S. Karabell
Vineyards at Moet Hennessy's Chandon estates in Mendoza, Argentina.
There is a cynical joke in Argentina that goes something like this: God gave Argentina vast acres of fertile land where crops grow and cattle graze and horses roam, and He gave Argentina oil and minerals to fuel their potential. And when He had finished, God worried that perhaps he had put a bit too much goodness into this country…and so, he created the Argentine people.
If you look back at the country’s recent leadership history, you might find this joke more descriptive than funny: since World War II, with populist leader Juan Peron and his rock-star wife Evita, to military rule to fledgling democracy to the unpredictable Menem and then 12 years of the husband and wife economic voodoo of the Kircheners (which spawned the largest government default in history), Argentina has been subjected to corruption and almost continual isolation by inward-looking governments, missing out on most of the progress in the northern hemisphere. Agriculture such as soybeans and natural resources such as oil and gas have been – and still are - the export staples for decades.
“For the last 12 years, we suffered a lot, one businessman who wished to remain nameless told me in an interview for this blog. “The government statistics were totally off base, they insulted people’s intelligence. In reality, inflation was more than 30% a year. We were dealing with a fake cost of goods, fake prices, high taxes, currency restrictions…it was like living in an alternate universe paid for by soy beans.”
Malbec & Macri
Today this is changing as two forces in Argentina have coincided: the rise of the wine-based hospitality sector - creating international attention and business - and the election as President in 2015 of businessman and popular football team owner Mauricio Macri – son of a successful immigrant Italian industrialist.
In an early post-election blitz, Macri managed to settle Argentina’s stand-off with recalcitrant bond holders over the country’s default, depreciated the Peso (thereby putting the brakes inflation, if slowy, and putting an end to the black market, though significantly depreciating purchasing power), removed export controls, and restored normal pricing. Businesses responded positively. Consumers – weaned off the Kirchener economic price subsidies - did not. A lot of Macri’s ability to realize his goals for the country’s economic revival rests on the country’s regional elections in the autumn.
Meanwhile, the new government is moving to take advantage of Argentina’s natural wonders – mountains, dramatic scenery, wines and food – to shape a tourism industry that should thrive, supported by an exchange rate attractive to foreign tourists.
“Tourism is crucial for Argentina’s economic development, generating direct and indirect employment,” Tourism Minister Gustavo Santos told me in an email exchange for this blog.
Argentine Ministry of Tourism
Argentine Tourism Minister Gustavo Santos.
Minister Santos points to the new Argentine “brand” -#ArgentinaWorldFriendly – created to “attract 9 million international tourists to Argentina by the end of 2019, and to be a reference for excellence in Latin America,” he says. Part of that effort is a new VAT refund scheme on accommodations, which exempts foreign tourists paying with a foreign credit card from the country’s 20% hotel tax. Santos expects this plan alone to attract 95,000 new tourists per year, generating $70 million and some 8,000 new jobs. He adds, “ We want Argentina to become a hugely attractive tourist brand…Our wine and gastronomy are very important aspects of this.”
Indeed, wine and food-based tourism has outperformed the country’s economy for a while, according to Jorge Perez Cuesta, President of the Mendoza Stock Exchange, in an email exchange for this blog: “The annual average annual employment growth rate for the hospitality sector during the last 20 years was 5%, compared to 3.3% for the whole economy. This sector employs near of 5% of the total formal private employment in Argentina. For some regional economies like Mendoza, Salta and Neuquén those rates could be even higher.” This growth has been generated largely by waves of foreign investment by companies eager to apply technical know-how to Argentina’s vast natural resources.
Foreign Investment
One such company is Moët Hennessy, the wine and spirits division of the world’s leading luxury goods conglomerate, LVMH. It is Moët & Chandon in the 1950s that first saw opportunities in Argentina to expand wine varieties beyond the popular Malbec and robust reds favored by the Italian immigrants who brought their expertise to Argentina at the turn of the 19th century.
Convinced that regions other than Champagne in Épernay, France, could produce sparkling wine, the company dispatched legendary winemakers Jean de Vogüé and Renaud Poirier to find it. Argentina’s sandy clay soil, varying temperature, and abundance of sun were a perfect fit. By 1959, the company was harvesting grapes and creating Argentina’s first fresh, light sparkling wine (Chandon Extra Brut) in the French method, from vineyards at 980-1500 meters above sea level.
