Wine Business in 2009

Recession, credit crunch, global economic meltdown, sliding economies, negative growth, rising unemployment, job losses, plunging stock markets, closing businesses…words that are reflective of the current economic climate. Nowadays, it is almost impossible not to come across at least one of these (dreaded) words in your daily newspaper or news bulletins.

So what has been the impact of this economic downturn on the wine industry so far? Have you already noticed substantial turnarounds in your respective markets or expecting the same in coming months? What do you think wine businesses can do differently that will help them sail through this turmoil? How do you see the market dynamics shaping up in 2009? These are some of the questions that I raised in one of the discussions on LinkedIn a while ago, with an aim to get some expert opinion on this raging but very relevant issue.

The replies I’ve posted below came from individuals representing three different sectors within the wine industry but are quite unique in their own ways. They also somehow reflect the diversity within the industry vis-à-vis their perception of the current economic situation.

A winery owner/Winemaker:

“I think we’re looking at a fairly flat 2009. You’ll see a lot more producers forming alliances with others in an effort to weather the storm…and you’ll see a lot of smaller producers selling out or closing their doors. The ones who have the cash reserves to stay in it will be forced to re-think/re-tool their product mix and distribution schemes.
Similar changes in the wholesale market will occur, and in some markets this will continue the trend of blowing out inventories at crazy low prices…resulting in an even more painful pinch placed on the small, artisan producer. The old saw of “worry about the cases and the money will follow” adage no longer applies.

The lack of cash will continue to stress all tiers of the business. On the producer/wholesale side, this will force leaner operations, and may put plans to expand/modernize on hold. It will also continue a ‘trickle up’ problem of cash flow…accounts not paying wholesalers in a timely manner will stress a wholesaler’s ability to pay suppliers. The folks who will ride this out will have (or at least have access to) cash reserves.

We’re at least a year away from a turnaround. I hope I’m wrong, but – from what I’ve seen around the U.S. and abroad – it looks likely.”

An independent wine consultant:

“In my business, I haven’t really noticed any impact. My business is a bit different in the wine industry though. I don’t have a wine store, so there isn’t the overhead that stores and restaurants would have. I don’t have employees, so I don’t also have those expenses.
My business is very client-focused and service-oriented. As an independent consultant working with a Napa Valley winery, we offer private wine tastings, personalized gifts and gift baskets. Being very focused on really getting to know my hosts and their guests, becoming knowledgeable on the wines served at the tasting, being entertaining and helping my host with setting up their tasting, inviting the guests, etc., puts us in a different type of niche. We go to the home or office, they don’t have to come to us. It’s kind of like a housecall for wine. Pretty cool. I expect my business in the next year to flourish and grow.”

A corporate wine manager of a chain of restaurants:

“Consolidation will occur at all three levels of the industry. Smaller family owned wineries will be purchased at a discount, large conglomerates especially from Australia will be forced to sell off pieces. Consolidation will continue at the wholesale level to stay competitive.
Wine consumption won’t wain, but consumption habits will be driven into the privacy of one’s home. Comfort food and comfort wines will be a staple for at least a year. I see wines from Argentina and Chile picking up steam due to quality and price (something the Aussie’s used to have), California cult wines will see a cooling off period at the restaurant level and at auction. French Bordeaux and Champagne continues to back itself into a corner with lack of vision or compassion towards price, however I believe the Rhone and Languedoc have done and continue to reach new consumers for the very reasons Bordeaux fails.
At the restaurants, I’m seeing a downtick in check averages, but not in volume, suggesting that my guests are consuming similiar amounts of wine during the dining experience, but, on lesser priced wines. Critter and cutesy wine labels are falling out of favor as the american consumer becomes more and more savvy in knowledge and tastes, these folks will return to classic, reputable producers with Icon names (hence comfort wines).”

The current crisis will no doubt cast its shadow but only time will tell the magnitude of its effect. History is witness that the wine industry has weathered many storms in the past including wars, diseases, recessions and so on. Let’s hope this time it’s no different.

Cheers,

Niladri

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