Covid-19 poses “most acute challenge” to wine industry, ProWein says
Covid-19 and the economic impact caused by the pandemic poses the most acute challenge to the global wine industry, the 2020 ProWein Business Report has found, overtaking climate change and the fear of tax hikes and minimum pricing on alcohol in terms of importance.
The report, which was published today, delves into the effect on the pandemic across the wine trade, and is based on a survey of almost 3,500 experts from 49 countries which was compiled by Geisenheim University at the end of 2020. ProWein’s project director Bastian Mingers pointed out that the “extraordinary” importance of Covid-19 for the wine industry was demonstrated by the high participation rate of international experts – almost twice as many as in previous years.
“Everyone in the industry has a high interest in comparing with others the effects experienced on their business. At the same time, all businesses are looking for clues for possible strategies and ways out of the crisis,” he said.
The Covid-19 pandemic is the most acute threats to the wine industry, according to around 78% of respondents, with the global economic downturn proving the second biggest concern, the report found. These two challenges have overtaken health policy, which includes tax increases and minimum unit pricing (55%), and climate change (46%) this year, although the challenge of international restrictions and trade wars such as the US import tariffs (43%) has increased in importance since last year, and low profitability of the wine industry remains a concern amid 43% of respondents.
The pandemic has disrupted wine distribution channels globally due to the extensive closure and restrictions on hotels and restaurants across the world, which affected around 77% of hotels with turnover falling by 60% across the sector, while restaurants saw sales down 91%. For about 80% of the businesses, the economic situation has deteriorated due to Covid-19, 30% of which deteriorated very strongly, it found.
Meanwhile there has been an abrupt change in the purchasing behaviour of consumers, who have become dependent on buying wine at food retailers as well as online – two trends that are set to continue. Direct-to-consumer sales have also benefited from this shifts in many countries, as well as the specialist wine trade to some extent. However the lack of foreign tourists caused has led to a sharp drop in local wine consumption in many wine-growing countries.
The specialist wine trade remains the most robust of all sectors – with 38% seeing increase in business despite temporary closures – even though it has declined around 9% compared to the previous year. Wholesaler and importers lie between the two extremes, with some retail and online sales offsetting on-trade losses. Overall however, conditions deteriorated by around 40-42%, compared to 66% and 73% for hotels and restaurants, respectively.
The survey also revealed that the impact of the Covid-19 crisis on wine producers varied depending on their sales focus – around 60% reported economic losses, but smaller wineries were particularly affected by the closures of restaurants and hotels and the lack of tourists. Larger wineries fared better, but both small wineries and cooperatives expect to see further declines next year.
Due to the pandemic hitting global markets simultaneously, there was a global decline in wine exports, especially to countries with a high proportion of wine consumption at social events and in restaurants, such as the US, the Netherlands, China and Hong Kong.
A very slow recovery of tourism and exports is expected, leading to a further deterioration of the economic situation in 2021. For the majority of wine producers in Spain, France and Italy, several of their strongest sales channels, in terms of value and volume, were negatively affected at the same time. These effects, by far, could not be compensated by increases in online sales.
Reactions from business
However, there were signs of green shoots – online communication has boomed with retailers and producers intensifying their online communication in response to the pandemic via social media (60%), opened online shops (23%), conducted online tastings (37%) and offered delivery services. This digital transformation of the wine industry, which was greatly accelerated by Covid-19, will continue in the future, the report found.
Businesses are also looking at greater diversification across sales channels and markets in order to spread risk more effectively. For example, around 44% of producers wanted to increase DTC sales, and around a quarter are switching to food retailing and online, which may intensify competition in these channels in the future.
The report noted that cost reductions introduced by 80% of businesses and the use of government aid programmes by around 40% of businesses, successfully averted extensive redundancies and plant closures, but experts anticipate consolidation will happen in the industry as some businesses are forced to close.
There is also a real fear that these cost reductions and postponement of investments will slow down the wine sector’s ability to adapt to to climate change and make improvements in environmental sustainability – around half of businesses said they had postponed planned innovation and investment.
Although trends show consumers treated themselves with wine during the pandemic, many experts surveyed expect the ongoing economic consequences of Covid-19 will lead to more price-sensitive consumers and lower sales of premium wines in the future. And experts agreed that the restaurant and hotel sector would see a slow recovery, while the shift to online sales, which was accelerated by the pandemic, is here to stay, along with the digitisation within the wine industry.
Meanwhile, global sales of wine as a whole are expected to recover for the most part after Covid-19.
For a breakdown of the full report, please see here: