Chilean Wine Industry Analysis - Corfowapp.corfo.cl/ticrural/descargas/Stakeholders_Presentation.pdf · China. Australia. Chile ... Evolution of the World Wine Consumption ... * Based

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Chilean Wine Industry Analysis

Presentation to stakeholdersSantiago, November 2008Internet Business Solutions Group

IBSG - 2Copyright © 2007 Cisco Systems, Inc. All rights reserved.Cisco Confidential IBSG - 2

Chilean Wine Industry Analysis

This document contains a summary of the Chilean Wine Industry Analysis done and commissioned by Cisco Systems during the months of September and October 2008.The field work included information gathering from many different sources, interviews with 38 industry experts and extensive analysis.This work is currently being used to define opportunities around Information and Communications Technology (ICT) applications and the impact that these solution could make in the wine industry.


International wine market1Chilean macroeconomic wine impact2Chilean wine market3Chilean ICT context4

Content

IBSG - 4Copyright © 2007 Cisco Systems, Inc. All rights reserved.Cisco Confidential IBSG - 4IBSG - 4Copyright © 2007 Cisco Systems, Inc. All rights reserved.Cisco Confidential IBSG - 4

International wine market


254273 266 262

281 280 268 261 266300

282 287 271

'95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07

In million of hectoliters (hl)

Source: FAO, OIV; Hermes’ analysis

Evolution of the World Wine Production

The world wine production grew at an annual average rate of 0.5% in the last 12 yearsThe world wine production reached its maximum level in 2004 and has decreased at an average rate of 3.3% per annum in the last 3 years, reaching similar production levels to that of 1996

CAGR: -3.3%

CAGR: 0.5%


19% 17% 19% 18% 18% 18%

1718 19 19 18

13 1614 13 13 13

8 7 7 8 7 7

5 5 5 5 5 6

4 4 4 4 4 44 3 3 3 3 43 3 3 3 3 45 4 5 5 5 42 3 2 3 3 3

20 21 20 18 19 20

18

261 266 300 282 287In million of hectoliters (hl)

100% =

Evolution of the World Wine Production per Country

‘02 ‘03 ‘04 ‘05 ‘06

Others

Chile

Italy

271

‘07

CAGR '02-'07 (%)


Chile, South Africa and Argentina show the highest growth rates among the most important producers

France

Spain

USA

ArgentinaChina

South AfricaAustralia

Germany

0.8%

1.2%

7.9%-4.6%

6.5%0.7%

1.4%3.5%

-0.3%

0.7%

0.8%

-0.8%

60%


1,110

867

681

341

248

228

222

177

174

123

3,458

Breakdown of Cultivated Area for Wine Production by CountryIn thousand of hectares, 2007, top 10 countries

Source: OIV, Servicio Agrícola y Ganadero; Hermes' analysis

Spain

France

Italy

USA

Portugal

Argentina

Turkey

China

Australia

Chile

Spain, France and Italy account for the largest cultivated area for wine production, although their world share has decreased in the last yearsChile, ranked 10th in cultivated area, is gaining share with an annual growth rate of 2.4%

Others

CAGR ‘00-’07-0.7%

-0.6%

-1.6%

-1.2%

-0.1%

1.8%

-6.5%

3.8%

3.2%

2.4%

0.7%

-0.1%Total 7,871


228 222 225 228 225 225 227 229 236 237 238 241 241

'95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07

In million of hectoliters (hl)


Evolution of the World Wine Consumption

The world wine consumption slightly increased in the last few yearsThe gap between production and consumption can not be consideredas a surplus because the difference is used to supply the market for industrial purposes: brandies, vinegars, vermouth, among others

Annual change (%) -3% 1% 1% -1% 0% 1% 1% 3% 1% 0% 1% 0%

Gap with production (MM hl)

26 51 41 34 56 55 41 32 30 63 45 46 30

CAGR: 1.0%


15% 14% 14% 14% 14% 13%

12 12 11 11 11

10 10 10 11 11 11

9 8 8 8 8 8

5 5 6 6 6 6

6 6 6 6 6 6

4 5 5 5 5 55 5 5 5 5 53 4 4 4 4 42 2 2 1 2 2

28 28 28 29 28 29

12


100% =

Evolution of the World Wine Consumption per Country

‘02 ‘03 ‘04 ‘05 ‘06

Others

Romania

Italy

241

‘07

(%)CAGR '02-'07

Source: FAO; Hermes’ analysis

Russia is the country with the highest growth rate followed by UK, China and USA

France

USA

Germany

ChinaSpain

ArgentinaRussia

UK

1.0%

1.3%

2.2%10.4%

-1.4%4.1%

-1.0%3.5%

-0.1%

3.3%

-0.6%

-1.6%


55.9 53.246.3 44.8 44.8 40.8

34.5 34.7 30.8 30.5 29.7 29.4 28.8

15.58.7

Luxe

mbo

urg

Fran

ce

Italy

Por

tuga

l

Slo

veni

a

Cro

atia

Sw

itzer

land

Hun

gary

Spa

in

Aus

tria

Gre

ece

Den

mar

k

Arg

entin

a

Chi

le

US

A

2007, liters per capita per year

* Based on 2005 figuresSource: Wine Institute, OIV; Hermes’ analysis

Per Capita Wine Consumption per Country

Luxembourg and France have the highest per capita wine consumptionUSA, although shows a low per capita consumption, has a great potential while its consumption has grown over the last years

