chairman Collaborators: Giancarlo Bianchetti Douglas Murray Ricardo Letelier Constanza Vincent Patricio Middleton René Araneda Javier Bitar Andrés Turner Juan Somavía Claudia Soler Michael Cox Lori Tieszen Christine Colleta Benoit Allaire Marie-Josée Allaire Wines of Chile Strategic Plan 2020 International Market 7

8 INDUSTRY DIAGNOSTIC

9 STRUCTURE OF THE WORLD WINE INDUSTRY Global Consumption The world consumes approximately 236 million hectoliters of wine each year. After eight years of growth, this level fell in 2008 and 2009 as a result of the world economic crisis. The European Union decreased its demand, which was partially compensated by an increase in demand from North America and Asia. GRAPH 1: WORLD WINE CONSUMPTION (THOUSANDS OF HL) Source: International Organization of Vine and Wine, 2010 ( Provisional 2009 Estimated Although the primary wine-consuming countries are France, United States, Italy, and Germany, the market trend has been toward a decreasing consumption in the large Western European producing countries and an increasing consumption in new consumer countries in Asia and Latin America, which still have a very low per capita consumption rate. Wines of Chile Strategic Plan 2020 International Market 9

10 TABLE 1: WORLD WINE CONSUMPTION TOTAL & PER CAPITA (2009 ESTIMATE) COUNTRY THOUSANDS HL LT/PER CAPITA France United States 27 9 Italy Germany United Kingdom Spain Russia 11 8 Argentina China* 9 1 Australia 5 24 Portugal 5 43 Netherlands 3 21 South Africa 3 7 Others 65 TOTAL 237 Source: International Organization of Vine and Wine, 2010 ( Note: * assumes a 13% growth over the 2008 figure (source: Surface Area Planted to Vine Although the world s overall surface area planted to vine tends to be constant, it has decreased by 0.8% in the past four years, primarily due to the vineyards that have been pulled up and subsidized conversions in the European Union in the face of falling prices, over-production, and the impoverishment of the sector. As a result, Spain, France, and Italy, the three countries with the largest plantations in the world, have reduced the number of hectares planted. GRAPH 2: WORLD SURFACE AREA PLANTED TO VINE (THOUSANDS OF HECTARES) (WINE GRAPES, TABLE GRAPES & OTHERS) 8,500 8,000 7,500 7,000 6,500 6,000 5,500 5, Provisional 2009 Estimated Source: International Organization of Vine and Wine, Wines of Chile Strategic Plan 2020 International Market

11 As the following graph shows, the primary parties involved are European countries that represent nearly 58.4% of the world s vineyards, particularly Spain, France, and Italy. Non-European countries include the United States and China. GRAPH 3: WORLD SURFACE AREA PLANTED TO VINE (THOUSANDS OF HECTARES) (WINE GRAPES, TABLE GRAPES & OTHERS) 1,200 1, Spain France Italy Turkey China United States Portugal Argentina Rumania Chile Australia South Africa Greece Germany Brazil Source: International Organization of Vine and Wine, 2010 ( Production The world s wine production fell in 2009 to volumes similar to those produced in 2008: 266 million hectoliters, a relatively low level of production and similar to that of 2001, 2003, 2007, and More than 70% came from European countries, primarily France, Italy, and Spain. In the New World, the United States, Argentina, Australia, South Africa, and Chile predominate. TABLE 2: WORLD WINE PRODUCTION (THOUSANDS OF HL, 2009 ESTIMATE) Source: International Organization of Vine and Wine, 2010 ( COUNTRY TH HL Italy 48 France 46 Spain 33 United States 21 Argentina 12 Australia 12 Chile 10 South Africa 10 Germany 9 China 8 Portugal 6 New Zealand 2 Others 51 TOTAL 266 Wines of Chile Strategic Plan 2020 International Market 11

12 Exports World-wide wine sales presented an increasing trend prior to 2009, when it reached 86.1 million hectoliters. GRAPH 4: WINE EXPORTS (THOUSANDS OF HL) Source: International Organization of Vine and Wine, 2010 ( Provisional 2009 Estimated 73.5% of the total volume exported is from European countries such as France, Italy, and Spain. TABLE 3: PRIMARY WINE EXPORTING COUNTRIES (THOUSANDS OF HL, 2008) Source: International Organization of Vine and Wine, 2010 ( COUNTRY THOUSANDS OF HL Italy 19 Spain 14 France 13 Australia 8 Chile 7 Germany 4 United States 4 South Africa 4 Argentina 3 Portugal 2 New Zealand 1 Others 8 TOTAL Wines of Chile Strategic Plan 2020 International Market

13 The following graph shows the New World s positive evolution in market share with respect to traditional wine producing countries. GRAPH 5: MARKET SHARE OF OLD AND NEW WORLDS IN WORLD EXPORTS 10,000 Volume Exported (Th Lt.) 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1, % 69% Source: Wines of Chile based on information from the OIV, 2010 Year Old World New World Wines of Chile Strategic Plan 2020 International Market 13

14 Imports The majority of imports are concentrated in European countries (73.2%), followed by the Americas (16.5%), Asia (5.9%), Africa (3%), and Oceania (1.4%). Source: OEMV, 2010 ( TABLE 4: WINE IMPORTS INTO PRIMARY COUNTRIES (THOUSANDS OF HL, 2009) COUNTRY THOUSANDS OF HL Germany 13.7 United Kingdom 11.9 United States 8.3 Russia 5.8 France 5.8 Netherlands 3.6 Canada 3.2 Belgium 3.1 Switzerland 1.8 Denmark 1.8 Italy 1.8 Sweden 1.8 Japan 1.8 China 1.6 Czech Republic 1.5 Others 13.7 TOTAL Wines of Chile Strategic Plan 2020 International Market

15 CHILE S NATIONAL WINE INDUSTRY In accordance with figures produced by Chile s Agricultural and Livestock Service (SAG, the country has approximately 121,000 hectares of viniferous vines planted ( registry), and the 2009 production is estimated to be billion 2 liters of wine. Exports in the same period reached 694 million liters and US$1.381 billion. The following table shows the evolution of the national wine industry s most relevant parameters. TABLE 5: EVOLUTION OF THE MOST IMPORTANT PARAMETERS OF THE CHILEAN INDUSTRY Years Number of Wineries 210 Vineyards Planted (thousands of hectares) Wine Production (th Lt) ,009 Average Yield (Lt/ha) 2 8,886 9,251 9,363 9,590 9,605 9,322 9,498 9,566 9,497 9,742 Apparent Consumption (th Lt) Exports 3 Bottled Wine Volume (th Lt) Growth Rate by Volume (%) Value (th US$) ,081 1,164 1,139 Growth Rate by Value (%) Average Price (US$ FOB/Lt) Average Growth of Average Price (%) Total Wine Volume (th Lt) Growth Rate by Volume (%) Value (th US$) ,256 1,376 1,381 Growth Rate by Value (%) Average Price (US$ FOB/Lt) Average Growth of Average Price (%) % Sources: 1: SAG ( There was a change in data collection methods beginning in : Prepared based on SAG production and consumption figures. 3: Official WoC Statistics Red varieties comprise 73% of the varieties produced and 27% are white. Of the red, 63% are those of high demand (Cabernet Sauvignon, Merlot, and Syrah). In white grapes, 66% of the surface area planted corresponds to Sauvignon Blanc and Chardonnay. TABLE 6: EVOLUTION OF SURFACE AREA PLANTED BY VARIETY (2008) PRIMARY RED VARIETIES PRIMARY WHITE VARIETIES VARIETY HECTARES PLANTED % TYPE % TOTAL VARIETY HECTARES PLANTED % TYPE % TOTAL Cabernet Sauvignon 38, Sauvignon Blanc 11, Merlot 12, Chardonnay 12, Carmenere 8, Muscat of Alexandria 7, Syrah 4, TOTAL WHITES* 32, Pinot Noir 2, TOTAL REDS* 88, * Total includes other varieties. Source: Estimated based on SAG figures, 2010 ( 2. This publication uses the American English definition of a billion (1,000,000,000), which corresponds to the British (and Spanish) thousand million. Wines of Chile Strategic Plan 2020 International Market 15

16 The following table shows the evolution of hectares planted for the most important varieties. Carmenere, Syrah, and Cabernet Franc have shown the greatest growth rate in the past ten years. Pinot Noir, Cabernet Sauvignon, and Merlot have also increased significantly. TABLE 7. EVOLUTION OF HECTARES PLANTED YEARS * VARIETAL HECTARES PLANTED Cabernet Sauvignon 11,112 12,281 13,094 15,995 21,094 26,172 35,967 38,227 39,261 39,731 40,086 40,441 40,789 40,766 38,644 Merlot 2,353 2,704 3,234 5,411 8,414 10,261 12,824 12,887 12,768 12,879 12,942 13,142 13,368 13,283 12,086 Chardonnay 4,150 4,402 4,503 5,563 6,705 6,907 7,672 7,567 7,561 7,565 7,722 8,156 8,548 8,733 9,898 Sauvignon Blanc 5,981 6,135 6,172 6,576 6,756 6,564 6,790 6,673 7,041 7,368 7,741 8,379 8,697 8,862 11,269 Chenin Blanc Pinot Noir ,613 1,450 1,434 1,422 1,440 1,361 1,382 1,413 2,130 Riesling Semillon 2,708 2,649 2,616 2,427 2,425 2,355 1,892 1,860 1,843 1,821 1,715 1,708 1,727 1,719 1,504 País 15,990 15,280 15,280 15,241 15,442 15,457 15,179 15,070 14,949 14,953 14,865 14,909 14,955 15,042 14,702 Carmenere 330 1,167 2,306 4,719 5,407 5,805 6,045 6,545 6,849 7,183 7,284 8,411 Syrah ,019 2,039 2,197 2,347 2,468 2,754 2,988 3,370 3,513 4,808 Cabernet Franc ,056 1,099 1,143 1,177 1,352 Others 10,251 10,324 10,371 10,895 11,638 12,780 14,130 14,475 14,356 14,580 14,821 15,038 15,250 15,385 15,797 TOTALS 53,093 54,392 56,003 63,550 75,388 85, , , , , , , , , ,977 Note: * Estimate based on 2010 SAG data and 2007/2008 Vineyard Registry. ( The primary export markets in terms of volume are the United Kingdom, United States, Germany, and Canada, which together represent 50% of the total exports and 34% of the target markets, including the internal market. As can be observed in the following graphs, most of the decrease in the share of sales in the internal market has been diverted toward new markets rather than to existing markets. In contrast with the Australian industry, Chile has reduced its concentration. GRAPH 6: EVOLUTION OF TARGET MARKETS (2000, 2009 / VOLUME) TARGET MARKETS 2000 TARGET MARKETS 2009 Others 22% Internal Market 46% Others 28% Internal Market 31% Denmark 3% Germany 3% Brazil 2% Canada 6% Denmark 3% Netherlands 3% United States 13% United Kingdom 9% United States 11% Germany 5% Canada 4% United Kingdom 11% Source: Prepared based on information from SAG ( and Wines of Chile 16 Wines of Chile Strategic Plan 2020 International Market

17 With respect to exports by varietal, Sauvignon blanc has both grown in value and volume over the past seven years to reach an average growth rate of 18% and 16%, respectively. Cabernet Sauvignon and Carmenere follow in importance. TABLE 8: EXPORTS OF BOTTLED WINE BY VARIETY VARIETIES THOUSANDS OF US$ FOB Cabernet Sauvignon 195, , , , , , , ,804 Sauvignon Blanc 46,471 53,099 68,975 81,870 99, , , ,033 Merlot 93,713 98, , , , , , ,312 Chardonnay 77,083 82,230 97,771 95,314 97, , ,326 98,776 Carmenere ,799 70,178 67,638 Syrah ,619 33,682 25,362 Pinot Noir ,547 22,960 20,624 Others 109, , , , , , , ,616 TOTAL 522, , , , ,982 1,080,941 1,164,098 1,139,166 THOUSANDS OF LITERS Cabernet Sauvignon 70,150 71,979 79,184 79,223 83,073 99,849 92,018 77,415 Sauvignon Blanc 18,850 21,367 27,948 30,798 36,150 47,019 49,803 50,217 Merlot 34,380 36,707 43,277 41,090 38,291 45,278 41,970 36,772 Chardonnay 29,886 31,601 36,382 33,697 33,966 38,306 36,727 32,359 Carmenere ,813 19,715 18,797 Syrah ,551 7,893 6,223 Pinot Noir ,541 4,753 4,425 Others 50,333 58,915 77,685 84,946 95,980 91, , ,706 TOTAL 203, , , , , , , ,915 US$/LITER Cabernet Sauvignon Sauvignon Blanc Merlot Chardonnay Carmenere Syrah Pinot Noir Others TOTAL Source: National Customs Service, 2010 Note: the Others category includes all transactions not specified in the gloss by varietal shown in the table Wines of Chile Strategic Plan 2020 International Market 17

18 COMPETITION United States The United States is the world s fourth largest producer and the sixth largest exporter. Its industry depends primarily on California, which is responsible for 90% of the production. New York, Washington, Oregon, New Jersey, and Virginia make up the remaining percentage. The following table presents a summary of the primary indicators in the American market. TABLE 9: EVOLUTION OF THE MOST IMPORTANT PARAMETERS IN THE US INDUSTRY Years Number of Wineries 2,904 3,187 3,469 3,873 4,356 4,929 5,424 5,958 6,368 6,705 Total Vineyards Planted (thousands of hectares) Wine Production (th / Lt.) 2,333 2,219 2,088 2,225 2,305 2,710 2,359 2,414 2,346 2,677 Consumption (th / Lt) 2,150 2,173 2,336 2,419 2,517 2,620 2,714 2,820 2,850 2,903 Exports Bottled Wine Volume (th / Lt) Growth Rate by Volume (%) -16% Value (th / US$) Growth Rate by Value (%) -15% Average Price (US$ FOB/Lt) Growth Rate of Average Price (%) 1% Total Wine Volume (th / Lt) Growth Rate by Volume (%) Value (th / US$) , Growth Rate by Value (%) Average Price (US$ FOB / Lt) Growth Rate of Average Price (US$ FOB/Lt) Imports Volume (th / Lt) Value (th / US$) 3,306 3,444 3,797 4,171 4,659 4,655 4,037 Source: Wine Institute ( Adams Book The following table represents the evolution of the vineyards planted in California by varietal. It clearly shows that in response to world consumer trends, the industry tended to increase the participation of red varietals in the total surface area planted from 51% in 1995 to 61% in With respect to specific white varietals, Chardonnay has increased dramatically since Varietals of lesser consumption on the world level such as Chenin Blanc and Pinot Gris have decreased their market share. In red varietals, those of greatest consumption worldwide such as Cabernet Sauvignon, Syrah, and Merlot increased their share. 18 Wines of Chile Strategic Plan 2020 International Market

19 TABLE 10: EVOLUTION OF SURFACE AREA PLANTED BY VARIETAL (CALIFORNIA) HECTARES % TYPE % TOTAL WHITE VARIETALS Chardonnay 34,239 38,329 58% 52% 22% 20% Chenin Blanc 3,248 3,335 6% 5% 2% 2% French Colombard 9,433 10,904 16% 15% 6% 6% Sauvignon Blanc 4,241 6,223 7% 8% 3% 3% Pinot Gris 1,089 5,124 2% 7% 1% 3% Others 6,793 10,164 12% 14% 4% 5% TOTAL WHITE VARIETALS 59,043 73, % 100% 39% 39% RED VARIETALS Cabernet Sauvignon 25,762 30,583 27% 26% 17% 16% Merlot 16,612 18,654 18% 16% 11% 10% Pinot Noir 7,946 14,683 8% 12% 5% 8% Syrah 5,990 7,758 6% 7% 4% 4% Zinfandel 17,548 20,132 19% 17% 11% 11% Others 20,382 25,958 22% 22% 13% 14% TOTAL RED VARIETALS 94, , % 100% 61% 61% Source: The internal market continues to be the primary destination for American production, although it has decreased in importance. The industry s primary export destinations are the European Union, Canada, Japan, and Hong Kong. GRAPH 7: TARGET MARKET EVOLUTION (2000, 2009) TARGET MARKETS 2000 TARGET MARKETS 2009 Canada 2% United Kingdom 2% Others 5% European Union 9% Canada 3% Japan 1% Others 1% Internal Market 91% Internal Market 86% Source: Wine Institute, 2010 ( Wines of Chile Strategic Plan 2020 International Market 19

