Commissioned by ProWein (International Trade Fair for Wine and Spirits), the University of Heisenheim (Germany) conducted a survey at the end of 2020 among experts from 49 countries covering the entire value chain of the wine industry. This year’s study focused on the impact of COWID-19 on the global wine industry.
15 December – According to Professor Simone Loos, Director of the Institute for Wine and Beverage Research at the University of Heisenheim, the ProWein Business Report is the first report to quantify the overall impact of Covid-19 on different areas of the wine sector and assesses expectations about the necessary future direction of the wine industry. The extraordinary importance of the Covid-19 theme for the wine industry is demonstrated by the very high participation rate of the international professional public, which has doubled compared to previous years to almost 3,500 participants, says Bastian Mingers, head of the ProWein project. This underlines the importance of this activity report. All players in the sector want to compare the impact they have had on their business with others. At the same time, all companies are looking for possible solutions and strategies to overcome the crisis.
The Covida 19 pandemic and the resulting economic decline are the most serious threats to the wine industry, overwhelming other challenges such as health policy, climate change and the international trade war. Pandemic-related hotel and restaurant closures have disrupted wine distribution channels around the world. Food distribution and online retailing, and to some extent wine retailing, have benefited from these changes in many countries. However, the shortage of foreign tourists, caused by Covid-19, has led to a sharp decline in the consumption of local wines in many wine-producing countries.
The impact of the Covid 19 crisis on wine producers varies according to their commercial orientation. Small wineries are particularly affected by the closure of restaurants and hotels and the absence of tourists. The simultaneous global impact of the pandemic has also led to a worldwide decline in wine exports, particularly to countries with high wine consumption at social events and in restaurants. The sector expects only a very slow recovery of tourism and exports and expects a further deterioration of the economic situation in 2021.
For most wine producers in Spain, France and Italy, several of their most powerful sales channels, both in terms of value and volume, were affected at the same time. These effects can certainly not be offset by the growth in online sales.
In response to the pandemic, both retailers and manufacturers have intensified their online communication by opening online stores, organising online tastings and offering delivery services. According to experts, this digital transformation of the wine industry, which was greatly accelerated by Covid-19, will continue in the future.
The government’s austerity and bailout programmes have so far prevented large-scale job losses and factory closures. However, experts believe that the industry will consolidate and become more concentrated as the pandemic progresses and some operations are completed. In the future, companies will also seek further diversification across different distribution channels and markets in order to better spread risk. For example, manufacturers are mainly trying to switch to direct-to-consumer and grocery retail, which will increase competition in these channels even further in the future. There are concerns that cuts in spending and postponement of investments will also slow down the wine sector’s adaptation to climate change and improve environmental sustainability.
Although many consumers were involved in wine during the pandemic, the experts expect that the economic impact of Covid-19 will lead to greater price sensitivity for consumers and lower sales of premium wines in the future. In contrast, global wine sales are expected to recover to a large extent, according to Covid-19.
The current challenges of the wine industry
Covid-19 and the current economic situation are the main threats to the wine sector.
The consequences of the Covida 19 crisis and the expected negative effects on the global economic situation are by far the most important challenges for the wine industry this year. Compared to last year, the threat of climate change and health policies have been somewhat overshadowed by the acute threat of a pandemic, but they are still considered important.
Covid-19 disrupts wine distribution channels.
Covid 19 restrictions affect wine sales
As a result of global pressure, the Covid 19 crisis has led to a radical change in consumer purchasing habits. In many countries it is customary in the hospitality industry to close and restrict restaurants and hotels. International tourism, which is very important for sales in countries such as Spain, France and Italy, is also virtually at a standstill. Consumers, for their part, depend more than ever before on the purchase of their wine in grocery stores or on the Internet.
HoReCa closure and restriction
The restrictions imposed by Covid-19 mainly concerned restaurants and hotels, 77% of which, according to the survey, should have been closed at least temporarily. The remediation and hygiene measures implemented have led to higher operating costs, limited services, lower occupancy rates and lower revenues in more than 60% of the restaurants and hotels. The whole sector has suffered and continues to suffer from the almost total cancellation of private and public events and festivities.