*

**


23% 18% 18% 20% 21% 21%

21 18 18 17 17

1417 18 18 17 17

77 8 9 9 9

56 6 5 6 7

45 5 4 4 5

3 4 4 3 3 43 4 4 4 4 43 3 3 4 3 32 3 2 3 3 4

12 12 12 13 11 11

23


100% =

Evolution of the World Wine Exports per Country

‘02 ‘03 ‘04 ‘05 ‘06

Others

Germany

France

91

‘07


Smaller producing countries, increased their exports share from 27% to 36%In particular, Chile has one of the highest exports growth rates: 11.4% per annum, second only to Argentina (23.9% growth rate per annum)

Italy

Spain

AustraliaChileUSA

ArgentinaPortugal

South Africa

(%)CAGR '02-'07

6.1%

4.9%

7.6%7.7%

10.2%23.9%

9.7%11.4%

10.7%

-0.5%

9.8%

3.5%


Top wine export countries2007


18.8

15.3

15.2

7.9

6.1

4.2

3.6

3.5

3.4

3.1

Italy

Australia

France

Spain

Chile

(Million of hl)

Exports

(Million of hl)

Production

(%)

Exports/production=

USA

÷

Argentina

Australia and Chile are strongly focused on exports (82% and 74% of total production), becoming the 4th and 5th worldwide wine exporters

Portugal

Germany

South Africa

48

34.7

48.4

9.6

8.2

20

15

1.7

10.3

9.8

39%

44%

31%

82%

74%

21%

24%

48%

34%

32%


21% 18%

34

17

99

107

45343434

3 3

11 11

17

1

2007

Breakdown of Wine Exports per Country

Billion of US$Million of hl

Average FOB price (US$/lt)

Source: FAO; Hermes' analysis

France and Australia, show the highest average exports prices (4.6 US$/lt and 2.7 US$/lt)Chile’s average export price (1.6 US$/lt) is similar to that of USA, but lower than the world average

91.4 28.0100% =

Italy

Spain

France

Australia

ChileUSA

Argentina

PortugalGermany

South Africa

Others

3.1

2.7

2.5

2.52.5

1.1

2.22.1

3.6

6.1

1.6

2.7


Breakdown of Wine Exports by TypeIn million of hl, 2007

* bottle equivalentSource: SAG, INV, USDA, Australian Bureau of Statistics, OIV, FAO, industry reports; Hermes’ analysis

89

73

70

63

60

65

51

53

11

27

30

37

40

35

49

47

15.5

100% =Average FOB export price(US$/bottle*)

France’s exports are mainly focused on bottled wine; therefore, they have the highest average export priceChile exports 65% bottled wine, a mix similar to that of South Africa

7.8

18.8

3.1

4.2

6.1

15.2

3.6

Bottled Bulk

6.1

3.6

2.7

2.5

2.2

2.1

1.6

1.1

France

Australia

Italy

South Africa

USA

Chile

Spain

Argentina


44%

17%

45

9

38

47

4.0 5.7

In million of hl, bottled wine, 2007

Source: Compendio Vitivinícola de Chile, Australia at a Glance Sales; Hermes’ analysis

100% =

Comparison of Wine Exports by Category

Chile Australia

Premium wine (More than 3.5 US$/bottle)

Table wine(2.0-3.5 US$/bottle)

Common wine(less than 2.0 US$/bottle)

Australian wine exports, in comparison with Chilean, are more focused on premium wines, thus rendering a higher average export price

2.8 4.6Average FOB export price (US$/bottle)


18% 17% 18% 17% 18% 18%

16 16 15 14 14

8 9 9 9 10 10

5 6 7 8 8 87 7 7 7 7 76 4 4 5 4 44 4 4 4 4 44 4 4 4 4 43 3 2 2 2 23 3 3 2 2 2

25 27 26 26 27 27

17


100% =

Evolution of the World Wine Imports per Country

‘02 ‘03 ‘04 ‘05 ‘06

Others

Switzerland

UK

81

‘07


The imports market is more fragmented than the exports marketRussia and USA increased their imports due to high consumption growth rates that were not compensated by domestic production

Germany

USA

Denmark

RussiaFrance

BelgiumCanada

Netherlands

(%)CAGR '02-'07

4.6%

5.9%

-1.8% 0.2%5.1%

2.5%-1.4%

3.2%

16.6%

8.9%

1.0%

3.9%


10

60

110

160

210

260

90 95 100

Wine Positioning per Country

US$/lt

Source: Wine Spectator; Hermes’ analysisQuality

2007, the best rated wine of each country was considered from the top 100 ranking

France

USA

Italy

AustraliaArgentina

New ZealandChile

Spain

GermanyAustriaSouth Africa

Portugal

Chile has the opportunity to improve the quality of the wines, thus increasing the price per liter