20 Australia The average annual production of the world s seventh largest producer over the past for years is 1.4 million liters. The following table shows the evolution of the most relevant parameters of the Australian wine industry. As can be observed, there is an upward trend in hectares planted and therefore in wine production, which is clearly reflected in a greater volume of exports. TABLE 11: EVOLUTION OF THE MOST IMPORTANT PARAMETERS IN THE AUSTRALIAN INDUSTRY Years 2000/ / / / / / / / /09 Number of Wineries 1,318 1,465 1,625 1,814 1,899 2,008 2,146 2,299 2,000 Total Vineyards Planted (thousands of hectares) Wine Production (th / Lt.) 1,035 1,174 1,038 1,401 1,420 1, ,245 nd Consumption (th / Lt) Exports Total Wine Volume (th / Lt) Growth Rate by Volume (%) Value (th / US$) 834 1,069 1,546 1,871 2,094 2,107 2,499 2,243 1,892 Growth Rate by Value (%) Average Price (US$ FOB / Lt) Growth Rate of Average Price (%) Imports Volume (th / Lt) Value (th US$) Source: AWEC, 2009 ( With respect to varieties planted, 58% are red varietals and 42% are white. Among the reds, 82% are those in high demand (Syrah, Cabernet Sauvignon, and Merlot). Chardonnay is the primary white variety and presents an interesting demand in all markets. TABLE 12: EVOLUTION OF SURFACE AREA PLANTED BY VARIETAL (AUSTRALIA) PRIMARY RED VARIETALS (2008) PRIMARY WHITE VARIETALS (2008) VARIETAL HECTARES % TYPE % TOTAL VARIETAL HECTARES % TYPE % TOTAL Syrah 43, Chardonnay 31, Cabernet Sauvignon 27, Semillón 6, Merlot 10, Sauvignon Blanc 6, Pinot Noir 4, Riesling 4, TOTAL 100, TOTAL 72, Source: AWEC, 2009 ( The primary export markets are the United Kingdom and the United States, which together represent 67% of the volume and 61% of the value of total exports. 20 Wines of Chile Strategic Plan 2020 International Market

21 GRAPH 8: EVOLUTION OF TARGET MARKETS (1999, 2009) TARGET MARKETS TARGET MARKETS Others 10% Canada 2% New Zealand 3% Internal Market 58% New Zealand 2% Others 16% Internal Market 36% United States 7% Canada 4% United Kingdom 20% United States 20% United Kingdom 22% Source: AWEC, 2009 ( South Africa South Africa currently has approximately 101,000 hectares planted to wine grapes. It has 3.8% of the world s production, putting it in eighth place on the world scale. Table 13 shows the evolution of the industry s most relevant parameters. TABLE 13: EVOLUTION OF THE MOST IMPORTANT PARAMETERS OF THE SOUTH AFRICAN INDUSTRY Years Number of Wineries Total Vineyards Planted (thousands of hectares) 93,656 94,412 96,233 98, , , , , ,325 Wine Production (th / Lt) Consumption (th / Lt) Exports Bottled Wine** Volume (th / Lt) Growth Rate by Volume (%) Value (th / US$) Growth Rate by Value (%) Average Price (US$ FOB/Lt) Growth Rate of Average Price (%) Total Wine Volume (th / Lt) Growth Rate by Volume (%) Value (th / US$) Growth Rate by Value (%) Average Price (US$ FOB/Lt) Growth Rate of Average Price (US$ FOB/Lt) Imports Volume (th / Lt) Value (th / Lt) Source: / OEMV 2010 ( Note:* includes sultana, a portion of which is used in wine production. ** Includes exports of boxed wine Wines of Chile Strategic Plan 2020 International Market 21

22 Grapes destined for white wines constitute 56% of the total planted, and Chenin Blanc leads with 19%. Red varieties make up 44% of the total; Cabernet Sauvignon represents 13%. Due to the shortage of white wine, they have increased the plantations of Chenin Blanc, Sauvignon Blanc, and Chardonnay. TABLE 14: EVOLUTION OF PERCENTAGE OF VARIETIES PLANTED VARIETAL RED VARIETALS (%) Cabernet Sauvignon Pinotage Merlot Syrah Others TOTAL WHITE VARIETALS (%) Chardonnay Chenin Blanc Sauvignon Blanc Others TOTAL Overall Total (%) Total ha 87,301 89,935 92,601 93,656 94,412 96,233 98, , , , , ,325 Sultana (ha) * 10,902 11,044 11,578 11,910 11,919 11,765 11,595 11,392 10,983 10,571 9,958 9,486 Source: Note: * Also used for raisins and table grapes Most of South Africa s production is consumed in the internal market. The majority of the remaining share goes to United Kingdom and Germany, which together receive 47% of the total exports. Other markets such as Switzerland and the Netherlands follow to a lesser degree. It is noteworthy that although the United States currently represents 4%, its participation has been increasing. GRAPH 9: PRIMARY DESTINATION MARKETS (2004, 2009) TARGET MARKETS 2004 TARGET MARKETS 2009 Others 17% Internal Consumption 47% Others 17% Internal Consumption 45% Russia 2% United States 2% Angola 3% Denmark 2% Sweden 4% Netherlands 4% Sweden 5% Netherlands 4% Germany 9% United Kingdom 14% Germany 9% United Kingdom 17% Source: OEMV 2010 ( 22 Wines of Chile Strategic Plan 2020 International Market

23 New Zealand The following table presents the evolution of the primary indicators of New Zealand s wine industry, which has doubled its plantations in just six years. Its wine production has increased even more, and the industry has shown a strong development in exports with an average annual growth rate of 33% in the past five years. TABLE 15: EVOLUTION OF THE MOST IMPORTANT PARAMETERS IN THE NEW ZEALAND INDUSTRY Years Number of Wineries Total Vineyards Planted (thousands of hectares) 10,197 11,648 13,787 15,800 17,809 19,960 22,616 25,355 29,310 31,057 Wine Production (th / Lt) Consumption (th / Lt) Exports Bottled Wine Volume (th / Lt) Growth Rate by Volume (%) Value (th / US$) Growth Rate by Value (%) 6 4 Average Price (US$ FOB / Lt) Growth Rate of Average Price (%) -3-5 Totals Volume (th / Lt) Growth Rate by Volume (%) Value (th / US$) Growth Rate by Value (%) Average Price (US$ FOB/Lt) Growth Rate of Average Price (%) Imports Volume (th / Lt) Source: Table 16 presents the evolution of the relative importance of the different varietals planted, which shows a decrease in the relative importance of Chardonnay with respect to Sauvignon Blanc and the increase in importance of Pinot Noir over Cabernet Sauvignon. Wines of Chile Strategic Plan 2020 International Market 23

24 TABLE 16: EVOLUTION OF SURFACE AREA PLANTED BY VARIETAL (NEW ZEALAND) VARIETAL Chardonnay 28% 28% 25% 22% 20% 19% 17% 15% 13% Sauvignon Blanc 24% 24% 27% 29% 33% 35% 39% 41% 48% Riesling 5% 4% 4% 4% 4% 4% 4% 3% 3% Pinot Gris 1% 1% 2% 2% 2% 2% 3% 5% 5% Cabernet Sauvignon 7% 6% 5% 5% 4% 3% 2% 2% 2% Pinot Noir 11% 13% 15% 17% 18% 18% 18% 18% 16% Merlot 7% 8% 8% 8% 8% 8% 6% 6% 5% Others 17% 15% 15% 14% 10% 10% 10% 10% 9% Total 100% 100% 100% 100% 100% 100% 100% 100% 100% Total hectares 10,197 11,648 13,787 15,800 17,809 19,960 22,616 25,355 29,310 Source: New Zealand s primary export markets for 2009 were Australia and the United Kingdom. It is important to note the evolution of sales to foreign markets, which currently represent 70% of total sales, as opposed to the 34% that it represented in It is also interesting to note that Australia, United Kingdom, and the United States reach 12%, 12%, and 7%; respectively. GRAPH 10: EVOLUTION OF TARGET MARKETS (2000, 2009) TARGET MARKETS 2000 TARGET MARKETS 2009 Others 19% Canada 1% United States 2% Others 37% Internal Market 30% United Kingdom 10% Internal Market 66% Australia 2% Canada 2% United States 7% Australia 12% United Kingdom 12% Source: Wines of Chile Strategic Plan 2020 International Market

25 Argentina With 211,261 hectares of vineyards, Argentina is the fifth largest wine producer. It exported 283 million liters in 2009, which represents an increase of 32% over world s The following table presents the evolution of the most relevant parameters of the Argentine industry. TABLE 17: EVOLUTION OF THE MOST IMPORTANT PARAMETERS IN THE ARGENTINE WINE INDUSTRY Years Number of Wineries 1,322 1,341 Total Vineyards Planted (thousands of hectares) 188, , , , , , , , ,261 Wine Production (th / Lt) 1,270 1,251 1,454 1,423 1,447 1,415 1,377 1,067 Consumption (th / Lt) 1,249 1,204 1,199 1,234 1,111 1,197 1,110 1,117 1,068 1,034 Exports Bottled Wine Volume (th / Lt) 68,233 72,498 55,340 88, , , , , , ,771 Growth Rate by Volume (%) Value (th / US$) 113, , , , , , , , , ,861 Growth Rate by Value (%) Average Price (US$ FOB / Lt) Growth Rate of Average Price (%) Total Wine Volume (th / Lt) 84,302 88, , , , , , , , ,049 Growth Rate by Volume (%) Value ( th / US$) 124, , , , , , , , , ,836 Growth Rate by Value (%) Average Price (US$ FOB / Lt) Growth Rate of Average Price (%) Imports Volume (th / Lt) Source: National Vitivinicultural Institute, 2009 ( The following table shows the evolution of hectares planted by type and varietal for three periods of time. Argentina has consistently increased its plantations of red varietals, which have increased by 150% in 18 years, and in 2008 red varieties were double the number of whites. Hectares planted to white varieties decreased by 21% during the same time frame. It is important to note the relevance of rosé wines in the Argentine industry. Malbec continues to be the most planted varietal (25% of all reds), although Cabernet Sauvignon and Syrah have also increased significantly (18% and 13%, respectively). Among the white varietals, Chardonnay has experienced the greatest growth. Wines of Chile Strategic Plan 2020 International Market 25

26 TABLE 18: EVOLUTION OF SURFACE AREA PLANTED BY VARIETAL (ARGENTINA) VARIETAL REDS Malbec 10,457 16,349 21,183 26,910 Bonarda 12,186 14,989 17,224 18,612 Cabernet Sauvignon 2,347 12,199 16,184 17,801 Syrah 687 7,915 10,846 12,969 Merlot 1,160 5,513 7,095 7,214 Tempranillo 5,659 4,335 5,630 6,515 Others 9,885 8,748 9,974 11,297 TOTAL 42,381 70,048 88, ,317 WHITES Torrontés Riojano 8,625 8,181 7,957 10,561 Chardonnay 908 4,625 4,771 8,161 Chenin 4,031 3,591 3,052 3,840 Ugni Blanc 2,229 2,846 2,639 2,880 Sauvignon Blanc ,152 2,400 Others 44,327 29,362 27,348 20,162 TOTAL 60,398 49,432 46,919 48,004 ROSÉS Total 99,367 68,918 64,664 61,941 TOTAL 202, , , ,261 Source: National Vitivinicultural Institute, 2009 ( The internal market continues to be the primary destination for Argentine production and represented 79% of the volume sold in The remaining 21% is exported, in order of volume, primarily to the United States, Paraguay, Russia, United Kingdom, Canada, Brazil, and South Africa. The most important markets in terms of value are the United States, United Kingdom, Canada, Brazil, Netherlands, and Denmark. GRAPH 11: TARGET MARKETS BY VOLUME (2004, 2009) TARGET MARKETS 2004 TARGET MARKETS 2009 Others 10% Brazil 1% Others 10% United Kingdom 2% United Kingdom 1% Russia 2% Russia 2% Paraguay 2% Paraguay 2% United States 2% Canada 2% United States 6% Internal Consumption 82% Internal Consumption 79% Source: National Vitivinicultural Institute, 2009, ( 26 Wines of Chile Strategic Plan 2020 International Market

27 FRANCE France continues to be the leading producer and consumer of wine worldwide. The following table shows a summary of the primary French figures. TABLE 19: EVOLUTION OF THE MOST IMPORTANT PARAMETERS OF THE FRENCH INDUSTRY Years Total Vineyards Planted (thousands of hectares) Production (th / Lt) 5,035 4,636 5,739 5,211 5,213 4,567 4,164 4,573 Exports Bottled Wine Volume (th / Lt) 1,179 1, , Growth Rate by Volume (%) Value (th / US$) 3,570 4,188 4,219 4,067 4,501 5,405 6,067 4,648 Growth Rate by Value (%) Average Price (US$ FOB / Lt) Growth Rate of Average Price (%) Totals Volume (th / Lt) 1,554 1,502 1,425 1,383 1,472 1,515 1,370 1,251 Growth Rate by Volume (%) Value ( th / US$) 5,426 6,598 6,944 6,960 7,868 9,248 10,028 7,682 Growth Rate by Value (%) Average Price (US$ FOB / Lt) Growth Rate of Average Price (%) Source: French Customs Service, UBIFRANCE / Agro-Food Department - France Agrimer Stats 2009 The following graph shows the importance of the different destination countries for French exports. GRAPH 12: FRENCH EXPORTS BY TARGET COUNTRY (VALUE, 2008) Others 26% United Kingdom 21% Germany 10% Switzerland 5% Canada 4% Japan 6% Russia 1% United States 11% Netherlands 5% Belgium 11% Source: Wines of Chile 2010, based on information from national generic offices Wines of Chile Strategic Plan 2020 International Market 27

28 TABLE 20: FRENCH EXPORTS BY MAJOR APPELLATIONS VOLUME (THOUSANDS OF LT) VALUE (THOUSANDS OF US$) AVERAGE PRICE (US$ / CASE) Champagne 110, ,078 79,845 3,242,663 3,261,240 2,221, Alsace 23,529 23,430 21, , , , Beaujolais 40,688 35,900 31, , , , Bordeaux 194, , ,788 1,906,239 2,478,913 1,799, Burgundy 79,556 66,516 55, , , , Rhone 69,998 63,873 59, , , , Languedoc 55,845 56,517 54, , , , Source: French Customs Service, UBIFRANCE / Agro-Food Department - France Agrimer Stats 2009 ITALY Italy has a long tradition in the wine industry, and it reaffirmed its international importance in 2009 by maintaining second place in production, exports, and consumption after France. Italy s commercial balance in the wine industry is historically positive. Despite the success of its exports, however, it has also registered a significant increase in wine imports in recent years. Although it has a minor influence in the overall commercial balance, it makes Italy one of the largest importers in the world. It is interesting to note that Italian wine production has 470 appellations (denominations of origin), 316 of which are D.O.C., 35 D.O.C.G., and 119 I.G.T. There are 650,000 wine companies, 25,000 bottlers, and 678,868 hectares planted to vine. 50% of the Italian wine production is controlled by cooperatives. Its 2009 production was close to 46 million hectoliters, which is considerably lower than the average of the past five years. With respect to the regions, 60% of the production is concentrated in 4 of the 15 producing regions: Veneto (17.33%), Emilia Romagna (14.97%), Apulia (13.26%), and Sicily (12.49%). The following table shows the primary figures of the Italian industry. 28 Wines of Chile Strategic Plan 2020 International Market

29 TABLE 21: EVOLUTION OF THE MOST IMPORTANT PARAMETERS OF THE ITALIAN INDUSTRY Years Production (th / Lt) 5,035 4,636 5,739 5,211 5,213 4,567 4,164 4,550 Consumption (th / Lt) 2,950 2,880 2,830 2,702 2,700 2,790 2,910 Exports Bottled Wine Volume (th / Lt) 882 1,017 1,050 1,106 1,097 1,127 Growth Rate by Volume (%) Value (th / US$) 2,917 3,093 3,306 3,863 4,207 3,860 Growth Rate by Value (%) Average Price (US$ FOB / Lt) Growth Rate of Average Price (%) Totals Volume (th / Lt) 1,579 1,328 1,427 1,609 1,830 1,883 1,751 1,900 Growth Rate by Volume (%) Value ( th / US$) 2,633 3,055 3,564 3,732 4,052 4,854 5,299 4,790 Growth Rate by Value (%) Average Price (US$ FOB / Lt) Growth Rate of Average Price (%) Imports Volume (th / Lt) Value (th / US$) Source: OEMV ( Global Trade Atlas Italy s internal market continues to be the primary destination for national wine production, and the primary target markets by volume are Germany, the United Kingdom, and the United States. GRAPH 13: EVOLUTION OF THE TARGET MARKETS BY VOLUME (2004, 2009) TARGET MARKETS 2004 TARGET MARKETS 2009 Others 12% United States 5% United Kingdom 4% Germany 12% Others 16% Internal Consumption 67% United States 5% United Kingdom 5% Internal Consumption 61% Germany 13% Source: Global Trade Atlas, 2010 Wines of Chile Strategic Plan 2020 International Market 29

