Wine & the Coronavirus Recession: Shaping Up the Prospects for Recovery

 

As recent Wine Economist columns have reported, it’s very clear now that the world economy has fallen into a recession, with some countries and regions affected more than others.  The depth of recession is hard to gauge. A few weeks ago I thought that things would be very bad here in the United States, with as many as 5 million unemployed.  But by late last week almost 10 million had applied for unemployment benefits in just two weeks and the shoes are still falling. Incredible. What will things look like two weeks from now?

20200404_cuk1280Silver lining predictions based on the current wine sales surge aside, it is pretty clear that the wine industry will be negatively impacted by the slowdown in spending. How much depends in part on what “shape” the recession takes, which is to say what factors dominate the decline and how long it takes to recover.

Recessions are like stomachs — they come in lots of different shapes (see the classic 1960s Alka-Seltzer tv commercial above for humorous examples). Will it be a V-shaped recession? Or will we be dealing with a W, U, or  maybe an L? The shape matters for the global economy and for the wine economy, too. Herewith a brief survey of the economic landscape.

Best Case Scenario: The Deep V

Initial projections (and many current ones, too) forecast a deep V-shaped recession. The economy will shrink rapidly for two quarters and then rebound just as quickly, so that by this time next year we will be safely back to square one. The logic behind this is simple — everyone goes home to hide out from the coronavirus and, when the danger is passed, the Reset button is pressed everyone goes back to their old jobs and habits.

This scenario makes sense if you think of the coronavirus crisis as just an exaggerated version of the annual seasonal flu season with minimal permanent impacts. But not many hold that view any more from a medical standpoint and there are big doubts about it in terms of the economy. Not all the businesses that shut down as we entered the crisis will be coming back, even with historic levels of economic stimulus.

Consumers will find it hard to recover, too. A 2019 Federal Reserve survey found that about 40% of American households did not have the ready cash or credit to weather an unexpected $400 economic emergency. Those 10 million (and growing) unemployed workers are facing a lot more than $400 worth of problems. The crisis will badly undermine the foundations of their economic security.

But a deep V is not out of the question if the massive bazooka blasts of government aid and helicopter drops of interest-free money are effective. If they work and work fast, then the Reset button will engage a speedy recover. I hope that’s what happens.

I’m worried that the problems are deeper and that you can hit the Reset button until you are blue in the face, but the economy won’t spring back so quickly. If I am right, it is bad news for the wine trade, which might have hoped that consumers would stock up on wine now, drink it all up while sheltering in place, and come back for more in the fall.

Double Dip W

A second fairly optimistic theory currently making the rounds is that the economy rebounds as described above, but then a second coronavirus pandemic wave appears in the fall or early next year. The necessarily closures and quarantines would trigger a second recession, but it would be smaller and shorter because the world would be better prepared.

I don’t have a strong opinion about the double dip recession scenario except to note that (1) there is no reason to think that the current pandemic will be the last we will see and (2) I sure hope we learn from our mistakes this time around.

The double dip W complicates things for wine because it makes it even harder to predict when a sustained economic recover would power higher wine sales. Instability and uncertainty — is this the new normal?

The Classic U-Shaped Recession

The U-shaped scenario is a third possibility. The U-shape recession is longer in duration but less deep than the V or the W. Full recover might take 3 to 5 years, not a few months.  This is the classic recession shape and it sometimes works this way. Demand falls for any number of reasons, so that inventory builds up and production slows down and unemployment rises (which further depresses demand). Excess inventories are eventually drawn down and new orders placed, which stimulates production creates incomes and jobs, and encourages a rebound in demand.

The U shape would be a problem for wine because several years of depressed demand would exacerbate the structural wine surpluses that plague the industry both in the U.S. and in many other wine-producing countries. Supply-side vineyard adjustments, which are already recommended in order to reduce capacity, would be critical.

There is reason to doubt the U-shape scenario, however. First,  the coronavirus recession is more than just falling demand, so a demand-based theory doesn’t seem to fit all that well. And, second, it would seem like the bazookas and helicopters would shorten the cycle if this scenario holds, so the U would become a V. That’s a bit of good news, which I supply at this point because things are about to get very dark.

L is for Liquidity Trap

The worst case scenario, from a strictly economic standpoint would be an L-shaped recovery. The global economy plunges and then … does not recover for a very long time. An extended recession is of course very bad for the wine industry as it would undercut the economic foundations of wine buyers of all generations.

There are a couple of realistic scenarios that could lead to such an outcome.

The first is a financial crisis. The coronavirus recession may have started with health issues, but there is a high probability that a financial crisis will follow. Not necessarily a banking crisis this time, because banks are better capitalized than a decade ago, although banks and non-bank lenders are still vulnerable The worry focuses on weakness in and liquidity of  corporate junk bond debt and emerging market debt and the contagion that collapses in these markets can cause. You might add state and local debt problems to the mix if the crisis persists for more than a year.

We have already seen several instances of financial markets freezing up, or nearly so, in a panic for liquidity. This could create the conditions for a liquidity trap, which is a situation where financial actors are so concerned about liquidity that they soak up any new funds that are injected into the financial system, not spending, investing, or lending.  Monetary policy, even maybe helicopter money, is impotent because the new funds just disappear into reserves with no real economy impact.

You can call the second scenario the Zombie Economy and it goes like this. Many firms collapse during the coronavirus crisis, but are kept alive — just barely — by aggressive government support. They don’t die, but they aren’t really alive enough to actually recover either. They continue on for years soaking up trillions of dollars of (debt-financed) resources and preventing an economic shake-out that would free up resources for self-sustained growth.

Is the Zombie L-curve possible? It seems hard to believe … until you call it by its other name: post-bubble Japan.

What’s going to happen? What will the recession look like? I really don’t know, but I hope that the coronavirus health crisis and the economic dislocation it causes are both milder than seems likely at this point and that we return to health quickly. Fingers crossed that the massive economic stimulus that is being unleashed around the world is effective.

Anatomy of Georgia’s Wine Export Surge

Exports of wines from Georgia (the country — the cradle of wine — not the U.S. state — the cradle of Coca Cola) have surged in recently years, a fact that is both well-deserved and timely. Georgia deserves the increased recognition of its wine sector both because it really is the cradle of wine, with literally thousands of years of history, and because the wine industry and government have invested heavily in recently years to raise standards and promote products in key markets.

Ticking All the Boxes

Georgia wine’s success in 2020 is especially timely because travel and tourism — another important Georgian industry — has been hard hit by the global coronavirus pandemic. Ideally the wine and the tourism industries work together to generate needed income, especially in rural areas. Georgia is sort of running on one cylinder this year, so wine’s boost is especially appreciated.

