Will the coronavirus be fatal for French wines?

Demonstrations and crises in Hong Kong (key platform for wines in Asia) in 2019, Brexit, US sanctions (Trump taxes) and now Covid-19: the international trade news of the last months is anything but boring, and the sector el Wine, a strong exporter, inevitably suffers the consequences.

The wine market has already experienced many crises and knows how to show resilience. However, according to forecasts by the IWSR firm, global wine sales could show a 13% drop in 2020 due to the current crisis, showing a more violent effect than during the 2008 financial crisis.

These economic difficulties generate significant uncertainty for the players, many of whom are small and medium-sized exporters, and exacerbate certain structural difficulties that the players still managed to contain before Covid-19.

The last FranceAgrimer Economic Report (July 2020) confirms the downward trend of French exports during the first 4 months of 2020 (-16% in volume and -36% in value compared to April 2019) for all wine categories, with a decrease stronger for Champagne.

Remember it France ranking worldwide in 2019: 3me largest vineyard area, 2me producer and consumer, 3me exporter in volume and especially 1er exporter in value ahead of Italy and Spain.

Therefore, the current situation, unfortunately, constitutes a large-scale case of the impact of the environment on the export performance and the health of wine companies, and the need to promote the resumption of commercial relations and initiatives to develop and promote sales.

Faced with this unprecedented situation, we analyzed the content of 238 articles retrieved through the search engine Vitisphere, portal of information, contacts and specialized services, dedicated to the professionals of the “vineyard and wine”, for the period of 1er March 2020 to July 26, 2020.

The objective of the approach was, through a dynamic approach, to draw up an inventory of the impact of the current health crisis on the exporting companies of the French wine industry, but also of the initiatives and reactions of the interested parties. regarding this crisis. Here are some highlights from our study over the past five months.

National and international sales at half-mast

A direct consequence of the containment and closure of borders – from China in January to Europe in February-March and to the American continent in March – international activity was paralyzed during this period. Evidenced by multiple postponements of international fairs in the summer of 2020 or even in 2021.

These events are essential moments for the commercial development of companies in the sector and their postponements make their international activity even more difficult, even though innovative initiatives have been developed with online salons. These deferrals are synonymous with reduced cash flow, missed opportunities to develop and perpetuate networks with French and foreign clients.

Another sign of the end of international activity, the blockage of the logistics chain: saturated ports, immobilized port and airport activity.

Likewise, the confinement and closure of borders has forced a halt to the movement of commercial forces, particularly for exports, replaced by the shift to telework, necessary to maintain commercial relations at a distance.

In addition to this international stoppage, the health crisis has caused a decrease and change in consumption in the domestic market: failure of the spring wine fairs in supermarkets, suspension of the activity of cafes, hotels, restaurants (CHR) and wine tourism.

the conjuncture note de FranceAgrimer confirms the decline in controlled appellations of origin (AOC), the maintenance of protected geographical indications (PGI) and the sharp increase in “Bag-in-boxes” (wine fountains).

We expect a more pronounced fall in the high-level segments, particularly in relation to the closure of health centers and the opportunities for coexistence that confinement prevents. However, the effects on the actors in the sector vary according to two elements: the level of dependence on these channels and the situation in the production region before the crisis.

In fact, private wineries appear to be more affected than cooperatives, due to their heavy dependence on winery sales, CRH, and wine tourism, adding to the slowdown in exports.

In addition, in Bordeaux for example, this crisis has aggravated the difficulties encountered by the sector, which has been suffering from a slowdown in domestic and Chinese consumption in particular for 2 years, and is already having to face structural overproduction due to changes in profile. of wine requested and environmental change take, not to mention the many weather hazards of this year 2020.

The boom in online sales

Since the beginning of March, journalists made assumptions about the postponement of part of the lost consumption internationally to the domestic market and about the opportunity of electronic commerce (confirmed by theIRI company study showing a 179% increase in online sales compared to March-April).

In addition, this confinement was an opportunity for some winemakers to innovate and launch their online sales site, allowing certain shipments to France and Europe. Others have embarked on home delivery or “click and pick up” at the warehouse.

The same uptrend is found in auctions. Thus, in Hong Kong (first place in the world in online wine auctions), as of March 2020 we observed an increase in these online sales, replacing live auctions. It remains to be seen whether these trends will continue to develop in the coming months.

Excess stocks of concern

A catalytic element is on everyone’s mind in this context of declining wine outlets in France and abroad: excess stocks (estimated at 3 million hectoliters by profession).

Inventories are essential in the operating cycle of companies in the sector and contribute strongly to the cash flow requirement.

Falling sales, yields, climatic hazards, all these elements alter the balance of the players in the sector in terms of stock. Now we can see how important it is for the sustainability of these companies.

That is why the entire sector has mobilized with the European Union, the French government, the regions but also the banks, during the last 5 months to obtain measures and aid to manage these surplus stocks, with online in the focus, the 2020 harvest for which storage capacity must be released.

Crisis distillationPrivate storage was at the center of the discussions, along with requests for waivers of loss of activity charges or aids for promotion and marketing.

Still, the actors and the regions do not have all the same needs in terms of aid: the Bordeaux and Languedoc region need more distillation (they account for 60% of requests) than regions such as Champagne, Burgundy. or Alsace for example.

Other additional measures are being studied, such as additional individual volumes, the interprofessional reserve or the possibility of increasing the proportion of the 2019 vintage in 2020.

Given climate change and the likelihood of other crises in the future, it seems essential to think of a toolbox to manage these downward variations (in the case of a poor harvest, for example) as well as the increase in stocks of wine, causing companies to vary their financing needs and operational risk and threaten their sustainability.

Given climate change and the probability of experiencing other crises in the future, it seems essential to think of a toolbox to manage these variations.

This toolbox will have to take into account the diversity of situations and profiles of the affected actors, because this crisis shows us once again that the wine sector has several faces and that a single and generalized solution is not adequate.

Finally, if for some the current crisis has allowed solidarity (donations of alcohol for the manufacture of hydroalcoholic gel, charity sales, promotion of wine tourism), the period represents above all an opportunity to reflect on the future, on strategy and plans of deal.

To recover, the actors in the wine sector have no choice but to draw the consequences of the trends revealed during the crisis: corporate social responsibility, online sales, development of “Bag-in-box” on the CHR network to reduce the carbon footprint among others; So many challenges to face in this period of uncertainty for the French wine industry and its sustainability.

This op-ed was originally published on The conversation.

The conversation

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