Number of wines in top 100Wine Spectator’s ranking


6,443

6,402

4,760

2,806

Key Financials of International Wineries

Source: Annual Reports 2007; Hermes’ analysis

Revenues

Pernod Ricard

EBITDA Net incomeMMUS$ % of revenues % of revenues

22.8

11.0

25.5

21.4

13.3

5.2

20.4

13.9

2007

Constellation Brands

Fosters Group

Brown Forman

19.2 12.3Average


International Wine Market-Conclusions and Trends

Source: Hermes’ analysis

The wine industry is a mature market as it has grown at an average rate of 0.5% per year in the last 12 years

5 countries: France, Italy, Spain, USA and Argentina consolidate 60% of total wine production. Chile and South Africa show the highest growth rates among the most important producers with average growth rates of 7.9% and 6.5% respectively, since 2004

The world wine consumption slightly increased in the last few years and Russia is the country with the highest growth rate, 10.4%, followed by UK, China and USA

Italy, Spain and France account for 55% of total wine exports (it was about 60% in 2002), while Smaller producing countries (such as Australia, Argentina and Chile) increased their exports share from 27% to 36% between 2002 and 2007

France and Australia, pricing their wine US$6.1 and US$3.6 per liter, place their product above the world average. In turn, USA and Switzerland purchase wine at the highest average price per liter, 4.4US$ and 4.1US$ each

Chile exports 65% bottled wine, a mix similar to that of South Africa, with an average export price of US$ 2.1 per liter, lower compared to that of other top export countries with similar mix

The imports market is more fragmented than the exports market


Chilean macroeconomic wine impact


16% 16% 15% 13% 13%

14 14 13 13

13 12 11 11 11

12 11 109 9

109 9

8 9

8 13 16 22 22

7 7 6 6 55 4 4 4 4

14 14 15 14 14

15

74.0

In billion of US$

* Health, education and otherSource: BCC; Hermes’ analysis

100% =

Evolution of GDP Breakdown by Sector

Industry

Financial services

Real estate

Personal services*

Retail stores, restaurants and hotels

MiningTransport

Agriculture and fishery

Other

95.7 118.3 146.4 164.0(%)CAGR '03-'07

22%

20%17%

14%

55%

19%

15%

18%

18%

15%

4.5% 3.5% 3.5% 3.8% 3.8%Wine industry share of GDP (w/o Mining)

4.1% 3.0% 2.9% 2.2% 2.2%Wine industry share of GDP

2003 2004 2005 2006 2007


GDP Evolution

0

40

80

120

160

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 200701020304050607080GDP

In billion of US$

Exports Annual Growth Rate

4%

-8%

3%

-8%-3%

10%

30%24% 22%

13%

-20%

-10%

0%

10%

20%

30%

40%

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007Source: IMF, BCC; Hermes’ analysis

GDP has grown at an annual average rate of 16% since 2003 driven by increasing exports

Exports

GDP

Exports


43% 42% 43%54% 59% 66%

47 48 4638 35 29 29

10 10 11 10 8 6 5 5

45%66%

45

In billion of US$ (FOB)

Source: BCC; Hermes’ analysis

100% =

Evolution of Exports Breakdown by Sector

Agriculture, fruits and

fishery

Industrial

Mining

Total exports have grown at an average annual rate of 21%, driven by the increase in mining exports (27% per annum)Agriculture, fruits and fishery exports have grown at an annual rate of 10%, decreasing their share in the last 7 years

17.7 17.0 17.1 56.2 65.120.3 31.1 39.5(%)CAGR '00-'07

20.5%9.5%

13.0%

27.2%

7.3 6.5 6.3 7.8 14.7 19.0 32.7 37.6Copper exports

2003 2004 2005 2006 2007200220012000


Chilean wine market


Chilean Wine Market Structure

Source: Corporación de Fomento de la Producción de Chile, JP Morgan, interviews, Industry experts; Hermes’ analysis

Demand (domestic and international)

Vineyards Wineries Distribution Retail sales

Providers

Associations, governmental organizations, others


Main players

2008


Brief Summary of the Wine Industry in Chile

Description

Concha y ToroSanta RitaSan PedroTarapacáSanta CarolinaErrazuriz

Total of number players

More than 13,000

Involves the cultivation of the vine The quality of the grape is fundamental for premium wine production

Involves the grape harvest, production of grape must, fermentation, ageing and bottling

Involves the product sale to final consumers

Involves marketing, product placement, brand recognition and distribution of final product

Concentration level

HighLow

451More than 500

VínicasManufacturasSantiago

Concha y ToroSanta RitaSan PedroTarapacáSanta CarolinaErrazuriz

JumboUnimarcMundo del VinoLiquor storesHotelsRestaurantsBars

More than 60 distributors

More than 28,000

Providers WineriesVineyards Retail salesDistribution

Involves the provision of raw materials, such as barrels and staves, corks, labels, capsules and chemical additives

Concha y ToroSanta RitaSan PedroTarapacáSanta CarolinaCavas ReunidasLa Vinoteca


2008


Brief Summary of the Wine Industry in Chile (Cont.)

