Brazilian wine producer Miolo aims to cultivate customers at home by winning favour overseas

May 28, 2013 5:18 pm

A vineyard’s ambitions for a bouquet from Brazil

By Joe Leahy

When Morgana Miolo started doing business in China two years ago, the Brazilian was struck by the cultural differences of operating in the world’s second-largest economy.

“The Chinese close a deal with the most important person at the table raising a glass in toast higher than the others,” says the gaúcha, as people from Brazil’s southern state of Rio Grande do Sul are known. “My first time there, I didn’t know this stuff.”

More unusual than the vagaries of doing business in China, however, was the product Ms Miolo was selling. Hailing from a country best known in China for its savvy on the football field, this fourth-generation scion of a family of Brazilian viticulturists was in Shanghai to establish a market for her Miolo wine brands.Now Miolo is achieving a feat many Brazilian companies can only dream of: selling something to the Chinese that is not soyabeans or iron ore. It is part of a wine industry that has been forging new paths into overseas markets in spite of Brazil’s high costs, and with a product not normally associated with Latin America’s largest economy.

The push is part of a wider campaign to promote exports of value-added products to try to offset the country’s dependence on unprocessed raw materials and commodities, particularly in commerce with China, its biggest trading partner. “We see analysis come out that there is a complementarity between the Brazilian and Chinese economies, but we want to go beyond complementarity, we don’t just want to sell commodities and import manufactured goods exclusively,” foreign minister Antonio Patriota recently told the Financial Times.

The story of Miolo tracks that of Brazil’s wider wine industry. Ms Miolo’s great grandfather, Giuseppe, arrived in Brazil in 1897 like thousands of other Italian immigrants at that time. He went to Bento Gonçalves in the Serra Gaúcha, a mountain range in Rio Grande do Sul, and bought “Lote 43”, some land in what became known as the Vale dos Vinhedos, or Valley of the Vineyards.

The family produced grapes for sale to vineyards until the 1980s, when prices collapsed, and Guiseppe’s three grandsons, Antônio, Darcy and Paulo, switched to making wine themselves. They produced their first, the Reserva Miolo Merlot, in 1992. “The family had to make a decision for its survival, so it started producing wine as an alternative source of income.”

Today the company claims to have 40 per cent of the fine-wines market in Brazil – wines using the vinifera grape varieties of Europe – and 15 per cent of Brazil’s spumante market. It produces 12m litres of wine from 1,150 hectares of vineyards across Brazil. These include those in Vale do Sao Francisco in tropical Bahia state, which produces three harvests every two years rather than the normal one per year. Miolo exports to 20 countries and revenue has grown from R$1m in 2000 to R$100m by 2010.

In the early 2000s, as the eight great-grandchildren of Guiseppe, comprising the fourth generation, assumed day-to-day management of the business, they began to see the limitations of Brazil’s still immature domestic market for fine wines.

Among the newer generation, Adriano Miolo, now chief executive, and his brother Fabio, had studied oenology, the science of winemaking, and knew that to be properly recognised inside and outside Brazil, Miolo would have to establish its brand overseas. “The inspiration to export came from our desire to make Miolo an international brand, the reference for Brazilian wine abroad,” says Ms Miolo.

The transformation started in 2003, when they contracted Frenchman Michel Rolland – one of the “flying winemakers”, a group of elite international travelling wine consultants who have transformed the industry globally – for 10 years to work on quality at Miolo.

Realising, too, that it did not have the financial muscle to create an international brand, Miolo teamed up with other local vineyards and a state industry group to form in 2002 what would become Wines of Brazil.

Learning about Chinese tastes for Brazil’s wines

As with Latin American exports in general, there is a temptation to lump Brazilian wines in with their counterparts in Spanish-speaking America. But, as with Latin America in general, this would be wrong. Brazilian wines are generally lighter and less alcoholic than their New World peers and are more like those of the Old World.

Now, they seem to be finding a ready audience in that oldest of markets, China. Morgana Miolo says the Chinese are exacting customers. The country’snouveau riche drink partly as a sign of status, which means they buy wine in restaurants rather than at the supermarket. “What we learnt in Europe had no application, we had to start from zero,” says Ms Miolo, who first visited the country as part of a trade delegation in 2011.

Miolo concentrated on building a strong brand, which included opening a store in Shanghai and emphasising its family history, which is a plus point for the Chinese.

For advertising, it bought a large outdoor site in Shanghai that featured the puffy white clouds and pure blue sky that are common at Miolo’s vineyards in southern Brazil – again, a plus point for the Shanghainese, who are accustomed to more polluted skies.

For years, Brazilian wines had depended on the exotic idea that the country of samba and beaches could produce wine. However, to build a sustainable ex­port industry, the wine producers needed to convince consumers that the wines were not just exotic but also good. The organisation set about creating a more serious image by attending fairs, inviting foreign wine writers to Brazil, and matchmaking Brazilian producers with importers. “We wanted to show that we have quality wines,” says Andreia Gentilini Milan, promotions director of Wines of Brazil.

The trade body is now staging international events around Brazil’s hosting of the World Cup next year and the Olympics in 2016, such as the Wine Cup, a series of wine tasting competitions culminating in a final in Brazil next year.

Despite the export drives, Brazil and Miolo alike still sell a fraction of their production overseas. The UK is Miolo’s biggest market followed by China, where it sells only 7,000 cases a year (up from almost nothing two years ago).

Meanwhile, Brazilian producers struggle with high costs. They pay as much to ship a bottle of wine to the nearest port less than 500km away from Miolo’s vineyard in the Vale dos Vinhedos as to ship it to China. In the domestic market, they pay half the price of a bottle in tax, handing the advantage to producers in neighbouring Chile and Argentina, which can enter Brazil duty-free. Perhaps for this reason, foreign products constitute 80 per cent of the Brazilian wine market.

Indeed, the real prize for Brazilian and foreign producers alike is this domestic market. Brazilians consume only 2 litres of wine per capita per year compared with 23 litres for neighbouring Argentina, leaving room for enormous potential growth.

This is where being an exporter can help a Brazilian producer’s fortunes at home, Ms Miolo argues. Brazilians value imported products above domestic ones, but they are willing to grant an exception for Brazilian companies that have succeeded abroad.

“When consumers see that a Brazilian vineyard exports, they assign their products the status of an imported wine,” says Ms Miolo.

Overall, Brazilian wines may not be the cheapest but the fact they are not French or Italian or Chilean or Argentine continues to be their strength because they attract wine connoisseurs who are ever keen to experience something new.

Ms Miolo says “we have turned lemons into lemonade”, using the Portuguese expression for creating something good out of something bad, or in this case turning a disadvantage into an advantage.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (, the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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