Sue and I visited Georgia in 2016 and we were impressed by the friendly people. beautiful scenery, striking crafts and culture, delicious food, and excellent wine. We recently re-immersed ourselves in virtual experiences of Georgia through the third annual Ghvino Forum  and a “Georgian Wines 101” trade tasting of six Georgian wines expertly led by Taylor Parsons with special guest winemaker Iago Bitarishvili of the iconic Iago’s Wines.

My particular focus for the Ghvino Forum was a presentation by Tornike Kodrzaia, Head of Research at TBC Capital on the economics of Georgian wine. Wine is important culturally in Georgia (a fact that a recent film Our Blood is Wine makes very clear), but it is also a key element of the economy.

A Complicated Situation

Kodrzaia presented data that showed the Georgian wine sector to be a complex mosaic. A survey of large- to medium-size wineries, for example, revealed high financial returns — about twice the average for Georgian businesses in general, he said. That is incredible. It would be interesting to dive deeper here, to see if the same is true about smaller wineries and if the returns to growers are also positive.

Georgian wine is not a single thing, so it is important to understand its components. Home production was very high during the Soviet era and is still large, especially compared to other countries we have visited. The foundation of Georgia’s high per capita wine consumption is wine made at home or by friends or family, although Kodrzaia noted that commercial wine sales have increased in the domestic market.

Georgian’s prefer white wine — and it is easy to see why if you sample a fine Chinuri, for example. But traditional export markets prefer red wine, so that is a production focus. Russia and the CIS markets demand semi-sweet red wines, which Georgia produces in abundance. Uncertain political relations, however, are behind a movement to diversity export markets and reduce dependence on Russia.

China has emerged as an important market for Georgian wines, but the Chinese prefer dry red wines over the semi-sweet products. Chinese consumers are drawn to the story of Georgian wine — its long history and Silk Road associations– as well as its quality. Many Georgian Wine Houses have opened in Chinese cities to tell the cultural story and promote the wines.

Rising Tide in the U.S. Market

The United States export market is growing quickly from a small base, with above-average prices.  Over 800,000 bottles were exported to the U.S. through October 2020, for example, a substantial increase from 678,000 in 2019 and less than 200,000 in 2014, when the current surge began. The average ex-cellar price of exports to the U.S. was $5.11, according to Georgian statistics, more than double the export price for China and CIS countries. So you can see why the U.S. market is a focus.

Georgian wine is exceptionally diverse, so it will be interesting to see which of its many facets shines brightest in the U.S. market. Natural wine is a growing market niche and many Georgian products can fly that flag proudly. But many of the traditional producers are quite small, so critical mass is an issue. Iago Bitarishvili is an immensely important producer, for example, but only 5000 bottles of his amber Chinuri were made in 2019 according to the data we received.

Georgia is home to literally hundreds of native grape varieties, which creates a kaleidoscope of interesting choices for some consumers and a confusing blur to others. (Sue suggests an initial focus on red Saperavi and perhaps also white Chinuri — excellent wines that buyers will not be afraid to try to pronounce.) Many of the wines are hand-sells, however, which makes Covid closures of restaurants and wine bars in many areas an additional challenge. The six wines that were included in the Georgian Wine 101 tasting were made from these grape varieties: Tsitska-Tsolikouri, Kisi, Chinuri, Tsolikouri-Otskhanuri, Tavkveri, and Saperavi.

But Georgia, Georgians, and Georgian wine have survived these thousands of years because of their determination, commitment, and resilience, so they are unlikely to be defeated by these temporary challenges. We look forward to learning more and Georgia and its wines and to witnessing their continued export growth.

Georgia’s Lost Eden

Just as I was putting the final touches on this column a friend wrote to tell me about a new Georgian wine he sampled over Thanksgiving and really enjoyed. The project is called Lost Eden Red Blend and it ticks many of the boxes needed to break through in the crowded marketplace. It is a blend of 100% Saperavi from several vineyards — I’m guessing the marketing folks thought “red blend” would be more approachable that Saperavi. The wine is made by an 11th-generation (!) winemaker. The packaging is unique, don’t you think? You will remember this wine if you try it and like it.

The wine is “semi-dry” with 15.4 g/l residual sugar and 13% alcohol. 4500 cases made. Suggested retail $18.99. It is a type of wine we tasted and enjoyed in Georgia and that is popular here in the U.S. where many consumers talk dry and drink sweeter. The wine is modern in style, according to on-line documents, but pays its respects to tradition by blending in a portion of wine made in the traditional qvevri method of clay vessels buried in the ground.

Some of my friends will be disappointed that a wine like Lost Eden gets attention. They would like Georgia to be known in the U.S. exclusively for its traditional qvervi wines. But Georgia is a small country that punches above its weight in the wine world by leveraging all of its many advantages, including some high quality sweeter red wines.

We haven’t tasted the wine, but we have sampled the story told on the website, which draws on the people and country, their culture and history, and of course the food, too, including the iconic supra feast. Georgian wine is complicated, as noted above. This is only one side of Georgian wine, but one that seems likely to spark greater interest in the wine and the country in general.

Georgian wine is on the move. Let’s see where it goes next!

2021 Wine Scenarios: Good, Bad, or Ugly?

What will the wine world look like a year from now?  Will our assessment of 2021 be good, bad, or ugly? Last week’s Wine Economist column briefly explored a “Roaring Twenties” scenario that is making the rounds both for wine and for the economy generally.

The Roaring Twenties theory holds that the pandemic has created pent-up demand for all the things that we’ve had to sacrifice in the last year but that will soon become available again. Parties and celebrations. Gatherings in bars and restaurants. Travel and tourism. They won’t all necessarily come roaring back at once, but the rebound will be substantial and be fueled by a corresponding rebound in economic activity.

The Roaring Twenties scenario is what I call a “ceteris paribus” (holding all else constant) theory. That is, it assumes that pretty much everything remains the same except that the covid vaccine lets people come out and play. With interest rates pegged near zero, fiscal stimulus doubling-down, and financial markets soaring, the good times will surely roll, or at least that’s what some hope and others firmly believe.

The Wheel’s Still in Spin

But it is important to keep in mind that a lot of positive events have to line up all at once for this to happen. I was reminded of this by the cover of The Economist newspaper’s The World in 2021 issue, which features a casino slot machine device (and not a crystal ball) as its symbol. The future isn’t written and waiting to be perceived is the message here. There is a lot of risk and uncertainty ahead.