30 SPAIN Although Spain has more areas planted to vine than any other country, it is the third largest producer with an average annual production of 41.6 million hectoliters over the past five years. The following table presents the evolution of the most relevant parameters for the Spanish wine industry. As can be observed, there is a downward trend in plantations, while both export volume and value have increased (except in 2009, due to the crisis). TABLE 22: EVOLUTION OF THE MOST IMPORTANT PARAMETERS IN THE SPANISH INDUSTRY Years Total Vineyards Planted (thousands of hectares) 1,237 1,211 1,202 1,207 1,200 1,180 1,174 1,169 1,130 1,078 Wine Production (th / Lt) 4,560 3,390 4,050 4,930 5,010 4,110 4,370 4,050 4,130 3,800 Consumption (th / Lt) 1,420 1,420 1,380 1,380 1,390 1,380 1,370 1,340 1,260 1,130 Exports Bottled Wine Volume (th / Lt) Growth Rate by Volume (%) -9 Value (th / US$) 1,584 1,377 Growth Rate by Value (%) -13 Average Price (US$ FOB / Lt) Growth Rate of Average Price (%) -5 Total Wine Volume (th / Lt) 902 1,054 1,037 1,281 1,469 1,450 1,434 1,558 1,672 1,480 Growth Rate by Volume (%) Value (th / US$) 1,160 1,267 1,317 1,675 1,939 1,967 2,049 2,531 2,922 2,387 Growth Rate by Value (%) Average Price (US$ FOB / Lt) Growth Rate of Average Price (%) Imports Volume (th / Lt) Value (th / US$) 584 1, * Production includes musts and others. Source: Spanish Wine Federation, 2009 ( Germany continues to be Spain s primary export destination, with a value of US$407 million. The United Kingdom follows with 15% and the US with 10%, while France, Netherlands, and Switzerland are also relevant markets. 30 Wines of Chile Strategic Plan 2020 International Market

31 TABLE 23: RELATIVE IMPORTANCE OF THE PRIMARY EXPORT DESTINATIONS BY VALUE COUNTRY Germany 21% 20% 17% United Kingdom 16% 18% 15% United States 8% 10% 10% France 5% 8% 7% Switzerland 5% 5% 6% Belgium 2% 2% 5% Portugal 7% 3% 4% Netherlands 6% 5% 4% Others 36% 29% 31% TOTAL WINE EXP. 100% 100% 100% Source: Spanish Federation of Wine, 2009 ( TABLE 24: SPANISH EXPORTS FOR THE MAJOR AUTONOMOUS COMMUNITIES (2007) TH / US$ TH / LT US$/CASE La Rioja Catalonia Basque Country Source: OEMV ( Wines of Chile Strategic Plan 2020 International Market 31

32 EVOLUTION OF THE CHILEAN INDUSTRY IN THE GLOBAL CONTEXT Evolution of Exports TABLE 25: VOLUME (THOUSANDS OF LITERS) FRANCE BORDEAUX BURGUNDY ITALY SPAIN AUSTRALIA CHILE UNITED SOUTH NEW ARGENTINA STATES AFRICA ZEALAND , , ,586 1, , ,579 1, , ,328 1, , ,427 1, , ,609 1, , ,830 1, , ,883 1, , ,751 1, , ,900 1, GROWTH RATE % 20% 25% 14% 8% 16% 72% % -5% -2% 1% 5% 14% 12% 5% 13% 22% 16% Note: for those countries for which there is no available data, the average is calculated based on available years Source: Wines of Chile 2010, based on information from national generic offices 32 Wines of Chile Strategic Plan 2020 International Market

33 GRAPH 14: VOLUME EXPORTED (THOUSANDS OF LITERS) France Bordeaux Burgundy Italy Spain Australia Chile United States South Africa New Zealand Argentina Source: Wines of Chile 2010, based on information from national generic offices Wines of Chile Strategic Plan 2020 International Market 33

34 TABLE 26: VALUE (THOUSANDS OF US$) FRANCE BORDEAUX BURGUNDY ITALY SPAIN AUSTRALIA CHILE UNITED SOUTH NEW ARGENTINA STATES AFRICA ZEALAND , , , , ,291 1, ,345 1, ,426 1, ,633 1,317 1, ,598 1, ,055 1,675 1, ,944 1, ,564 1,939 1, ,960 1, ,732 1,967 2, ,868 1, ,052 2,049 2, ,248 1, ,854 2,531 2,407 1, ,028 2, ,299 2,933 2,241 1,376 1, ,682 1, ,790 2,387 1,931 1, GROWTH RATE % 22% 33% 20% 8% 23% 33% % 8% 5% 9% 6% 13% 11% 6% 15% 26% 21% Source: Wines of Chile 2010, based on information from national generic offices 34 Wines of Chile Strategic Plan 2020 International Market

35 GRAPH 15: VALUE EXPORTED (THOUSANDS OF LITERS) France Bordeaux Burgundy Italy Spain Australia Chile United States South Africa New Zealand Argentina Source: Wines of Chile 2010, based on information from national generic offices Wines of Chile Strategic Plan 2020 International Market 35

36 TABLE 27: AVERAGE PRICE (US$ / LITER) FRANCE BORDEAUX BURGUNDY ITALY SPAIN AUSTRALIA CHILE UNITED SOUTH NEW ARGENTINA STATES AFRICA ZEALAND GROWTH RATE % 3% 7% 5% 0% 5% 30% % 13% 8% 9% 1% -1% -1% 2% 3% 4% 9% Source: Wines of Chile 2010, based on information from national generic offices 36 Wines of Chile Strategic Plan 2020 International Market

37 GRAPH 16: AVERAGE PRICE (US$ / LITER) France Bordeaux Burgundy Italy Spain Australia Chile United States South Africa New Zealand Argentina Source: Wines of Chile 2010, based on information from national generic offices Wines of Chile Strategic Plan 2020 International Market 37

38 Generic Investment The following table presents a summary of the generic investment of wine producing countries. Annex 2 presents more detailed information on how each organization is funded. GRAPH 17: GENERIC INVESTMENT (US$ / LITER) France New Zealand Wine Growers Spain Wines of California Wines of Argentina Wines Australia Wines of South Africa Wines of Chile Source: Wines of Chile 2010, based on information from national generic offices Source: Wines of Chile 2010, based on information from national generic offices TABLE 28: GENERIC INVESTMENT IN THE UNITED STATES (2009) COUNTRY ESTIMATED BUDGET (TH / US$) France 10.9 Sopexa 2.5 Bordeaux 3.5 Beaujolais 0.5 Rhone 2.5 Alsace 0.6 Languedoc 0.3 Loire 1.0 Spain 6.0 Wines of Spain 2.0 Rioja 4.0 Argentina 1.9 New Zealand 1.5 Chile 1.1 Australia Wines of Chile Strategic Plan 2020 International Market

39 CONSUMERS Wine Consumers According to our agents in the Chilean industry s primary target markets (United States, United Kingdom, and Canada) the main consumer-level trends in those markets are: A change in consumer habits. The new consumers are intelligent, they seek good value, and spend more time socializing at home, especially as a result of the economic crisis. They are trading down for personal consumption, but trading up with friends and family. For example, 53% of the consumers in the United States are dining at home more often. Television food channels and food-related blogs are increasing in popularity. Once the crisis has passed, we can expect that these consumers will return to higher priced wines, although they will not reach the same levels they did in the late 1990s and early 2000s. A new segment has appeared. The Millennials are consumers from 21 to 29 years of age and represent 70 million consumers in the United States alone. 40% of the wine they drink is imported. They learn and communicate on-line. These new consumers drive the new trends. Consumers will have greater access to a broader range of wines through new products and distribution channels, such as on-line sales. Consumers are increasingly more sophisticated and informed. They seek out natural, sustainable, and organic products. New trends lean toward wines with lower alcohol levels and a greater consumption of white and rosé wines. Social networks (Facebook, Twitter, and blogs) are increasingly important and allow low-cost, high-frequency communication with bloggers and consumers around the world. Image of Chile in Target Consumer Market The most relevant variables for mass consumers of the most important markets for our industry are Varietal, Promotions, Recommendations, and Origin (country or region). Source: Vinitrac, 2009 TABLE 29: RELEVANT VARIABLES AT TIME OF WINE PURCHASE % IMPORTANT OR VERY IMPORTANT UNITED KINGDOM UNITED STATES Variety 79% 73% Promotional offer 65% 51% Recommendation of friends or family 63% 71% Country of origin 60% 47% Region of origin 57% 47% Recognized brand 54% 69% Alcohol level 33% 33% Recommendation from store personnel 29% 52% Bottle appearance or label design 26% 33% Medal or Award 21% 21% Wines of Chile Strategic Plan 2020 International Market 39

40 Source: Vinitrac, 2009 TABLE 30: COUNTRY AFFINITY (WITH PEOPLE, CULTURE, OR OTHER) % OF POSITIVE OR VERY POSITIVE RESPONSES UNITED STATES UNITED KINGDOM Australia 73% 78% Italy 71% 66% New Zealand 61% 70% Spain 56% 62% United States nd 47% Germany 49% 38% France 46% 56% Portugal 43% 47% Argentina 32% 28% Chile 29% 35% South Africa 21% 39% Consumers in the United States and United Kingdom have a low affinity with Chile, which is not true of Australia, New Zealand, Italy, and France. This is consistent with the country image studies that conclude that Chile has a neutral or nil image among international consumers at the mass level. This implies that for mass consumers, Chilean wine is a product of unknown origin. We also discovered that although higher-income and more frequent wine consumers from the United States drink Chilean wines, they have a low affinity with the country. The cases of Italy and Australia stand out in that there is coherence between the positive perception of the country and regular consumption of wines from those regions. GRAPH 18: US RELATIONSHIPS BETWEEN VIEWS ABOUT NAMED COUNTRY AND WINE FREQUENCY OF CONSUMPTION % answering I drink named country once a month or more 30% 25% 20% 15% 10% 5% % There is a significant and moderate relationship y=0,376x - 0,041 R 2 =0,547 SA Chile Argentina France Portugal Germany Spain Italy New Zealand Australia % answering I have Positive -or Very Positive views about named country Source: Vinitrac US, Dec 07; Base=US regular wine drinkers n= 2,015 Therefore, not only is our origin unknown for mass consumers, it is also relatively irrelevant for regular consumers. 40 Wines of Chile Strategic Plan 2020 International Market

41 SWOT ANALYSIS (STRENGTHS, WEAKNESSES, OPPORTUNITIES, AND THREATS) OF THE CHILEAN WINE OFFER Strengths High potential for sustainable agriculture due to extraordinary phytosanitary and climatic conditions. Carmenere as a unique and differentiating element. Exceptional agro-climatic conditions allow for the development of a broad diversity of terroirs and varieties with fruit characterized by a very good concentration of aromatic components, acidity, and color. Excellent quality and high consistency in the wines. Excellent price-to-quality ratio in every price segment. Talent and quick ability for adaptation. Chile is a reliable commercial partner, a country that is open to the world, with stable economic and commercial policies, as well as a broad network of free trade agreements with all of its primary commercial partners. High diversification of target markets resulting from a committed industry focused on developing its capacities as an exporter. Weaknesses No existing country image, which makes us a product of unknown origin. Image as producers of good quality, low-priced wines. Excessively homogenous labeling that lacks clear category differentiation with inconsistent denominations of quality. Wines with naturally high alcohol levels in a context of growing concern for controlling alcohol consumption in our primary markets. Low level of penetration in the premium on-trade segment. The industry has a comparatively low level of financing and a limited structure for generic promotion, which hinders the entrance into relevant markets. Chile s distance from the primary world markets, such as Europe and Asia. Opportunities Consumers value unique and differentiating products. Growing consumer preference for products originating from clean agriculture that are environmentally sustainable and socially responsible. There is a strong connection between the Country Image and the Category Image. Chile s image is still a blank page, a story waiting to be told. Educated and informed consumers are willing to drink premium Chilean wines and recognize their excellent quality. That validation can come from traditional sources of influence, recommendations from social networks, friends, or direct experience. Wines of Chile Strategic Plan 2020 International Market 41

42 The new post-crisis consumers are intelligent and well-informed and seek value (price-quality ratio). There is a growing interest in products associated with Latin culture. There is a trend toward the consumption of wines with lower alcohol levels and an increasing preference for fresh wines. Consumers, especially the Millennials, are more sophisticated and willing to explore new alternatives. The explosion of social networks allows for high frequency, low cost communication and direct interaction with consumers around the world. Consumers value products that offer value through better or more attractive bottles, labels, closures, freshness, and product duration. Greater development of the internal market will contribute to a lower dependency on the type of exchange and a greater development of the sector. Emerging development of the Asian market, primarily due to the strong growth of China s middle class and the region s low per capita consumption. Threats Growing competition from New and Old World producing countries such as Argentina, Spain, and New Zealand with more aggressive programs in terms of price and/or promotion. Non-tariff barriers and increased taxes in the category in the major consumer markets. Excessive growth of bulk wines would make it difficult to improve the category image. The strengthening of the Chilean peso decreases the competitiveness of the Chilean wine industry. The increase in world production and a relatively constant level of consumption could lead to more aggressive discounting strategies. Potential for a failure of the industry to align itself with the strategy. 42 Wines of Chile Strategic Plan 2020 International Market

43 Wines of Chile Strategic Plan 2020 International Market 43

44 VISION & MISSION

45 VISION OF THE CHILEAN WINE INDUSTRY To become the number one producer of sustainable and diverse premium wines from the New World by 2020, reaching exports of bottled wines of US$3 billion. MISSION To strengthen the image and recognition of Chilean wines in international markets by increasing the value of the Wines of Chile brand, thus elevating the average price, sales, and added value for all Chilean wine industry stakeholders, including small and large growers, suppliers, wineries, and exporters. Wines of Chile Strategic Plan 2020 International Market 45

46 POSITIONING

47 COMPETITIVE ENVIRONMENT Our most important competitors will be New and Old World wine producers, and the benchmark will always be the most relevant country or countries in each target market. Our primary New World competitors are the United States, Australia, Argentina, New Zealand, and South Africa. Our closest Old World competitors are France, Italy, and Spain. COMMUNICATIONS TARGET Opinion leaders and gatekeepers: specialized press, importers, distributors, on- and off-trade buyers, sommeliers, and lifestyle writers. Wine lovers: interested in wine without necessarily being experts. They value naturalness and purity in their wines; they enjoy discovering new wines and appreciate a good price-quality ratio (good value). They enjoy sharing their discoveries with friends and family, appreciate good quality of life, are young in spirit, and enjoy the Latin flare. Target consumers: young professionals from the top five wine consumer markets and slightly skewed toward a female public. They are Millennials, aspirational but not pretentious, include people between 21 and 45 years of age, and have medium to high income levels. INSIGHT Consumers seeking premium and superior wines are faced with too many alternatives from a wide range of origins; they are overwhelmed by a very broad selection of wines that seem very similar and lack sufficient differentiation one from the other. BENEFITS Chile offers premium and superior wines of exceptional quality that are diverse and sustainable with a unique consistency and availability and with the best price-to-quality ratio in the world. Wines of Chile Strategic Plan 2020 International Market 47

48 VALUES AND PERSONALITY Diversity Sustainability Consistent, Superior Quality Integrity Latin Flare Accessibility Leadership Innovation Modernity Centuries of Tradition ESSENCE The best of the New World for the entire world. UNIQUE SELLING PROPOSITION Wines of Chile offers unique sustainable premium quality and diversity, ranging from cool climate to full-bodied fruity wines, with consistent high quality and value. TAG LINE The following tag line was developed to reinforce the differentiating attributes of the desired positioning: Wines of Chile The Natural Choice 48 Wines of Chile Strategic Plan 2020 International Market

49 STRATEGIC PILLARS Diversity & Quality One of Chile s greatest strengths is its ability to produce a broad range of high quality wine varieties and styles as a result of its geographic diversity, privileged climates, and soils that stand out in the viticultural world. Its 14 distinct wine regions extend 1,200 kilometers (745 miles) from north to south and have a combination of both coastal and Andean influences as well as perfect climatic conditions for producing high quality, healthy grapes. Elqui Valley Limarí Valley Choapa Valley Aconcagua Valley Casablanca Valley San Antonio Valley Maipo Valley Cachapoal Valley Colchagua Valley } Rapel Valley Curicó Valley Maule Valley Itata Valley Bío Bío Valley Malleco Valley Wines of Chile Strategic Plan 2020 International Market 49

