THE CAVA INDUSTRY

Today’s article talks about the cava industry. It is based on a work done with other colleagues when I was doing my degree.

The cava industry is a traditional manufacturing sector in Catalonia that has been characterized by low technological developments in production. Currently, the cava market in Spain and in Catalonia is very stagnant and that's why producers of cava are growing through exports and internationalization, having access to new markets. Moreover, in both international and national levels, products like French champagne, sparkling wine, proseco, lambrusco and other beverages are emerging as substitutes. So, companies have to face competition not only with cava producers, but also with other kind of products. In this sense, a part of the Catalan production, in some parts of Spain are appearing new cava appellations of origin that represent competition for Catalan cava.

Traditionally, in Spain, the cava market was almost divided by Freixenet and Codorníu, two Catalan companies that began their production with cava and then were able to diversify its business through acquisitions, expansions and going abroad. But, in recent years, it has appeared another major producer of cava in Spain: J. García Carrión. As a result, today there are only three companies that enjoy a considerable market share in Spain: only Freixenet , Codorníu and J. García Carrión have a 48% of the market share. Therefore, the competition between these three companies is very strong and there is a bit of a struggle for market share. The rest of the market share, 52%, is divided into small companies and small producers, especially in Catalonia, but also in some other parts of Spain such like Rioja, Extremadura, Navarra and Aragon.

 

                     Figure: Market Share of the Spanish Cava Market.

                     Source: El País. http://elpais.com/diario/2011/01/16/negocio/1295186606_850215.html

Industry characteristics

The viticulture industry represents an important portion of the agriculture sector and the alimentary industry in Catalunya. The importance that it has in this sector is answered by the contribution it makes to the Catalonian economy, and also in the promotion and definition of the origins denominations in Catalunya. It defines an identity based in the binomial “cultural – geographical” that can generate externalities in other sectors of the economy. The viticulture is one the sectors where is better defined the concept of this identity as a strategy of differentiation of their products.

From some data from IDESCAT (2005), is shown that the structure of the viticulture sector in Catalunya is composed by 400 establishments approximately. Historically, since the 90’s, the number of companies in this sector have been rising although it has not been transformed in higher levels of occupation.

The surface and total production of wine in Catalunya in 2010 has decreased, respect to 2009, in more than 3,000 ha, meaning a decrease of 5.1%. In terms of production, there has been a decrease of 3.6 percentiles points. Tarragona is the province with the higher surface for the production of wine (48.6%), followed by Barcelona (38.7%), Lleida (8.8%) and Girona (3.9%).

The proportion of vineyard irrigation remains constant since 2009. The surface in production in Catalunya represents the 96.1% of the total surface, increasing 1.5 percentiles points from 2009.The viticulture industry is the third big subsector of the agro alimentary industry in Catalunya. The exploitation revenues have reached the 1.100 millions of Euros, with a proportion of sales of more than 1.000 millions of Euros. Catalunya is the first producer of the Spanish State in terms of wine of high quality, and it occupies the first position in sales, with 23% of the total sales in Spain.

 

Regarding to the establishments, this sector is highly polarized, and it extends all over the Catalonian territory. The size of the industry is composed by medium and smalls companies, in general, with a high level of concentration of these companies in the comarca (shire) of Penedès. The fact that the production of wine is done under an origin denomination represents a guarantee of the fulfillment of the quality regulations.

This industry has some entry barriers such as capital needed to engage a company, apart from the infrastructure and machinery necessary for the production. Another barrier not less important is to obtain permits from the government. In this case the entrance of a new company (producer) is a rarely situation. It is sometimes more common the fusion or acquisition of a company by another. In this sector it is also important the environmental barrier and the cost or effects that can cost the entrance of a new agent to the industry. As exit barriers we could found the matter that depending on the prestige of the company and its distribution network it can be in some way difficult to disappear from the market without assuming some risks.

As an industry, it makes some exports and imports. This sector could be considered as one of the most emblematic, because its exports suppose the 35% of the total sales. In terms of monetary value, the exports overcome 400 millions of Euros. Nevertheless, it is important to highlight the imbalance between exports and imports. In Catalunya, the foreign products in the last years only represent 40 millions of Euros. The tendency of both issues has represented an increase in the last years.

The principal market of the imports comes from Europe. The main supplier of wine in Catalunya is France, which represents approximately 70% of total imports. It is followed by Portugal and Italy, and at a greater distance, Chile and Germany. It is therefore a very dynamic sector, able to cope with the high international competition.

The main destinations are countries from the European Union, mainly Germany. It absorbs almost 39% of total exports. Other destinations from outside the EU are the United States (which import 12% of the production) and Switzerland. It can be highlight also the recent expansion of exports to countries like Mexico and Belgium.

Cheers!!!