Tuesday, June 16, 2020

Covid-19 Effects in the Wine Industry

I recently attended a webinar organized by Vinexpo NY focusing on the effects of Covid-19 in the Wine and Alcohol industries. This post is inspired by what I learned in this very informative session led by IWSR, a company based in the UK, that specializes in alcoholic market analysis. 

I must confess, I don't know anything about Economics, though life gave me some exposure, because of my background. Any Argentinean is familiar with the concepts of inflation, devaluation, the cost of dollar vs the peso, recessions of different kinds and lengths, basically how at any time, an economic downturn can impact disposable incomes. However, the effects vary and sometimes are not exactly the same for every industry. Take for example, the last economic crisis that took place in the US, in 2008. We had high unemployment, though less than today’s rate (40 million and counting), and of course the classical effects of any recession, with people afraid of spending or spending less due to loss of jobs and purchasing power, which translated into an increase in alcohol at home consumption and price stagnation. But, on that occasion, we also saw, an increase in consumption, by then, I was working for a wine importer and I saw this with my own eyes, how inexpensive/value brands were selling like hotcakes, while more expensive brand sales decreased, and were affordable to a small group of rich consumers. It took the industry a while to see sales increases for high end wines. So the question is, if we survived then, can we survive again? 

The Covid-19 crisis is completely different from the crisis in 2008, not only because the economic consequences have the potential to be much worse and severe (at the moment I'm writing this post, it's still too soon to see fully the economics effects of the pandemic, though economists are forecasting difficult times ahead), the difference lies on the pandemic itself. The pandemic is more dangerous than any other recession, because in a regular recession we would normally wait and hope for things to start to shape up again (with good economic politics in place, this could happen sooner rather than later). But now, everything depends on the life of a virus, that we know very little of, and that has made us uncertain/ afraid of everything.  All of a sudden, the person next to me has the potential to give me a disease that can kill me and therefore I must stay away from the world if I’m to survive, and so overnight, millions of businesses went under. Indeed, the tragic closure of all restaurants and bars for example, though some are surviving on delivery and take out and some outdoor sales. A pause on all types of retail travel and all the entertainment activities related to travel, and a fundamental change in our social behavior, that may stay with us for a while. Even as states reopen, consumers may be slow to go back to indoor restaurants and bars, at least until a vaccine or cure appears. We went from being with people in gatherings to being in seclusion at home. Of course, wineries, importers and producers are feeling the blow, mostly because a big chunk of their business comes from sales in the on premise channels, now gone until further notice. Think about what happened to the many bars in most cities in the US that can’t do delivery or take out of drinks or the closure of tasting rooms that up until a few months ago, generated considerable sales to any winery. Yep.. the road just became bumpy and according to the IWSR, these effects may stay for a while, at least for 5 years (up to 2024), to return to the same level of sales Pre-Covid-19

Now, before exploring some of the solutions and creative trends we are seeing right now, it's important to look at the sales of wine, at what was happening right before Covid-19. Sales of wines increased for 25 consecutive years, but things changed in 2019, which was the first year when we saw a decrease of 1% in sales, consumers favored spirits and hard water seltzers, instead. Luckily, since the start of Covid-19, only 100 a days ago, we have seen a 200+ % increase in wine retail/online sales, and numbers in wine consumption continue to climb up (similarly to what happened in 2008) this will help to compensate some of the loss of all on premise sales. Now, this won't benefit all producers equally, obviously well known brands with better channels of distribution, will do better than others (unknown and/or smaller producers). 

So, I guess when life throws you lemons, you make lemonade! The time has come for producers to be creative and to invest in other ways to connect to customers, as my mother used to say “necessity is the mother of all inventions”. Some of these trends, we see now, are the use of social media, the wonders of ecommerce, now staying for good and expanding in all markets, rapidly becoming the only way to sell/get wine and spirits (I promise to write about online retailers in a future post), the at home consumption experience, replacing at least for the time being the on premise experience we used to enjoy in the past, the appearance of virtual tastings, happy hours and virtual bars on Zoom or Instagram, now a new way for any producer to connect with their clients, directly. A comment about virtual tastings, those that know me, know that my favorite thing in life is to taste wine… and well watching someone else do it online for me, is not exactly the same. That’s why, I’m more in favor of attending educational conferences, learning about regions or grapes in general,  than watching experts drinking wines I don’t have access to. A better choice, I would like to see more, could be to give a virtual winery tour, with wineries showing parts of themselves, of their properties, allowing attendees to ask questions about terroir and wines….I know.. I just went into wine nerd mode!  If they could complement this experience with tiny samples, that would be ideal for me. A few posts ago, I reviewed the Hopwine event that I thought was wonderful. Maybe, these mini bottles will be the new normal in an industry without wine tastings?, hey if it worked for the perfume industry, maybe wineries should give them a try? 

The bottom line, producers need to reinvent themselves, to be creative and strategic in giving their clients a personal experience, in order to connect “at home” with them. Some restaurants are already doing this, by offering their customers the possibility of duplicating the on premise experience at home, with chefs sharing recipes online and bartenders giving tips and tricks to replicate their famous drinks. Take for example, Olive Garden that now offers their own lineup of Italian wines to go with their meals, indeed a very inventive way to retain customers and to provide them everything in one stop. Will this work? It will depend, it’s not new that the highest markups in wines and spirits happen on premise, and that we only pay for them because they are part of the divine on premise experience. Now, if you could get the same wine/ spirit/ drink much cheaper online/ to go, why would you pay more and buy it from a restaurant? Maybe it’s time for lower markups?  that will be excellent!
Something good coming out of all of this though, is the trading up in price and quality. If before, I was paying $30 for a bottle of wine at any restaurant that normally cost $10 at the store, I could easily decide to buy something better with a higher price tag to drink at home “in the new normal”.
Also, expect a bigger presence online from producers and importers and more investing in digital marketing, educating customers online seems to be the way to acquiring customers' loyalty. I guess we shall see, indeed, we do have a long way to fully recover, economically and mentally, but I'm confident that resilience and creativity will play a key role to our success. 
Cheers! Silvina

#thoughtsoflawina #covid19 #alcoholindustry #wineandspirits

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A special thanks to IWSR for providing all figures and reports to write this post.