Making waves in Madeira: Portugal's Atlantic outpost is attracting a younger clientele with hip hotels and chic eateries

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Madeira's exports comprise a motley bunch – fortified wine, cake, and Cristiano Ronaldo. You can hardly escape the epicurean offerings in the capital, Funchal, from cellar tours and wine tastings to bottle-filled shops (Madeira cake doesn't originate from the island but was devised to be eaten with the wine). Yet the island's Mr Bling – the winger for whom Manchester United paid £12m? Don't expect billboards or posters. This sleepy Atlantic island just doesn't seem that interested.

Nevertheless, the past decade has seen Madeira in transition, trying to diversify its appeal and attract not just those with Ronaldo's formidable spending power but also those with his youth. The island's natural assets – a year-round temperate climate, luxuriant vegetation and dramatic mountain scenery – have been luring tourists here since the 19th century. But they've tended to be an older clientele. Hitherto, "hip" was a word more likely to be linked with "replacement" than anything cool and edgy in Madeira.

Winston Churchill came to paint and escape what he called his "black dog" depression in the pretty fishing village of Camara de Lobos, holing up at the eminent Reid's Palace Hotel in Funchal – where gentlemen are still required to wear a jacket. Even The Beatles' old yacht, The Vagrant has retired to the harbour, now permanently moored as a floating tourist restaurant.

The island's first jolt of defibrillation came in the form of a clutch of luxury lodgings in restored, rural manor houses or quintas. Quinta da Rochinha, an unapologetically modern restoration slammed into a cliff-side, opened in 2001 and was the island's first member of the Design Hotels group.

A year later, a Balinese-inspired country lodge, Choupana Hills, opened on the outskirts of Funchal. But the capital still lacked anything approaching urban cool. Now, seven years later, Funchal has its own Design Hotel. The Vine opened here in December and is set to continue where the first two left off.

But I was having difficulty finding it. According to my directions, I was outside The Vine, but I could only see a shiny new shopping centre.

The Dolce Vita, in the city centre, is infused with high-street brands from Accessorize to Vodafone. A search revealed a muted sign halfway up the curved glass exterior, which whispered "The Vine: a divine hotel", so I passed through the automatic doors to be confronted by a symphony of ringing tills, chattering ATMs and piped music by The Ting Tings, all eddying around a mass of bag-laden shoppers in the foyer. Luckily, my attention was quickly grabbed by a purple-carpeted spiral staircase ahead of me. A man in a tailored grey suit and bowler hat appeared and ushered me up – and I emerged in a cavern filled with trees, vines, oversized pebbles and a smiling receptionist brandishing a room key with my name on it. This was more like it.

The Vine has enlisted just about everyone it could to ensure that it becomes Madeira's coolest, most eye-catching hotel. The grotto-like design was dreamt up by Nini Andrade Silva, a Funchal local who has overseen some impressive projects on the Portuguese mainland, including the Aquapura resort in the Douro Valley and the super-sleek Fontana Park Hotel in Lisbon. Architecture was directed by Ricardo Bofill, whose most recent project is the W Barcelona, an arresting sail-shaped monolith overlooking the Mediterranean harbour. And the kitchen is governed by Antoine Westermann, a multi-Michelin-starred Alsatian chef with restaurants in France and the US.

The squad of front-of-house staff includes suave Roman manager Roberto Simone and Joao Camacho, a Lisboan with a Hollywood smile and a chic collection of scarves. He has been entrusted with the slightly daunting task of creating a party scene at the hotel's rooftop bar, where an infinity pool looks over the twinkling lights of the city below. Here, it is hoped, the young and beautiful will flock at night.

And the design concept behind The Vine? Wine, of course. Madeira may lie far out at sea, 310 miles from Morocco and twice as far from mainland Portugal. Its unforgiving topography may force its inhabitants to cling to the flanks of vertiginous slopes that plunge almost vertically into the Atlantic. But it's also a geological hotspot, and its volcanic composition has allowed plant life – and especially vines – to flourish.

The "vines" in reception coil up from the floor to fence off the restaurant; the "trees" are segments of wood that create an arboreal contour around the walls and ceilings. The pebbles are cushions.

Each of the floors represents a different wine-making season. The bedrooms on one floor take a wintry grey theme; on another they assume the rust colours of autumn. Guests can wake up to backlit images suspended over each of the beds: a magnified, dew-specked grape, perhaps, or a gnarled vine. Alternatively, they can pad down to the spa over volcanic basalt pebble flooring and drift off during vinotherapy treatments. There's even a "red wine bath" treatment that has you sitting in a tub filled with grape skin and vine leaf extracts – as opposed to drinking a barrel of the stuff.