The future, whatever it turns out to be, won’t be just one thing. It will be the combination of what happens on the politics wheel, the economics wheel, the public health wheel, the environment wheel, and so on. Our experience in 2020 shows that these wheels can sometimes align in terrible ways — think pandemic, recession, wildfires, and social and political unrest. There is even the chance of problems in one area cascading through the system in a vicious cycle.

We might feel we deserve the happy flip-side of things in 2021, but the odds of a golden Goldilocks outcome are longer than we’d like. We should  anticipate problems as well as potential good times. Not trying to be unnecessarily gloomy — just realistic.

To simplify, let’s imagine that 2021 depends on four variables or spinning wheels: public health, economy, politics, and the possibility of “black swan” wild card events Clearly there are many different possibilities for public health.  The hope for very fast roll out of vaccines is no longer realistic, although there is a sense that officials are learning quickly about troublesome bottlenecks. Fingers crossed …

Attention is focused on vaccines, but the virus surge continues in many regions with record case counts and deaths. It isn’t clear how quickly vaccination can overcome community spread and whether this third infection round is the last or will be followed by more surges or echoes of this one into the future.

Spinning the Economic Wheel

Clearly a lot is riding on where the public health wheel settles, especially for the travel and hospitality sectors, which are economically important both in general and for the wine industry. Then there is the economy wheel. to consider.

The relatively strong economic recovery in the United States is built on heroic levels of government support, which will end at some point, but when? Will monetary authorities hold their nerve and keep the spigots open as the economy begins to open? Will fiscal stimulus continue to preserve incomes and employment? What about the high levels of debt that corporations and governments have taken on?

This will depend to a certain extent on politics. Each of the major economies is currently experiencing its own unique brand of political instability or crisis. It is easy to imagine scenarios where political crisis in one country creates contagious economic or social problems elsewhere. Here in the United States there is widespread disagreement about what a good political result would look like. Many observers, for example, were happy when it looked like Republicans would control the Senate and gridlock would prevail. Gridlock, to this way of thinking, would mean that only the most moderate policy actions would prevail.

The Curse of the Black Swan

Now, with Democrats in the White House and majorities in the House and Senate, more aggressive policies are possible, at least in theory. Is this good or bad? Opinions vary according to political persuasion and the particular programs considered. So you can see that ceteris is unlikely to be paribus in 2021. And that doesn’t take into account any “black swan” wild cards that might be on the deck.

A Black Swan event is something with very low (but not zero) probability, but very high impact. The covid pandemic of 2020 is a good example of a Black Swan event. The possibility of a global pandemic, originating in Asia and spreading through international travel vectors has been known for some time. Indeed several of my university students studied the situation in the aftermath of earlier Asian pandemics and a number of government- and non-government agencies worked on detailed response plans.

It seemed pretty clear that there would be a problem eventually, but the particular path and specific consequences were not clear. Looking back it appears that countries that had previously experienced such a pandemic took the possibility more seriously and acted more decisively than others did. In any case, the low-probability event happened and the cost has been very high.

Black Swan Inflation

Inflation is the Black Swan event I most worry about for 2021. (Although I am not sure which kind of inflation — see Neil Irwin’s recent New York Times column.)  Most economists acknowledge that there is a chance of an inflation spike is 2021 or 2022, but most assign a very low probability to the threat. Nothing to worry about. And probably they are right. However …

Literally trillions of dollars (and other currencies) have been pumped into the global economy recently and so far inflation in general has remained very low  Governments and businesses have borrowed enormous sums at the resulting low or even negative interest rates. A resurgence of inflation would push interest rates higher and alter dramatically the economic landscape.

In a way, an inflationary surge would make the covid pandemic crisis a bit like the oil crisis of the 1970s. The initial impact of the oil crisis was harshly disruptive, but the long term effects, including both high inflation and the draconian policies needed to contain it, were challenging, too, and cast a long shadow over global events.

Good, Bad, or Ugly?

So you can see that the Roaring Twenties is just one of many possible economic scenarios and, even if it comes to pass as many hope, there are still many possible pathways and denouements. Good, bad, or ugly? Too soon to tell.

I know that some people believe that wine is immune to economic cycles, but wine businesses are businesses with debts, interest payments, counter-party risks, and so on. What happens to the economy happens to all of us in one way or another and it is wise to think about the possibilities.

Times are changing and perhaps that’s as much as we can confidently predict. This kind reminds me of an old Bob Dylan song. Listen up!

>>><<<

Three Things I Learned at the Unified Symposium’s “State of the Industry”

I’m the luckiest person I know and one aspect of my good fortune is that I have had the opportunity to moderate and/or speak at the Unified Wine & Grape Symposium‘s “State of the Industry” session each year since 2012. Last week’s program was therefore my tenth appearance on the “State of the Industry” panel. How time flies!

Each year’s session brings together leading wine industry experts to talk about key trends and opportunities, recognize unresolved problems, and celebrate success. No wonder the big room (see photo above from a few years ago) is packed  with industry leaders from around the world each year — until 2021, of course, when the pandemic moved us on-line.

I get a ringside seat for both the formal presentations and the backstage banter and discussions. I always come away with fresh ideas and a better understanding of the wine industry. Herewith a few observations from the 2021 program.

#1 Elusive Market Balance 

A year ago one of the biggest concerns in California and Washington state was the structural surplus of wine grapes and bulk wine. With new vineyard acreage coming on-line,= a couple of big harvests already in the tank, and demand hitting a plateau, growers were encouraged to take a realistic look at their options and proactively manage supply until demand had time to catch up.

The market is much closer to balance as we enter 2021 and the big bulk wine hang-over seems to have receded. The 2020 harvest was short in California and Washington, too. The market hasn’t flipped, but  things have tightened up constructively.

But that structural surplus is still there. The short term balance is more about a short crop and smoke taint issues more than long term strategies. And price is a factor, too, with coastal fruit selling for California appellation prices in many cases. That’s supply and demand, of course, but it only works in the long term if costs adjust to the new price realities.

#2 The Mandela Rule

“They say that time changes things, but sometimes you have to change them yourself.”

I first encountered this saying when I was on a speaking tour in South Africa. I heard it attributed to Nelson Mandela, which pleased me, although the interweb thinks that Andy Warhol said it first. Either way, it seems to apply to today’s wine industry.

Jeff Bitter of Allied Grape Growers advocates a proactive approach to the supply side of the market, for example. Last year he called for growers to take a hard look at their vineyards and pull out marginal vines sooner rather than later. Better to turn the page than to leave fruit unpicked when prices drop too low or demand dries up.