Profitability

The return on assets is relatively low (this is the most intensive capital stage)

The return in this stage is more volatile and it strongly depends on the vine quality and the grapes produced

Wine production is also intensive in capital causing a low return on assets

The business margin is strongly dependent on the exports market and the exchange rate

The return during this stage is less volatile but lower in comparison with other stages

Trading of wine to final consumer has relatively low margins on mass products, but higher on premium wines

The return on assets is very high

Many providers are only importers

The return on assets is high

Providers WineriesVineyards Retail salesDistribution

Margin10% - 12% 15% - 30% 10% - 20% 3% - 15% 5% - 10% on

mass products, 20% - 25% on premium products


64%65%64%64%64%63%63%

31303131313131

5555566

In thousand of hectares

Evolution of the Cultivated Area Breakdown by End Product

´01 ´02 ´03 ´04 ´05 ´06

100% = 165 168 171 173 175 179182

* Fresh consumption includes: Juices, fruits, etc.Source: Servicio Agrícola y Ganadero; Hermes' analysis

Cultivated area for wine production accounts for 64% of total cultivated area, with an annual growth rate of 2%

CAGR ‘00 - ’06

Pisco

Fresh consumption*

Wine

1.7%-0.4%

1.3%

2.0%

´00


6475

85

104 107 109 110 112 114 117 123


Source: OIV, Ministerio de Agricultura de Chile, Servicio Agrícola y Ganadero; Hermes' analysis

Evolution of the Cultivated Area for Wine Production

´00 ´01 ´02 ´03 ´04 ´05 ´06 ´07World share 1.3% 1.4% 1.4% 1.4% 1.4% 1.5% 1.5% 1.6%

CAGR ’97-’07:

7.0%

Total cultivated area for wine production in Chile has grown at an annual rate of 7% in the last 10 years, accounting for 1.6% of total world cultivated area in 2007

´99´98´97

1.2%1.1%0.9%


Breakdown of Cultivated Area by RegionIn thousand hectares, 2006

Mavle

Bio Bio(VIII Region)

29

12

97

43%

100% = 117

Other Maule(VII Region)

G. Bernardo O’Higgins(VI Region)

BalduzziBotalcuraCalinaCasa DonosoValle FríoCorral VictoriaChilean Wines CompanyEl AromoGillmore EstateHugo CasanovaJ. BouchonTerranobleCasas PatronalesVia WinesCaliboro

Main vineyards

Santa RitaConcha y ToroSanta CarolinaCanepaTerra VidCasa SilvaSanta HelenaCanteraMontes

Main vineyards

Source: Servicio Agrícola y Ganadero; Hermes' analysis

G.B. O’Higgins(VI Region)

Metropolitan Region

Maule(VII Region)


Maule and O’Higgins (VII and VI Regions) account for 72% of total cultivated area

Metropolitan Region


25.4

20.3

17.1

10.9

10.5

4.1

3.5

2.7

1.6

0.6

0.5

0.3

Main Vineyard Valleys in Chile (Cont.)

Source: Wines of Chile, CCV, interviews, industry experts; Hermes' analysis

2006 Valley Ha/vineyard QualityHectares

(‘000)

7.3

20.7

13.6

24.9

2.1

42.9

2.5

41.5

17.0

11.1

18.1

9.1

High

Low

Elqui

Limari

AconcaguaCasablanca

San AntonioMaipo

CachapoalColchagua

Curicó

Maule

Itata

Bio Bio

Maule

Colchagua

Curicó

Cachapoal

Itata

Casablanca

Bio Bio

Maipo

Limari

Aconcagua

Elqui

San Antonio


47% 46% 45% 43% 42% 41% 41% 41% 40% 40%

34 34 33 32 32 32 32 32 32 32

8 8 9 10 10 10 11 11 11 11

11 12 13 15 16 16 16 17 17 17

In thousand of vineyards

Evolution of the Number of Vineyards by Size

‘97

5-10 ha

1-5 ha

0-1 ha

+10 ha

‘98 ‘99 ‘00 ‘01 ‘02 ‘03 ‘04 ‘05 ‘06

CAGR ‘97 – ‘06

2.4%

7.6%

5.7%

1.8%

0.6%

11.3 11.7 12.4 13.4 13.6100% = 13.5 13.6 13.7 13.8 13.9


Vineyards have consolidated in the last 10 years, although they are still very fragmented, where small vineyards (smaller than 5 hectares) account for 72% of total vineyards


Breakdown of Vineyards by Region and Size In number of vineyards, 2006


60%

30%

7%

11%

40%

33

34

23

21

32

4

15

21

21

11

3

22

49

47

17


Maule(VII Region)

G. B. O'Higgins (VI Region)

Other

Total

6,418

5,372

1,483

680

13,953

In the Bio Bio region vineyards are more fragmented (93% of vineyards are smaller than 5 hectares) while in the O’Higgins region vineyards are more consolidated

0-1 ha 1-5 ha

5-10 ha + 10ha

100=

2

9

23

17

8

(hectares)

Average vineyard


Breakdown of Cultivated Area by Region and VarietyIn thousand of hectares, 2006


76%

88%

50%

85%

38%

87%

76%

24

12

50

15

62

13

24

Bio Bio Region

Maule Region

G. B. O'Higgins Region

Other

Total

50

34

14

11

6

Vineyards in Maule, O’Higgins and Metropolitan regions are mainly for red wine productionVineyards in Valparaíso are mostly for white wine production

