How ‘very socially disruptive’ measures will effect the wine trade

With England’s chief medical officer Chris Whitty warning last night that “very socially disruptive” measures would have to stay in place for the rest of this year, we consider what this will mean for the wine trade.

While the entire wine industry is looking forward to an end to the coronavirus lockdown in the UK, there are major concerns for all parts of the supply chain that come with a re-opening of businesses with social distancing guidelines still in place.

In terms of the hospitality sector, it is hard to see how such measures could be adhered to while running a fully functioning business, both in terms of the practicalities – how can you serve a customer and keep a 2m distance? – but also the bigger issue that a part-filled bar, pub or restaurant won’t be profitable.

As MD at London’s Vagabond Wines, Stephen Finch, told db earlier this month, “Social distancing will be the new norm for a while, so we will have a drastically reduced patronage,” he said.

“Our costs will go up [after the lockdown ends] but our revenue will not go up commensurately,” he added – meaning that many businesses simply won’t be economically viable.

Referring to a future solution to Covid-19, he also noted that the “talk about a vaccine is a red herring and counterproductive,” pointing out that “One won’t be ready at scale for 1-2 years.”

Consequently, he said, “Do we really want spend our every day for the next year or so social distancing? We shouldn’t forget that the mortality rate for the coronavirus is a vanishingly small 0.1-0.3% for the non-old (55-60+) and non-vulnerable. The solution is not a vaccine but the much derided herd immunity.”

However, social distancing measures are due to remain in place in the UK to prevent a second wave of the virus, because, with only 5% of the population believed to have contracted the virus, at the moment there is no ‘herd immunity’ – and it’s feared that trying to achieve one would have a huge impact on the health service and the economy.

While much of the media focus of the lockdown and social distancing measures has focused on the most obvious victims, particularly the UK pub sector, the suppliers to the hospitality sector are equally severely affected.

As previously reported by db, those businesses that specialise in supplying wine to bars and restaurants have seen demand fall to nothing overnight, and yet don’t receive the same level of Government support as the hospitality sector.

Such suppliers also have the additional burden of excise duties, which is why the WSTA is lobbying the Government to allow businesses to spread duty payments over the remainder of the year.

And they often have a further cash-flow problem in that much of the wine already supplied into the UK on-trade over recent months has yet to be paid for, with invoices unlikely to be settled by bars, pubs and restaurants until they reopen and start to receive enough income. Excaberating this is the fact that in some cases, such establishments may have already decided to close down for good, or won’t be able to survive after the lockdown ends with social distancing in place.

Of course, if the on-trade suppliers aren’t being paid, then neither will their wine producers, meaning that both parts of the supply chain face the double hurdle of zero ongoing trade, and a loss of income from orders that were fulfilled, but not yet paid for.

While some wine producers have benefitted from an upsurge in volume sales through UK retailers, offsetting the losses suffered in the on-trade, the growing off-trade demand tends to be for cheaper wines.

Speaking to db this morning, Terry Pennington, the commercial director for the UK and Ireland at South America’s Santa Rita Estates, highlighted the impact.

“Our on-trade business has not so much been badly hit but completely gone, and where we have a listing in a major multiple, then it’s great if you can keep the wine moving through, but it tends to be lower value… the premium sector has been greatly impacted; the mix and value are not as good as they were.”

Another concern for wine producers along with importers and distributors is the fact that there are currently fewer channels to sell wine.

This may make it harder to retain listings in the short term, while reducing choice for the eventual consumer.

In anticipation of this, Pennington said that as soon as it became clear that the lockdowns were coming, Santa Rita reduced the range of wines they were bottling to its core lines, taking the total down from around 300 to 100 different wines.

The longer term fear is that some of the importers in the UK that are focused on selling a more eclectic mix of wines won’t have enough cash to stay afloat because the establishments they supply aren’t receiving any income during the lockdowns, and not enough in the future with social distancing measures still in place.

This means that the less mainstream and more expensive wines could find it increasingly hard to find a home, and Pennington’s fear is that this could have a negative effect on the overall image of wine, so often seen in its best light when served properly in a restaurant setting.

“I’m worried there will be an impact on the appreciation of wine,” he said.

Nevertheless, to conclude on a positive note, the pick-up in the e-commerce drinks sector since the lockdowns began offers much hope for the wine business, because it gives the trade a powerful way to communicate directly with drinkers, wherever they are enjoying a glass.

And building on this new, increasingly connected digital community of wine lovers provides the great opportunity for all in this business both now and after the social distancing measures come to an end.

Read more

SUPPLIERS TO ON-TRADE NEED MORE SUPPORT FROM UK GOVERNMENT DURING COVID LOCKDOWN