The reality of the Covid-19 pandemic isn't simply death, disruption and the erosion of liberty.
Only last week, the Swiss bank UBS released a report which demonstrated that the obscenely rich had profited from coronavirus; billionaires saw their fortunes climb 27.5 percent to $10.2 trillion between April and July this year, according to UBS. Global uncertainty and disarray are clearly not obstacles to advancing personal wealth – supermarkets, health contractors and Zoom all have deliriously happy shareholders.
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To that list, we should add the purveyors of liquor. According to Nielsen data released in August, US retail sales of alcohol grew 17.5 percent in the 12 months to August 1, with convenience stores increasingly stealing the thunder from larger chains. A firmament of major wine brands, relatively secure in their retail distribution and aloof to the hospitality sector, have earned a few bucks. Bag-in-box wines were flying off the shelves, said Nielsen, while their data also showed a move away from private labels.
The picture in Europe is broadly similar. As elsewhere, there are winners and losers: smaller brands formerly reliant on the restaurant industry are rushing to develop direct-to-consumer networks. Online retailers are generally optimistic and certain brands report an uplift in sales (when compared to the same period in 2019). The important caveat is that many jobs are still supported by furlough schemes: these are likely to remain in place until 2021 in many European countries.
"A handful of markets have seen sufficiently strong growth in the retail and e-commerce channels to counteract any on-trade declines. This was the case in both the UK and Germany which, against a long-term negative trend, are expected to have grown strongly in the first half of 2020 (vs the same period the year prior)," says Daniel Mettyear, a research director at the IWSR.
Interestingly, when Covid-19 became the predominant headline, the IWSR's CEO Mark Meek opined that "history would repeat itself, as the economic consequences of the pandemic shrink disposable incomes".
He added "Consumers will gravitate towards value products, the wealthy will still treat themselves, and average-priced brands will represent the squeezed middle. High-end products will likely remain stable and could even grow, especially as an investment."
Meek's prediction concerning the rise of cheap wine during the pandemic is perhaps the most contentious part of his crystal ball gazing. Members of his own organization are re-examining their initial forecasts, which were made at a time (March/April) when the full impact of the pandemic could not have been definitively foretold.
"We are in the process of revisiting our predictions for the top 20 drinks markets and while the initial expectation was for heavy declines across the board, many key markets have performed far better than initially expected," says Mettyear.
"In terms of price segments, it may be too early to say, as we are not at that stage of forecasting. However, anecdotally there hasn't been much downtrading on display, in fact consumers have been more likely to treat themselves during lockdown."
This is obviously substantially different to Meek's initial prediction concerning the buoyancy of the market for cheap liquor. He provided a welcome challenge to a deeply ingrained narrative; the wine trade has been claiming for years that the forces of premiumization are on an unstoppable march. The rhetoric, shared ad-infinitum, was that the bottom end of the market is moribund, and that rising sophistication coupled with a sustained provision of higher-end offerings were the future of wine sales.
Yet bulk wine accounted for approximately 40 percent of all wine exported globally in 2019, worth more than $3.5 billion overall. Even before the bad times hit, there was a thirst for sub-$6 wine.
So it seemed reasonable to assume in March that the pandemic would push consumers towards cheaper brands, as the hospitality sector declined and economic uncertainty rose. The Austrian Wine Marketing Board released a set of data recently, which showed that the value of Austrian wine sales in the UK plummeted in the first six months of 2020.
The blame for this loss in value was laid at the feet of lockdown restrictions and a strangulated restaurant trade.
"We do think that the Covid-caused closure of the on-trade sector, where many Austrian wines are sold at quite substantial prices, has a big part in this," said Anika Riegler, team leader markets international at the AWMB.
Moreover, despite Daniel Mettyear's claim that "anecdotally there hasn't been much downtrading on display", several leading retailers have reported rising demand for the cheaper bottle, the less exalted label.
"Online sales at the Hawesko Group increased by 68 percent in Q2 [April 1-June 30] 2020 against the same quarter of the previous year," says Thomas Hutchinson, corporate communications manager for a large German retailer.
"As far as price-points go, generally wines on the lower end of the price spectrum have done well. This is typical for times of crisis: people enjoy their glass of wine at the end of the day but it's more a comforting ritual rather than a sense of celebrating."
I'm hearing this a lot lately – I have no access to hard data on the subject of price points in 2020, nor do I dabble in divination. Nevertheless, the critical mass of comments in my inbox suggests that Meek was correct, and that the demand for quaffable plonk has risen during the Covid-19 crisis.
"From our perspective we saw an increase in the low end of the market mainly sold via supermarkets/food retailers as people could not drink in bars in Austria anymore," says Clemens Riedl, owner of a leading wine distributor in Austria.
"But the luxury market is doing well too – our sweet spot – mainly because the target audience has more time to focus on buying wine and less disposable income is being spent in the hospitality sector. The market in the middle struggled the most, as the middle classes became more prudent in their spending habits."
Employed with a frequency tantamount to promiscuity, terms like value, premium and luxury are seldom rigorously defined. Port producer Adrian Bridge reports that his online retail store, Onwine.pt, has been selling a large volume of wines priced at €7-8 ($8.20-9.40). So is that evidence of an uplift in value sales, then, or accessible premium?
"The Covid-19 pandemic has clearly affected our sales of Port in key markets," says Bridge.
"Canada appears to have pulled back from cannabis and returned to wine; we've sold a lot of top-end vintage port in key markets and the UK is doing well." Bridge adds that the latest Nielsen figures show that Port, overall, has performed above expectations during the crisis.
"However, as our Port sales have largely shifted from the on-trade to retail in the US, we're noticing a tendency to purchase lower-priced brands – depending on how one would define value and premium," he observes.
He's right on the money: in a globalized marketplace, reaching a concise definition of the value sector, and the dividing line between value and premium, is no easy task. In emerging markets such as India and sub-Sahara Africa, brands sold as premium choices may well be dismissed as budget labels by US consumers.
Take 4th Street – the biggest wine brand in South Africa – which has done very well in several of the sub-Saharan African economies. The label would be derided as "cheap" and "commercial" by the ubiquitous Bronx hipster, yet in Namibia it represents an aspirational leap towards premium consumption, as part of an overall rise in standards of living.
In Europe and the US, meanwhile, can Covid-19's lifestyle changes and a savage global recession stop the premiumization narrative in its tracks? As much as it was an empirically based phenomenon, the "drinking less but better" rhetoric was designed to placate the soul of wine buyers and sommeliers; the consumption of still wine in many western nations has been declining for some time now
The trade sought salvation in consumers spending $5-10 more on by-the-glass wines in the SoHo cocktail bar.
But belt-tightening and stay-at-home drinking will not necessarily encourage professionals – especially younger consumers – to trade across from entry level to premium.
"During the last economic crisis, we saw middle range wines being delisted from the multiples," says Adrian Bridge.
"The global on-trade is unlikely to fully recover in the near future and channels are simply evaporating for many premium brands. Most wineries don't make their money from the value or luxury segment – they earn a living from their $20-25 offering. If the consumer appetite for this price segment declines significantly over the longer term, then many brands will suffer. Of course, the wealthy will continue to indulge in expensive bottles."
The German poet Goethe once noted: "The rich want good wine, the poor, plenty of wine." Still sound marketing advice to live by in 2020 and beyond.