50 Chile has exceptional climatic conditions for crop growth, such as scant rainfall during the growing season from December through the harvest, which allows for excellent grape ripening and healthy fruit with less danger of botrytis, and a broad daily temperature variation that encourages the concentration of aromatic components, especially in the grape skins, which in turn helps to obtain very high quality and intensely colored grapes. Source: Origo Ediciones In summary, Chile s privileged agro-climatic conditions make it a vitivinicultural paradise. Chile has an offer of quality with great potential for growth and sales, especially for Cabernet Sauvignon, Carmenere, Sauvignon Blanc, the cool-climate red varietals Pinot Noir and Syrah, and wines from old vines, such as Carignan. All of these varieties offer high quality, diversity, and excellent price to quality ratio in every price range. The industry should focus on continuous improvements in quality, a process that has been evident in the development and offer of Chilean wines over the last ten years. Buyers and consumers now recognize and appreciate the consistency and excellent price-quality ratio in every price range of Chilean wine, which must be maintained and strengthened. The justification and potential for each of these varieties will be presented in detail in section on Market Level Strategies (p 62). 50 Wines of Chile Strategic Plan 2020 International Market

51 Sustainability Chile is known for its privileged climate and a unique geography that combine to provide excellent conditions for growing grapes in a highly natural environment. However, not only does the Chilean wine industry wish to lead the way in creating a sustainable environment and setting examples for future generations of winemakers, it also wants to demonstrate this in a tangible way that can be understood by consumers. To this end, the industry has been working on a Sustainability Program for the Chilean Wine Industry under the auspices of Vinos de Chile and the Vinnova and TecnoVid Technical Consortiums. For Chile sustainability in the wine industry goes beyond sustainable viticulture. Sustainability means recognizing wine as part of a complete system that is not confined to the vineyard but that encompasses the winery, the employees, and the local community. The Wines of Chile Sustainability Program is a series of initiatives and projects that are intended to establish the sustainability of Chile s wine industry, which is understood as the convergence of production processes that are environmentally friendly, socially equitable, and economically viable. The program includes establishing a National Sustainability Code, accompanied by a series of specific projects that address key areas of sustainability. This Code is the cornerstone of the Sustainability Program. The system establishes the framework for the entire value chain of wine production and identifies the different practices that foster sustainability in each link of the chain. The Code establishes a common framework to guide all of our wineries toward increasingly sustainable practices. This Code will offer wineries the opportunity to measure their progress toward the use of more sustainable practices through recognized and validated accreditation or certification. Ensuring sustainability involves measuring traceability from vineyard to glass as well as creating rules and environmentally friendly solutions that are measurable and acceptable to the wine trade as a whole using independent, third-party evaluation and certification. An official logo will be created and used to provide tangible evidence that will help assure consumers of Chilean wine the world over that Chile makes natural wines in a responsible manner. The initiative began in April 2010 and includes projects to approach the complete concept of sustainability. The program includes: a. The Chilean Code for Sustainable Wine Production b. Projects related to key topics of the Code: i. Energy Efficiency, Climate Change, and the Carbon Footprint ii. Corporate Social Responsibility 1. Vinos de Chile Guide for Preparing Sustainability Reports 2. Vinos de Chile member winery Sustainability Reports a. Chilean Code for Sustainable Wine Production Under the auspices of Vinos de Chile and the Vinnova and TecnoVid technical consortiums, the University of Talca has been developing a Chilean code for sustainable wine production, a process that began in September 2008 with a number of Colchagua Valley wineries. Wines of Chile Strategic Plan 2020 International Market 51

52 The challenges faced by all winemakers world-wide are: Maximizing the production of high quality grapes at a reasonable cost; Improving system efficiency with little or no use of chemicals, fertilizers, and labor; Caring for the environment and the employees; and Working carefully and responsibly with the local community. Most vineyards in Chile are farmed conventionally, but an increasing number are converting to organic and even biodynamic principles. However, full certification of these processes can be costly and time consuming, and it is clear that consumers are not completely aware of the precise meaning of organic wine. Therefore, an integrated method is encouraged that aims to provide high quality fruit by giving priority to ecologically safer production methods, minimizing the undesirable effects of using agro-chemicals and improving environmental and community safeguards. The industry mantra is that wine production should be environmentally friendly, economically viable, and socially equitable. Sustainable means recognizing wine as part of a system that is not confined to the vineyard but rather encompasses the winery, the employees, and the local community. Ensuring sustainability involves measuring traceability from the vineyard to the glass and creating rules and environmentally friendly solutions that are both measurable and accepted by the market using independent, third-party evaluations and certifications. The National Sustainability Code being created within the Chilean wine industry consists of three chapters: The Green Chapter covers activity in the vineyard itself and the viticultural practices used. It incorporates areas such as cover crops, pruning, soil nutrition, irrigation, and pest management, etc. The Red Chapter covers activity in the winery, offices, and surroundings and monitors winemaking practices, energy efficiency, water conservation, and solid and liquid waste management. The Orange Chapter covers air quality, human resources, and the relationship and interaction with neighbors and the local community. A number of protocols are being developed using these three areas of monitoring, and wineries will be given mean scores based on how they perform against these criteria. If they score above a given minimum level they will be entitled to use the Sustainability Seal of Approval. As part of the research process, 31 wineries from throughout the country were tested on the Green Chapter criteria in 2009, with very positive results and the majority scoring well above the ideal level. The Red and Orange Chapters will be reviewed in 2010, which will lead to the production of a working manual for winegrowers and for future consultation. Subsequently a third-party certification scheme will be developed and implemented, and finally an official logo will be created and used as tangible evidence that will help to assure consumers of Chilean wine the world over that Chile makes natural wines responsibly. 52 Wines of Chile Strategic Plan 2020 International Market

53 b. Projects Related to Specific Topics of the Code The Code also includes specific projects in the most relevant areas that it covers as a means of reaching concrete advances over the short and medium term. i. Energy Efficiency, Climate Change and the Carbon Footprint. The first topic chosen was energy efficiency in the winery and the carbon footprint, and a guide was prepared in September 2009 to help the wineries improve their energy efficiency and quantify their carbon footprints. This has helped Vinos de Chile member wineries take the first step toward quantifying their carbon footprint and gradually work toward its improvement. ii. Corporate Social Responsibility. The second topic chosen was Corporate Social Responsibility (CSR), and the Vinos de Chile Guide for Preparing Sustainability Reports was released in April 2010 using the Global Report Initiative (GRI) methodology that adheres to international standards. This guide was prepared with a consultant recognized by the GRI. To complete the process at the winery level, the consortiums undertook a project in conjunction with the recognized consultant to prepare the Sustainability Reports for Vinos de Chile members. The project received governmental support, which will make it possible to provide training so the member wineries can prepare their Sustainability Reports using GRI methodology. This project began in April Country Image Studies that analyze consumers decision-making processes when purchasing wine in different markets consistently show that the enormous diversity of brands results in ORIGIN playing the role of the brand as a differentiator of quality. This phenomenon is particularly true when deciding to buy premium wines. It is crucial for Chile to sell more expensive wine, and to do so, it must have an image. Therefore, our possibility for continued growth greatly depends on how successful we are in positioning and strengthening both the Country Image as well as the category Wines of Chile. Wine is Chile s most emblematic product, the one that allows Brand Chile to reach millions of consumers homes in 150 countries and thereby contributes to a positive recall of Chile. Because Chilean wine is so strongly oriented toward the external market, it has become the country s primary ambassador and a unique vehicle for positioning the country image, which is understood as a strategic asset for the country and a facilitator in the introduction of new products. A good wine is associated with a country that is touristically attractive and that has high-quality cuisine, good agricultural practices, an identity, tradition, and sociable people who know how to have a good time and take advantage of the essential moments of life. Therefore, better development of the Wines of Chile category in the target markets means more and better positioning for Chile among the consumers in those markets. In this sense, there is a very high inter-relationship between the country image and the development of the Wines of Chile category. Each category Wines of Chile and the Country Image contributes to the development of the other, and the two should work in conjunction toward positioning and developing each other. Wines of Chile Strategic Plan 2020 International Market 53

54 WINES OF CHILE IMAGE COUNTRY IMAGE There is consensus in that the promotion of the image of Chile is a still-pending task that has just recently begun to be approached seriously and systematically through the creation of the Imagen de Chile Foundation in late Vinos de Chile values this important effort and actively supports its initiatives by integrating and coordinating its strategies and promotional programs into the generic efforts of developing the country image. Country Image & Wine Tourism There is no country with a strong and attractive country image that does not actively promote itself as a tourism destination. In consequence, tourism should be a central component of the efforts made to promote Chile s country image. The different sectors should encourage more knowledge of and interest in Chile as a tourism destination and creatively promote the national offer of wine and foods. In this context, wine tourism presents tremendous potential by bringing the development of the country image, tourism, and wine together synergistically, and as such it should be proactively developed by the wineries and tour operators. The changes in tourism that have taken place in recent years have made possible the appearance of new options that go far beyond the traditional sun and beach destinations to generate complementary routes to wealth and the creation of employment. Therefore, in addition to the classic interior cultural or rural destinations, new products are now emerging in response to the demands of certain sectors of the population. These new trends have brought about the creation of tourism routes, among which the wine routes stand out. Wine and tourism which includes local gastronomy operate in perfect symbiosis to provide visitors with the opportunity to experience a different type of tourism product, promote the economic development of Chile s wine regions through both cellar door wine sales and the business opportunities that arise. Wine tourism presents a complete sensorial experience that includes the pleasure of the aroma, flavor, feel, sight, and even sound of the wine. Any wine tourist, regardless of any prior knowledge of winemaking, can appreciate the palate of the different wines, the smell of the cellars, the way of holding a glass to taste a wine, the overall appearance of the winery, whether modern or traditional, or the sound of the cork being pulled from a good bottle of wine. 54 Wines of Chile Strategic Plan 2020 International Market

55 The clusterization of activities and attractions, as well as the development and promotion of tourism routes, stimulates cooperation and relationships among the different companies in rural areas. Tourism is therefore an alternative for employing strategies for economic and social development and regeneration in rural areas. As a model for sustainable economic and integrating development in specific areas, wine tourism is able to energize the competition in a given territory, increase and improve vitivinicultural production, respect the environment, and improve the living conditions of the local people. Furthermore, actively developing wine tourism allows for the diversification of sources of income and reduces the risks in the wine industry. It also particularly benefits the small and medium-sized companies that represent 68% of the wineries that offer some type of wine tourism. Finally, high quality wine tourism in which wine and culture are incentives for making the shift allow for increasing wine consumption and wine tourism in the domestic market. Innovation The industry has grown substantially over the years and has invested heavily in innovation and technology for decades to improve its production processes and standards. The results are reflected in the superior quality shown in our wines year after year in the different competitions and specialized publications. The industry is aware that maintaining a privileged place in the international context largely depends upon its ability to continuously innovate, create, and adopt new technologies. This prompted the wineries to associate with the universities in 2006 to create a unique institution of their own to make strides in the route to innovation. The Vinnova and Tecnovid technological consortiums are entities whose objective is to develop R&D projects that meet the needs of the wineries. These projects will be carried out by the technical experts from the universities in conjunction with the wineries and the results transfered to the sector for their prompt adoption. As the result of this trade unification, the Vinnova and Tecnovid technical consortiums work together, along with Chile s five major universities and more than 70 multidisciplinary researchers and in conjunction with all of the wineries. They began with US$10 million for five years and 24 projects that covered all of the areas, including viticulture, enology, environment, and marketing. The investment has increased in the past year and the project has been renewed for a second term. The needs of this second stage the Consortium 2.0 have already been determined by defining a strategic agenda for innovation with the wineries. The primary lines identified are genetic resources, sustainability, terroir, consumer preferences, and market intelligence. The new R&D projects are based on the same lines and incorporate major strategic alliances for collaboration, such as those made with the University of California at Davis and the Australian Wine Research Institute. The industry aims to be a source of innovation and competition by continuously strengthening the technological consortiums as a new model of innovation. Furthermore, the relevant norms and regulations in our target markets as well as the technologies for analysis and technical training needed will be monitored continuously in order to fully comply with the requirements in those markets. The technological consortiums will play a key role developing the necessary innovations and technological transfers. Wines of Chile Strategic Plan 2020 International Market 55

56 STRATEGIC PLAN 2020

57 GENERAL STRATEGIC OBJECTIVE Our objective is to grow at an annual average rate of 9.2% in value to reach the goal of US$3 billion in exports of bottled wine (FOB value) by This goal is based on the opportunities we see in the international market and supported by our historical growth presented in the table below. GRAPH 19: AVERAGE ANNUAL GROWTH OF BOTTLED WINE (VALUE) 35 33% 31% % 11% 9.2% 5 0 Growth Growth Growth Growth Projected Growth Source: Wines of Chile, 2010, based on information from Chilean Customs Office GRAPH 20: EVOLUTION OF HISTORIC & PROJECTED VALUE OF EXPORTS OF BOTTLED WINE (US$) 3,500,000,000 3,000,000,000 2,500,000,000 2,000,000,000 1,500,000,000 1,000,000, ,000, Source: Wines of Chile, 2010, based on information from Chilean Customs Office Wines of Chile Strategic Plan 2020 International Market 57

58 The following table summarizes the situation at year-end 2009 and the objectives proposed for the industry for Source: Wines of Chile, 2009 TABLE 31: YEAR-END 2009 AND PROPOSED OBJECTIVES FOR 2020 OBJECTIVES Export Value (bottled wines) US$1.139 billion US$3 billion Annual Growth in Export Value 9.21% We have analyzed three alternatives for reaching the proposed goal that involve the following requirements with respect to volume and hectares: ALTERNATIVES GROWTH RATE FINAL PRICE FINAL EXPORT GROWTH RATE REQUIRED REQUIRED TOTAL HECTARES OF AVERAGE PRICE US$/CASE VOLUME (LT) OF AVERAGE KILOGRAMS HECTARES FOR REQUIRED/ VOLUME EXPORTED EXPORT GROWTH INTERNAL MARKET 1. Volume Growth: High Price Growth: Low 1.30% ,205, % 1,229,161, , , Volume Growth: Moderate Price Growth: Moderate 3.00% ,943, % 1,023,536,825 99, , Volume Growth: Low Price Growth: High 4.50% ,042, % 873,039,210 85, ,982 In addition to the number of hectares required for each alternative, we have added the hectares necessary to supply the internal market, assuming a conservative 1% increase in the internal market per year, similar to the growth in the national population. Therefore, if we assume a 1.3% annual growth in price (similar to that of the past 11 years), the volume must grow by a rate of 7.8% per year and reach 97.2 million cases in order to reach the proposed goal by Converting this to kilograms at a conversion rate of 1.4 kg/lt results in a need for billion kg, which requires 120,000 hectares (the average annual yield for the past five years has been 10,200 kg/ha). Adding this land to the 48,000 needed for the internal market lends a total of 167,000 hectares, 46,000 more than the current total. The requirements included are specifically to cover the requirements of bottled wine and the internal market, without including bulk or other areas. A slightly more aggressive growth in prices would generate a lower growth in volume, and so on. The following chart analyzes the minimum investment in fixed assets required for each alternative, assuming that the current export of bulk wine and the capacity associated with it will be converted to the production and export of bottled wine: 58 Wines of Chile Strategic Plan 2020 International Market

59 ALTERNATIVE REQUIREMENTS INVESTMENT 1. Volume Growth: High 46,755 additional hectares Fixed Assets (one time): Price Growth: Low 213,000 liters Land & Planting: US$1.636 billion 8% of sales in marketing Winery: US$320 million Marketing (additional annual investment by 2020) US$240 million 2. Volume Growth: Moderate 26,677 additional hectares Fixed Assets (one time): Price Growth: Moderate 67,000 liters Fixed assets: US$934 million 10% of sales in marketing Winery: US$100 million Marketing (additional annual investment by 2020) US$300 millon 3. Volume Growth: Low 15% of sales in marketing Marketing (additional annual investment Price Growth: High by 2020) US$450 million Note: Cost per hectare = US$30,000 (US$20,000 for land + US$10,000 for planting). Winery = US$1.50/Lt. It is important to emphasize that the industry s current average investment in marketing with respect to sales is 7%. Alternative Number 1 requires the greatest investment and generates the least added value for the industry and therefore is not considered attractive. Although Alternative Number 3 requires a lower total investment, we believe that it is not feasible due to the current country image and positioning of our wines in the world context. Therefore, we consider Alternative Number 2 to be the most pertinent, with more reasonable requirements in volume and hectares. This alternative involves an approximate annual growth of 2,400 hectares per year for the next 11 years, or the equivalent of 1.9% of the current area planted. This increase is less than that of the past seven years, which is equivalent of 2.16%. Furthermore, we should also consider the potential conversion of vineyards currently dedicated to bulk wine or alternatively additional plantations. The following graph shows the historic and projected average growth in price and volume of bottled wine exports in accordance with the chosen scenario (Alternative Number 2: Moderate Growth in Price and Volume). GRAPH 21: AVERAGE GROWTH OF BOTTLED WINE (AVERAGE VOLUME AND PRICE) % % Growth % 1.02% Growth % 3.0% Projected Growth Volume Average Price Source: Wines of Chile, 2010, based on information from Chilean Customs Office Wines of Chile Strategic Plan 2020 International Market 59

