The Impact of Coronavirus on the Global Wine Industry
Last week, we spoke about some of the effects that the emergence of coronavirus has had on the Italian wine industry. We discussed how those that produce prestige wines, such as Barolo and Chianti, have started to struggle for the simple reason that many who would have bought such wines have now tightened their belts. They don’t want to spend where they don’t need to until they have greater certainty.
However, the Italian wine industry as a whole has survived worse than this and will continue to endure.
In this article, we want to take a wider view of the impact that coronavirus has had. This issue affects us on a global scale, and that goes as much for the wine industry as anything else. Here, we examine the impact that coronavirus may have on the worldwide industry going forward.
The Australian Industry May Struggle More Than Most
Australia’s wine industry is still in its growing stages, at least when compared to more established industries like the French, Italian, and American ones. Australian wines have slowly started to come to prominence because of their quality. However, the country’s industry doesn’t carry the same level of respect as those that we just mentioned.
This is a challenge for Australia as it means their industry is more vulnerable. When people have limited amounts of money to spend on wine, they’re more likely to go with what they know to be great, rather than taking a chance on a wine from a country that’s a little newer to the global industry.
Unfortunately, this may lead to the closure of many wineries in the country. Some within the Australian industry believe that as many as a third of its producers may be forced to shut their days. A combination of reduced demand and the inability to work as well on their products are the key culprits here.
Another issue here comes from the fact that Australia is in the southern hemisphere. This means that coronavirus struck right around the time that many winemakers were preparing for the winter.
Should this prediction come to pass, it would mean the closure of about 850 of the country’s 2600 wineries. This would be a huge loss, both for Australia and the global industry.
The Trend Away from Premium Wines
We touched on this earlier and in our previous article about the Italian wine industry. But as the coronavirus crisis continues, we’re seeing a definite shift away from the premium wine markets. Wines that people once bought for their quality and prestige are now being shunned, at least for the time being.
Instead, we’re seeing people prefer to buy more affordable wines.
Now, this is a shift that we expect to reverse once the world comes out of this situation. The demand for premium wines as a concept still exists, in our opinion. The issue here is that people don’t want to commit to more extravagant purchases when they’re so uncertain about their finances.
Still, small-scale premium producers may feel the pinch if the situation continues. This could force them to lower their prices, which may affect the prosperity of their businesses moving forward.
We believe the balance will be redressed when it comes to this trend. The challenge is that we can’t predict exactly when that will be. And that’s an issue for premium brands that do not have more accessible wines available for the public.
Interestingly, this change in trend is accompanied by another – the increasing popularity of local wines.
This appears to be a product of people wanting to support smaller local businesses during difficult times. According to Wine Intelligence, it’s likely that we’ll see a renewed focus on domestic and local wines if this situation continues. Perhaps this could be the saving grace for the smaller premium producers that struggle to export wines to other countries.
Fine Wine May Become a Stable Investment
Interestingly, wine investment may be a safe haven for many in the coming months.
When we talk about investable wines, we’re often moving beyond premium branding and into the most expensive wines in the world. This are wines that people often purchase and keep until they can sell them on and make some money.
And according Hospitality.net, such wines may represent a stable investment while global markets are in turmoil. The website shared plenty of data to suggest that wine is less likely to experience volatile pricing when compared to stocks, shares, and similar investment types. It even holds its own against traditional stalwarts, such as gold and silver.
We believe that this is because of the long-term focus that wine investors have. They buy knowing that they’re unlikely to sell for several years to come. Thus, the temporary nature of the coronavirus has less of an effect on these investments than you may anticipate.
Wine is Recession-Resistant
This is the opinion of Rob McMillan, who serves as the Silicon Valley Bank Wine Division’s Executive Vice President. During an interview with Forbes, he says the following:
“We have to start the conversation by recognizing that people enjoy wine in good times and stressful times. Wine is not recession proof, but it is recession resistant. In the same way, it might not be virus proof, but it will prove virus resistant from an economic perspective.”
His point is that demand for wine will not disappear. The demand for certain types and categories of wine will change, but people will still want to enjoy a drink during such times. In fact, some may need the stress-relieving qualities of a good bottle of wine now more than ever.
The message here is that the wine industry will get through this crisis in a better position than many other industries. This does not mean there will be no casualties, as the situation in Australia shows us. But as an industry, wine is among the most resilient around. You could argue that it’s only a small step away from being essential.
The global industry will weather this storm and bounce back. Our hope is that this happens sooner, rather than later.
June 28, 2020