How and where do those engaged in the global wine industry find opportunities from 2020’s historic convergence of a crippling pandemic, tariff-happy trade wars, and environmental ruin?
“You will need to rethink, as a business leader in the wine industry, your value proposition, your value architecture, and profit equation,” said Janko Pelagic, CEO of CIVS (Compagnie Internationale de Vins & Spiritueux), a wine-sourcing firm in Marseilles, France. Pelagic spoke on a panel focused on global wine market shifts at the recent Unified Wine & Grape Symposium’s 2021 virtual conference.
The panelists reviewed how the past year delivered tremendous, disruptive blows to global wine markets. Topping their list was the Covid health crisis, which kept many wine consumers from engaging in on-premise commerce, followed by heavy tariffs on wine, and devastating wildfires in the western U.S. that destroyed wine grape acreage and inflicted smoke damage on harvests.
The international wine trade is caught in the middle of the past year’s troubles, including retaliatory tariffs, as a pendulum shift from trade liberalization to protectionism has emerged, according to Stephen Rannekleiv, a beverage sector strategist for the food and agribusiness research and advisory group at the Dutch financial services multinational, Rabobank.
“When you look at China imposing that 200 percent [wine] tax on Australia—we see this as really part of a much deeper narrative that we think is going to play out and have much deeper ramifications moving forward,” he said.
Trade is being used as “a stick” and “trading partners are being forced to pick a side,” as it is harder to be neutral now and “wine is getting caught in the crossfire,” said Rannekleiv.
As a result, in this case, Australians are going to have to diversify their market from China, such as considering moving more premium brands into the U.S., the panelists said.
“We need to think about the opportunities that are created in this new context,” said Pelagic.
Despite rising U.S.-China tensions, “There is plenty of opportunity in China for U.S and California wine; don’t let trade wars discourage you,” he said. “It depends on your product and where it fits into the market. There are cities you’ve never heard of in China that have 20 million people.”
There could also be increased opportunities for U.S. wine in the U.K., given Brexit’s impact on trade between the U.K. and E.U., Pelagic said.
Rabobank’s Rannekleiv concurred. “There seem to be indications of improving trade relations and access by the U.K. with the U.S.”
There is also increased interest in the U.S., according to Rannekleiv and Pelagic, as more foreign investors who want to hedge their bets from other global trade issues look harder at the U.S. wine market.
“A lot of private equity is turning to wine as an alternative asset—a lot of opportunity here,” said Pelagic. “Private equity is flush with cash right now, as rates of return expectations are a little more tempered, so there is more willingness [to look at U.S. wine investment opportunities].”
The panelists also shared some new glimmers of opportunity coming out of the global pandemic and even the unfortunate environmental damage from wildfires.
“The wine consumer has been a little more insulated from the downturn,” said Rannekleiv, as there are a variety of channels where one can procure wine even though on-premise experienced a 51 percent decline from 2019 to 2020. Grocery, direct-to-consumer (DTC), and take-out were other viable options for wine consumer channels.
“[There was a] huge shift to take-out during the pandemic, but that trend had already started, and we see this as relatively sticky [trend] moving forward,” he said.
Rannekleiv said restaurant chains would rebound better and faster than the independents, although in Europe, Pelagic said government subsidies in some E.U. countries would help some independent restaurants get back on their feet.
The pandemic also created a re-focus on localized marketing efforts by mid- to smaller-sized wineries, due to the difficulty of travel, and on-premise visits, the panelists said.
The terrible, far-reaching wildfires in wine-producing regions such as California and Oregon have had mostly tragic impacts on the wine industry. However, one consequence of that situation has reduced what had already been an over-supply of wine-grape acreage, especially in California.
Because of the wildfires and the pandemic-fueled economic impacts on lowered wine production worldwide, the panelists said that heading into 2021, they don’t see a huge supply-side challenge, as mid-to-smaller wineries will be “saddled with demand” for their products.
Rannekleiv said that 2020 “was not quite the dumpster fire it was thought it might be,” sharing that Rabobank is forecasting GDP growth of about 3 percent in 2021.
Panel moderator Steve Fredricks of California-based Turrentine Brokerage, agreed, adding that even in the face of 2020’s enormous challenges, there “will still be a modest increase in wine supply around the world.”
Despite that modest increase, Fredericks said: “There will be a lot of competition from wineries to get back into restaurants around the world, with a smaller funnel of those opportunities.”