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By: Drew Benson and Elizabeth Hester

Before Paul Schaye heads for Southampton, he packs a bottle or two of Argentine malbec.

“I’m into flavor and rich color. It’s not over the top in terms of price,” says Schaye, 56, managing director of New York-based Chestnut Hill Partners, which helps private-equity companies find takeover targets. “I love malbec.”

These days, people in the Hamptons, a Long Island retreat for financiers and celebrities, aren’t indulging as they used to in high-priced brands such as Opus One, Schaye says. The Opus One winery sells its 2005 Bordeaux-style blend for $190 a bottle, while Schaye says he pays $18 to $22 for a malbec.

U.S. consumption of Argentine wines is rising as the global recession spurs even the wealthy to hunt for bargains. In the first six months of 2009, imports from the South American country rose 34 percent from a year earlier to $103 million, while mainstays Italy, Australia and France recorded U.S. sales slumps of as much as 30 percent.

“Argentinean wines for the most part are very nicely priced, and in these crunchy times for everybody that holds a great deal of appeal,” says Juliette Pope, wine director at New York’s Gramercy Tavern, who calls malbec “lush and approachable.”

The Opus One blend, a mix of grapes including cabernet sauvignon, merlot and petit verdot, isn’t really comparable to a malbec relying on a sole varietal, says Roger Asleson, director of public relations at the Oakville, California, winery.

Stealing Merlot

While slow, the market has been resilient this year at Opus One, with almost all buyers taking their full allocations of bottles, Asleson says.

Overall in the U.S., consumption is flat, according to Frank Walters, research director at M. Shanken Communications Inc., a New York-based consulting company that publishes Wine Spectator magazine.

“Malbec is very popular and is probably stealing a lot of merlot sales,” Walters says. “It’s conducive for tastes in America and it’s priced right.”

Merlot is the most popular varietal in the U.S. after Chardonnay, Walters says, citing Shanken’s Impact Databank 2009 wine report. Annual merlot sales are almost $2.5 billion and two-thirds of what Americans drink is from California, according to Walters. The state makes more than 90 percent of all U.S. wine, producing 546 million gallons in 2008, according to the Wine Institute in San Francisco, which represents the industry.

‘Rare Combination’

In Argentina, malbec, a grape of French origin, has flourished in the intense sunlight, arid climate and nutrient- poor soil found at the foot of the Andes, says Nicolas Catena, whose family owns Bodega Catena Zapata, a century-old winery in the western province of Mendoza.

“The fruit flavors are dense and yet the tannins are very smooth,” says Catena, 69, over a lunch of sweetbreads, blood sausage and a variety of beef cuts at Piegari Vitello e Dolce, a Buenos Aires restaurant. “That’s a rare combination for a new world wine; that’s why it’s popular in the U.S.”

In the first six months, U.S. imports of Argentine wine by volume climbed 39 percent to 25 million liters (6.6 million gallons), according to the U.S. Department of Agriculture. Purchases from Chile rose 22 percent to 31 million liters.

Argentina is the fifth biggest exporter of bottled wine to the U.S., up from seventh in 2004, when it trailed Spain and Germany. Chile is No. 4, behind Italy, Australia and France.

The U.S. is Argentina’s main wine export market, taking almost a third of all shipments during the first half of 2009, according to research group Caucasia Wine Thinking in Mendoza.

Cheap at Home

Producers in Mendoza and other regions are gaining ground because, unlike some competitors in Australia and Chile, they haven’t flooded the U.S. with cut-rate bulk blends, says Jay Miller, a taster for The Wine Advocate, a newsletter published by U.S. wine critic Robert Parker.

“Most cheap Argentine wine is consumed at home, so when they start to export, the level is very good,” says Miller, whose coverage includes South America and Australia, in a telephone interview from his country home north of Baltimore.

Argentine winemaker Susana Balbo compares her Brioso blend of cabernet sauvignon, cabernet franc, petit verdot and malbec - - which retails for about $45 in the U.S. -- with a $200-$250 bottle of French Bordeaux.

“I’m a fan of big French wines, the blends,” says Balbo, 53, whose Dominio Del Plata Winery stands against a backdrop of the snowcapped Andes. “Within a radius of 10 kilometers (six miles) in Mendoza you have vineyards at up to five different altitudes with up to five characteristics that yield different wines that can be blended.”

Quality for Price

Argentina’s inflation rate, which Credit Suisse Group AG economist Carola Sandy estimates was as high as 15 percent during the past 12 months, is pinching profits for vintners, Balbo says.

The peso will slide 15 percent this year to 4.07 per dollar, as the government engineers a controlled decline to shore up exporter profit margins, according to a Bloomberg News survey of 12 economists. That would make the currency the worst performer among major wine producing nations, helping the country’s exporters compete. Chile’s peso is expected to rise 16 percent this year to 550 per dollar, a Bloomberg survey of 14 economists shows.

“The primary thing that is driving Argentine wines is the enormous quality that the wine delivers for the price,” says Jon Fredrikson, who heads Gomberg, Fredrikson & Associates, a wine research firm in Woodside, California. “Malbec has potential to go to enormous volume levels” and sales may quintuple during the next five to eight years, Fredrikson says.

Schaye says he started drinking malbec about four years ago, and that many of his friends are now won over.

“That’s the beauty,” he says. “You can drink well at a good price point.”

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