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  • The coronavirus crisis in Spain’s wine industry
  • The coronavirus crisis in Spain’s wine industry
1. One of the restaurants that are now closed in Spain. 2. The normally busy Cuchillería Street in Vitoria feels eerily quiet. Photos: Yolanda Ortiz de Arri.

In depth

The coronavirus crisis in Spain’s wine industry

Amaya Cervera and Yolanda Ortiz de Arri | March 14th, 2020

Updated on March 30th 2020

2020 is placing unprecedent challenges for the wine industry. As if uncertainty over Brexit and the 25% US tariffs were not bad enough, the coronavirus pandemic presents an extremely worrying scenario.

We have talked to analysts, wine producers, retailers and restaurant owners to have an overview of the situation and to find out how they are dealing with the crisis. We will update this piece as we gather new information and opinions. 

Context and duration of the crisis are key, say analysts

Rafael del Rey, director of the OEMV (Spanish Observatory of Wine Markets), says that the coronavirus outbreak comes at a difficult time for the wine industry. “Even if some countries like Canada and Japan have been good markets for Spanish wines, the overall international situation over the last two years has been stable but with no significative growth and with a considerable slowdown in China in 2019.” 

Focusing on individual countries, Del Rey says that Brexit hit its peak with the depreciation of the pound after the referendum. “The UK has been steadily losing importance: it accounted for 20% of international sales in 2000 but that figure has dropped to 11% now.” Much more worrying is the situation in the US. The tariffs are particularly being felt in France, but Spain has also slowed down after a very good year. “There’s a beginning and an after with the October tariffs and a clear shift in the trend,” he notes. Hopes are pinned on the eventual ruling against Boeing which, prior to the coronavirus outbreak, was due to be announced in May or June. This would allow for new negotiations to open. There are also concerns in Russia. Its new wine law could have an impact on bulk wine, which represents a significative share of Spain’s exports to this country.

In this context, “the economic impact of the coronavirus outbreak is going to be dramatic when the pandemic reaches its peak,” Del Rey points out and adds that there is no precedent for such an “international deadlock” and the psychosis that follows, “even during the world wars, countries like Argentina benefited from wine trade.”  

There is little room for opportunities in this situation. “Home consumption may grow a little, but it won’t be enough to replace what it is lost.” According to Del Rey, “the best-case scenario would be a recovery in the second semester of 2020 to compensate for the losses.” Similarly, “financially solid companies are better placed to confront a situation marked by a halt in revenues, but not in costs.”

From his point of view, the duration of this crisis will determine its magnitude and also which businesses are able to pull through.

Meanwhile, Juan Park, director of Wine Intelligence for Spain and South America, fears that dealing with the impact of the coronavirus will be harder than it was after the 2008 recession, when Spanish wine turned to exports to cope with the downturn. "We recently thought that the US tariffs and Brexit were a catastrophe, but now we see that the coronavirus will likely have an even greater impact", Park adds. "It doesn't look good but we'll get through this because there will be a vaccine and everything will be back on track. What that track is going to look like remains to be seen." 

Park looks at what has happened in China, where companies like Torres estimate that the market will be down at least 20% this year and where many wine importers are expected to cease their activity. And although online sales increased in China during the lockdown period, they will not compensate for the losses caused by the decrease in activity. "There may be a change of roles but ultimately online selling is a migration of purchases, not an addition," says Park, who tries to see something positive out of this situation. "I think this crisis will mean that from now on, virtual meetings will be just as valuable as face-to-face ones," he says.

In this regard, the first piece of good news comes from José Luis Benítez, director of the Spanish Wine Federation (FEV) who confimed that, with the expansion of the virus under control, China is placing orders again. Some FEV members have also received orders from Japan.

The opinion of producers

Familia Torres: a long-term strategy. “We have to get used to black swans and the high volatility of all kinds of unpredictable events", said Miguel Torres Maczassek last Monday during a presentation of the new vintages of the group's top wines, where he also announced that the celebration of their 150th anniversary would be postponed from May to next year. Aside from Brexit and the US tariffs, Torres cited other worrying issues like the impact of the Thomas Cook bankruptcy on wine consumption in the Canary Islands, the safety fears in Mexico or the protests against the government in Chile that led to raids in supermarkets and restaurants set on fire.