Cost can be addressed, too, at least in some market segments. Higher yields don’t necessarily mean lower quality any more. The same is true for machine harvesting, which addresses both cost and labor availability issues.

There is still a lot of work to do, but it has been inspiring to see the industry rise to the occasion of all the challenges that we face in these “perfect storm” times of pandemic and recession.

#3 Pathways to Success

The “State of the Industry” panel concludes with a brief presentation by market guru Danny Brager where he spotlights “best of the best” wine firms that have been especially successful in the previous  year. The awards are modeled on the Olympic games awards, with bronze, silver and gold medals. It is always fun to try to guess who will get the prize.

The specific criteria for the gold medal means that it generally goes to big firms that have achieve high levels of both absolute and relative sales growth. This years winners were  Riboli Family, Delicato Family, Deutsch Family wineries. If you are familiar with these firms you know that they are very different in terms of their product lines and marketing strategies. Their success proves what Jon Fredrikson always told us when he was on the State of the Industry panel: there are no one-liners in wine.

This point is even clearer if you look at the wineries that received silver medal recognition this year.  Regional, national, and international wineries. Iconic brands alongside firms that fill private label needs.

What do they all have in common? Wine, of course, but it is obviously more than just fermented grape juice that connects this diverse list of successful wineries. Let me make this a discussion question. Give this some thought and leave a comment below with your ideas.

I don’t want to discount the hardships that many wine businesses have faced. I know a number of wineries, distributors, and sellers that have been forced to close their doors or dramatically reduce operations. I wish there was more support available for these businesses and that counter-productive policies like the U.S. wine tariffs could be reversed quickly. But Danny Brager’s lists of most successful wineries suggests there are still good opportunities for growth if you are in the right place and the right time with the right products and strategy.

#4 Bonus insights

Bait-and-switch alert: there were a lot more than three key points presented at the State of the Industry session last week. Herewith a few of them in quick-fire bullet format.

  • Cab Bubble Deflates? One of my concerns in recent years is that Cabernet Sauvignon has been over-planted and that the bubble would eventually pop. Well, it looks like the Cab bubble is losing pressure, at least in California (I’m not sure about Washington state) as some vines are being replaced with other grape varieties.  But …
  • Pinot Noir Over-Inflated? All the attention to Cabernet may have hidden irrational exuberance in Pinot Noir plantings. Is this a bubble ready to burst?
  • Sauvignon Blanc the Next Big Thing? Sauvignon Blanc sales have been growing steadily for many years. Initially this phenomenon was associated with New Zealand wine imports, but now it seems to be a broader trend. Will growers move out of over-supplied Cab and Pinot and away from Pinot Grigio to Sauvignon Blanc?
  • It’s a War Out There. Both Danny Brager and Jon Moramarco made an important point about the nature of competition strategy. Wine, beer, and spirits are all segments within the broader beverage alcohol category. It is typical to think about competition within each segment: wine vs wine, beer vs beer, etc. It makes sense that you would target customers of close substitutes for incremental sales. But really the bigger war is between and among the segments: wine vs beer (wine does well here) and wine vs spirits (a tougher battleground). Overall beverage alcohol sales have been and likely will be flat, it is a battle for market share.
  • And the Winner is …  Hard seltzer! Hard seltzer sales have boomed in recent years and continued to rise during the pandemic, the fastest-growing slice of the beverage alcohol category. What’s the appeal? Single serving size. Low calorie, low alcohol. Maybe even a healthy image (because they have low alcohol, hard seltzers feature nutritional labels that most wine brands don’t have).  The low alcohol sweetish wine segment has done very well — Stella Rosa sales have boomed, for example, and Indiana-based Oliver wines have thrived here as well.

That’s all for now. Looking forward to 2022 when (fingers crossed) we will be able to meet in person in Sacramento in the new and improved convention center.

Pandemic Mode 2020 Harvest: Southern Hemisphere Wine Lessons

 

One way that wine differs from beer is that whereas beer can be produced pretty much continuously throughout the year, there is only one opportunity to make wine. A crisis that comes at harvest time is therefore especially disruptive and unwelcome. And that”s exactly what happened to wine producers in the Southern Hemisphere this year.

webinar

The International Organization of Vine and Wine (OIV) recently organized an important webinar on the experience of Southern Hemisphere wine producers harvesting their 2020 vintage just as the coronavirus pandemic threat became clear and lock down policies initiated. View a recording of the webinar by clicking on the image above.

Presenters (see list below) from Australia, New Zealand, South Africa, Chile, and Argentina each highlighted the particular problems that they faced and how they managed these challenges. The stories are very different with many lessons to learn and puzzles to ponder.

After the five presentations (at about 1:11 on the video) moderator António Graça asks each presenter to summarize the most important lessons in the form of a tweet.  The discussion that follows focuses on practical problems and the search for solutions. The analysis of successes and failures is worth your attention.

One of the clear lessons cited by several speakers is that communications must be clear, transparent, and omni-directional. Everyone needs to be on the same page. One of the failures cited by two speakers was the inability to convince government regulators of the importance of the wine sector in the national economy and therefore the need for more favorable treatment and accommodating protocols. In part it’s that “we only get one chance” thing — at some point harvest delayed is harvest wasted.

The webinar is required viewing for winery businesses and organizations everywhere — in the Northern Hemisphere because we should learn from our colleagues south of the equator and for Southern Hemisphere producers because this may not be the last time such a crisis is experienced.

SPEAKERS

  • Tony Battaglene, Australia /  Chief Executive of Australian Grape and Wine Incorporated
    Jeffrey Clarke, New Zealand / General Manager Advocacy & General Counsel of New Zealand Winegrowers
  • Yvette Van Der Merwe, South Africa / Executive Manager, South Africa Wine Industry Information and Systems (SAWIS)
  • Aurelio Montes, Chile / President, Wines of Chile
  • Daniel Rada, Argentina / Director, Argentine Wine Observatory / Professor of International Economics, National University of Cuyo, Argentina

MODERATOR

  • António Graça, Head of Research and Development at Sogrape Vinhos SA, Secretary of Sustainable Development and Climate Change experts group – OIV

Wine, Recession & the Curse of the Unknown Unknowns

 

The coronavirus pandemic continues to gain momentum, causing serious economic disruption around the world. The wine business has experienced a number of important impacts already and the future is uncertain.

Booming Sales … for Now

In the immediate run, retail wine sales are booming in many regions and through on-line vectors as consumers stock up on wine along with toilet paper in anticipation of possible store closures and enforced isolation.  How much this will turn out to be an increase in wine consumption versus a change in the timing of purchases is unclear. But retailers are happy for the business in either case.

