What happens to the wine industry after Coronavirus?

By , 15 April 2020

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9

As the Disaster Management Act implemented to combat Coronavirus currently stands, no local and just finished product global trade (less than 30% in volume) is allowed when it comes to wine. According to a recent Wines of South Africa Info Bulletin, the weekly average retail sales value of wine in South Africa is R320 million, with the average free on board value of exports R175 million. Over a five-week lockdown period, this is close to R2.5 billion in direct gross revenue that is at risk. Suffice to say, the wine industry is set to take an enormous hit.

Wineries will go out of business but which ones? For a while now, there has been a sense that the high number of small-scale independents that keep entering the market was something driven more by romanticism than good sense. We shall soon find out who has proper business savvy and who hasn’t…

In macro-terms, some pundits are suggesting a total and utter socio-economic reset. Surely more sensible is the Magnification Effect as espoused by Mike Veseth of WineEcononmist.com: “When we look back on the coronavirus crisis in a few years I suspect that one thing that we will notice is that, while new trends emerged in business and society, the biggest effect was to magnify and accelerate certain patterns that were already there”.

At-home consumption is on the rise.

Cocooning, defined as the need to protect oneself from the harsh, unpredictable realities of the outside world, is a term that futurist Faith Popcorn coined as long ago as 1981 and never has it been more relevant. At-home wine consumption has taken off worldwide (as it no doubt would have here but for the ban on sales) and with it, e-commerce and home delivery.

What is a matter of speculation is whether or not people will continue to consume more at home once the worst of the pandemic is over and lockdown is lifted. An optimistic take is that people will be in a celebratory mood and craving social interaction which will mean that restaurants, bars and clubs will flourish but more pessimistic and perhaps more realistic take is that the hospitality scene won’t return to normal for a very long time – staff will be obliged to wear protective gear for insurance purposes; tables will be widely spaced and prices will have to rise accordingly; and with a depressed economy and high unemployment, very few consumers will be able to afford the luxury of dining out.

Again, the truth probably lies somewhere in between. Of course, people are going to want to socialize but this probably won’t take place in very large public spaces such as the V&A Waterfront in Cape Town or Johannesburg’s Montecasino. Restaurants may well have to switch to take-away and delivery or providing a service that complements eating at home such as selling produce from suppliers direct or expertly made ingredients. Somehow, wine-to-go needs to feature when it comes to these new business models as well – rationalization of the value-chain is long overdue and this might just be a small positive outcome of Coronavirus.

Wine prices have been a perennial topic of debate in recent times and any gains that producers have made at the top-end are now probably in jeopardy.  It is well documented that consumers turn to familiar, reassuring brands in uncertain times and moreover are inclined to opt for cheap and convenient rather than premium and hard-to-come-by. Boutique wine producers have some kind of solace in that what they make has a relatively long shelf-life whereas the craft beer sector is going to be severely affected.

Lastly, air travel has been greatly curtailed by Coronavirus and seems set to remain so for quite a while. Wine tourism has served the South African industry tremendously well in recent times but now it looks like producers may well be over-dependent on it and will have to find new ways of reaching customers.

Comments

9 comment(s)

  • Sharlene20 April 2020

    Checkers does those boxed ‘ Meals for two’ etc. The first thing I would do is speak to them to ‘bundle’ a wine with that meal. Also contact delivery guys like Mr D and Uber – where they can deliver a bottle of wine with ordered food. Alaska has coffee shops made out of containers and they are drive through (research this – they are fun and work well), people pull off for a quick coffee. If u make wine really accessible to the public – instead of having to go to the bottle store, a person can pull off and get a bottle of wine in a drive through – on the way home.., (and it would be easy to pre-order the wine you want via whatsapp). Innovate and create different opportunities 😁

  • Clive Goss16 April 2020

    This shake out is a long train coming. Very sad

  • Erwin Lingenfelder16 April 2020

    Just as prices were taking of the market has collapsed. 600 producers? I suspect at least 200 will fall. In an economically suppressed environment value for money will once again determine who is left standing. Scary and very sad. Best wishes!

  • Charles W15 April 2020

    Thank you for some thought provoking stuff and to mull over with a good glass of wine this evening. Not even reset or reboot, this a re-install we are looking at, and with no idea of operating system.
    From a producer point of view, the shortest distance between him and the consumer is the favoured line to follow, there is absolutely no doubt that stay home and sip safely is the immediate route to follow.
    However, we must not assume that the retail and the middelmen did absolutely nothing for their margin, in that the specialists anyway, helped the cellar door build their brand.
    So, while we might now have 600 or more producer now scrambling to put their wares online, anyone who supplies retail will know, many will get to the bus stop but not all find a seat….
    Somewhere in the middle there could well be a sweet spot where online offers can selectively grouped and where the consumer still has the “feel” of a retail specialist , and a personal service to boot, with all the benefits of home delivery. Most of all, producers do not want wine on-line to develop commodity status, and that is also why journals such as your are so critical in informing the public of product and provenance when the “touch and feel”prior to purchase is not possible.

    The only thing we can be sure of is that NONE of us has been down this road before.

  • Andrew15 April 2020

    Tough times indeed Christian, one thing is certain, things won’t be the same.
    Much more insightful than the recent Economist article.

  • Ben Truter15 April 2020

    I think we will one day look back at this time of the Coronavirus and not call the Corana a virus but Saint Corona, for cleaning up our industry.

  • David15 April 2020

    I dont think you will be hurt on the bulk of your exports. After all pricewize South African Wines are good quality at a low price in comparison with competitors and home consumtion is up and will probably continue to grow. Also a recesion will have customers seeking affordable wines. Yes the high end and small niche producers might suffer more. What will hurt the most is the loss of winetourists and I expect a 5 year period until we are back to 2019 levels in tourism.

  • Melissa Sutherland15 April 2020

    A brave new world. Once again, like after the GFC of 2008, wine estates will need to appeal to local wine tourists.

  • Jose Conde15 April 2020

    Many good and thoughtful insights.

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