Cono Surs GM, Adolfo Hurtado, says Chile was unprepared for Brexit

Cono Sur's GM, Adolfo Hurtado, says Chile was unprepared for Brexit

June last year, and Adolfo Hurtado, the gregarious chief winemaker & general manager for Concha y Toro's Cono Sur, is in a sunny mood as he goes about his day at the Chilean winery.

"I remember walking from the office to the tasting room," Hurtado tells just-drinks at the Cono Sur estate in Chimbarongo last week. "I thought, 'Today I feel that it is one of those days when all the stars are aligned'. Everything was so smooth."

He pauses. "And then it hit."

"It" was Brexit - when the UK narrowly voted on 23 June to leave the European Union, sending the pound into freefall. Ever since, the global wine industry - for which the UK is a key export market - has been on uncertain ground.

For Chile, the Brexit vote has been particularly harrowing. Hurtado's - in hindsight hubristic - optimism that June day was based on a combination of seemingly rock-solid factors. First, the Chilean Peso, which had fallen against the US Dollar and the UK Pound in 2015, had returned to levels far more friendly for an export-focussed company such as Cono Sur. Secondly, Chilean wine was bucking a downward trend in the UK wine market and, unlike other top wine-producing nations, was actually in growth with UK consumers.

Brexit, and the plummeting Pound, changed all of that. It wasn't the first time the Chilean Peso had been as strong against the UK currency, but the suddenness of the upswing caught Chilean winemakers unprepared.

"The problem is that everything changed in one day," says Hurtado, who estimates that his business in 2016 was 15% down on projections made at the start of the year. "When that happens, you are not prepared."

What lies ahead for Chilean winemakers in the UK is of major importance to them. The country accounts for about a quarter of the country's wine exports and almost one-fifth of its value sales. However, on a press trip to a number of Concha y Toro vineyards, including Cono Sur, UK journalists were surprised last week to be asked as many questions about Brexit as they themselves posed. As UK politicians grapple with the complexities of withdrawing from one of the world's largest trading blocs, the wine world has been left scrabbling in the dark for clues to what Brexit means for them.

"It is a process that nobody has been confronted with," says Concha y Toro's international business manager, Thomas Domeyko. "[Brexit] is like a new disease that has appeared and nobody knows how to treat it."

What Domeyko is certain of is that there will be a lot of volatility in the UK market over the next few months. The challenge, then, "is to say how much is transitory and how much is permanent, and how quickly do I move and react to this new reality".

Suppliers, says Domeyko, now find themselves facing off against each other in a game of price-tag chicken. Because of the fall in the Pound, UK margins - already stretched by the supermarkets - have disappeared. Price rises are, therefore, inevitable. Indeed, Concha y Toro has already raised its UK prices, implementing increases in the third quarter last year while reducing promotional activities on its brands. That was a month after the UK's Conviviality Group confirmed price rises across its Bibendum PLB and Matthew Clark wine distribution businesses.

However, Domeyko believes this to be just the first skirmish in what will be an ongoing and long-running pricing battle between suppliers, as they wait to see which one of them will flinch first.

"We will all have to react, so the point is who throws the first stone, [and] how far do you move?" says Domeyko. "If you move too little, you will probably have to move again and, as nobody knows what will happen to the pound, then you might move too much. It's a game that will expose the business to continuous discussions regarding pricing in the coming semesters."

Further "adjustments" for wine exports to the UK lie ahead, Domeyko warns. As CyT sees it, UK consumers will have to get used to price increases across the board as the fallout from Brexit takes deeper hold.

"Sooner, rather than later," says Domeyko, "the UK is going to start suffering."

Meanwhile, at Cono Sur, Hurtado tries to remain upbeat. "We are now in a completely different scenario from the first semester last year," he says. "But, it doesn't mean that people [in the UK] will drink less wine or people will stop spending money on wine."

He is, however, adamant he won't make last year's mistake of being overly optimistic. Business projections this year, he says, "are much more conservative".