It has been inspiring to see the wine industry rising to the challenging of consumers who suddenly find their usual wine purchasing patterns disrupted. Like you, we have received many offers of discounted shipping and home delivery. Tasting rooms have responded in many ways including virtual wine tastings. These direct sales are especially important for wineries that need to replace lost on-premise accounts as bars and restaurants shut their doors for now.

The learning curve is steep in this new environment and not everyone is equally successful, but we are making progress. Which is a good thing, since the need to adapt to new consumption patterns will not end when the “all clear” alarm sounds. Many buyers will revert to their old patterns, but some won’t, at least not immediately, and the current period is a good time to learn more about what that uncertain future might look like.

A number of significant economic surveys of the direct and indirect economic impacts of coronavirus on the wine industry have appeared. Rabobank released two reports late last week (here are links to the first and second reports) that I find especially useful and recommend to you.20200321_cuk1280

What’s Ahead for the Wine Economy?

What’s ahead for the wine economy? One way to think of the problem is in terms of Donald Rumsfeld’s famous taxonomy of knowledge (see video above) which divided the world into known knowns, unknown knowns, known unknowns, and unknown unknowns. It sounds crazy when you hear it the first time, but it kinda makes sense.

There are a lot of economic known unknows (things we know we don’t know) for the wine economy (and the economy in general) right now, which explains why financial markets are so jittery. Three important factors are wealth effects, income effects, and attenuated wine consumption occasions.

We know that wine will be affected by the vast decrease in wealth that the plunging financial markets have produced. Some investment portfolios have lost 20 to 30 percent or more of their value since the start of the year. If that is what happened to your retirement account and you are at or nearing retirement age, it is not an easily-dismissed problem. Luxury purchases are likely to be put on hold and for many consumers wine is a luxury. Holding on to wine club members is going to be a challenge and that’s just the tip of the iceberg.

The wealth effect is especially critical because it is likely to disproportionately impact baby boomers, who have been the bedrock of the wine economy for many years.

Helicopters and Bazookas

We know that wine demand will be affected by falling incomes and rising unemployment.  New unemployment claims are surging as parts of the economy slow or come to a halt. Some sectors are expanding — this is a good time to find a job at Amazon.com, Walmart, and — at least in Washington state — at the unemployment benefits office itself, which is staffing up to meet the rising need.

A wide range of estimates of the broad economic effects have been published. Most suggest that first-quarter GDP in the United States will be slightly negative when the dust clears and that the second quarter will be much worse — somewhere between a 10% and 20% decline. That would be the biggest one-quarter fall ever. Job losses could be as high as 5 million in the U.S. Incredible.

Estimates for other countries are also negative, reflecting the global nature of the coronavirus pandemic and the economic collapse it has induced. Economic conditions in Italy are much worse than in the United States and will strain the ability of both Italian and European policy-makers to respond effectively, especially as the crisis grows in Spain as well and the contagion continues.

There is some good news in that government stimulus packages are on the way in the U.S. and elsewhere to try to offset falling demand. But much damage can be done in the short run and it is difficult to effectively target aid, hence the resort to Europe’s “bazooka” the American “helicopter money.” Thus far, it must be said, the financial markets seem to believe that the crisis is bigger than the responses proposed.

Finally, we know that, since wine demand is conditioned by the occasions people have to consume it, the sudden decrease in available occasions (bar and restaurant closures, regulations limiting private gatherings, etc.) will have a big impact irrespective of wealth and income effects.

The travel sector is one of the hardest hit by the coronavirus and that will impact wine, too. A lot of alcohol is consumed at airports and on cruise ships. That’s not going to happen very soon. New York Times wine columnist Eric Asimov did his best to address the occasion deficit last week in a column that told readers it is OK to drink alone if you are forced to self-isolate. Virtual cheers!

The Cost of Uncertainty

We know that these forces will hit the wine economy, but we don’t know exactly how, how much, when, and when things will turn around.  That’s a lot to not know, so it is no surprise that the uncertainty alone is having an impact. It is hard to make confident decisions when the risks can’t be calculated.

I recently received an email from Anthony Bozzano of Bozzano & Co., a San Luis Obispo- based company focused on sales and sourcing of bulk wine (similar to traditional bulk wine brokers), as well as custom brand development for national retail. Anthony writes that

A couple of our larger winery clients, who consistently buy and sell in multiple truckload volumes, are putting all bulk wine purchasing and sales on hold until they understand the full effects of the current situation.

Due to market uncertainty, some boutique wineries are pulling back from active bulk wine negotiations. One such customer from Santa Barbara County told me that their already past-due distributors have informed them that, due to the frightening rate at which restaurants are closing their doors, they do not know when, or if, they will be able to pay their bills.

Uncertainty about the future and concern about counter-party risk are not limited to the bulk wine trade and not completely unexpected in turbulent times. The existence of so many known unknowns increases risks and makes actors up and down the supply chain hesitant to commit to future endeavors.

The wine business is particularly  susceptible to these problems because it is so much dependent on time. Grape vines are not annual crops that you can switch back and forth easily from season to season. Wine is made just once a year and you have to live with what and how much you’ve produced.  When current decisions are necessarily locked in for an extended period of time, it compounds the risk and these are risky times.

The Curse of the Unknown Unknowns

What next? The global coronavirus pandemic has pushed us into the real of unknown unknows — factors that we don’t really know that we don’t know.  They say that what you don’t know can’t hurt you. But they are wrong.

So it is no wonder that the stock market’s “fear index” set a new record last week. With a highly interconnected global economy subject to uncertainty on so many levels, it is impossible to really know what could happen next and how severe its impact might be. No wonder investors sold off stocks, bonds, and commodities last week and rushed to cash and Treasury bills, sending short term interest rates below zero.

Many analysts and policy-makers under-estimated both the public health and economic impacts of the coronavirus crisis in its early days. A few are still in denial. For the rest of us, it is important to accept the risks, unknowns, and knowledge that many forces are beyond our control. And then, cautiously, to move ahead.

Wine, Covid-19, and the Zero-Sum Dilemma

Last week’s Wine Economist column presented a “Guide for the Overwhelmed” that analyzed the current crisis in terms of its perfect storm of component parts. This week begins a short series of articles that try to put the pieces back together in order to better see the outlines of the future of global wine in the post-Covid era.

Zero Sum Economics

MIT economist Lester Thurow’s 1980 book on The Zero-Sum Society argued that America and the world had reached a turning point. An era of growth, where an expanding social and economic pie made it possible for many to gain without corresponding losses for others, was coming to an end, Thurow argued. This change in the economic environment would have broad and lasting consequences.

