Virus pandemy and financial crash: what about wine?

No need to be an epidemiologist or an economist to understand that we are in a time of change for our societies, our social and economical environment and therefore our behaviors.

 For those living under a stone, in a nutshell, we are witnessing a global pandemic caused by a virus, of which we know very little. We do not know for sure its lethality, we struggle to contain it and we have not a cure yet.

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This catalytic event is having an accelerator effect on the financial markets crumble (or should I say crash), in a global economy that, still a month ago, was flourishing thanks to free money (zero or close to zero interest rates), ridiculous debts levels and money printing by the central banks. Boom! Stocks crash, bonds crash, gold crashes. But worse than that, the financial castle of cards fall and the hit of the pandemic on our local economies, come as a thunderbolt throwing a lot of people in panic and unemployment, with a huge focus to have cash. We are in unknown territory for many of us.

But enough painting this gloom and doom picture as what I would like to discuss is: and what about the wine industry?

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It is obvious that the wine industry, as the majority of the other business sectors, will be touched by this chaotic period and the new balance that will result of it.

Let us approach this first by wine categories at the level of production:

A: wines which are made in mass production. These wines are aiming medium to medium-low quality for mass distribution. They come from areas like: southern France, Bordeaux (the 98% of the volumes which are not crus classes), some Italian and Spanish regions and Australia for example.

B: wines from small to medium size (often family owned businesses) that make high to medium-high quality wines

C: Wines from small to medium size that make high end wines.

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My view in the short medium term for the A category is not pretty: consider that the main outlets for these type of wines are supermarkets, “every days” restaurants, etc. From what I have seen these days in the supermarkets, the wine shelves were not empty. And wine is probably among the first “little pleasure” you can scrap from your list if you are in dire conditions financially. Currently in Europe and many other countries in the world, restaurants are closed and therefore sale are at zero. At a wine producer level, these wines are not always labeled with a vintage (many are blends of different vintages). But as  most mass produced item, margins are low and money is made on volumes. Therefore for them, with all the different quantities that are already present in the supply chain, the cash flow will be an issue, as well as the increasing inventory that represents immobilized money. The whole supply chain will suffer from that (producers, importers, sellers).

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Therefore I believe we will see massive price cuts in the shops, producers selling at loss. If the crisis last several months, this could also have a transformation effect on the industry with some bankruptcies, consolidation, etc. knowing that many are in debt following important infrastructure investments. For the consumers, the only effect will be a reduction in price and some good bargains to snap.

 

 

 

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