The global wine industry faces an uncertain future in the wake of coronavirus

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The wine industry has had a rocky start to the decade. In October, a 25% tariff was imposed on French, German, and Spanish wines imported into the United States as a retaliatory measure against Airbus aircraft subsidies, and in January the industry narrowly avoided a 100% tariff on all wines imported from the European Union into the U.S., a proposed response over a digital tax dispute.

Now and for the next several months, at least, the global wine economy again finds itself on uncertain ground with the coronavirus outbreak.

Exports

Italy has been one of the countries hit hardest by the virus, and with an entire nation under lockdown, the effects are being felt. Frescobaldi Toscana Group in Tuscany exports 67% of its production and first felt the impact when the company “lost the China market,” says Lamberto Frescobaldi, president of the winery, via email, during the initial wave of the virus. Although the unprecedented nature of this pandemic makes it difficult to form projections, he believes the virus’s trajectory toward other major markets—including the U.S., Canada, and Germany—will affect business within the next few weeks.

Lamberto Frescobaldi oversees seven estates in the Italian region of Tuscany.

Matteo Ascheri, president of the Consorzio di Tutela Barolo Barbaresco Alba Langhe e Dogliani—the governing body of Barolo and Barbaresco wines in Piedmont, Italy—notes that German accounts are starting to cancel orders, and with 80% of its production exported, it’s an ominous sign.

“The major concern is that now with the situation spreading all over the world and other economies in Europe and the U.S., in the midterm, this can be even a worse problem than we’re facing nowadays here in Italy,” Ascheri says. “At the end of the day, we need to export. It’s a major part of our business.” He notes they are still able to ship without too much disruption. A few infrastructure slowdowns due to low employment create some delays, but wines still circulate through the normal logistical paths toward distribution for now.

Italy’s quarantine has trickle-down effects for other countries. Foulques Aulagnon, export market manager for Conseil Interprofessionnel des Vins d’Alsace (CIVA)—the trade organization for wines from Alsace, France—notes that Italy is restricting imported wines; bottles destined for supermarkets and small food shops can still get through. But wine orders designated for restaurants, bars, and wine shops aren’t making it into Italy. As Alsatian wines are primarily sold through these latter channels, exports into Italy have precipitously dropped. Aulagnon says he won’t have exact numbers for another month or so, but it’s easy to see how this interlinked web of distribution could easily disrupt the wine industry worldwide.

Travel and tourism

With scenic vineyards, well-appointed tasting rooms, and luxury accommodations, wine country is a hot destination—or was, until COVID-19 essentially stopped all travel. According to a recent Fortune survey, “68% of Americans who had international travel plans are either likely to cancel (45%) or have already canceled (23%).”

For wineries, the loss of traffic means diminished revenue as well as a loss of awareness among drinkers. Frescobaldi, who owns seven properties in bucket-list destination Tuscany, admits, “Frankly, it will be a very painful year. Italy relies on over 50 million tourists. We are facing to lose most of that business.” In addition, without an operating hospitality sector, wineries lose placements in restaurants and hotels that cater to visitors.

The lack of travel also impedes business development for wine companies and producers. Major trade shows such as ProWein in Düsseldorf, Germany, and Vinitaly in Verona, Italy, were canceled.

L’Aventure winery in Paso Robles, Calif., counts exports as 20% of its business.

For individual brands, not being able to work a market can harm sales. When speaking about the Hong Kong market, Chloé Asseo-Fabre, who oversees sales, marketing, and communications for L’Aventure—her family’s winery based in Paso Robles, Calif.—says, “We did our release back in September, so at the time there were no issues, and everybody got the wine. However, now for the promotion part of it, which is where traveling comes in, that’s where it gets trickier.” Current plans to visit Europe and meet with contacts are currently on hold for her as well.

Local consumption

Sales to restaurants and bars have plummeted around the world as venues close at an exponential rate, which has been one of the biggest blows to the industry. However, Rob McMillan, executive vice president and founder of Silicon Valley Bank, a financial service provider for the wine industry based in Napa, Calif., doesn’t think the situation is dire. He likens the current climate to the 2008 stock market crash.

“Back then we said wine is recession-resistant but not recession-proof,” McMillan explains. “Today we say wine is disease-resistant, but not disease-proof.” An average-size winery generates about 20% of its sales from restaurants, according to McMillan, a figure that will assuredly hurt a winery’s bottom line.

But there is a silver lining. In the U.S., “we don’t have to look further than Prohibition to know that people will still consume alcohol, especially if it’s a regular part of their lives,” he says. McMillan anticipates consumption will shift to the home, and people will order more online, buy directly from wineries, or place orders with stores that deliver. For the industry, this means a shift in sales channels, not a death knell. As evidence, the alcohol delivery app Drizly’s sales grew at a rate 50% faster the week of March 2 than the previous week, and March 12 was the company’s largest day for sales ever, according to a representative.

Although COVID-19’s ultimate effects are untrackable at this stage, CIVA’s Aulagnon has a vision: “When the crisis is over, people will consume more than ever.”