The spirit of Hungary finds new appeal

By bne IntelliNews August 4, 2009

Rob Smyth in Budapest -

While the quality of palinka, Hungary's EU-protected fruit brandy, has undoubtedly come on leaps and bounds in recent years, as witnessed by a plethora of international awards, producers say they need to cooperate to achieve the kind of higher quality, year in year out, that would be needed to break into international markets.

For the moment, palinka makers are having to work hard locally to fight through the recession while continuing to raise the quality bar. "The top end and off-trade [retail] is covered during the recession, but we've witnessed a 30% downturn in sales in restaurants," says Sandor Zwack, who runs the palinka division of Budapest Stock Exchange-listed spirit company Zwack Unicum.

However, it was restaurants that played an important role in the development of high-end palinka, since it was by visiting Hungarian restaurants in the 1990s that Tuscan-raised Zwack spotted a huge gap. "Back then, palinka was considered a poor man's drink and I was amazed that the most traditional Hungarian drink, which has its origins in the 1300s, could not be found in the best restaurants alongside the likes of malt whiskies. In Italy, grappa and food go hand in hand," says Zwack. "Palinka is made from fresh fruit and the base ingredients are better than those that go into the likes of whisky and vodka. Palinka can be a real source of national pride."

Hungary boasts 200 varieties of apricot and has plenty of its own indigenous varietals of fruit; like the Szatmari szilva, a kind of plum; or Ciganymeggy, "Gypsy" sour cherry. If the fruits are not always exclusive to Hungary, then they are often of prime quality. Both make for high-quality distilled palinka.

EU protection

The production of palinka in the EU is regulated by decree 1-3-1576/89, which came into force on July 1, 2002. According to the regulation, an alcoholic beverage may be called palinka in the EU only if it is: made 100% from fruit or marc indigenous to the Carpathian Basin and grown in Hungary; does not contain any additives, such as sugar, honey, aromas, flavourings, etc.; it is produced and bottled in Hungary; and its alcohol content is between 37.5% and 86% ABV. Then, in 2004 the EU accepted palinka as a Hungarian specialty, and hence its production is limited to Hungary, plus four provinces of Austria for palinka made from apricot.

Hungarians are now lapping up more of their national drink and more than 16,000 attendees at Budapest's annual palinka festival in May downed some 3,000 bottles of 400 kinds of palinka from 25 distilleries. What is more, these are far from cheap products and makers are reaching out to the professional classes. "The market is now where the wine market was 10 years ago; now everyone wants to make palinka," says Zwack.

The high-end palinkas from Zwack, known as Zwack Nemes Palinka (literally noble), start at several thousand forints (€15-25) for a 375-ml bottle and have excelled in international competitions. A breakthrough came when its Nemes Blackcurrant (Ribizke) palinka won a top-of-category gold medal at the International Wine and Spirit Competition in London in 2007 - the competition Zwack reckons is the most prestigious that palinka can compete in. In this year's World Spirits Award, Nemes White Strawberry (Feher Eper) palinka won its fourth straight gold medal in a row since 2006.

Zwack is far from alone in his pursuit of higher quality. At the international 2009 Destillata awards in Vienna, Tibor Vertes of Agardi Palinkafozde won the prestigious "Distiller of the Year" prize, while Agardi Palinkafozde also scooped the best international and Hungarian distillery award. Csaba Mate of Matheus Palinkahaz won best newcomer in the international category, while four Hungarian palinkas won "fruit brandy of the year" accolades. There were also five gold, 32 silver medals and 55 bronze medals awarded to Hungarian entrants.

Following the Destillata awards, Vertes called for Hungary's palinka makers to unite to work toward achieving the kind of year-in-year-out quality that would be required to make inroads into international markets. "The achievements gained at the Destillata competition show that Hungarians are able to produce such quality products that are in line with the expectations of international quality conscious consumers," said Vertes. "However, if we want to achieve international success and gain an international reputation, we need to produce the best quality according to each vintage, so that we can gain the confidence of the consumers."

Learning from whisky

Like with grapes for winemaking, the quality of fruit for distillation can vary from year to year. But one innovative distiller, Rezangyal, claims it has found a way around the problem of variable vintage quality. Robert Maros, who co-owns Rezangyal with Zsolt Gaspari, says his company's approach is based on buying in palinkas from various sources and blending them to make the final product greater than the sum of its parts.

While other distilleries manufacture their products of a different quality fruit year by year, Rezangyal, in common with whisky blenders, says it can insure the usual flavours and quality continuously through blending and maturation. "I believe that this is the only way to step out to international markets as well," says Maros, who is also the head of the Hungarian palinka non-profit marketing company. While he believes that palinka can be a success internationally, he adds that the marketing and advertisement costs would be considerable. "Successful international distribution can only be a result of cooperation between the distilleries and the state's communication decision makers," he asserts.

While Maros admits that the recession has come at the worse time for the company as it seeks to build a reputation for its palinka, he argues that the company's target audience probably won't stop buying drinks, but will rather postpone buying a new car or investing in a new flat screen TV. "Comparing the first quarter of this year with that of the previous year, Rezangyal attained a considerable increase in spite of the fact that we are present mainly in the catering industry," said Maros.

Palinka's chances of competing successfully with, for example, single malts on the international stage will always be slim, as there isn't enough supply of sufficiently high quality, nor a marketing budget to support it. Vertes is calling for more assistance from the government, highlighting that the situation is getting worse, not better; in 2008, HUF150m (€533,000) was available for palinka promotion, but in 2009 this has been cut to just HUF50m. He adds that HUF250m-300m would be required for a two- to three-year advertising campaign in Germany, for example. To make matters more difficult still, a lot of the best fruit is snapped up by international producers who can pay more than local producers, notes Zwack.

Akos Szokolics, Agardi's commercial director, says that less than 5% of his firm's sales are generated from abroad at the moment. Despite the distillery expanding its production capacity this year, the problem of the supply of quality fruit remains a barrier to stepping up production capacity by much. "We never know in advance whether we'll be able to buy in enough quality fruit or not," laments Szokolics.

Thus, no matter how good it might be, palinka is unlikely to become the next big thing internationally. It may acquire an international cult status at best, but it will certainly remain something to be savoured locally by proud Hungarians and adventurous foreigners.

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The spirit of Hungary finds new appeal

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