Red wine White wine

Metropolitan Region

Valparaíso Region

2

117

100% =


25% 28% 31% 35% 36% 36% 36% 36% 35% 35%

20 1815 14 14 14 13 13 13

10 9 8 7 6 6 7 7 7 7

9 9 8 7 6 6 7 7 7 7

9 11 12 7 7 7 7 7 7 71 2 3 5 5 5 5 6 6 6

23 21 20 19 20 20 19 19 21 21

24


Evolution of Cultivated Area by Variety100% =

´97 ´98 ´99 ´00 ´01 ´02 ´03 ´04 ´05 ´06

64 76 86 104 107 109 110 112 115 117


Total cultivated area has grown at an annual rate of 7% in the last 10 years, mainly driven by Cabernet Sauvignon’s plantations (11% per annum)Carmenère has grown at an annual rate of 40% driven by the growth of exports

Cabernet Sauvignon

Pais

Sauvignon Blanc

Chardonnay

MerlotCarmenère

Others

7.0%

5.4%

40.0%10.6%4.9%3.2%

-0.2%

11%

CAGR ´97-´06


VINEYARD’S BUSINESS MODEL2008

Source: Interviews, industry experts; Hermes’ analysis

DescriptionEstimatedShare

Own

Rented

Contract

Spot

Wineries have their own vineyards to produce grapes for their premium wines

When wineries do not have their own vineyard, or when grapes produced in their own vineyard are insufficient, they take in long term contracts with selected vineyardsWineries operate and manage the vineyard entirely The contract does not depend on the volume of the production

Production of

Premium wines

Premium wines

Premium/ table wines

Table wines

Another option for the wineries is to take in long term contracts to monitor the grapes production and harvest, although the vineyard is operated by their ownersThe price depends on the grapes quality characteristics

Wineries usually buy the grapes for the table wine production on the spot market (in general through brokers)Quality of the grape is not guaranteed

30%

15%

15%

40%


314

1,496

797

2,293

694

115

873

1,995

4,288

Cost Structure for A VineyardIn US$/hectare-year, Maule Valley, 27 hectares example, 2007

Source: CCV; Hermes’ analysis

Labor

Total cost

Labor and raw materials are the main costs, accounting for 54% of total cost

Raw materials

Operational cost

Administrative staff

Irrigation

Structural cost

35%

54%

16%

36%

7%

20%

100%

19%

Equipment

3%

Other


84%82%79%83%80%80%73%70%63%65%68%

1314161417142121

272323

44633669101296.4

Million of hl

100% =

Evolution of the Must Production by End Product

Pisco production

Fresh consumption

Wine production

´97 ´98 ´99 ´00 ´01 ´02 ´03 ´04 ´05 ´06 ´07


9.9

CAGR ´97-´072.0%

-9.6%

-5.3%

4.7%

Must for wine production has increased at an annual rate of 5% in the last 10 years, while the production for fresh consumption and of pisco has decreased

8.2 6.8 9.2 7.5 7.0 8.4 7.6 10.0 10.3


80%85%85%80%

87%82%79%82%

58%56%57%58%

151110

13

914

151130

3127

31

545

7

44

6712

13

16

11

In million of hl

Evolution of the Wine Production Breakdown by Category

100% =

´97 ´98 ´99 ´00 ´01 ´02 ´03 ´04 ´05 ´06

4.3

5.3

4.3

6.4

5.4 5.6

6.76.3

7.98.5


The total production of wine in Chile has grown in the last 10 years (7% per annum) driven by guarantee of origin wines (10% per annum)

´07 ´08(E)

8.38.7

Table wine

Guarantee of origin

No guarantee

of origin

6.6%-1.1%

-0.1%

9.8%

CAGR ‘97-’08


Breakdown of Wine Production by Region2007

Source: Servicio Agrícola y Ganadero, CCV; Hermes' analysis

G.B. O’Higgins(VI Region)

Metropolitan Region

Maule(VII Region)


43 4938

32

26

124

4

9 11

19

7 413

29

123 8,279 451100% =

Cultivated area (‘000 hectares)

Production (‘000 hl)

Wineries (#)

Metropolitan RegionBio Bio

G.B. O’Higgins

Maule

Other

('000 liters/year)

Average production per winery

1,925

655

1,055

1,900

2,400

2,482


Breakdown of Wine Production by VarietyIn million of hl, 2007


Mavle

Merlot

Carmènere

14

13

9

9

59

41%

100% = 8.3

Others

Cabernet Sauvignon

Sauvignon Blanc

Chardonnay

Syrah

Cabernet Sauvignon accounts for 41% of total Chilean wine production


26

19

322

18

29%

Market Share by WineryIn million of hl, 2007

Source: Wines of Chile, Concha y Toro, Nielsen; Hermes' analysis

100% = 2.2

Others

Concha y Toro

Santa Rita

San Pedro

Local market Exports

11

764

44

3629%

Santa Carolina

TarapacáCanepa

Concha y Toro

San Pedro

Santa RitaCono Sur

MontesSanta Carolina

Errázuriz

Others

100% = 6.1

Local market for wineries is more concentrated than the exports marketConcha y Toro is the main Chilean winery, accounting for 29% of both local and exports market


Key Financials of the Main Wineries in Chile2007

Source: Annual reports, SVS; Hermes’ analysis

Revenues(Million US$)

Production(‘000 hl)

EBITDA(%)