60 In summary, the chosen alternative implies the following evolution in each valuable (Value, Volume, and Average Price). GRAPH 22: VALUE (MILLIONS US$) 4,000 3,000 3,000 2,000 1, , Source: Wines of Chile, 2010, based on information from Chilean Customs Office GRAPH 23: VOLUME (MILLIONS OF CASES) Source: Wines of Chile, 2010, based on information from Chilean Customs Office GRAPH 24: AVERAGE PRICE (US$ / CASE) Source: Wines of Chile, 2010, based on information from Chilean Customs Office 60 Wines of Chile Strategic Plan 2020 International Market

61 SPECIFIC STRATEGIC OBJECTIVES Corporate Level Objectives Align the industry behind a unified message and strategy. Provide Wines of Chile (WoC) with the necessary resources to effectively and efficiently achieve the proposed objectives. Identify and correct gaps that inhibit competitiveness. Consolidate WoC as the representative of the Chilean wine industry, integrating the interests and needs of all of the parties involved in the industry. Market Level Objectives Create and clearly communicate a unique and differentiating identity for the category. Develop a more aggressive and focused investment plan with greater impact in target markets. Position Wines of Chile as world class appellation. Strengthen the country s image synergistically by integrating tourism, gastronomy, and wine. This new stage requires reaching the consumer, strengthening the use of new technologies and social networks, and acting strategically with below the line actions, public relations, and above the line actions through a global positioning campaign. STRATEGIC PLANS Details of the primary lines that will guide the organization and industry toward meeting the proposed objectives follow, divided into two levels corporate and market strategies. Corporate Level Strategies Prioritize the assignment of resources by market. Focus resources to have impact, differentiate markets by their potential, and develop commercial plans in accordance with the local reality. Build a relevant and differentiating image for Chilean wine. Each activity undertaken should reinforce the positioning developed in the Plan Develop market intelligence and monitoring. The objective behind this strategy is to contribute to making decisions by compiling and systematically analyzing information to improve diagnostic abilities in the markets and contribute to generating a vision of the future. This will help align the industry behind the strategy and represent an important added value for the smaller members. Ensure sufficient funding for WoC. In accordance with the analyses conducted, WoC s financing is inadequate for the level of competition that currently exists in the markets and compared with the resources of our direct competition. Wines of Chile Strategic Plan 2020 International Market 61

62 Incorporate the industry into the planning process and maintain ongoing communication regarding activities and results. Maintaining communication within the cluster will allow the different institutions and members to understand the industry s objectives, WoC s strategies and activities, and the results obtained. This will maintain better alignment and contribute to greater effectiveness of the strategy. Market Level Strategies Creating status for the Chile category to separate it from the New World or Others categories will require success in achieving recall and positive perception in the key segments (consumers, buyers, wine writers, distributors, importers, and other opinion leaders) of our priority markets by offering a diverse mix of products with respect to varieties and styles, with presence in different distribution channels with a special emphasis on on-trade and specialists and in different price segments, while focusing on the price range above US$10 retail per bottle. Product Emblematic Varieties: Cabernet Sauvignon: leading variety Carmenere: differentiating; ambassador variety Sauvignon Blanc: leading white variety Others Syrah and Pinot Noir: from coastal and cool-climate areas Carignan: Niche opportunity for dry-farmed old-vine wines Cabernet Sauvignon is Chile s primary variety and represents 35% of the total plantations and 23% of national exports of bottled wine. No other country in the world has more Cabernet Sauvignon planted than Chile. Given the importance of this varietal in Chilean wine, its high quality, the level of renown achieved by Chilean Cabernet Sauvignons, and the varietal s good penetration in our consumer markets, it is considered a varietal whose future development should be maintained. Today, however, 15 years after its rediscovery, Carmenere presents tremendous opportunities and should play a central and strategic role in the industry s efforts for positioning and the development of the category. Carmenere is considered to be Chile s emblematic variety. Although it is neither the most widely produced nor the most sold varietal in Chile (it represents 6% of the plantations and bottled exports), it is the varietal that most differentiates and identifies the county. Among Chile s primary varietals, Carmenere has grown the most in surface area planted in the past ten years and was the only one to increase its average price in 2009, despite the economic crisis. This is a clear recognition of the improvements made in its quality and the increased consistency of the wines made from the variety. Its advantages include the fact that it is different and sexy within an offer of globalized varietals, with a quality potential in line with the tastes of today s consumers, and that already has the backing of influential international publications and competitions. It is nearly exclusive to Chile and is globally considered to be a Chilean variety. It stands out in blends as well as a monovarietal. It is versatile in food pairing and in line with the national image strategy. 62 Wines of Chile Strategic Plan 2020 International Market

63 Among its weaknesses is the fact that its quality is still inconsistent at the entry-level price range, which could create a poor reputation. Care must also be taken to avoid planting it in inappropriate sites and then attempting to override vegetal notes with excess ripeness, thereby losing its own Carmenere character. The opportunities for Carmenere include the excellent momentum that it has already achieved through the high scores it has received as a monovarietal and in blends with high Carmenere content, some of which have earned some Chile s highest scores. Chile has excellent terroirs for producing high quality Carmenere, which offers a differentiating and unique element and that will allow it to be positioned as Chile s emblematic variety. Given this context, Carmenere should be promoted as Chile s emblematic, differentiating varietal and the ambassador for high quality Chilean wine. To achieve that, we recommend: Continue investing in research to identify terroirs and planting Carmenere in appropriate places to obtain high quality Premium wine that is free of predominant green notes. Avoid producing and selling Carmenere if the price-quality ratio does not contribute to the positioning of the prestige that must be associated with the varietal. Focus on the Premium and Superior price ranges. Maintain a distinctive style Carmenere s own DNA. Agree to label the variety as Carmenere, without accents and eschewing other spellings that make for inconsistent pronunciation and to claim the variety as an exclusively Chilean grape. Carmenere should be a pillar of commercial strategy and included in the development of Chile s national image. Additionally, Chile should actively promote its Sauvignon Blanc among the white varieties due to the country s innate conditions for producing fresh, high-quality wines with good acidity, which has already been recognized by the specialized press and consumers alike. The supply of Sauvignon Blanc is limited and our primary competition is New Zealand, which makes it a less competitive niche than other varieties. Exports of Sauvignon Blanc have grown more in both value and volume than any other variety in Chile over the past seven years. Market growth in the United Kingdom has been dominated by white wines, and three-quarters of the retail sales of Sauvignon Blanc come from Chile and New Zealand. Sales in the United States are highly dynamic as well. It is essential to take advantage of the growth in Chile as a product of the growing demand it has experienced in the primary target markets. It bears noting that because of its hemispherical counter-seasons, Chile is able to supply Sauvignon Blanc of the same year to markets in the northern hemisphere during its summer season, thereby contributing a product with tremendous freshness with an excellent price-quality ratio. Chile also has the advantage of being able to offer high quality young wines during the same year they are made, which presents significant benefits in terms of income flow and profit. We consider it relevant to promote Sauvignon Blanc from cool-climate valleys as well as those sold at more than US$40 FOB. Although higher priced wines are more difficult to sell, they are key to the image of Chile for this variety. It is also important to take advantage of the opportunities we have for developing Syrah and Pinot Noir, particularly in coastal and cool-climate areas, especially given increasing consumer preference for fresh wines with lower alcohol levels. Furthermore, it is to our advantage to promote wines made from dry-farmed old vines, such as Carignan from Maule. This is yet another way to emphasize Chile s ability to offer a broad range of natural wines of origin with diverse styles and exceptional quality. Wines of Chile Strategic Plan 2020 International Market 63

64 As a complement to the above, it is worth noting that the development of the afore-mentioned varieties and styles takes place within the context of an ongoing process of exploration of and experimentation with Chile s climatic and geographic frontiers that have made it possible to continue expanding into new vitivinicultural areas, both to the north and south as well as toward the coastal and Andean areas. In this process of discovery and learning, the concepts and importance of regionality and origin have also been fully internalized by the wineries and their winemakers in large companies as well as in smaller personal and artisanal projects. It is no longer enough to offer wines with tremendous quality and diversity; today Chile must also offer wines with their own identity: wines of origin, honest wines that are an expression of pure fruit and its terroir. Price The following chart shows the national industry s evolution in average annual price of bottled wine exports. GRAPH 25: EVOLUTION OF THE AVERAGE PRICE OF BOTTLED WINE (US$ / CASE) Source: Wines of Chile, 2010, based on information from Chilean Customs Office Furthermore, the following chart shows the current and projected prices of bottled Chilean wine in comparison with those of the world industry. The values for the competition correspond to the year 2009, except for Australia, which runs from April 2009 to March The subsequent graph shows the average price of imports of bottled wine into the United States for Wines of Chile Strategic Plan 2020 International Market

65 GRAPH 26: CURRENT AND PROJECTED PRICES FOR CHILEAN BOTTLED WINES IN COMPARISON WITH OTHER WORLD PRODUCERS (US$ / CASE) South Africa Argentina Chile 2009 United States Australia Italy Chile 2020 Rioja France New Bordeaux Burgundy Zealand Source: Wines of Chile 2010, based on information from various sources GRAPH 27: AVERAGE PRICE OF IMPORTS OF BOTTLED WINE IN 2009 (US$ / CASE) France New Zealand Spain Italy Argentina South Africa Australia Chile 23 Source: Gomberg-Fredrikson The two previous graphs clearly show how the industry has been positioned as a primary source of value wine (source value) in many markets. The future of Chilean wine depends on its evolution beyond the concept of value, a factor that has made it impossible to develop the industry s full potential. Chile has potential for growth in terms of added value, as New Zealand and other recognized appellations around the world have done. With this in mind, we propose directing WoC s investment toward the segment of retail prices over US$10 (FOB greater than US$35 per case) as a reference in the US markets. Lower price segments require higher economies of scale in which not everyone can participate and that do not have a sustainable added value, and therefore additional investment in generic marketing is not justified in that segment. In 2009, the segment of FOB greater than US$35 represented just 21% of the volume of bottled wine exported and 39% of the value. The plan is aimed at increasing this value and participation. Wines of Chile Strategic Plan 2020 International Market 65

66 Target Markets Having analyzed five key variables maturity, potential sales of fine wine, market size, consumer type, and potential for growth the Wines of Chile 2020 Strategic Plan recommends focusing on the following markets in the order presented: MARKET MATURITY SALES POTENTIAL MARKET CONSUMER GROWTH FOR FINE WINE SIZE TYPE POTENTIAL United States Medium High High Aspirational High Canada Medium High Medium Aspirational High Asia Low High High Aspirational High Brazil Medium High High Aspirational High Europe High Medium-Low High Traditional & Connoisseur Low Annex 2 presents a brief analysis of each of these markets Relevant aspects to consider United States: the focus will be on the states of New York-New Jersey-Connecticut, California, Florida, Illinois, and Texas. Canada: the primary objective in this market is to convince the monopolies to open more space in the category to allow for greater participation in the market. To do that, it is necessary to undertake actions with the existing wineries to enliven the category. A more dynamic category should result in more listings and the entrance of new participants. Asia: the focus will be on Korea, Japan, Hong Kong, and China (Shanghai and Beijing), with a regional headquarters in an as yet to be defined location. The actions will be focused on each market, given the large differences between them (culture, growth curves, and levels of penetration of wine and the Chile category). Europe: relevant markets will be addressed through the WoC Europe office based in the United Kingdom. Channels Creating category status for Chile also demands achieving greater presence in the different distribution channels, with particular emphasis on the on-trade and specialists. Chile already has a strong presence at the supermarket level, which it must maintain and strengthen by increasing and improving the product mix toward premium wines. However, Chile is under-represented in the on-trade and specialist channels, both of which are key for consolidating an image of quality and the sale of wines of greater value. The following strategies will be used to penetrate the respective channels: On-Trade: seek to stimulate demand through greater exposure and education. This requires creating and nurturing relationships with members of the on-trade, generating interest in and providing the opportunity to try Chilean wines, and reinforcing the use of this information as sales arguments. Specific actions will be sought out in each target market to leverage this channel. Off-Trade (supermarkets and specialized shops): stimulate demand through education and promotions. Educate the distributors, reinforce the Outstanding Value in all Price Ranges message, and lend support at points of sale. Concrete actions such as promotions with the relevant monopolies, specialized shops, and supermarkets will also be taken to develop the image of the category, with emphasis on wines over US$ Wines of Chile Strategic Plan 2020 International Market

67 Promotion The aim is to improve positioning in key segments (press, buyers, sommeliers, and consumers) through a series of educational programs, press coverage, and the development of the County Image aligned with the desired positioning. In this new stage of moving toward 2020, the industry s promotional efforts should aim at both the opinion leaders and gatekeepers as well as the final consumers. The explosive development of information technologies and the widespread expansion of social networks in our major consumer markets not only make it possible to communicate directly with a large number of our potential consumers at a very low cost, but also to establish a direct dialogue with them and participate in their conversations among peers and members of their networks of interest. This new ability substantially modifies the traditional of paradigms of communications and brand building from a passive unidirectional model to one that is multidirectional characterized by networks and a multiplicity of simultaneous conversations. In this context, the active participation of Wines of Chile and the wineries in the different social network platforms and wine and lifestyle blogs, along with the development of powerful, attractive, and highly interactive web sites become an immediate requirement for the industry. The key to relevance in this context, however, will be the ability to be perceived and validated as an honest and authentic voice of Chile, its wines, its producers, and its people. We also plan to focus activities on certain consumer segments to support and capitalize on the direct access to and communication with our target consumers. In addition to intensifying Wines of Chile s presence and participation in the electronic media, social networks, and consumerfocused actions, we will continue developing promotional actions that are largely centered on educating and influencing the gatekeepers the importers, distributors, specialized press, on- and off-trade buyers, sommeliers and opinion leaders. These actions include: Bringing journalists, buyers, and sommeliers to Chile Conducting tastings and seminars On-line blogger tastings International trade fairs Publication of inserts and newsletters Advertising in wine and lifestyle press On-trade promotions Point of sale promotions Annual Wines of Chile Awards Innovation Awards Sommelier Summit Development and publication of market intelligence Sponsoring events Web site Finally, in the upcoming stage we will accompany these promotional actions with significant investment in advertising and inserts in the major media and magazines in the target markets. Wines of Chile Strategic Plan 2020 International Market 67

68 Understanding that there is a close relationship between Country Image and Category Image, the process of positioning wine also includes incorporating the differentiating attributes of the country and its geography, culture, and people as a means of extending an invitation to experience Chile and its wines. By promoting Chile, we promote our wines, and conversely, by promoting our wines, we also promote Chile. ACTION PLAN With the objective of taking advantage of and acting upon the opportunities identified in the diagnostic, the following Action Plans have been developed. OPPORTUNITY Consumers seek unique, high-quality wines and are increasingly more sophisticated and informed. ACTION PLAN Promote premium Carmenere as a unique and differentiating element. Sophisticate the message: Today Chile offers the world not only high quality wines and diversity, but wines with identity as well: wines of origin, honest wines, wines that are a pure expression of their fruit and terroir. Promote dry-farmed, old-vine Carignan as an example of the constant ability to surprise and discover many different high quality products. Create a road show type program with Chile s best red and white wines: WoC Premium Wine Summit. Emphasize origin and regionality in the more developed markets. Define activities for the priority varieties that will allow us to educate consumers about them and increase their presence in the target markets. There is growing consumer preference for products from sites with green agriculture, sustainable environment, and that are socially responsible. There is a strong connection between the County Image and the Category Image. Chile s image today is a blank page, a story waiting to be written. Emphasize the natural aspects of Chilean wine and environment; communicate environmental leadership and social responsibility in the industry. Create a relevant and differentiating country image in the premium segment. Work with the Imagen de Chile Foundation so that its programs and actions cover the priority markets defined in this plan and ensure coordination between the Foundation and our own promotional strategies. Promote tourism in general and wine tourism in particular. Show culinary and wine-related traditions. 68 Wines of Chile Strategic Plan 2020 International Market

