The Wine Economist has published a steady stream of columns on wine, coronavirus, and recession in recent months. I thought it would be useful to assemble them into a kind of guide so that readers can more easily find analysis on different topics and also see how the crisis has evolved.
Although there was concern about the pandemic early in the year (there were hand sanitizer stations everywhere at the Unified Wine & Grape Symposium in early February, for example), it took a few weeks for the real magnitude of the crisis to become clear.
The first Wine Economist column on the crisis appeared on March 10, 2020 and I remember being worried that my analysis was too dark and my projections too pessimistic. It took just a few weeks for the clouds to clear enough for me to realize that I had been much too optimistic instead!
Since then I have tried to analyze the situation from different angles and report and interpret economic news that might otherwise be overlooked within the wine industry.
Brought to You by the Letter K
A column in early April examined prospects for economic recovery. What shape would the recession take. V — a short, sharp shock and quick recover? Or W — double dip? U shapes are typical, but these aren’t typical times. The greatest fear was an L-shape, the macroeconomic equivalent of “I’ve fallen and I can’t get up.” Each shape presents different problems for the wine industry, so there is much at stake in this alphabet soup.
Recent articles in the Washington Post, Wall Street Journal and Financial Times suggest that another shape will affect at least some business sectors: the K-shaped recession. The initial sharp economic decline isn’t followed either a rising tide that raises all boats or an ebb tide that leaves them stranded on the beach . Both rise and fall take place in the K-scenario, just in different parts of the economy and in different ways.
It is easy to see the K-shaped scenario in recent business reports. Some parts of the economy have recovered very quickly. The S&P 500 stock market index, for example, soared to new highs. But large scale corporate bankruptcies are soaring, too. Winners are winning big time and losers are drowning in a sea of red ink. That’s how a K-shape recession works. In fact the bull market rally is really K-shaped — look closely and you’ll find both highs and lows.
Some retailers like Walmart have reported higher revenues and earnings — they are part of the K’s upward stroke. But other important sectors such as travel and hospitality slope down. I know of one integrated hospitality company that is experiencing both parts of the K. Their city-based conference and convention operations are suffering, but their rural properties are doing well as families flee to the countryside.
K Sera Sera?
The K shows up in income distribution, too, as higher incomes are cushioned by investment returns while many lower income workers are more vulnerable to joblessness and lower pay. The current Congressional stalemate regarding supplemental unemployment benefits promises to exacerbate this divide.
I think you can see how the K effect applies to the wine industry. There has been a stark division between booming off-premise sales and a bust in on-premise accounts. It makes a big difference which market segment you are swimming in and, of course, many have feet in both ponds.
And while there is evidence of trading up — the Nielsen figures show that off-premise sales growth is high in the $20+ price segments — the impact of falling incomes and rising unemployment among some wine drinkers is impossible to ignore. Sources suggest that buyers for spot grape and bulk wine are concentrating on the value end of the market and that prices reflect this, with some coastal lots selling at California appellation prices.
One of the many important questions this analysis raises is how does the K-recovery (which is only a recovery for some sectors) resolve itself? What is the bottom line going to be? I am not yet ready to hazard a guess. Please use the comments section below for your thoughts and predictions.
A Guide to Wine Economist columns
Here are links to Wine Economist columns on wine, coronavirus, and recession. The most recent columns appear first. I hope you find the analysis helpful as you navigate these turbulent waters.
- August 4, 2020 // Wine, Coronavirus, & the Falling Dollar
- July 28, 2020 // Cooper’s Hawk Winery Leverages its Unique Business Model
- July 21, 2020 // Long, Slow Road to Recovery for U.S. Wine
- July 2, 2020 // Wine, Recession and the Fed-Ex Effect
- June 16, 2020 // Wine & Coronavirus Recession: Three Questions
- June 9, 2020 // Down the Rabbit Hole: Wine Takes the Virtual Plunge
- June 4, 2020 // Pandemic Mode 2020 Harvest: Southern Hemisphere Wine Lessons
- May 27, 2020 // Wine Goes Up the Down Staircase (Coronavirus Recession Edition)
- May 5, 2020 // Wine, Coronavirus & Recession Podcast
- April 28, 2020 // Global Wine Impacts of Coronavirus Crisis & Recession: OIV Update
- April 21, 2020 // Wine Industry Consolidation & the Big W Recession Threat
- April 7, 2020 // Wine & Coronavirus Recession: Shaping up the Prospects for Recovery
- March 31, 2020// Coronavirus & Wine: Market Impacts Beyond the Recession
- March 24, 2020 // Wine, Coronavirus, & the Curse of the Unknown Unknowns
- March 17, 2020 // Wine, Recession & Coronavirus: This Time is Different?
- March 10, 2020 // Wine & Coronavirus: Assessing the Risks