547

174

167

67

Concha y Toro

Santa Rita

San Pedro

Tarapacá

21%

7%

7%

11%

43%

23%

63%

57

77

37 210

88

92

N/A

Concha y Toro is the largest winery in Chile focused on the exports market (63% of total production) and shows the highest EBITDA margin Santa Rita and San Pedro, are focused on the local market and show lower EBITDA margins

Exports Local consumption

11.5

19.2

Chilean averageInternational average


21%18% 16%

21%

8% 9%11%11%

5%3%

7%6%3%

1%

7%

13%

EBITDA (%)

Source: Annual reports, SVS; Hermes’ analysis

Evolution of the Profitability of the Main Wineries in Chile

2004 2005 2006 2007

Concha y ToroTarapacáSanta RitaSan Pedro

Profitability for wineries in Chile decreased during 2005 and 2006 (12% and 11% average EBITDA margin) due to local currency revaluation but recovered in 2007 (15% average EBITDA margin)

15%11%12%16%Average EBITDA margin (%)

522530560609Exchange rate (CH$/US$)


17.0

4.0

1.0

1.0

2.0

7.0

0.5

0.5

5.0

13.0

Cost Structure for A WineryIn US$/12 bottle case, Maule Valley, 1,000,000 liters example

Source: Corfo; Hermes’ analysis

Raw materials

Total cost

Raw materials (either grapes or bulk wine) and dry cost are the main costs

Transportation

Vinification

Dry cost

Operational cost

Permanent staff

Administrative staff

Equipment and well repair

Structural cost

29%

41%

3%

76%

24%

12%

6%

6%

100%

3%


Wine Sales and Distribution in Chile – Domestic Consumption

Source: Pontificia Universidad Católica de Chile, interviews, industry experts; Hermes’ analysis

2007

(): % of total volume (hl)

Wineries

Special direct sales Internet and Telemarketing

Restaurants, Pubs, Hotels

Distributor

Catalogues

Liquor StoresSupermarketsSpecialized Stores

Wholesaler

(3%) (1%) (1%)

(15%)(80%)

(75%)

(5%)

(20%)

(15%)(36%) (42%)(2%)

Exclusive Distributor

Consumer

Preferred distribution channel for large wineriesPreferred distribution channel for small and medium wineries


Breakdown of Domestic Retail Sales by Channel2007

Liquor stores and Supermarkets account for 82% of domestic retail sales of wine in Chile

Source: Industry experts, interviews, Nielsen; Hermes’ analysis

70%

44%

16

38

1 2

27

2

2,17928,700100% =

Volume (‘000 hl)

Number of players

Specialized stores

Restaurants, pubs, hotels

Supermarkets

Liquor stores


Wine Sales and Distribution in Chile – Exports

Source: Interviews, industry experts; Hermes’ analisis

Wineries

Broker

Freight forwarder

2007

(): % of total volume (hl)

Distributor

(25%)

(25%)

(55%)(20%)

Freight forwarderFreight forwarder

Consumer

Preferred distribution channel for large wineriesPreferred distribution channel for small and medium wineries


78%

22

451

2007, multiple answers allowed

100% =

Breakdown of Exports Distribution by Channel

Number of wineries

No export

Export

Source: Servicio Agrícola y Ganadero, CCV, Industry experts; Hermes' analysis

78% of wineries export their production and 50% export directly

50%

20%

38%

Direct

Indirect

Direct + indirect


18.3 19.016.8

14.6 15.2 16.215.0 15.5 15.4 15.4

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

In liters per capita

Evolution of the Wine Consumption per Capita in Chile

Wine consumption per capita in Chile has decreased at an annual rate of 2% during the last 9 years, reaching a steady value of 15 liters per year


CAGR ’98-’07: -1.9%


43

6

51%

Breakdown of Wine Domestic Consumption by ProductIn million of hl, 2007

100% = 2.2

BottleTetra-pak

Tetra-pak wines account for 51% of domestic consumption in Chile

Source: AC Nielsen; Hermes’ analysis

Plastic


57% 62% 59% 69% 53% 56%74%

43 3841 31

4744

26

In million of hl

Evolution of Chilean Wine Exports and Consumption

´01 ´02 ´03 ´04 ´05 ´06

100% = 5.5 5.6

6.76.3

7.98.5 8.3


Wine exports have grown at an average rate of 12% during the last 5 years, increasing its share of Chilean production

´07

Local consumption

Exports

CAGR ’01-’07

7.2%

-1.2%

11.9%


78%

22

451

July 2007 – June 2008

100% =

Breakdown of Exports by Winery Size

Number of wineries

No export

Export

Source: Wines of Chile, Industry experts; Hermes' analysis

39% of exporting wineries (136) are “boutique”, with annual export volumes lower than 50,000 liters per year

39% 27 22

18

12

781%

3

Number of wineries

Export volume (million of hl)

< 50 50 - 500 500 – 3,000 + 3,000

351

5.8

Thousand of export liters per year


Breakdown of Exports by Winery Size and Product

82

57

64

65

65

18

43

36

35

35

1,870

18,832

106,560

452,004

100% =

Source: Wines of Chile, Industry experts; Hermes' analysis

In thousand of export liters per year, July 2007 – June 2008

Smaller wineries (“boutique”) are more focused on exporting bottled wine, with an average price per bottle higher than that of larger wineries