69 OPPORTUNITY Educated, informed consumers are willing to dink premium Chilean wines and recognize their quality. This validation can come from traditional influencers, recommendations from social networks or friends, or from direct experience. ACTION PLAN Work to obtain greater credibility in high quality wines from traditional influencers. Actively participate in the social networks in which our target consumers participate and receive their information, thereby establishing Wines of Chile as an honest and credible voice on the offer of quality and diversity of Chilean wine. Facilitate occasions for consumer tastings, consumption, and education. Show the character and identity of the winemakers. Develop more Brand Ambassadors and globally recognized brands. The new post-crisis consumers are intelligent, informed, and seek value (price-quality ratio). Consumers are socializing more at home: trading-down for personal consumption while trading-up with friends and family. Communicate Chile s value: excellent price-quality ratio in every price segment. Seek out new ways to entertain and educate consumers at home. Growing interest in products associated with Latin culture. Trend toward the consumption of wines with less alcohol and a growing preference for fresh wines. More sophisticated consumers who are willing to explore new alternatives, especially the Millennial segment. Explosion of social networks allows direct low cost, high frequency, and world-wide communication and interaction with consumers. Consumers value products that offer value through better or more attractive labeling, packaging, closures, freshness, and production duration. Emphasize the sophisticated Latin origin and identity. Highlight coastal and cool climate wines, especially Sauvignon Blanc in white and red Pinot Noir and Syrah in reds. Be proactive in promoting and adopting self-regulation in matters of labeling and protection of public health. Directly go after the Millennial segment through dialogue and education, using social networks, blogger tastings, and testing opportunities. Actively participate in the social networks in which our target consumers participate and inform themselves, thereby establishing Wines of Chile as an honest and credible voice with respect to the quality and diversity of Chilean wine. Make greater efforts to innovate labels, packaging, closures, and enological practices. Wines of Chile Strategic Plan 2020 International Market 69

70 STRATEGIC IMPORTANCE OF THE INDUSTRY

71 ECONOMIC IMPORTANCE One of the Chilean government s current policies aims to convert Chile into one of the world s top ten exporters of food products over the course of the next ten years. The wine industry is doing its part to achieve this goal, as Chile is now the fifth largest wine exporting country on the globe. In recent decades Chile s food and agriculture sector has been deploying a successful strategy of internationalization, which has become a pillar of the agro-export basket and of the country s economic development. Our fruits and vegetables, wine, seeds, and agricultural and forestry products reach hundreds of countries around the world and provide employment to more than 800,000 people. Wine exports make up 2.6% of Chile s total exports and 14% of exports in the forestry-agriculture-livestock sector (2009 figures). The sector has more than 260 companies with annual exports greater than US$50,000, 21% of which export more than 100,000 UF (aprox. US$4.2 million) per year. This means that the majority 79% of Chile s wine exporters are small and medium sized companies. Chile produces an average of 887 million liters of wine per year 1, 70% of which is for export markets, which have grown steadily in value by 11% per year. These exports are sent to 150 countries, with the United States, United Kingdom, and Canada being the most important markets. From a domestic perspective, the wine industry operates in several regions of the country, from the Coquimbo Region in the north to the Araucanía Region in the south. The Maule and O Higgins regions have the greatest concentration of area planted to vine (53.4%), although the Metropolitan, Valparaíso, and Biobío regions also have a significant amount. The industry s continuous development and geographic diversification have attracted both domestic and foreign investment to historically less-developed zones such as the Maule Region, which had previously been overlooked as an area worthy of investment. This development has also benefited the many agents involved in the value chain, including suppliers of materials, technology and complementary services, and particularly the large number of grape growers, most of whom are small producers. At the same time, the wine industry continues to be a major source of tax revenue for the government through the Alcohol Law (ILA). Over the past 5 years ( ), the Wine ILA accounted for an average of 0.21% of the country s total tax revenue. In 2009 alone, the Wine ILA generated tax revenues of US$58 million. TABLE 32: TAX COLLECTED UNDER THE ALCOHOL LAW Wine ILA (millions of US$) Total ILA (millions of US$) % 17% 21% 20% 18% 17% 16% 17% Equivalent Contribution of Wine in millions of US$ 1. Average over the last 5 years. Source: SAG Wines of Chile Strategic Plan 2020 International Market 71

72 Finally, the emerging wine tourism industry is opening up a new area of business that has great potential, as it offers high quality employment that not only diversifies risks and sources of revenue, but also fosters more comprehensive and sustainable development in the regions and communities in which these services are located. SOCIAL ROLE Employment is the primary driver of social development in any country. The Chilean wine industry directly employs more than 100,000 people and accounts for 13% of all jobs in the agricultural sector. With growth in production of 136% over the past ten years alone and high expectations for the coming decade, the industry expects to take an even more leading role in employment and social development. Indeed, embedded in a globalized, highly competitive world, the industry is leading the transformation of Chile s agriculture and food sector in terms of labor development by implementing actions and projects aimed at supporting wine industry workers and their families in three specific areas. Employment Training Through a tax incentive from SENCE, the Chile Vinos OTIC has trained 17,700 people since 2002 (6,500 in the past 18 months alone). In all, 86 companies have participated in this process and close to 4,000 courses have been taught. The result is better trained workers who are aware of and value their skills, which ensures that they are able to successfully face the challenges of their day-to-day duties to the benefit of themselves and their companies. Skills Certification Since 2004 the Asociación de Vinos de Chile A.G, in partnership with Fundación Chile and the National Training and Employment Service (SENCE), has been implementing a project to design, validate, and disseminate a system for certifying work skills among wine industry workers. As of June 2010, a total of 2,250 workers had been certified under this project. The participants not only earned official recognition of their technical skills from government and industry, but also increased their employability and obtained access to new opportunities. Social Grants Approximately 200 grants are awarded each year to micro-business owners and unemployed workers to fund training in a wide variety of skills and trades, not all of which are necessarily related to the wine industry. 72 Wines of Chile Strategic Plan 2020 International Market

73 LEADERSHIP AND PARTNERSHIP The wine industry, led by Vinos de Chile and its different divisions (Wines of Chile, the Vinnova and TecnoVid technological consortiums, internal market, and the legal department) has been a pioneer in partnership, collaborating in key areas that foster national development, particularly in the agriculture-livestock-forestry sector. Among other things, its efforts have focused on international promotion and market development; research and development in winegrowing, winemaking and marketing; the Wine Industry Sustainability Program; and social responsibility. Due to their many benefits, we also hope to see more public policy incentives and awards that promote partnerships. THE WINE INDUSTRY S CONTRIBUTION TO DEVELOPING THE COUNTRY IMAGE More than other Chilean products, wine reaches millions of homes and consumers around the world with a well-identified country brand that associates the name Chile with quality and diversity. This makes the brand a unique vehicle for positioning the country s image, which is considered one of the nation s strategic assets and also facilitates the introduction of new products and services. In 2009, Chile exported 42 million cases of wine, the equivalent of 510 million bottles. From a conservative perspective, each bottle is seen by at least 3 people, which means that the Brand Chile reaches 1.5 billion people each year. Assuming a moderate cost of US$0.85 2, which is the average cost per contact on the Internet in the United States, the value of this impact is US$1.275 billion per year. Developing the Chilean Wine (Wine of Chile) category in the priority markets defined in this Plan will improve and expand Chile s position in the minds of consumers. Positioning Chile as a country that produces high quality wines will reinforce the country s positive attributes such as good agricultural practices, high quality cuisine, attractiveness as a tourist destination, a country with its own identity and traditions, a good quality of life, and a sociable people who know how to enjoy themselves and make the most of special occasions, among other qualities. 2. Source: Imagen de Chile Foundation Wines of Chile Strategic Plan 2020 International Market 73

74 MICROECONOMIC INDICATORS FOR THE WINE INDUSTRY The wine industry is facing extremely high levels of competition from the wide array of appellations and brands now on the market, as well as low profitability, which is far below that of other productive sectors. According to public information obtained from the Santiago stock exchange, listed wine sector companies reported an average return on sales over the past ten years of 7.8% annually and just 5.6% over the past five years. The most important indicator return on equity averaged 8.3% per year over the past ten years and just 6.2% over the past five years. In closing, comparing these low return indicators and the meager 1% rise in the average price of bottled wine over the last ten years with the 9.2% annual growth in the volume of exports of bottled wine over the same period, we can conclude that Chile s wine industry has a problem of profitability but not of sales. To ensure the industry s sustainability over the medium and long term requires improving profitability. To achieve this, any increase in the volume of wine exported must be accompanied by higher price levels, which will require a collective public-private commitment to promote Chile s wines and country image according to the objectives defined in this 2020 Strategic Plan. CONCLUSIONS The wine industry is one of the pillars of Chilean agriculture and of the country as a whole. In addition to its importance for exports and investment, its impact on employment, personal and professional development, the country image, and in facilitating new Chilean exports make it one of the most emblematic sectors of our economy. Notwithstanding the above, the wine industry suffers from low rates of return compared to other productive sectors, despite having an attractive growth potential. Further development of the sector will depend on raising Chile s position as a country of origin for premium wines, and this task will require commitment and support from both the public and private sectors and, once achieved, will benefit the country as a whole. 74 Wines of Chile Strategic Plan 2020 International Market

75 Wines of Chile Strategic Plan 2020 International Market 75

76 REQUIRED INVESTMENT

77 HISTORIC INVESTMENT IN PROMOTION The industry s investment in promotional programs, international fairs, and its offices in Chile, the United Kingdom, and the United States has grown an average of 8.5% per year from 2005 to 2010 and reached a total investment of US$7,542,773 in TABLE 33: HISTORIC INVESTMENT Total WoC Investment 4,914,488 5,761,195 6,612,690 6,354,322 6,081,000 7,542,773 Fairs 384, , ,800 1,076, ,669 1,219,065 Promotion 2,729,860 3,391,715 3,692,890 3,135,585 2,989,331 4,108,708 Generic Investment Office 1,800,000 1,800,000 2,142,000 2,142,000 2,142,000 2,215,000 Funding Public Sector Support 1,091,944 22% 1,356,686 24% 1,477,156 22% 1,659,522 26% 2,253,000 37% 3,022,862 40% Private Sector Support 3,822,544 78% 4,404,509 76% 5,135,534 78% 4,694,800 74% 3,828,000 63% 4,519,911 60% Source: Wines of Chile 2010, based on information from national generic offices Sixty percent of this investment corresponds to private support from the industry through contributions to the organization and the payment of user-pays activities. Graph 28 compares Chile s generic investment with that of our competitors and shows that Chile is in sixth place. Comparing the investment per case of bottled wine, it is evident that the Chilean wine industry s level of funding for generic promotion is low. GRAPH 28. ESTIMATED GENERIC INVESTMENT 2009 (MILLIONS OF US$) France 19.4 Spain 11.9 Wine Australia 7.3 Wines of California 7 Wines of Argentina 6 Wines of Chile 4.1 Wines of South Africa 3.6 New Zealand Wine Growers Source: Wines of Chile 2010, based on information from national generic offices Wines of Chile Strategic Plan 2020 International Market 77

78 GRAPH 29: ESTIMATED GENERIC INVESTMENT 2009 (US$ / CASE) France New Zealand Wine Growers Spain Wines of California Wines of Argentina Wines Australia Wines of South Africa Wines of Chile Source: Wines of Chile 2010, based on information from national generic offices In this context, not investing is the equivalent of disinvesting, because our competition will continue to invest. Furthermore, it will take a significant increase in our promotional efforts to simply maintain the current market share. Beginning from a low level of structural funding, the organic growth of resources destined for international promotion does not make it possible to face the challenges detailed in this Strategic Plan for Even less so within a context characterized by the very high levels of international competition, the strengthening of emerging players (Argentina), the fall of formerly solid producers (Australia, France), and the rise of new players (Brazil, Uruguay, China, Eastern Europe), and Europe s expected reaction to the increased competition from strong subsidies and deregulation. As an industry we have set a new collective goal that seeks to reach $US3 billion in exports of bottled wine by the year This plan represents the waybill and strategy for the industry, and now we must back it with the means that will allow us to reach that goal. Wines of Chile needs to double its current levels of investment in promoting the category in order to implement its Strategic Plan This will require an increase in the contributions from the industry, but we also expect due to the important contribution that promoting wine makes to the positive development of the country s image and collective development to receive a significant increase in governmental funding, primarily through ProChile, Corfo, and the Imagen País Foundation. We want to be a strategic partner with the government in implementing its public policies aimed at improving the image and competitiveness of the foods Chile exports and the tourism services it offers, as well as in economic and rural development policies, particularly those aimed at small and medium sized companies. 78 Wines of Chile Strategic Plan 2020 International Market

79 PROJECTED INVESTMENT & FUNDING SOURCES The investment plan that WoC proposes considers the following: Beginning in 2011: Open a Wines of Chile office in Asia. Conduct programs in priority markets. Undertake media campaigns in priority markets for a total annual investment of US$1.5 million for the first two years, with a maintenance program in the remaining years. Industry investment will be the equivalent of 7% of its exports of bottled wine in marketing and promotional efforts. Total WoC investment will fluctuate between 20 and 24 cents (US) per case. Wines of Chile Strategic Plan 2020 International Market 79

80 TABLE 34. PROJECTED INVESTMENT (SUMMARY) FUNDING Promotion 4,587,032 5,838,000 6,541,500 6,562,500 6,989,173 6,989,173 8,492,766 8,692,766 10,291,885 10,541,885 12,123,770 % Media Plans 0 1,500,000 1,500, , ,000 1,500,000 1,500,000 2,000,000 2,000,000 2,500,000 2,500,000 % Fairs 1,219,065 1,500,000 1,500,000 1,500,000 1,500,000 1,500,000 1,500,000 1,500,000 1,500,000 1,500,000 1,500,000 % Offices 1,736,676 2,338,316 2,369,082 2,500,464 2,532,473 2,665,122 2,698,425 2,832,393 2,867,041 2,902,382 2,938,430 % Total WoC Investment 7,542,773 11,176,316 11,910,582 11,262,964 11,721,646 12,654,296 14,191,191 15,025,159 16,658,926 17,444,267 19,062,200 % PROJECTED INVESTMENT IN MARKETING AND PROMOTION WINERIES 87,079,402 99,167, ,743, ,978, ,061, ,205, ,644, ,638, ,476, ,478, ,000,000 YEAR Total WoC Investment 7,542,773 11,176,316 11,910,582 11,262,964 11,721,646 12,654,296 14,191,191 15,025,159 16,658,926 17,444,267 19,062,200 Value of Exported Bottled Wines 1,243,991,463 1,358,462,910 1,483,467,960 1,619,975,910 1,769,045,250 1,931,831,874 2,109,598,037 2,303,722,151 2,515,709,465 2,747,203,741 3,000,000,000 TOTAL Investments % of Exports US$ / Case Source: Wines of Chile 80 Wines of Chile Strategic Plan 2020 International Market

81 RETURN ON INVESTMENT Wine is one of the few Chilean products to reach the end consumer labeled Brand Chile, which makes it a unique vehicle for positioning the country image and a strategic asset for Chile that facilitates the introduction of new products. Chilean wine reaches millions of homes and consumers around the world and therefore contributes to the positive recall of the country. Greater development of the category in the target markets means more and better positioning of Chile with the consumers of those markets. This proposal therefore supports positioning the country image through wine, Chile s most natural ambassador and a unique vehicle for associating the attributes of quality and diversity with the origin Chile, while contributing to increasing possibilities of exports and other areas. Chile exported 42 million cases 510 million bottles in Employing conservative criteria, we can assume that each bottle is seen by at least 3 people, which means that Brand Chile reaches 1.5 billion people each year. Considering a moderate cost of US$.853 3, which is the average cost per Internet contact in the United States, the impact value is equivalent to US$1.275 billion per year. Projected sales for 2020 are US$3 billion, the equivalent of 80.9 million cases, million bottles, and billion contacts. Based on 2010 costs, the value of Brand Chile reaching that many contacts is US$2.475 billion. It is clear that both the generic and industrial investment, along with stimulating higher average prices and increased sales, generates a positive additional impact in the development of the country image, whose value is far superior to the investment made. 3. Source: Imagen de Chile Foundation Wines of Chile Strategic Plan 2020 International Market 81

82 MANAGEMENT CONTROL SYSTEM

83 It is vitally important to have an objective method for measuring the progress of the implementation of the strategy. To do so, we have defined a series of corporate- and market-level management indicators to be reported periodically, as described below. CORPORATE LEVEL KEY PERFORMANCE INDICATORS (KPI) Annual monitoring of the value, volume, and average price of bottled wine exports in comparison with the goals defined in the Plan 2020, which is presented below. GRAPH 30: PROJECTED VALUE PER YEAR (US$ MILLIONS) 3,500 3,000 2,500 2,000 1,500 1, GRAPH 31: PROJECTED VOLUME PER YEAR (MILLIONS OF CASES) Wines of Chile Strategic Plan 2020 International Market 83

84 GRAPH 32: PROJECTED AVERAGE PRICE PER YEAR (US$ / CASE) Analysis of the funding provided by different sources: governmental, wineries, growers, and supplies Annual service survey to wineries Two annual meetings to report on results obtained and evaluate the implementation of the plan. MARKET LEVEL KEY PERFORMANCE INDICATORS (KPI) We will attempt to obtain the following generic information for each of the markets with respect to their cost benefit. Measure of the level of consumer recall, preference, and positioning in relevant attributes in the United States, United Kingdom, Canada, Brazil, and Asia Market share in value and volume by channel and price range Annual exports of bottled wine in value and volume Average price of bottled wine Number of visits per year Mentions and tone of press per year Benchmarking against the competition: level of expenditure for promotion and activities Furthermore, we will measure indicators by activity to determine their return and thus to better prioritize resources. The parameters to measure should include aspects of: Cost Efficiency (cost per attendee, for example) Satisfaction Image Specific aspects for each activity 84 Wines of Chile Strategic Plan 2020 International Market

