Wine in the Time of Pestilence VII – Wine Distribution

The wine industry is not, of course, alone in the havoc Covid-19 has wreaked on it.  All businesses (except maybe those producing face masks and – at least early on – toilet rolls) have suffered, and wine is low down to list of priority industries for the general health of the world.  As I’ve noted in previous posts, enterprising producers have been working to find ways to get their wines direct to consumers – but the distribution industry generally has been thrown into turmoil by the crisis.  Harpers – a UK wine trade magazine – ran an article suggesting that the wine economy would take five years to rebound from the chaos.  Yet, as I’ve said in all my posts, the disease has not created new problems for the wine distributors; rather it has just accelerated the speed of changes already taking place.  Further, these changes develop in the context of the specific cultures where wine is sold.

The hospitality sector is clearly going to contract.  In some countries bars and restaurants are reopening, but social distancing means that they can accept fewer customers so their income will decline.  In France I’ve already noticed a number of restaurants that have just failed to reopen as lockdown is ending.  One issue here is the cultural insistence that meals only happen between midday and 2 p.m. and then after 7 p.m. at night.  If they could bring themselves to accept that some people at least (if only summer tourists from other countries) would like the chance to eat a bit earlier, have a late lunch, or graze all day they might do more business.  In other countries the decline of the town centre in the face of online shopping and rents that go up in the face of that decline has already been putting many restaurants out of business.  Meanwhile, as Robert Joseph has noted, if work patterns change (at least in Western countries) so that more people work more often at home that may put further restaurants in the centre of major cities under pressure.  Additionally, as the same perceptive critic notes, if there is a decline in restaurants, where consumers get to meet new wines introduced by sommeliers, what does that mean for producers in places such as Georgia, Sicily, or Carnuntum?  The key question is – how is the on-trade for wine going to be recreated over the next decade?

Getting wine to consumers – particularly under the influence of Amazon and similar wine-focused organisations like Naked Wines – was already evolving, and this has now accelerated.  In early June Amazon announced an ‘online wine store’ in Australia; meanwhile, according to Reuters Naked Wines has just stated that their June sales saw a 67% increase on the same month in 2019.  Low overheads reduce costs (and thus the price of the wine) and rapid delivery increases consumer convenience.  They may not squeeze out all the independent retailers but they could put pressure on larger suppliers (especially those who are already going online).  Again, there are cultural issues at play.  In Australia, as in much of Western Europe, online purchasing of wine is still really in early stages; however, in China, with the rise of behemoths like Alibaba, the population has already accustomed itself to making purchases online.  Yet China itself is proving paradoxical here.  Even before the disease hit there in January imports of wine in to the country were declining in both volume and value.  According to one of my correspondents there, based on the General Administration of Customs of China the value of year on year imports of wine in to the country decreased in five of the last six months of the year.  Why is this?  No doubt the trade war with the USA has caused some price rises, and beyond that perhaps dissuading Chinese consumers from buy wines made by allies of the States.  Perhaps there is a partisan move to drinking more of its home-produced wines (which are steadily improving in quality).  However, what then followed –a year-on-year decline in import volume for the first three months of the year of 25.3% and in value of 31.1% just reinforced that.  Subsequent political events will be doing nothing to reverse that process.  Politics trumps the need for wine here.

I’ve always argued that the problem with selling wine online is that the physical interaction with the product (most obviously the taste and smell) limits how much it can be sold virtually; however, that is to ignore the fact that so many (especially younger) people now make their purchase decisions based not on taste but on recommendation by influencers and the online communities to which they belong.  Meanwhile in the US online sales of alcohol doubled in the year to May and the UK showed a 50% growth over the same period.  What is more, it seems that over the time since the crisis began consumers have been maintaining their move towards online alcohol shopping so it is probably likely to be continued when (if) the pandemic disappears.

Meanwhile, two countries present particularly interesting case studies about the effect of the crisis on wine distribution – both of them with an element of ‘prohibition’ in their cultural make up.  In the wake of the end of prohibition in the USA in 1932 strict rules were introduced to manage how alcohol got to the consumer and (in part) to make it more expensive: this is the notorious three-tier system.  In each state there must be one ‘importer’, a separate wholesaler, and a third retailer direct to the consumer.  This gives big power to the large-scale distributors (who are reluctant to see the system change as it guarantees them an income but it is not popular with wine producers, who may not be able to sell wine directly interstate, nor with consumers who see three layers of distribution each taking their own cut (and thus pushing up prices) and who are limited in their ability to buy direct from producers.  Additionally, those who seek new ways of getting wine to consumers (such as Amazon) may find the system works against them.  A debate has developed on how the world of wine may change – but the power of the anti-alcohol lobby remains substantial, and is allied in this case to alcohol distributors with a vested interest in the status quo. 

Finally, spare a thought for poor South African drinkers.  As I noted before, in the early stages of the pandemic not just sales, but even the movement of alcohol was banned (thus essentially stopping exports).  That was eased at the beginning of June – but the restrictions have just been reintroduced.  This produced a brilliantly articulate groan of agony from one of the country’s leading wine journalists, Michael Fridjhon. While he acknowledges that wine causes all kinds of problems for some segments of the local population, notably more alienated groups with less access to power or wealth, all this is doing is stymieing that part of the nation’s economic recovery based on wine exports.  Further, it is entirely undermining the attempts to rescue the hospitality sector.  Fridjhon points out that the majority of the ANC’s leadership is officially in favour of prohibition (which has, of course, never succeeded in any other country).  Additionally, I’d suggest, with wine specifically there is also the point that it was traditionally a white economic activity, and remains dominated by whites.  Beyond that, as well, it is a business that is almost entirely based in the Western Cape– the one Province in South Africa which has a non-ANC government, and which the ruling party therefore detests as it threatens its monopoly on power.  Politics beats wine again…

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