< 50

50 - 500

500 – 3,000

+ 3,000

Total 579,268

Bottled wine

Bulk wine

(US$/bottle)

Average bottled export price (FOB)

4.4

4.7

3.4

3.1

3.2

‘000 liters/year


74%83%

1726

8.3 15.2

2007

100% =

Average Export and Local Wine Price

Million US$

Million of hl

Local consumption

Exports

Average price

(US$/lt)

Source: Servicio Agrícola y Ganadero, AC Nielsen, Industry experts; Hermes' analysis

Export wines, driven by higher quality of wines, sell at a higher price than wines for domestic consumption

1.83

1.20

2.06


593 602670

835 877963

1,257

65%65%70%62%62%63%67%

35

35303838

3733

In million of hl

Evolution of Wine Exports by Product

´01 ´02 ´03 ´04 ´05 ´06


Wine exports have increased during the last 6 years at an annual rate of 13.4%, driven by a volume increase and a slight price increase

´07

CARG ‘01 – ‘07

11.9%

11.2%

13.2%

100% = 3.1 3.54.0

4.74.2

4.7

6.1

Bulk wine

Bottled wine

Average price (US$/lt) 1.91 1.73 1.70 1.79 2.10 2.03 2.06

CAGR ’01-’07:

13.4%

100% =

Export value (US$ million)


23% 20%

17

46

5 55 55 53 43 43 32 3

29 30

17

1,08139

2007, bottled wine

100% =

Breakdown of Wine Exports by Country of Destination

Million US$

Million of bottles

UK

USA

Average price (US$/case*)

* 12 bottles of 750 ml caseSource: Wines of Chile; Hermes' analysis

UK and USA are the main importers for Chilean wines, accounting for 40% of total volumeAverage export price of Chilean wines is 28 US$ per case, achieving the highest price in Canada (37 US$/case)

CanadaGermany

BrazilNetherlands

IrelandDenmark

JapanBelgium

Other

28

29

3127 333327

2427

37

28

2440%


65%

89%

11

35

1,2576.1

2007

100% =

Average Export Wine Price by Product

Million US$

Million of hl

Bulk wine

Bottled wine

Average price (US$/lt)


2.06

0.65

2.82

Bottled wine is sold at a much higher price than bulk wine


228

5

11

26 72

Economics of Wine Exports – USA Market750 ml/12 bottle case imported, US$72 retail case price, New York Wine Merchant’s example

* Include alcohol taxes in destination countrySource: MHW; Hermes’ analysis

Supplier FOB

Freight and taxes*

Importer Distributor Retailer Retail price

The retail price is three times the supplier price, mainly due to the retailer margin

3.3x

() : Margin %

37%Mark-up 18% 30% 56%


Chilean Wine Market- Conclusions and Trends


Vineyards

Cultivated area for wine production accounts for 64% of total grape cultivated area. It has grown at an annual rate of 7% in the last 10 years, accounting for 1.6% of world total cultivated area in 2007

Maule and O’Higgins are the largest wine production Regions in Chile

Vineyards are very fragmented in Chile, with small vineyards (smaller than 5 hectares) accounting for 72% of total cultivated area. Nevertheless, vineyards have consolidated in the last years, mainly as a result of the main wineries buying smaller vineyards as part of their expansion plans

Cabernet Sauvignon and Carmenère are the varieties with higher annual growth in cultivated area, driving total cultivated area up

Vineyards in Maule and O’Higgins regions and the Metropolitan region (the main cultivated areas) are mainly for red wine production

Labor, raw materials and permanent staff are the main cost for a vineyard, accounting for 87% of total cost


Chilean Wine Market-conclusions and Trends (Cont.)


Wineries

Wine production has increased at an annual rate of 5% in the last 10 years, mainly driven by guarantee of origin wines, while the production for fresh consumption and pisco has decreased

Geographically, wine production is concentrated in Maule and O’Higgins regions, accounting for 82% of Chilean production

Cabernet Sauvignon accounts for 41% of total Chilean wine production

Local market for wineries is more concentrated than the exports market

Concha y Toro is the main Chilean winery, accounting for 29% of local and exports market (63% of total production) and shows the highest EBITDA margin (21%) of the main wineries. Santa Rita and San Pedro, the following wineries in Chile, are more focused on the local market and show lower EBITDA margins

Profitability for wineries in Chile decreased during 2005 and 2006 (12% and 11% on average of EBITDA margin) due to revaluation of the local currency, recovering in 2007 (15% on average)


Chilean Wine Market Conclusions and Trends (Cont.)


Wineries (Cont.)

Wineries use their own grapes to produce wines of guaranteed origin and purchase grapes from smaller vineyards for table wine production Raw materials (either the grapes or bulk wine) and dry cost are the main costs

Distribution and retail sales

In the domestic market, the main wineries have their own distribution system, while smaller wineries distribute their product through specialized distributors (e.g.: CavasReunidas, La Vinoteca) to hotels, restaurants, bars, and even supermarketsThe main wineries are using their distribution system to expand to new businesses, such as beer and imported liquor brandsLiquor stores (“botillerías”) are the main trading channel for wine in Chile, accounting for 53% of total domestic market, followed by supermarkets (29%)Specialized stores only account for 5% of total domestic market. Their core business is the distribution system

Domestic consumption

Wine consumption per capita in Chile has decreased at an annual rate of 2% during the last 9 years, reaching a steady value of 15 liters per capita per yearDomestic consumption in Chile is dominated by low quality wines, with tetra-pak wines accounting for 51% total market


Chilean Wine Market-conclusions and Trends (Cont.)