Example? Under the right circumstances (which can be tricky), open trade is a recipe for positive-sum growth while protectionist trade wars are zero-sum at best and negative-sum at worst. The 1980s proved to be a fertile decade for trade barriers, competitive currency devaluations, and other protectionist policies.

What caused the sudden shift from positive-sum growth with rising overall living standards to zero-sum stagnation? It was complicated, of course. But the 1980 answer in a single word was oil or rather the oil crises of the 1970s and the higher costs and restricted supplies that resulted.

The world, it seems, had organized itself around the assumption of cheap, plentiful petroleum. Scarcity and higher costs shocked the system in ways that few even imagined and helped set the stage for a generation of stalled living standards and frustrated expectations.

The focus of the zero-sum society, Thurow argued, would shift from equity and growth to distribution and conflict. Everyone would struggle for an increased share of the stagnant or shrinking pie and some would succeed better than others, increasing inequality. I recall that Thurow grew up in Montana and he must have imagined his Big Sky world of open opportunity closing down around him.

Covid Crisis / Oil Crisis

It is easy to see in retrospect that the 21st century B.C. (Before Covid) world was organized around the assumption that people could safely gather together and cheaply move about. Spending on travel and tourism, for example, increased dramatically as a proportion of total expenditure in the past two decades. Wine tourism and cellar door sales were important sources of growth in our industry. The post-Covid world will be different indeed, although just how different and for how long remains to be determined.

Is it reasonable to compare the Covid-19’s world economic shock with the oil crisis of the 1970s and its aftermath? Everyone knows the oil crisis was a game changer. The Covid crisis is different in many ways, so it is not a simple apples-to-apples comparison. From a macroeconomic standpoint, the oil shock was a supply-side event that produced stagflation. The Covid shock is more of a demand side disruption that risks a deflationary cycle. It is obviously too soon to know what the final picture will look like, but I would argue that Covid could prove in the end to be the bigger crisis in the long term.

The New Zero-Sum

Even if you accept that the Covid crisis shock is as serious now as the oil crisis shock was in its today, you might still disagree with the idea that the new world that it is creating will be more zero-sum than in the past, with a greater focus on how the pie is divided than in its growth. Why is the future likely to be a zero-sum environment?

One argument is that many parts of the economy are already zero-sum and that Covid simply magnifies and accelerates existing trends.  The recovery from the initial Covid recession in the U.S., for example, wasn’t the V-shape that many hoped for but more of a K-shape. Some parts of the economy (especially the financial sector) recovered very quickly. Other sectors continue to struggle, a situation made worse by the lack sustained economic stimulus. The rising tide did not lift all boats and the financial pages are full of multi-billion dollar M&A deals as businesses bulk up to grab market share.

If you saw the strong Q3 U.S. GDP figures that were released last week, you might think that the economy has rebounded and will resume previous growth quickly. But those numbers are the result of literally trillions of dollars of stimulus (and debt), which are unlikely to be sustained. And they don’t take into account the Covid second wave tsunami, which seems to be sweeping across the globe.

The second argument for stagnant economic growth can be found in the financial news, where the yield curve hugs the zero axis for at least a five year time-frame and monetary policymakers have pledged their support for the foreseeable future even if fiscal actors hesitate to renew stimulus measures. The overall economy is on life support and monetary authorities who lack the power to shock it back into life are determined to at least prevent flat-lining.

The likely result, according to the most recent Q4 2020 global forecast by the Economic Intelligence Unit, is the “zombification” of the global economy characterized by slow growth, low inflation, and high levels of debt. Does this sound like a zero-sum environment?

Wine and the Zero-Sum Economy

It goes without saying that the economic environment I’ve just described is not favorable to the growth of the global wine industry. This is especially true because of the importance of on-premise wine sales, which are most directly affected by the Covid pandemic.

Is the global wine market now zero-sum? And what are the implications if it is? Come back next week for thoughts and speculations.

Wine Industry Consolidation & the Big “W” Recession Threat

bigw-9In my other life as an economics professor I studied financial crises and their implications (one of my academic books, which seems eerily relevant today, was called Mountains of Debt). One thing that I learned about the financial sector is that crises are generally followed by periods of consolidation.

Smaller, more fragile banks and investment firms fail or fall into the hands of larger firms (sometimes the big ones fail too as the Washington Mutual collapse of a few years ago reminds us). Eventually new community banks appear to fill the gaps that the bulked-up big banks leave behind.

Banks and Wine: No Joke

How are banking cycles related to the wine industry in the current coronavirus crisis? Well there is a joke that the only person crazier than a winery owner is her banker. But no one is laughing at jokes like that these days.

There is a serious connection.  A recent Wine Business Monthly report suggests that the American wine industry looks a lot like the American finance industry and that a coronavirus recession shake-out is likely to lead to a wave of consolidation.

Only 56 out of the more than 10,000 U.S. wineries are really really large, producing more than 500,000 cases per year. These are the JP Morgan Chase and Goldman Sachs of the American wine scene. Another 246 wineries are very large, producing between 50,000 and 500,000 cases annually. Taken together, this small number of wine producers accounts for most of the wine produced and consumed.

The Bottom of the Pyramid

At the other end of the scale are 2773 wineries that make between 1000 and 5000 cases a year and an incredible 6420 wineries that produce less than a thousand cases. These are the community banks of the wine world and they are the most dependent on direct sales including especially tasting room sales. They are, therefore, the most vulnerable today.  About half the estimated $5.94 billion wine industry loss due to the crisis comes from lost cellar door sales.

And they are the most likely to experience severe economic distress that might result in sale or closure. Even before the crisis a surprisingly large number of wineries were quietly on the market for the right price. The recession will push that trend to the fore.

The WBM report notes that

Ninety-seven percent (97%) of all U.S. wineries produce less than 50,000 cases and are estimated to experience annual revenue losses of between 36% to 66% with smaller wineries most impacted. Projected losses increase as winery size decreases with wineries producing 1,000 to 5,000 cases expected to see lost revenue of 47.5% and wineries producing under 1,000 cases or less expected to lose 66% of revenue.

Just as some community banks manage to come out of a financial crisis in a stronger competitive position, some smaller wineries will emerge in relatively better shape, too. It is inspiring to see the effort that is going into customer relations and marketing to make up for the lack on in-person contact. I am sure that there are lessons learned now that we be valuable when the tasting rooms open again somewhere down the road.