85 Wines of Chile Strategic Plan 2020 International Market 85

86 ANNEX 1 GENERIC PROMOTION 86 Wines of Chile Strategic Plan 2020 International Market

87 EUROPEAN UNION In April 2008 the European Council of Ministers decided to reform the Common Market Organization for wine to reduce over-production and make European wines more competitive. The European Commission considered that European wine producers were at a disadvantage in relation to their competitors, as their smaller size made them less able to adapt to the needs of large retailers, especially given current regulatory restrictions and market inefficiencies. They also considered other issues such as strong competition from New World countries, confusing labeling rules, and rigid winemaking practices, etc. The new rules therefore aim, among other things, to establish measures to support the sector. For the specific case of promoting European wines in third-country markets, this support consists of measures to generate information or promotions that improve the competitiveness of European wines. Contributions from the European Community for promotional activities may not exceed 50% of eligible expenses (public relations, promotional activities and advertising, participation in trade fairs and studies, etc.), and the other 50% contributed by the country of origin, normally through state and regional support. Only 77% ( 35 million) was spent on these activities in Of that amount, 52% was allocated to France, 20% to Spain, and 14% to Italy. The remaining portion was divided among Germany, Austria, Portugal, Slovenia and Romania. The European Commission has formulated an ambitious promotional plan for , as detailed below. The values shown represent 100% of the potential investment, which includes 50% support in contributions from the European Union and the other 50% in private and public contributions from each individual country. TABLE 35: EUROPEAN COMMISSION SUPPORT FOR PROMOTION (EUROS) COUNTRY EUROS 2010 EUROS 2011 EUROS 2012 EUROS 2013 Spain 64,000,000 68,615,169 98,097, ,661,108 France 100,000, ,211, ,277, ,032,981 Italy 70,032,000 75,082, ,343, ,279,417 TOTAL (EUROPE) 279,676, ,844, ,680, ,322,000 Source: European Commission, In addition to the support that European countries receive from the European Union, each country also has its own trade organizations and/or private or public entities dedicated to promoting wine and other agricultural products. The most important associations in the most pertinent countries of the European Union (France, Italy, and Spain) are listed below. Wines of Chile Strategic Plan 2020 International Market 87

88 SOPEXA France has numerous generic plans to promote its different regions, and all of the programs receive governmental support. Although Sopexa was created as a governmental office, it is now a private entity dedicated to promoting wine and is one of several public relations organizations in France that carries out this work. The organization actively promotes French wines within the European Union and beyond by channeling resources to France Agrimer (the French Association of Horticultural Products and Wine). It has 280 members and maintains 35 offices in 28 countries and conducts activities in approximately 50 countries. Its shareholders include the Crédit Agricole Bank with a series of inter-professional committees. ICE This organization is Italy s generic presence in the world. It is a government agency whose objective is to promote Italian exports and foster business opportunities and industrial cooperation between Italy and other countries. Funding for its activities comes from the country s Ministry of Foreign Trade, which establishes guidelines and plays a mainly supervisory role, and from companies that make use of its services. ICE is not only involved in food and wine but in all Italian products. In practice, promotional initiatives aimed specific markets are handled by the region involved, a producers association, or a consortium, each with its own budget and independent operation. These organizations generally use ICE because it has 115 offices in 86 countries and is present at most trade fairs. As with France, Italy has no common plan and there is little coordination. With 700 employees in its head office and 25 independent food and wine sectors, ICE has difficulty with internal coordination and in organizing the Italian wine industry. In practice, it offers little more than logistic support. SPAIN ICEX While Spain has very active generic regional bodies such as those of Rioja and Vinos de Jerez, Wines from Spain has achieved a cohesive presence. ICEX currently initiates most activities. It is part of the Ministry of Industry, Tourism and Commerce. Activities are usually 70% financed with state funds and 30% user-pays (importers and wineries). RIOJA The Rioja Regulatory Council was established in 1953 and became the entity responsible for ensuring compliance with the regulations of the Rioja Denominación de Origen Calificada (D.O.Ca), promoting and controlling the quality of wines under its purview, promoting the region s image, and, in the socio-economic sphere, defending the sector s interests by encouraging initiatives to establish inter-professional agreements. The activities of the Regulatory Council are financed by contributions made by the winegrowers and wineries registered with this organization. These contributions consist of the following: Mandatory fees based on the value of production Mandatory fees on products Mandatory fees for certified values Mandatory fees for back labels and seals For 2010, the Rioja D.O.Ca. will invest 10 million in developing promotional plans to be implemented in the countries with the largest consumption of Rioja wine: Spain, the United Kingdom, Germany, the United States, Switzerland, Sweden and 88 Wines of Chile Strategic Plan 2020 International Market

89 Mexico. The central objective of the Rioja wine sector is to promote the collective Rioja brand in its primary markets and to strengthen the positioning of wines with this denomination in both Spanish and foreign markets. WINES OF SOUTH AFRICA Working with one of the lowest budgets, this entity carries out more than 300 activities each year. These are primarily funded through a tax. Producers also pay to participate in the events. It is primarily dedicated to development, and it finances, implements, and manages the online certification system used by the Department of Agriculture. Its only foreign office is in the United Kingdom. NEW ZEALAND WINE GROWERS This organization is funded through a wine tax of euros per liter, and a 0.75% tax on the value of the grapes. While this organization has the lowest budget in absolute terms, it organizes more than 100 events annually in 15 countries. The majority of its resources are spent on market information, training, on-trade initiatives, in-store promotions, press clippings, public relations, and promotional material for events. This entity has two offices, one in New Zealand and another in the United Kingdom that oversees all of the European Union markets. It also works with consultants in San Francisco and Canada. WINES OF ARGENTINA This organization is composed of 200 wineries representing 95% of Argentina s wine exports. Its 2010 budget was 22 million Argentine pesos, 5 million of which came from membership dues, 6 million from user-pays, 10.6 million from Coviar (Corporación de Vino Argentina), and the rest from other organizations (Consejo Federal de Inversiones, Turismo). Coviar is funded through the 2.5% return on export taxes. Considering the May 2010 exchange rate of 3.86 pesos per US dollar, this organization s budget amounts to US$5.7 million. These resources are primarily used to promote the country brand and do not consider the operational costs of its offices. The total investment is estimated to be US$7 million. It conducts 240 activities per year. Of its total budget, 33% will be spent on promotion in the United States, one of the countries with the greatest potential, followed by Canada, the United Kingdom, Brazil and the Netherlands. The primary focus of the 2010 campaign is the consumer. According to Wines of Argentina, this is primarily due to the degree of maturity that the brand has achieved. Wines of Chile Strategic Plan 2020 International Market 89

90 WINE INSTITUTE OF CALIFORNIA Funding for this institution comes from the US Department of Agriculture, complemented by a fee charged to member wineries. It maintains offices in The Hague, Bremen, London, Canada, and Tokyo, as well as agencies in Sweden, Denmark, Poland, Russia, Switzerland, Mexico, and Asia. Its offices also operate as agents, offering assistance to retailers and importers searching for suppliers. WINES OF AUSTRALIA The Australian Wine and Brandy Corporation is a public authority established by decree in 1981 to provide strategic support to the country s wine sector. Its responsibilities include: Domestic and international marketing of the category Sector analysis and information Upholding the integrity of labeling and Australian enological practices Safeguarding the name of wine-producing areas Assisting in the negotiation of bilateral agreements This organization s main shareholders are the government of Australia, wine and brandy producers that pay a tax on grape production, and exporters that pay an export tax. This institution is financed by taxes and by the sale of goods and services. Of the $15 million Australian it received in 2009, 53% came from taxes and contributions, and the remainder from the sale of goods and services. 90 Wines of Chile Strategic Plan 2020 International Market

91 TABLE 36: SUMMARY OF GENERIC ENTITIES SOPEXA ICEX ICE DWI WINE WINE WINES WINES WINES NZWG France Spain Italy Germany Australia Institute of of of of South New California Argentina Chile Africa Zealand Number of Central Office nd 7 25 (W+F) AUS CH NZ Employees + world: 15 + world: 6 + world: 8 Own Offices 35 nd Countries Represented 28 > > Financing Regional 70% Gov t., Gov t. and Tax Tax on Wineries 50% Gov t. 35% Gov t 95% Tax competitive and User-pays ( 67/ha.) grapes and by size (CFI $ Coviar) and tax ( 1.25 funds 30% exports and and 65% (Re7/Lbt per liter User-pays (53%) Dept. of 50% User-pays Re5/Lbu), 0.75 User-pays Agriculture User-pays 5% per kg) and sales additional of services Gov t. (47%) TOTAL ESTIMATED nd nd BUDGET (TH / US$) Source: Vinos de Chile, 2010 based on information from Meininger s WBI, 02/09 Wines of Chile Strategic Plan 2020 International Market 91

92 ANNEX 2 ANALYSIS OF TARGET MARKETS 92 Wines of Chile Strategic Plan 2020 International Market

93 UNITED STATES The United States has seen continuous growth in its wine consumption over the past ten years and reached 323 million 9-liter cases in Although this figure is only inferior to France and very similar to that of Italy, its per capita consumption is much lower than the other countries. Considering the adult population alone, consumption is 13 liters per person per year, and increases to 37 liters among the segment of regular wine drinkers the 74 million people who drink wine at least once a month. This figure is quite low when compared to England, where 70% of the adult population regularly consumes wine. It is a relatively young market in which the culture of wine is new for the average North American. Its potential for growth is therefore significant. Wine consumption is not homogenous across states. Consumption is habitual on the east and west coasts and in some states in the interior of the country. It is also more frequent in the cities and in more cultured segments of the population with greater purchasing power. The graph below shows the states and regions with the highest wine consumption, as well as the percentage of imported wine consumed in selected cities and the percentage of Chilean wine imported by those same areas. GRAPH 33: PRIMARY WINE CONSUMING STATES & DISTRICTS 25% 21% 20% 18% 15% 15% 15% 13% 10% 5% 10% 10% 8% 5% 7% 6% 7% 5% 5% 5% 5% 5% 5% 5% 5% 4% 0% N.Y. Metro Region California Florida Texas New England Illinois D.C. Region % of Total Wine Consumed in the USA per State/Region % of American Wine Consumed by Major City % of Total Chile Wine Imported Source: Impact Databank, 2009 Wines of Chile Strategic Plan 2020 International Market 93

94 Nearly three-quarters of the wine consumed in the United States is of national origin. It is the world s fourth largest producer with a market share of 7.9% and produced an average of close to 2.5 billion liters in recent years. Production is concentrated in California (89%), followed by the state of New York (4.4%), and the state of Washington (3.1%). The remaining states produce approximately 3% of the national total. The market share of imported wines was 25.3% in 2009, and Italy, France, and Australia stand out among them. Chile ranks fourth and presents an upward trend in its market share. It is important to emphasize that the Chilean market increased its share in the imported wine segment by 10% in 2009, as opposed to just 7% in Chile is one of the few countries that saw positive figures in 2009, as well as growth that outranks the market. TABLE 37: GROWTH AND MARKET SHARE OF BOTTLED WINE IMPORTS BOTTLED WINE 2008 % 2009 % Total Imports (volume) -5% 100% -1% 100% Chilean Imports (volume) 2% 9% 16% 10% Total Imports (value) 0% 100% -13% 100% Chilean Imports (value) 4% 5% 16% 7% Source: Gomberg Frederikson Report, 2009 GRAPH 34: MARKET SHARE IMPORTED WINE BY VOLUME 2009 Others 16% Italy 33% Argentina 7% Chile 10% France 11% Australia 23% Source: Gomberg Frederikson Report, Wines of Chile Strategic Plan 2020 International Market

95 GRAPH 35: MARKET SHARE IMPORTED WINE BY VALUE 2009 Others 18% Italy 33% Argentina 6% Chile 7% Australia 16% France 20% Source: Gomberg Frederikson Report With respect to the distribution of sales by channel, in 2008, 78.8% of the volume was generated by off-premise sales, while 21.2% was through on-premise channels. In terms of value, 52.3% was through off-premise and 47.7% through on-premise. Finally, other important aspects worth highlighting are consumption by price range and variety. Over the past two years, sales in food stores show the consumer trend toward consuming lower-priced wines. In the everyday wine category, wine up to US$7 per bottle leads purchases; in 2009 this category grew by 2%, or 913,000 cases. This segment includes the first three price ranges, which represents 72% of all sales. Source: AC Nielsen. 52 Weeks A 01/09/2010 TABLE 38: MARKET SHARE OF VOLUME CONSUMED BY PRICE RANGE CONSUMPTION BY VOLUME PRICE RANGE MARKET SHARE CHANGE (%) $14 and over 4% 2% $10 up to $14 9% 7% $7 up to $10 15% 3% $3 up to $7 49% 2% Other to $3 20% -2% Extreme Value Wines 3% 38% With respect to varieties, Cabernet Sauvignon and Chardonnay remain solid and are growing, although the majority of growth comes from wines with a retail price below US$7. The third varietal wine showing increasing sales is Muscat, which displays very dynamic growth at present (62%). Sauvignon Blanc, Pinot Grigio, Malbec, and Pinot Noir are the other varieties also showing recent growth (8%, 4%, 92%, and 9%, respectively). Wines of Chile Strategic Plan 2020 International Market 95

96 Source: AC Nielsen. 52 Weeks A 01/09/2010 TABLE 39: MARKET SHARE VOLUME CONSUMED BY VARIETY CONSUMPTION PER VARIETY VOLUME MARKET SHARE VARIATION (%) Chardonnay 22% 4% Cabernet Sauvignon 12% 7% Merlot 11% 1% White Zinfandel 8% -3% Sauvignon Blanc 3% 8% Pinot Gris/Grigio 6% 4% Riesling 2% 9% Shiraz/Syrah 3% -7% Red Zinfandel 2% 4% Pinot Noir 4% 9% Malbec 1% 92% Muscat 1% 62% The United States wine and alcohol industry has consolidated over time and the majority of the importers and distributors are now large companies. Although medium-sized companies have all but disappeared, some small, boutique-type importers remain in the market. With respect to the distributors, a decade of consolidation has reduced the access to the market through the traditional channels for medium and small producers. An important aspect to highlight is that the amount of money Chile spends on media advertising is far inferior to that of its competitors. Although the country s spending per case has remained constant, it is still far below that of its competitors. GRAPH 36: IMPORTED WINE PER CASE ADVERTISING BY COUNTRY OF ORIGIN Source: Impact Databank, 2009 France Italy Australia Spain Chile 96 Wines of Chile Strategic Plan 2020 International Market

97 CANADA Canada s economy is among the eighth largest in the world, and its population of approximately 33 million inhabitants has a high purchasing power that is partly responsible for its great potential as a market for wine and other spirits. Wine consumption is growing in the country as Canadian consumers become increasingly familiar with this product. Of the $18.8 billion of alcoholic beverages sold at the retail level in 2007/2008 in Canada, beer was the most popular and accounted for $8.8 billion, followed by wine with $5.4 billion, and spirits at $4.7 billion. Although Canada remains a country that traditionally consumes beer, wine consumption has increased persistently over the past ten years. Canadian consumers are becoming increasingly familiar with the world of wine. They seek out new things, attend wine tastings and wine fairs, and take wine tours at growing rates. Annual consumption is 15 liters per capita among the adult population and 23 liters per capita among regular wine drinkers. Of the 26.7 million adults in Canada, 60% 16 million people are regular wine drinkers. Wine production in Canada is low and is mainly concentrated in the provinces of British Colombia and Ontario, and primarily sold in the domestic market. Local production supplies approximately 28% of the market, while imports account for the remaining percentage (72%). GRAPH 37: WINE CONSUMPTION BY ORIGIN (2009) 120% 100% 80% 28% 60% 40% 20% 72% 0% National Imported Source: Red Book. Nov 2009 The provinces of Quebec, Ontario, British Colombia, and Alberta consume the most wine, with 36%, 31%, 16% and 9%, respectively. Volume and sales of imported wines have recently begun increasing at a faster rate than those of domestic wine. This has occurred despite the fact that prices of imported wine have risen far more than those of domestic wine. In 2009, for example, sales of imported wine grew by 3.2% compared to 1.8% for domestic wines. Wines of Chile Strategic Plan 2020 International Market 97