Exports

Wine exports have grown at an average rate of 12% during the last 5 years, driven both by a price and, mostly, a volume increase, increasing its share of Chilean production

39% of exporting wineries are “boutique”, with annual export volumes lower than 50,000 liters per year

Smaller wineries (“boutique”) are more focused on exporting bottled wine, with an average price per bottle higher than bigger wineries

Export wines, driven by higher quality of wines, sell at a higher price than wines for domestic consumption

Bottled wine sell a much higher price than bulk wine

UK and USA are the main importers of Chilean wine, accounting for 40% of total volume

Average export price of Chilean wines is of 28 US$ per case


Chilean ICT context


International Broadband Penetration

Source: IDC, Conatel; Hermes’ analysis

Broadband connections per 100 inhabitants, 2007

27.4%

24.1%

19.5% 19.0% 17.8% 17.0%

8.0%6.6%

4.0% 3.1% 2.9%

Developed countries (Canada, UK, USA and Spain) and those highly populated (Korea and Hong Kong) show high broadband penetration Chile shows the highest broadband penetration among Latin American countries

Korea Hong Kong

Canada USA UK Spain Chile Argentina Venezuela ColombiaBrazil


Broadband connections per 100 inhabitants, 2007

Broadband Penetration by Region

Source: INE; Hermes’ analysis

I. Tarapacá

II. Antofagasta

III. Atacama

IV. Coquimbo

V. ValparaísoVI. G. B. O’Higgins

IX. AraucaníaVIII. Bio Bio

X. Los Lagos

XII. Magallanes

VII. Maule

XI. Aisen

MetropolitanRegion

XIV. De Los Ríos

XV. Arica

8.0%Total Chile

Broadband penetration above average

6.4%

14.1%

12.8%

7.8%

5.1%

8.2%

11.4%

4.1%

3.2%

5.9%

5.2%

7.1%

6.1%

5.0%

3.8%

Arica

Tarapacá

Antofagasta

Atacama

Coquimbo

Valparaíso

Metropolitan Region

G.B. O'Higgins

Maule

Bio Bio

Araucanía

De Los Ríos

Los Lagos

Aisen

Magallanes

Main wine producers regions


Mobile Penetration

Source: ITU, SubTel; Hermes’ analysis

Mobile subscribers per 100 inhabitants, 2007

177%

150% 146%

119%110% 102%

84% 83%74%

64% 64%

Chile shows a mobile penetration similar to that of the USAArgentina shows the highest mobile penetration among Latin American countries

United Arab Emirates

Qatar Hong Kong

UK Spain Argentina USA Chile Mexico BrazilColombia


Total Chile

Mobile subscribers per 100 inhabitants

Mobile Penetration by Region

Source: SubTel; Hermes’ analysis

I. Tarapacá

II. Antofagasta

III. Atacama

IV. Coquimbo

V. ValparaísoVI. G. B. O’Higgins

IX. AraucaníaVIII. Bio Bio

X. Los Lagos

XII. Magallanes

VII. Maule

XI. Aisen

MetropolitanRegion

XIV. De Los Ríos

XV. Arica

83%

Mobile penetration above average

Arica

Tarapacá

Antofagasta

Atacama

Coquimbo

Valparaíso

Metropolitan Region

G.B. O'Higgins

Maule

Bio Bio

Araucanía

De Los Ríos

Los Lagos

Aisen

Magallanes

ESTIMATED

141%

146%

83%

109%

105%

79%

66%

84%

32%

136%

99%

126%

83%

78%

102%

Main wine producers regions


Evolution of Mobile Penetration in Chile

Source: SubTel; Hermes’ analysis

Mobile subscribers per 100 inhabitants

22%

33%39%

45%

57%65%

75%83%

2000 2001 2002 2003 2004 2005 2006 2007

Mobile penetration has increased at an average annual rate of 21%, although it is expected to slow down

BACK-UP

CAGR ’00-’07:

21%


2008

Source: FIA, interviews, Industry experts; Hermes’ analysis

Technology Utilization by Vineyard Size

Large vineyards(more than 10 hectares)

ERP manage their production In most cases have Internet connection, either by broadband or satellite connections

Description

IT adoption depends on the size of the vineyards, where the main barriers for small and medium vineyards to adopt IT tools are:

Lack of broadband or Internet connectionsFinancingTrainingAge/profile of small vineyard owners

Medium vineyards (between 1 and 10 hectares)

Small vineyards(less than 1 hectare)

IT adoption

High

Low

Basic PC adoptionIn many cases are managed by elder people, with very low or no knowledge on IT

Internet adoption varies among regions, depending on broadband penetration Basic knowledge on IT

Number

~2,400

~6,000

~5,600


Documents

Chilean Wine Industry Analysis - Corfowapp.corfo.cl/ticrural/descargas/Stakeholders_Presentation.pdf · China. Australia. Chile ... Evolution of the World Wine Consumption ... * Based