Compared to restaurants and hotels, the wine trade was much less affected: only 25% of businesses had to close down and/or suffered a loss of turnover. On the other hand, 38% of wine retailers reported an increase in sales since March 2020.
Economic impact for HoReCa
Hotels and restaurants have been hit hardest economically due to closures, health measures and a lack of tourism. For about 80% of the companies Covid-19 has worsened the economic situation, for 30% of them it is very bad. For example, the economic situation of the hotel industry, starting with a positive situation in 2019, has collapsed and is now the most negative of all the wine industries surveyed. On the contrary, the current economic situation of trade in wine specialities is the most positive of all sectors, even if lower than the previous year. Wholesalers and importers are between the two extremes with a significant decrease, but a largely satisfactory economic situation.
Economic impact on wine producers
Overall, most international wine producers have been affected by changes in sales volumes related to Covid-19. By listing food retailers, large manufacturers, such as. B. and the cooperatives, partially offset their losses. Nevertheless, almost 60% of companies have reported economic losses as a result of Covid-19. 70% of small wineries, even more dependent on wine tourism and gastronomy, have seen their economic situation deteriorate as a result of Covid-19. Although wine producers increased their sales through online channels, these were based on a very low starting level and have not yet been able to compensate for the loss of important sales channels – gastronomy, export and wine tourism – for most wineries. In particular, Mediterranean wine producers do not have easy access to consumers in central and northern Europe due to the regulation of the intra-European online trade in wine.
Exports decreased due to the global impact of the pandemic.
The global scale of the pandemic has shifted distribution channels to almost every wine market in the world at the same time. This has led to a strong negative response to wine exports from the three main wine producing countries, with France and Spain already facing the additional import duties imposed by the United States from October 2019. Italy’s export losses were lower due to the exemption from import duties.
Apart from the United States, import markets such as China and Hong Kong were particularly affected. The private consumption of wine is still relatively low, and wine is usually consumed on special social occasions, which are no longer common because of Covid-19. Exports to countries such as the Netherlands or Switzerland, where wine plays an important role in the gastronomic sector, also decreased in 2020. Prospects for a recovery of exports in 2021 are modest.
As a result of the crisis, both producers and retailers have completely restructured their marketing, focusing on all online channels. 60% of wine producers and around 50% of retailers and hotels and restaurants have intensified communication with their customers via social media (Facebook, Instagram, etc.). One in three wine merchants have placed advertisements online. Nearly one in four wineries and one in five wine retailers organised online tastings for their customers and buyers during the lock-out. In the same way, one in four wineries and one in ten wineries has opened a new brand store.
The wine producers focused on the direct consumer and were looking for new distribution channels.
Sales to direct customers can be increased for 44% of wine producers – mainly through special offers with discounts (46%) and increased customer activation through newsletters (40%). One in four wine producers tried to take advantage of increased sales in grocery stores and online stores by negotiating new lists.
Delivery service as a safe means of transport within one hour.
According to the motto: if the consumer cannot reach the wine, the wine comes to the consumer, one in two wine merchants, one in three restaurants and one in four wine producers have offered a delivery service for their products. This made a contactless and safe delivery of the goods possible without the wine consumer having to leave his house. For restaurants, however, this delivery service could only compensate for a small proportion of sales, because the atmosphere, flair and service of a restaurant visit cannot be delivered to the customer’s home.
Necessary cost reductions and use of public assistance programmes
80% of companies affected by the crisis have had to cut costs and expenses in order to survive economically. Half of the companies have postponed innovations and planned investments. Four out of ten companies used government aid programmes to continue to pay the salaries of their employees. One in five manufacturers has had to lay off employees. One in ten producers surveyed participated in crisis distillation, which was used in many countries to dispose of surplus quantities on the market (except in countries such as Germany, where crisis distillation was not allowed). Under the anti-crisis measures authorised by the European Union, some 10 million hectolitres (more than the annual German harvest) have been stored or distilled in Europe.
Changing consumer behaviour
Consumers have pampered themselves with wine
During the closure there was an increased willingness to spend by consumers who, for example, bought a wine speciality as compensation for a cancelled trip abroad. As many consumers are spending their holidays at home this year, they were also more inclined to focus on local and regional wines. The demand for sparkling wine has mainly suffered from the lack of social events and celebrations at which it is usually consumed.