Like Juan Park, Torres thinks that “wine consumption is what it is; there are various strategies to sell premium wines, but you are competing with the entire world when it comes to the rest of wines. For us it is important to diversify our markets, plan ahead when things are going well and, as a family company, focus on the long term. Otherwise, we would have disappeared a long time ago.”

“Compared with all these unexpected events, climate change may be perceived to be developing at a slower pace, but when all this is over, it may emerge as an extremely urgent matter. We will continue to do our utmost to reduce the carbon footprint”, he added.

Cvne focuses on distribution. For Víctor Urrutia, Cvne’s CEO, 2020 is being a very bad year for wine and the hospitality industry worldwide. “It is not easy to work from home for people working in wineries. If you cannot meet your clients because they won’t schedule appointments with you, this is clearly a bad thing,” he told SWL.

In recent years, the group has invested heavily in distribution. Urrutia is convinced that “the closer you are to the customer, the better; more so in difficult times”. In addition to Montenegro, its own distribution company in Spain (having a portfolio of small producers has allowed Cvne to reach new clients), the group has distribution companies in Japan, China and the US. “The current situation in the US is having a serious impact in Spain right now, but China does not look good at all. Our performance there last year was not good but this year it will be zero,” acknowledges Urrutia.

Ramón Bilbao: managing the crisis. According to Alberto Saldón, director of Lalomba, the group’s single-vineyard project in Rioja, a great deal of their staff is working from home (“thanks to the digital transformation process undertaken three years ago, we have all the tools to work remotely with time controls”), international trips to coronavirus-affected countries were cancelled at the end of February and the mobility of employees was subsequently limited.

In the winery in Haro, a protocol has been established for suppliers. Over 90% of wine tours had been cancelled before Spain declared the state of alarm on Friday 13th. “The production team is working with orders coming in normally. Both the winery and our logistics operator have wine stocks and can deliver orders. There’s a chance that they may fall... We are now looking into the supply of materials for the next harvest", Saldón points out. 

In an interview published on March 12th on financial newspaper Expansión, Emilio Restoy Cabrera, CEO of Zamora Company (owner of Ramón Bilbao), said that their 10% growth forecast for the period between January and April of this year will transform into “a high one-digit drop”. He also pointed out that “this crisis is going to make us rethink our supply chain”, referring to the fact that a large part of their equipment is Italian, so that possible breakages or the absence of spare parts could force entire production lines to stop.

Comando G: a slowdown and hurrying up in the vineyards. Of all the international orders pending shipment at Comando G (the winery produces between 60,000 and 80,000 bottles per year and sells 80% of them abroad) only 20% are set to reach their destination. Partners Daniel Gómez Jiménez Landi and Fernando García are lucky to sell all their wines by allocations, yet this is the second important shipment delay in a short time. The uncertainty over the possibility of US tariffs rising up to 100% forced distributors to delay their orders. “The US market came to a standstill in September. We had to ask for loan to pay for the grapes and finish the harvest”, says Fernando García. 

How can a small producer face the coronavirus crisis? “The first thing we’ve done is rein in costs in anticipation of a recession. Companies that have taken on debt to continue growing have a credit limit,” explains García. “Consumer demand is going to slow down and then there is the subsequent economic uncertainty that this crisis is going to bring. Let's hope that it won't last more than two months, that we have access to loans and that the Government allows small businesses like ours to postpone the payment of taxes”. 

In terms of their day-to-day operations and in the face of possible mobility restrictions, the whole team has been working hard since Tuesday to plough their vineyards and finish pruning in plots that are prone to suffer frost. Comando G has also cancelled its Fiesta de la Floración, one of the most awaited spring events that was scheduled for May 11. 

Tentenublo: concern for the immediate future. Roberto Oliván, a small producer in Viñaspre in Rioja Alavesa, continues to work in the vineyards but does not hide his anxiety. He has released a couple of pallets of wine but h predicts his winery will be "a desert" from next week. "In three months we will see how much liquidity we have. We have the feeling that the chain has broken and that we come last in the pecking order," says Oliván. "I created the winery without the help of banks but this situation may well force me to resort to them"

The hospitality industry

In a country so focused on tourism and where social life is part of our DNA, the hospitality industry is feeling the brunt of the coronavirus crisis. Under the state of alarm declared by the government,  all bars and restaurants across the country must remained closed at least until April 11th. The vast majority of businesses have turned to temporary redundancies for their staff, but the future of many bars and restaurants is in jeopardy, as they continue to have to pay overheads. The on-trade registers half of the wine sales in Spain.

