As restrictions ease, and businesses across the wine industry re-assess and refine their business plans, IWSR CEO Mark Meek, talks to WineLand Media about what it will take to get the global wine industry back to its feet.
Long term recovery is expected to be slower than the initial bounce back. But according to IWSR CEO Mark Meek, factors such as premiumisation and ecommerce could help contribute to the industry’s rebound.
Q: In light of Covid-19, what has changed in IWSR’s initial predicted trends for the global wine market?
MM: Before the Covid-19 pandemic swept across the globe, we were predicting that wine consumption by volume would be flat for still light wine, and some growth in sparkling wine, with compound annual growth rates (CAGR) of +0.03% towards 2023 for still wine and +2.8% for sparkling wine. As a result of the Covid-19 impact on the global drinks business, on-trade and economy, we are now expecting a decline of -0.67% for still wine and flat consumption by volume (+0.04%) for sparkling wine. The pandemic itself has had a major impact in changing the expected course of wine consumption over the next few years, although it is important to note that another significant change unrelated to the Covid-19 situation was the decline in wine consumption in the US in 2019 (the first time in 25 years) brought in part by the tariffs on European wines. Added to this, still wine consumption has been in decline for a number of years in many European markets. Furthermore while there is anecdotal evidence of an increase in wine consumption at home during lockdown, we expect that still wine won’t recover to 2019 levels over the next five years. This is due to further trading difficulties through increased protectionist tariffs in many key markets, increasing propensity for younger legal drinking age consumers to gravitate to spirits and RTD’s, the difficult on-trade market, and impact of climate change and the virus’ impact on production capacity over the next few years. While we have seen sharp declines in the consumption of sparkling wine in 2020 in key markets such as Germany and Italy, we expect this category to rebound by 2024, with the exception of Champagne which we expect volumes to be flat over the next five years.
Q: What’s the wine industry’s main challenges during Covid-19?
MM: Wine faces numerous challenges as a result of the Covid-19 pandemic as varying states of lockdown and preventative measures across the globe have impacted production, the supply chain, and consumer demand. Most producers have been able to continue to tend and harvest their crop although restrictions have often made this more difficult and costly. In the case of South Africa, as you know, the ban on movement of alcoholic drinks both internally and externally stopped the export business in its tracks causing significant impact to an industry already under considerable pressure. The main challenges have arisen from the decline in the on-trade which in most cases has only been partially offset by increases in the off-trade and ecommerce channels. Small on-trade focused players have been most heavily hit. Furthermore, we are yet to see the full economic impact of the pandemic as jobs and wages in many countries are being sustained by government subsidies. Once this safety net is removed there could be further declines on the horizon. With the same situation playing out across the majority of markets, both domestic and export businesses are being heavily impacted.
Q: Were there any opportunities?
MM: There have been considerable opportunities. One of these has been an acceleration in the growth of the ecommerce sector, where wine enjoys a privileged position in most markets. It is likely to persist beyond the pandemic as consumers open up and become accustomed to shopping in this way; wine sales through this channel have taken off. Furthermore, the market-wide shift towards the off-trade has played into the hands of larger retail-oriented players while consumers are also showing a preference for trusted brands, regions and styles; experimentation has declined. A further opportunity arising from the Covid-19 situation is the emergence of new ways in which to engage wine consumers such as online tastings which are helping to broaden the category’s reach by bringing the cellar door experience to peoples’ home, irrespective of their location.
Q: Can we expect changes in consumers’ behaviour?
MM: The key immediate changes are linked to the decline of the on-trade and the restrictions that are likely to persist as part of the ‘new normal’. Longer term we could see a number of trends consolidating as a result of the pandemic, for example: socialising in parks and gardens, increase in at-home events, online wine tastings, decline in wine tourism, and increases in everyday ecommerce use.
Q: What advice can you offer wine business in preparation of the aftermath?
MM: If not already, wine producers and purveyors should start developing a comprehensive ecommerce and even direct-to-consumer strategy now. Consumer engagement via digital channels will take on new importance in the near term. The retail sector must also be a key area of focus as the on-trade continues to experience an extended period of challenges and change. Looking at developing and facilitating new consumption occasions or situations that have arisen from the pandemic such as online tastings and increased socialising in parks and gardens (canned formats could do well here) will also be important.