It is expected that customers will be more price sensitive in the future.
The expected negative economic effects of the Covid 19 crisis will continue to affect consumers’ disposable income. The wine trade therefore expects buyers to be more price sensitive in the future, but at the same time they expect a growing demand for regionally and sustainably produced wines.
Only a slow recovery of gastronomy and exports is expected.
Experts unanimously expect a slow recovery in the restaurant and hotel sector. Most expect tourists to show more restraint and caution after the crisis, and only one in three expects rapid and strong growth. Hotels, restaurants and their wine suppliers therefore still need a lot of stamina to break through this phase and survive economically. One in three experts is optimistic and expects full recovery of wine sales in the foodservice sector, says Covid-19, which also offers opportunities for new innovative business concepts.
Demand from the wine trade is slightly lower.
Four out of ten wine, food and catering buyers want to list and buy new wines from new producers in 2021. On the other hand, one in three retailers is obliged to buy less wine the following year because of the necessary savings and the reduction in fixed capital.
Expectations for the future
Expected sustainable impact of changing distribution channels
Experts agree that the online wine trade will continue to play a very important role after the pandemic. Similarly, respondents believe that wine sales by food retailers will come out of the crisis stronger. One in three also expects premium wines to be sold by food retailers in the future.
Future demand for wine is expected to be slightly below current levels.
For the period after the 19th century, one in seven experts in September expects demand for wine to return to its old level. The proportion of respondents expecting an incomplete recovery is slightly higher than the proportion expecting an increase in demand for wine. The wine trade, which focuses on Central Europe, is slightly more optimistic than wine producers focusing on Southern Europe. German and new world producers and merchants expect demand for quality wines after the crisis to be stronger than before. The expectations of wine producers in Southern Europe for a quality wine are rather limited.
Future strategic adaptation of the wine sector
The digital transformation of the wine industry is gaining momentum
Companies throughout the wine value chain agree that digitisation will play a much more important role in the wine industry. Although there are still legal obstacles to cross-border online sales between EU countries, two out of three experts agree that manufacturers will increasingly use digital direct marketing in the future. In addition, 56% of retailers plan to increase their spending on digital marketing and more than one in three plan to invest in new ways to better reach their customers (digitally). Moreover, the progress of digitisation in the wine sector will accelerate, and experts agree that the Covid 19 crisis should not slow down this process.
Covid-19 accelerates structural change and diversification
According to the experts interviewed, the sudden collapse of the main distribution channels and export markets is likely to force wine producers to diversify further in order to reduce their dependence and the risks associated with the different channels and markets. This will only be possible through the continued growth of companies or partnerships that continue to specialise in sales and provide the necessary sales volume. Two of the three manufacturers surveyed expect the Covid 19 crisis to have such a negative impact on the industry that some of them will not survive economically. This will further accelerate the ongoing structural change, resulting in fewer but larger companies.
Covid-19 slows down the sustainability movement in industry
The latest ProWein 2019 company report showed that the escalation of climate change has led to a growing commitment to sustainability in the wine industry. However, most environmental protection measures require investment from industry. Covid-19 has already led to delayed investments and has attacked the economic content of many companies that need to take sustainability measures. Three out of ten experts therefore fear that manufacturers will not be able to improve their environmental performance and adapt to climate change as quickly as necessary.
The research was commissioned by ProWein and carried out by the Wine and Drinks Department of the Geisenheim University of Applied Sciences under the direction of Professor Dr. Simone Lowes and her team. ProWein and Heisenheim University of Applied Sciences are looking forward to the further success of ProWein’s business relationship in the coming years. With the publication of this report, ProWein provides the wine industry with a barometer of the internal market for the long term observation period and highlights the most important topics in the industry with an annual theme. We would like to thank everyone who took part in the survey and hope that the producers and distributors will continue to participate actively.
COWID-19 is the biggest challenge for the global wine industry.
- Pandemic leads to disruption of distribution channels
- Hotels, restaurants and exports are particularly affected.
- Only a slow recovery is expected, with further losses in 2021.
- Digitisation and structural changes are accelerated
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