S. Karabell
Herve Birnie-Scott, Estate Director at Chandon Argentina (Moet Hennessy), at the Chandon vineyards. (Photo credit: S. Karabell)
Frenchman Herve Birnie-Scott – an Argentine fixture since first coming to the country to work in the wine business 1991 – heads up the Moët Hennessy’s three estates in Argentina: Chandon, the largest, created in 1959, and the bar against which Argentina’s wine production is measured; Terrazas de Los Andes, created in 1999; and Cheval des Andes, also created in 1999 – though Malbec grapes were first planted here in 1929. The estates feature five varieties of grapes (Malbec and Cabernet Sauvignon are the largest production; Cabernet Franc, Merlot, Petit Verdot are considerably smaller and exist historically to reference Bordeaux) creating wines that Birnie-Scott likes to call “a synthesis of France and the New World.” The labels are Chandon, Terrazas des los Andes and Cheval des Andes.
In expanding the traditional Argentine output to sparkling and more refined wines at higher prices, for both local consumption and export, Chandon has become one of the growth-drivers of the sector which in itself is a growth driver for the entire country. It’s a situation of a rising sea taking all boats with it.
“In the last 15 years, well-known wineries in rather remote regions have begun to open exclusive restaurants, “ notes Perez Cuesta. Foodies came from the world over. While the MH companies in Argentina have not marketed themselves extensively as tourist attractions, they are nonetheless destinations: Terrazas, with its intimate guesthouse of six rooms, had some 5,000 visitors last year; Chandon’s facility had more than 15,000. (By comparison, Chandon Napa had 250,000 visitors last year, their maximum capacity.)
‘The hospitality sector also plays a significant role in the social and the cultural life of regional communities,” adds Perez Cuesta. The increase in tourists seeking exclusive food and wine has also increased interest in the traditional activities featured by the region, such as lake fishing, mountain hiking, horseback riding, river-rafting and the like. Additionally, the government has been encouraging the development of 5-star hotels particularly in Mendoza, and has been working to improve Mendoza airport´s infrastructure and to allow new direct flights connecting the region with other parts of Argentina and the world. Just paving roads and improving highway infrastructure would improve the logistics of getting wines to market.
courtesy Moet Hennessy
The Moet Hennessy Cheval des Andes vineyards in Mendoza.
Today, about 20% of Moët Hennessy’s overall global wine production by volume comes from its Argentine estates. Of that, 25% of the Argentine output is sold domestically in Argentina; 40% in North America, and 35% to the rest of the world. China is fast emerging as a solid market for such wines as Terazzas de los Andes and Cheval des Andes. Overall, the company anticipates global growth in its Argentine wine sales of some 5% per year for the next five years, driven predominantly by export: while Malbec remains the blockbuster, Terrazas and Cheval continue to gain popularity in the North American markets. The Malbec Reserva from Terrazas, for example, is priced to drive volume and to attract customers eager to try new wines in restaurants. North American growth is driven by high-end restaurant chains such as Novecento and STK as well as by retail outlets such as Bevmo on the West Coast.
Reforms & Investment
The economic reforms taken by Argentine President Macri have bolstered Chandon’s plans for the future. “The Argentine government has required all industry energy consumption to include 8% of renewable energy sources,” Birnie-Scott says. “LVMH (parent company of Moët Hennessey) was quick to support this with a $250,000 immediate investment to create solar panels for our work here at Chandon. In 3-4 years we will be producing some 12% of our energy from solar sources.” The company also does its own energy audit annually. LVMH’s total investment in alternative energy is targeted at $800,000 in the longer term. It’s not cheap, but the investment will pay off down the road in cheaper energy costs, especially when the government withdraws its price supports from the oil and gas produced by the state-controlled energy company YPF. The company is also acquiring new fields for vineyards, installing new presses, changing over to drip irrigation in some of its older facilities – which means creating reservoirs to hold water - and planting new fields.
The road ahead will not be easy. Macri’s reforms are taking longer than voters expected. “Inflation remains high,” Perez Cuesta points out, “and a massive capital inflow on the other hand have eroded almost all of the real devaluation; currently the very low real exchange rate is one of the main problems for this sector as for the rest export activities.” Perez Cuesta would like to see lower taxes and a shift in labor laws, “Because many industries in the hospitality sector have seasonality shifts, a special employment regime would be very helpful.”
Turning a country around and tending vineyards have at least one thing in common: long-term vision. Argentine President Macri will need to pull a few rabbits out of a hat to ensure he doesn’t lose seats in the country’s congressional elections in October. The Moët Hennessy estates can draw on the deep pockets of LVMH to make the best of what’s available in Argentina’s natural resources. “We are creating a new space for wine,” Lorenzo Pasquini, the winemaker for Cheval dos Andes told me. At 27, he represents the future. “Argentina is the only country in Latin America that has an Old World wine culture, largely because of Italian immigration. Now we have the possibility to change what the market expects from Argentina.”
Birnie-Scott adds, “If we can make it better, we will.”