Madeira doesn't just nurture grapes, though. A walk around the city's market with The Vine's executive chef, Thomas Faudry, introduced me to new and unfamiliar fruits. Stalls groaned with strapping carrots, plums, grapes and oranges, as well as some unfamiliar interlopers: banana ananas, which looked like elongated, knobbly gherkins and tasted of both banana and pineapple; maracuja bananas, which looked like bananas outside and passion fruit inside; and tamarillo, pointed tomatoes with the flavour of passion fruit. Beyond the fruit and vegetable courtyard was the fish hall, where scabbard fish – as ugly as the name suggests – were draped over counters. These monsters, with large saucer-like eyes and a long toothy snout, can grow to over a metre in length and live deep down in the sea around the Madeiran archipelago.

Faudry pointed out some of his favourite produce, such as the bay-leaf sticks used for espetada, traditional barbecued skewered meats.

The Frenchman has been on the island for less than a year but was excited about his new posting: "It gives me a fantastic opportunity to use all this great produce and to learn new dishes and skills." The Vine has an impressive menu: marinated scallops with black truffles and celery mousse, grouper and chorizo caldeirada (a rich Portuguese stew) and guinea fowl with pig's head stuffing.

On the other side of town another of Funchal's luxury hotels, The Cliff Bay, has just been awarded the island's first Michelin star for its Il Gallo d'Or restaurant. The haute-cuisine menu is steeped with local flavours, such as bouillabaisse with scallops and dacquoise cake made with local bananas and Madeiran passion fruit jelly. I asked Faudry if he, too, would pursue a star. "It's less important," he said. "I work to create the best dishes I can, but a Michelin star is a nice bonus."

You don't have to don jacket and tie to enjoy the fruits of the island. Opposite the baroque church of Socorro, among the cream walls and green shutters of Funchal's old town, is Riso. The unassuming buttermilk exterior hides a glass-encased restaurant teetering over the rocks below. The interior is mid-century Americana meets the Med, with a sweep of terrace proffering 180-degree views of the shimmering Atlantic below. Its menu is entirely dedicated to rice, incorporating local specialities such as scabbard fish with banana. Fuddy duddy it isn't.

Another surprise is local favourite Armazem do Sal. The 170-year-old former salt warehouse is tucked down an alley in the centre of town near the cathedral and follows the industrial chic school of design, with bare stone walls, low-beamed ceilings, a low-lit bar and two plaques above the door reading "Nova Companhia Douro Porto 1875" and "Carantia Funchalense Madeira". Here, anything from octopus to Argentine steak is accompanied by fado, the melancholy folk music that seems to define the Portuguese soul.

The beat picks up at Café do Teatro. After midnight the coffee drinkers on the terrace pile into the retro-chic marble interior – all mirror balls, Sixties-inspired prints and chandeliers – and DJs pump out music late into the night. "It's the best place for a caipirinha... the only place for a caipirinha. They are better than in Brazil," declared Camacho of the national Brazilian cocktail.

However, with Camacho's help, it could soon be The Vine vying for the capital's cool crowd. And with the aid of a 24-year-old ambassador in the shape of Cristiano Ronaldo, Madeira's transition from bastion of old-fashioned charm to a more vibrant, youthful destination is in motion. In keeping with tradition, though, it is taking a softly-softly approach.

Getting there

Funchal is served by easyJet (0905 821 0905; easyJet.com) from Gatwick, Stansted and Bristol; by TAP Portugal (0845 601 0932; flytap.com/UK) from Heathrow and Gatwick; and by Flyglobespan (0870 556 1522; flyglobespan.com) from Edinburgh.

You can buy a carbon "offset" through Abta's Reduce my Footprint initiative (020-7637 2444; www.reducemyfootprint.travel).

Staying there

The Vine, 27a Rua dos Aranhas, Funchal, Madeira (00 351 291 009 000; hotelthevine.com). Double rooms start at €€248, including breakfast.

Choupana Hills, Travessa do Largo da Choupana, Funchal (00 351 291 20 60 20; choupanahills.com). Doubles start at €€305, room only.

Quinta da Rochinha, Ponta do Sol (00 351 291 970 200; pontadosol.com). Doubles start at €117, including breakfast.

Eating and drinking there

Il Gallo d'Oro, Cliff Bay Hotel, 147 Estrada Monumental, Funchal (00 351 291 707 700; portobay.com).

Riso, 274 Rua de Santa Maria, Funchal (00 351 291 280 360; riso-fx.com).

Armazem do Sal, 135 Rua da Alfandega, Funchal (00 351 291 241 285; armazemdosal.com).

Café do Teatro, Teatro Municipal Baltazar Dias, Avenida Arriaga, Funchal (00 351 291 226 371; cafedoteatro.com).

More information

Madeira Tourism: 00 351 291 211 900; madeiraislands.travel