98 The leaders of the wine market are France, Australia, Italy, and the United States. Chile is the Canadian market s fifth largest external wine supplier and accounts for 5.4% of the market. Most Chilean wine is sold in the provinces of Ontario (41%), British Columbia (20%), Quebec (17%), and Alberta (15%). In 2009, the volume of Chilean wine sold grew faster than the market (7% versus 4%). The existence of 12 Liquor Boards with complete decision making power over which wines are imported and how they are marketed and distributed, means that in practice there are 12 different markets in Canada, each controlled by a monopoly. UNITED KINGDOM With close to 900 million liters of wine imported each year, the United Kingdom is one of the world s largest wine markets as well as one of the largest importers of Chilean wine. In terms of volume, this market receives 23% of all Chilean wine exports, and 17% of all sales. Domestic wine production is almost non-existent, which produces strong competition. The margins of distribution and the high taxes on alcohol have a definite effect on this market. Despite an unfavorable economic situation, wine sales in the United Kingdom continue to show a slight growth; total volume sold has risen by 3%, primarily due to an increase in the off-trade. Overall, 82% of wine sales in the United Kingdom occur in the off-trade, while 18% are sold on-trade. While Old World countries have held onto their off-trade market share, the trend is favoring New World countries. In the off-trade segment, Chilean wines account for 9.4% of market volume and 9% of value. New Zealand and Chile are the fastest growing importers in terms of sales, with 38% and 26%, respectively. Italy, Portugal, and Chile have increased their market share the most in the on-trade segment over last year with 19%, 17%, and 16% growth, respectively. Meanwhile, the market shares of Germany, Australia and France decreased by 27%, 13%, and 9%, respectively. 98 Wines of Chile Strategic Plan 2020 International Market

99 Source: AC Nielsen, March 2010 TABLE 40: MARKET SHARE OF CHILE AND ITS COMPETITORS BY VOLUME (2010) COUNTRY OFF TRADE ON TRADE % Australia France United States Italy South Africa 12 5 Germany 3 3 Spain 7 5 Chile 9 11 Argentina 1 3 New Zealand 3 2 BRAZIL Until very recently, wine drinking in Brazil was limited to affluent individuals with refined tastes. In more recent times, wine has become as accessible as any other beverage, more reasonably priced, and easy to find and to buy. According to experts, the dramatic rise in wine consumption began in 2002 and 2003 when South American wine imports, mainly from Chile and Argentina, were first mass marketed in supermarkets. Three years ago, domestic wine accounted for 53% of all wine sold in Brazil. Today, only three out of every ten wines offered for sale are Brazilian. Four of the remaining seven are South American wines. The figure below shows the evolution of wine imports to Brazil. GRAPH 38: EVOLUTION OF WINE IMPORTS BY VOLUME Source: Uniao Brazileira de Vitivinicultura Wines of Chile Strategic Plan 2020 International Market 99

100 GRAPH 39: EVOLUTION OF WINE IMPORTS BY VALUE Source: Uniao Brazileira de Vitivinicultura The consumption of imported wine is primarily concentrated in the region of Sao Paulo and in the south and south-eastern zone of the country. GRAPH 40: REGIONS OF BRAZIL WITH THE HIGHEST CONSUMPTION OF IMPORTED WINE North and North-east Rio de Janeiro & Central-West South & South-East (excluding Sao Paulo & Rio) 100 Wines of Chile Strategic Plan 2020 International Market

101 Chile leads imports to Brazil with 34% (US$61 million), followed by Argentina (22%), Italy (13%), Portugal (13%), France (10%), and Spain (4%). In the past four years domestic wine sales have increased by 23.9% on average, more than imported wine (22.8%). GRAPH 41: IMPORTS BY COUNTRY OF ORIGIN (MARKET SHARE 2009 VALUE) Chile Argentina Italy Portugal France Uruguay Scotland Germany Africa United States Others Source: Uniao Brazileira de Vitivinicultura Wine sales in Brazil come primarily from supermarkets, which accounts for 49% of all sales, followed by other stores (23%) and restaurants (16%). According to Brazilian Wine Institute projections, per capita wine consumption in Brazil is presently 1.8 liters per year and is expected to rise to 9 liters per capita over the next 15 years. Wines of Chile Strategic Plan 2020 International Market 101

102 ASIA China China is a wine producing country; it has approximately 475,000 hectares of vineyards (including grapes for fine wine, table wine, and raisins) and produces million liters of wine. It imports another 6.3 million cases of bottled wine and consumes 72.7 million cases of table, sparkling, fortified, and other wine. Table wine is the most popular category, and its consumption has grown 16% over the past four years. Consumption of sparkling wine, while still low, has also grown quickly since 2004 (15%). In the table wine category, red wine continues to be the biggest seller (87%). Wine is still an emerging industry in China and accounts for just 6% of all alcoholic beverages sold in this country. The four most popular alcoholic drinks in China are beer, wine (primarily domestic and imported red wine), and Chinese and western spirits. China has a population of 1.33 billion people, 723 million of whom are between 18 and 50 years of age. Of these, 325 million are city dwellers and 22.8 million are in the upper social class (with family income above 100,000 RMB). A sub-set of this group (19 million) consumes wine made from grapes, and 76% (14.3 million people) of that group drink imported wines. We can therefore estimate that in 2010 there are 23 million Chinese consumers who can afford to purchase imported wine and 14.3 million who currently drink imported wine. Approximately 63% of China s wine drinkers are men and 37% are women; 34% are 29 or younger, 42% between 30 and 39, and 26% are 40 to 50 years old. It is important to note that increasing numbers of Chinese women are buying wine, especially younger women, primarily due to the flavor, associated lifestyle, and this particular group s search for sophistication and life style. With regard to geographic zones, the most traditional cities such as Beijing and Wuhan primarily consume traditional spirits, while residents of cities such as Shanghai tend to have a higher income, more education, and be more open to imported wine. In terms of consumption by country of origin, 90% of the wine consumed in China is domestically produced. The remaining percentage is divided among France, Australia, Italy, Chile, the United States and others. In 2008, approximately 6 million cases of table wine were imported into China: 2.6 million from France; 1.3 million from Australia; 0.6 million from Italy; 0.5 million from Chile, and 0.4 million from the United States. 102 Wines of Chile Strategic Plan 2020 International Market

103 TABLE 41: CHINESE WINE IMPORTS BY COUNTRY OF ORIGIN (2008 / 2007) COUNTRIES RK QUANTITY CIF AMOUNT MARKET RK QUANTITY CIF MOUNT MARKET OF ORIGIN (LITERS) (US$) SHARE (LITERS) (US$) SHARE France 1 22,945, ,938, % 1 15,517,251 82,727, % Australia 2 11,628,067 54,888, % 2 8,783,927 36,461, % Italy 3 5,053,292 21,612, % 3 5,113,181 17,873, % Chile 4 4,206,324 14,395, % 5 2,646,432 8,491, % United States 5 3,867,322 14,764, % 6 2,358,539 8,589, % Spain 6 3,140,280 11,996, % 4 3,399,425 12,447, % Argentina 7 1,527,657 5,077, % 8 972,202 2,583, % Germany 8 1,415,592 8,039, % 7 1,127,856 5,032, % South Africa 9 977,344 3,443, % ,950 2,018, % Romania ,420 3,041, % , , % TOTAL IMPORTED 57,617, ,307,400 42,337, ,132,019 Source: CEAP, UDP 2010 As the above figures show, France is the most respected country in this market, and therefore its wines are the most commonly given as gifts by Chinese consumers. However, the market is displaying signs of more openness to New World wines, and consumers are becoming more aware of the attractive price-quality ratio that these wines offer. The most popular New World wines in China are from Australia and Chile, followed by the United States and South Africa. Old World countries such as Spain and Italy are also respected, but are not as familiar to Chinese consumers. Recent market trends worth noting include: A strong tradition in purchasing alcoholic beverages: The Chinese are accustomed to spending a considerable portion of their disposable income on alcohol. A trend toward purchasing less beer and spirits and more wine has been observed. Economic growth: China currently offers interesting economic opportunities. The middle class is growing, consumers are more confident, economic growth is strong, and the population is increasingly urban. More receptive to western countries: While Chinese culture is strongly based on tradition, the cultures of western countries places greater value on freedom and independence. Positive identification between western products and the lifestyles of the people consuming them make these products more desirable. The Chinese population seeks to improve its quality of life. Imported wines are primarily consumed in romantic settings, whether in a café, club, or bar, or during business meetings. Domestic wine, on the other hand, is more commonly consumed with meals in restaurants or at home or on social occasions such as weddings and other gatherings of friends and family. The factors that most affect the decision to purchase imported wine are the country or region of origin, recommendations by family and friends, label information, quality indicators, and familiarity with the colors and text on the label (for example, red signifies luck in Chinese culture). On the other side, the major barriers to purchasing imported wine are the price, which makes it more suitable for social occasions; the enormous variety of imported wine available, which confuses consumers; the lack of differentiation among available alternatives; and the difficulty consumers have in understanding a different language. Wines of Chile Strategic Plan 2020 International Market 103

104 In summary, while the market is still small, there are clear opportunities for growth. Wine also has the benefit of being more positively perceived than other alcoholic beverages in China. Two current trends also favor the consumption of imported wine in China: the country s increasing openness to western culture, especially lifestyles and products, and the perception of quality. Price, language, and unfamiliarity with the category are barriers that should be taken into account when designing a strategy for market penetration. The principal challenge is to find simple ways of obtaining the commitment of Chinese consumers. Japan Consumption of wine in Japan is low compared to other products such as beer, sake, and sho-chu. Wine is relatively new to this market and has to compete with local beverages. Per capita wine consumption in Japan is approximately 2.0 liters per year, which is quite low compared to traditional wine-drinking countries. While young men do not find drinking wine very attractive, there are genetic reasons that hinder people from consuming more alcoholic beverages and favor the consumption of alcohol-free or low-alcohol drinks. GRAPH 42: MARKET SHARE OF ALCOHOLIC DRINKS BY TYPE Whisky 1% Wine 2% Others 11% Liquors 8% Beer 39% Sho chu 12% Sake 13% Happohshu 14% Wine consumption varies by location in Japan. Wine is more popular, for example, in urban areas such as Tokyo. However, 70% of Japan s population lives in rural areas. The three largest suppliers of the Japanese wine market are France, Italy, and the United States, while four other countries share fourth place: Australia, Chile, Spain, and Germany. In 2008, Chile was able to establish itself in fourth place, leaving Australia in fifth place. 104 Wines of Chile Strategic Plan 2020 International Market

105 GRAPH 43: EVOLUTION OF WINE IMPORTS BY COUNTRY OF ORIGIN France Italy United States Chile Germany Spain Australia Others Source: WANDS, 2009 Japan s population is aging rapidly, which experts believe will have a positive impact on the wine sector. Older consumers have more purchasing power and want to enjoy retirement, traveling, and drinking good quality wine. Despite the different crises that the country s economy has experienced, Japan continues to be the second most powerful country in the world, with one of the highest consumption levels and most purchasing power. Most members of Japanese society are familiar with wine, which is readily available at accessible prices in this country. Supermarkets and other shops continue to be the most common point of sale for wine in Japan, representing 61% of the market. In regard to price, the yen range (US$ ) continues to be the most popular, although most growth since 2006 has been in the yen range (US$ ). TABLE 42: MARKET SHARE OF CHANNELS AND PRICE RANGES BY VOLUME RETAIL PRICE ON-PREMISE AT HOME TOTAL 2008 VS PER BOTTLE (YEN) VOLUME % VOLUME % VOLUME % 2006 % > 10,000 30, , , ,000-10, , , , ,000-5, , , , ,000-3, , , ,678, ,500-2, , , ,444, ,000-1,500 1,594, ,531, ,125, ,000 2,103, ,168, ,271, < , , , TOTAL 5,667, ,803, ,470, Source: Wands Review 2009 Wines of Chile Strategic Plan 2020 International Market 105

106 Consumer trends include a swing toward dry red wine. There is also more interest in organic and environmentally-friendly products in Japan. Consumers are becoming more willing to accept wine from other countries of origin such as Italy, Chile, Spain, and the United States, among others. Wine consumption is estimated to reach three liters or more per capita in the next few years. Reasons for this include the increasing westernization of Japanese lifestyles, wine s attractiveness as representative of refined tastes, the greater availability of wine on the market, greater concern for health, more western restaurants in the country, and a new tendency to drink wine by the glass in restaurants, to name a few. Korea According to a report of the Korean Ministry of Economy and Finance (MOFE), per capita alcohol consumption in Korea is among the highest in the world. Social life in Korea is highly valued, and there are many occasions when the consumption of alcoholic beverages is expected. Beer and soju (a traditional Korean beverage) are the drinks most in demand. The wine market in Korea has grown by more 20% per year on average since the liberalization of the country s market in Wine currently accounts for close to 2% of alcoholic beverage sales in this country. TABLE 43: ALCOHOL CONSUMPTION IN KOREA (LITERS PER CAPITA) Soju Beer Wine Whisky Source: Korean Customs Agency, Korean Alcohol & Liquor Industry Association and Korean Statistics Information Domestic wine production is almost nil and is expected to shrink to zero due to the high cost of maintaining vineyards and the poor quality of the wine produced. Some Korean companies, instead of cultivating vineyards that are not profitable in the country s climate, have chosen to import bulk wine and bottle and sell it under their own brand names. Therefore virtually all wine consumed in Korea comes from imports. Given the limited production of domestic wine and the lack of information on stock, the imported wine volumes can be assumed to be indicative of wine consumption in general in the country. While consumption is still limited (annual per capita consumption is just half a bottle), wine consumption in Korea has seen strong growth since 2000, primarily due to increased awareness of its positive health effects, which is especially relevant to young adults, the increasing adoption of western customs, the rise in personal income, and the increased consumption of alcoholic beverages by women (especially young women). Young professionals 30 to 40 years of age and successful professionals 40 to 50 years of age are the most typical consumers of wine in Korea. Wine imports have grown by an average of 30% per year over the last four years. It is important to note that the drop in the last year is mainly due to the economic crisis that affected markets worldwide. 106 Wines of Chile Strategic Plan 2020 International Market

107 GRAPH 44: KOREAN WINE IMPORTS (THOUSANDS US$) 180, , , , ,000 80,000 60,000 40,000 20, (Jan-Oct) Source: The Korea Times 12/08/2009 Lower-priced products (less than 30,000 KRW per bottle) account for 50% of all wine consumed. Red wine accounts for more than 75% of all wine sold. Source: Narafood Co TABLE 44: DEMAND SEGMENTATION BY PRICE LOW PRICE MODERATE PRICE HIGH PRICE (UNDER 30,000 KRW) (30,000-70,000 KRW) (OVER 70,000 KRW) 58% 29% 13% The country s large urban centers (Seoul, Inchon, and Busan) are its leading consumer zones. In regard to channels, large supermarkets and discount stores account for 55% of the volume of wine sold, followed by specialty shops (8%) and convenience stores (4%). Exports of Chilean wine to the Korean market have grown considerably, from a 2.8% market share in 2001 to 22% in Chile has become the second largest supplier of wine to Korea after France. Statistics from 2008 and 2009 show that Chilean wine has already surpassed French wine by volume. Wines of Chile Strategic Plan 2020 International Market 107

108 GRAPH 45: MARKET SHARE OF IMPORTS 35% 30% 25% 20% 15% 10% 5% 0% Source: ProChile 2010 France Chile Italy United States Germany Australia % Volume % Value Korea has become the 16th largest international market for Chilean wine exports, surpassed only by Japan and China in the East Asian region. Contributing factors for the growth of Chilean wine sales in that country include the increasing openness of the Korean market, steady economic growth in Korea after the 1997/98 crisis, changes in consumer habits and preferences, free trade agreements (FTAs) the country has entered into; the greater variety of Chilean wines exported, and the aggressive strategy of Chilean wineries in this market, among other factors. The wine market in Korea is still young, with importation of wine liberalized in 1988, just 18 years ago. Before that time, wines were only imported through the Korean National Tourism Corporation, which was the official supplier of hotels in the country. Price and origin are the two most important factors in purchasing decisions, which is usual in young markets and explains the popularity of both French and Chilean wine. Initially, demand was concentrated on sweet and fruity wines of moderate to low quality; today, however, the greatest potential for growth is in the medium to high quality wines category, especially red wines. 108 Wines of Chile Strategic Plan 2020 International Market

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111 CONTACT INFORMATION Wines of Chile, Main Office Av. Luis Pasteur 5280, Oficina 402 Vitacura, Santiago, Chile Phone (+56-2) / Fax (+56-2) Managing Director: Juan Somavía, [email protected] Wines of Chile UK & Europe Office: 13 Hermitage Parade, High Street, Ascot, Berkshire, SL5 7HE United Kingdom Phone (+44-0) / Fax (+44-0) Europe Director: Michael Cox, [email protected] Wines of Chile US Office 221 Centre Street New York, NY, USA Phone (+1-212) / Fax (+917) US Director: Lori Tieszen, [email protected]

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