3-Tier versus Two Speed

Some states have relaxed their direct-to-consumer shipping regulations, which benefits all wineries but will be especially important to small ones. Wine Curmudgeon speculates that this might be the start of important changes to the three tier distribution system that would open up the wine market. That would be a big benefit for the bottom of the wine pyramid.

But at the same time it seems likely that consolidation in the wine sector will be accompanied by similar trends in distribution and for the same basic reasons.  Although much is lost in generalization, there is a tendency for larger distributors to focus their value chain on bigger retailers and larger wine producers.  Scale matches scale matches scale. This pattern magnifies an on-going movement to a two-speed wine market with those in the middle range (both domestic and imports) squeezed in the process.

Here is a link to the Wine Economist’s coverage of the coronavirus recession. All of the most important factors affecting the wine economy remain unknown: how deep will the recession be, how long will it last, when will the economy be open, how soon (if at all) will consumers return to previous patterns? Add to the list the question of how long will it take people to drink up all that wine and spirits they piled into their shopping carts in March? Gosh, I hope they didn’t drink it all at once!

Big “W” Recession Threat

There is so much uncertainty at present that prediction is impossible, but these are some directions that seem likely given current trade winds. It appears increasingly likely, for example, that the “shape” of the coronavirus recession will be W (a very big W in this case) and not V or U (see this previous Wine Economist column about recession shapes).

Many forecasts assume a V-shaped recession, with a short sharp economic fall followed by a quick and decisive recovery.  That would be the best case scenario and there are some early indications that that might be what’s happening in China.

But there is a significant threat that a second recession will strike just as the economy is recovering from the first. The second dip could come if another wave of coronavirus strikes and large parts of the economy need to be locked down again — this is the concern being expressed about China at the moment. Many experts seem to assume a second virus wave, but are uncertain about its impact.

But coronavirus 2 isn’t the only threat. Economists are increasingly concerned that the first virus recession will be followed by a financial crisis as all the missed payments and bad loans come due. There is a lot of credit risk right now, especially counter-party risk, which is the possibility that the trustworthy firm that owes you money might fail, bringing you down, because the people who owe it money can’t pay.

In wine terms, that’s what happens when your distributor can’t pay because its restaurant clients can’t pay. A credit collapse would likely speed consolidation in both the winery and distribution sectors.

Many state and local governments have played constructive roles in the current crisis, but they might unintentionally end up contributing to the W recession scenario. Many state-locals are constitutionally restricted from running budget deficits or borrowing except for capital projects like roads, bridges, and school buildings.  The first recession wave will drive down their revenues, forcing them to cut back on spending and employment. That would make the second recession wave even worse.

None of this is set in stone. Truly heroic economic stimulus (helicopter money drops, fiscal bazooka blasts) has been deployed with more to come. This would be more than enough to deal with economic problems in normal times. But these times are not normal and the head of the IMF said last week that she’s concerned the global recession will be even worse than currently envisioned. Buckle up.

>>><<<

Do you recognize the big W in the photo above? It is the from the classic 1963 Stanley Kramer film “It’s a Mad, Mad, Mad, Mad World.”

 

Cooper’s Hawk Winery Leverages Its Unique Business Model

chw

It is time to circle back to check in on one of America’s most innovative wine companies: Cooper’s Hawk Winery & Restaurant.  Cooper’s Hawk has carved out an unexpected market segment (it is too big to be called a niche) and built a loyal following. Can its unique business model continue to thrive in today’s challenging wine business environment?

Cooper’s Hawk by the Numbers

The numbers are impressive. The big winery in Woodridge, Illinois produced 675,000 cases of wine in 2019, according to Wine Business Monthly data, making it the 29th largest wine company in the U.S. — just behind Hess Family Wine Estates and ahead of Wente Vineyards in the U.S league table. Grapes come from the main U.S. vineyard regions and select international sources.

The wines are sold exclusively through a 43-location restaurant/tasting room network that supports what might be the largest wine club in the world with nearly 450,000 members. That takes my breath away.

I first wrote about Cooper’s Hawk Winery & Restaurant in a 2018 Wine Economist column. I was impressed with the vision — bringing wine country (and wine!) to consumers located far away from California vineyards. Customers enter through a “Napa-style” tasting room that includes a gourmet foods market space. The upscale casual restaurant features Cooper’s Hawk wines by the bottle, glass, or flight, with carefully-chosen pairings suggested for each menu item.  Wine club members can pick up their “wine of the month” at the tasting room, giving them an opportunity to sample other wines and to dine in the restaurant.

The thing that excited me about Cooper’s Hawk Winery back in 2018 was the fact that they were successfully engaging consumers in a new way and obviously building interest in wine in general while expanding their own customer base. Bringing a taste of wine country to the local mall or other nearby location might not work for everyone, but it obviously resonates with a lot of folks who can’t get to wine country themselves but still want a bit of that experience.

Epic fail: Sue and I have so far failed in our resolution to experience a Cooper’s Hawk restaurant first hand, but that makes sense in a way when you think about it. We spend a lot of our time in wine country, which is exactly where Cooper’s Hawk is not. So we were excited when we received an invitation to attend a celebratory virtual tasting of Cooper’s Hawk and other wines.

Go Big in Chicago

The occasion for the celebration was the announcement that Cooper’s Hawk’s new flagship location Esquire Chicago received a 2020 Best of Award of Excellence recognition from Wine Spectator magazine.  The 23,000 square foot facility features a 50-foot high wine tower and offers guests 1200 different wine selections. The list includes the Cooper’s Hawk wines, of course, but also hundreds of other wines from wine producers around the globe, which is a first for Cooper’s Hawk.

I suppose you could say that Esquire Chicago and the tall wine tower is at least in part a reaction to some of the key wine market trends of the last few years. Consumers have shown a willingness to broaden their comfort zone of wine styles and, via premiumization, to stretch the budget a bit, too. If the goal of the Cooper’s Hawk organization is to unlock consumer passion for wine by simplifying choice and controlling quality and value, Esquire Chicago aims to provide opportunities to turn the flame up a notch or two. Accordingly, the wines we tasted  in the virtual seminar included two wines from Bordeaux and two Cooper’s Hawk California blends.

Thankfully there was no attempt to create a “Judgement of Paris” result. The purpose wasn’t to probe whether Cooper’s Hawk wines are better than those from Bordeaux, but simply to taste and enjoy different wines of similar general types much as an Esquire Chicago guest might do in a tasting flight.  Perfect. So we sampled a left-bank Bordeaux, Chateau La Tonnelle, alongside a Cabernet-forward Cooper’s Hawk Lux Meritage blend made from Mendocino-sourced grapes. Then we tried Chateau Coutet from the right bank along with a Merlot-forward Cooper’s Hawk Napa/Sonoma blend called Camille Proud, a special creation of CHW’s Master Sommelier Emily Wines made to honor powerful women role models.

