As the dust starts to settle down from the storm created by the world economic crisis, it is probably an opportune moment to take stock of the effects of the recession on the world wine industry.
Has this tumultuous event re-shaped the wine business landscape? If so, who took the biggest hits and who managed to scrape through? Let’s explore:
- Top of the tier, ultra-premium segment: These, mostly investment grade wines, may not be entirely recession proof but are certainly the least affected, except for a brief period in the last quarter of 2008. A successful En Primeur 2008 campaign (of course also boosted by Parker’s ratings!) and a northward bound Liv-ex Fine Wine Index are a testimony towards this argument. Extremely positive reports about the 2009 Bordeaux vintage has also added to the optimism.
- The mid-priced sector: The hardest hit sector of the industry. Without the luxury of having safety nets of big and investment quality brands (Screaming Eagle, Penfolds Grange et al), these wines felt the maximum pinch of the downturn. A drastic change in the consumer spending in restaurants as well as off-premise and internet buying patterns meant that a $45 bottle of wine that was selling regularly in the pre-recession times, now seems like a rather expensive buy. A reason why many wineries (as well as retailers) offered huge discounts or additional sops to keep their mailing address customer base intact.
- The economy class: Two extreme contrasts were witnessed at this level. At one end, the small producer (especially from California, Australia and New Zealand to some extent) who depends on a constant cash flow to sustain his business, saw the orders drying up as the retailers simply couldn’t afford to tie their resources in the form of additional inventories. On the other hand, a lot of industry watchers feel that this sector really benefitted from the downfall of others as the so called ‘expensive wine habits’ were downgraded to a more reasonably priced (although not ‘cheap’) ‘recessionary’ drinking behaviors. So, the $45 mentioned above was probably split between three wines!
Apart from the general overview, a country-wise breakdown will also reveal the winners and losers in the last eighteen months. Wine regions with traditionally high fixed costs in viticulture and winemaking, like the prestigious California AVAs (American Viticultural Areas) and fine wine regions of Europe, were the natural sufferers. Whereas countries like Chile and Argentina with their broad range of price points coupled with extremely competitive fixed costs (especially, labor cost) clearly came out on top, consolidating their position in the vital American and UK markets. On the other end of the spectrum, the bulk wines of Australia and Marlborough (Sauvignon Blanc) are adding to the woes of the local industries, although as expected, New Zealand exports are still likely to cross the one billion dollars mark by next year.
Overall, so far the wine industry has weathered the storm better than the other sectors like real estate and stock markets, and although it is too early to claim that we are out of the choppy waters, the forecasts definitely predict of a smoother ride in the near future.