The wines were all very good and, because they were still pretty young, even better when we returned to them over the next two days. If these are representative of the kinds of experiences that Emily Wines and Esquire Chicago sommelier Jordyn Sotelo create, then I think their guests are in good hands.

How important is the Wine Spectator restaurant award? Those who attain it are obviously proud, but there are doubters, too. There was even a case of a hoax a few years ago when someone faked an application for the award and fooled the Wine Spectator staff. My opinion is this. There are wine enthusiasts (like you, perhaps) who seek out restaurants that take wine seriously and offer interesting wine choices. A Wine Spectator award is a way for the restaurant to signal consumers of their interest in and commitment to wine.  In a world of asymmetric information (the famous “market for lemons”) such signals can be very valuable.

Navigating Uncharted Waters

Any advantage is worthwhile in the current market environment. Although we did not talk about it during the celebration tasting, the shadow of the conoravirus pandemic is hard to avoid.  This is a difficult time to be in the restaurant business and not the best time for in-person tasting room sales, either. And, of course, Cooper’s Hawk has uniquely combined these two now-problematic areas to define its business model. Sounds like a recipe for trouble, doesn’t it?

But that doesn’t take into account the huge wine club, which seems to be proving itself even more important than before. With almost 450,000 members, the possibilities for engagement though virtual tastings (like ours, but scaled up considerably) are pretty much endless.  And curbside pick up of wine club shipments and to-go restaurant meals, too, where allowed,  ought to cushion somewhat the economic impacts while fostering relationships with sheltered club members.

So triple congratulations to Cooper’s Hawk: for their flagship Esquire Chicago restaurant, for the Wine Spectator recognition, and for their remarkable achievement in keeping so many club members engaged with wine during this difficult period.

>>><<<

Thanks to Cooper’s Hawk for inviting us to the virtual tasting and to Emily Wines and Jordyn Sotelo for leading the discussion. Fingers crossed that readers everywhere will be able to safely visit CHW and enjoy their hospitality in person before too many more weeks have passed.

Long, Slow Road to Recovery for U.S. Wine

23-sep-2How long will it take for the economy to get back to normal? That’s the question I am asked most often these days, where “back to normal” is code for conditions at the start of 2020, before the coronavirus pandemic and the recession it has produced.

Try to Keep It Real (Compared to What?)

The answer to this question depends on how you look at it. If you are thinking about a world without concern for virus contagion, face masks, and social distancing, the answer might well be “never,” but only time will tell.

Economists often distinguish between “monetary” and “real” economic factors. If you think in monetary terms — stock market valuations, for example — we are already most of the way back. Our modest Wine Economist retirement account is pretty much back to its January 1, 2020 level thanks in part to a few trillion dollars of Federal Reserve and federal government stimulus, which has done a lot to prop up valuations.

But if you are looking at the “real” economy, where output, jobs, and incomes are what count, then the scene is not so serene. A recent report by The Economist Intelligence Unit is titled “A Q3 recovery, what Q3 recovery?” and it warns that the hoped-for big economic bounce in the third quarter of the year is no longer likely. Other business news reports that appeared over the weekend tell a similar story. Here is a link to a summary of the EIU report.

Down the Drain?

The EIU projects that when all the dust settles the U.S. economy will shrink by about 5% in 2020 compared with the previous year. That performance is roughly on par with forecasts for Japan, Canada, and Germany, The other G7 nations will envy a mere 5% decline. The EIU projects that growth rates in the UK and France will be closer to minus 10%, with Italy’s situation a bit worse.

How long will it take for these countries, which are all important wine markets, to return to their pre-pandemic levels of economic activity?  The EIU projects that the U.S. will get there first, but not until Q3 of 2022 — about two years from now. Japan, Canada, and France will be next, hitting the pre-pandemic level in Q4 2022.  Full recovery for the UK will wait until Q4 2023 followed by Italy (Q3 2024) and Japan (Q4 2024). Long road. Slow progress.

In general, the EIU reports, output in the G7 countries in Q3 2020 will be about the same as it was in 2016. Four  years of growth down the drain.

Economic forecasting is an inexact science, or maybe a black art, so you cannot bank on these specific numbers. This is especially true right now given the unknown unknowns about global public health, economic policies, and potential election surprises. But the fact that conservative estimates now suggest a long, slow economic recovery is something we need to digest.

Wine’s Particular Challenges

There are special concerns for the wine industry. An economy isn’t like a train, where all the cars are connected and move at the same speed. Different sectors adjust at different speeds and sometimes move in different directions. While wine is influenced to a great degree by overall economic trends, some particular paths to market are especially influenced by the coronavirus pandemic.

On-trade sales and DtC sales via tasting room visits will likely be slower to recover than retail sales, which we can see now as California has closed down indoor dining and cellar door operations for the second time. And this isn’t the feared “second wave” of infections — that isn’t expected until fall. This is just the echo of the first wave.

It is also important to remember that our 2019 “normal” wasn’t a terrific situation for wine. American wine was challenged by slow growth of demand, supply that was so abundant that vines needed to be pulled, and growing competition from other countries as well as other beverage alcohol categories. Curse you White Claw! U.S. wine producers need to do more than recover volumes, they need to adapt to evolving reality, too.

Simple Pleasures

So it is important and even inspiring to see how active many in the wine industry are in adjusting to what they think the new normal will be. Joana Pais, director of communications and public relations for Sogrape, the important Portuguese producer, told me in an email about the wine tourism situation in Porto and the challenges she and her colleagues face.

Travel to Portugal was booming before the pandemic and wine tourism in Porto and the Douro benefited.  These travel flows collapsed during the spring and are only slowly rebuilding. “It is true that tourism is scary slow,” she writes, “but let’s face it as an opportunity to rethink the purpose of hospitality and work on developing truly incredible experiences, enjoying the simple pleasures of life!”

She’s right about that and more. As I wrote in Around the World in Eighty Wines, wine’s great gift is its ability to give us pleasure. So long was we keep that front and center wine’s future is secure. But the challenges we face on the road to the future are daunting.  The next two to four years will test our collective resilience, but I hope they also excite our imaginations.

>>><<<

I am already starting to think about what wine market situation will be in January 2021 when the next Unified Wine and Grape Symposium takes place. The conference and trade show will be virtual this time around, reflecting the reality of the pandemic and the uncertainty that must necessarily cloud plans for large gatherings. It will be different, that’s for sure, but there are opportunities, too.