Before the government ordered 47 million Spaniards to stay at home, the usual waiting lists in fine dining restaurants had disappeared, and many reported a constant rush of cancellations like Martín Berasategui in Lasarte or Disfrutar in Barcelona, where over 50% of their bookings had disappeared just as they prepared to reopen after the winter holidays, reported Efe.

Many others chose to shut their doors temporarily in the absence of diners or the weight of responsibility in such a critical situation. It is the case of El Celler de Can Roca, which announced its closure until April 14th. 

In Madrid, before the official closure of all bars and restaurants, a stream of temporary closures were announced like DiverXO, StreetXO, La Tasquita de Enfrente, Bulbiza group (Casa Julian, La Cocina de Frente, La Retasca, Bistronomika and El Marginal), A Barra, Albora, Bibo, Coke, Lobito de Mar, Horcher, Lua, Rodrigo de la Calle or Lakasa.

In La Rioja and Álava, two of the most hard-hit provinces, the situation was similar. "In an exercise of collective responsibility", calle Laurel in Logroño and Kutxi St in Vitoria, both with dozens of bars and the epicenter of social life in the city, closed until further notice. Meanwhile, Ángel Pérez, owner of restaurant La Vieja Bodega in Casalarreina, which normally hosts many visitors from Haro's wineries, closed his doors too. “After the January holidays, the season started very well, but this trend was reversed on March 10th. We have had 10 people for lunch on average, compared to the 25-30 we have in a normal week, and we think it will increase because many wineries and hotels in the surrounding area are stopping their activity. Our staff will receive unemployment benefits, so at least they will continue to be paid. I assume that we have lost this first semester", explains Pérez, who, in spite of everything, maintains an optimistic outlook. "In these 25 years we have been working, we have gone through two crises and a fire; this year investments will focus only on the essentials, but we will overcome the situation".

Juanma Lavín, manager of Villa Lucía in Laguardia, describes the scenario as "catastrophic". "All of the events, catering and conventions we had this month have been cancelled, whereas in the restaurant, the winery [El Fabulista] and the museum, the cancellation rate is 95%". Villa Lucía offers a delivery service, but although orders have increased somewhat compared to the average week, the demand for this service is not enough to offset the losses. 

In Andalusia, the pandemic had not yet resulted in the closure of bars and restaurants before the state of alarm, although Armando Guerra, owner of Taberna der Guerrita, did not rule out the possibility that events would accelerate, as it eventually happened.

Other social gatherings have also been put on hold. "Given the #sanitary emergency and our need to be responsible", the funeral mass for Pilar Pla, owner of Bodegas El Maestro Sierra, who passed away last March 8th, has been postponed. "We will inform you again when we overcome this unprecedented situation", the sherry producer announced on their social media.

Wine tourism comes to a halt

Vivanco, a major destination for wine lovers visiting Rioja, has cancelled all its tours from March 13th (this includes the closure of the wine museum), although staff continues to work with the necessary preventive measures both at the museum and the winery. Javier Fernández de Bobadilla, head of communications at Vivanco, believes that it is too early to measure the impact in terms of figures, but it will undoubtedly be considerable. Although March is a relatively a quiet period for wine tourism, the harverst period (August to October) and Easter are their busiest time and his expectations are not good.

The off-trade 

Almost a week after the alarm state came into effect, José Luis Benítez, director of the Spanish Wine Federation (FEV), said that wine sales on the off-trade, both in Spain and abroad, are running at a normal pace. "Despite some logistical issues, things are working pretty well in Europe and the impact of the lockdown has not yet been felt in some countries". This is important because the off-trade has a major weight in export markets. According to Benítez, “the off-trade is leading the pace even though we have heard of incidents like supermarkets rejecting orders because they are prioritising other goods”.

Uncertainty among merchants

As in other sectors, distribution professionals are trying to adapt to these exceptional circumstances as best they can. David Barro, head of sales at Coalla, is already working from home because after all the tastings he had for this month were cancelled. “Everything is at a standstill and there is a great deal of uncertainty. We have orders sent out that are not being collected because the establishments have closed and I'm already receiving letters from clients asking for deferral of payments”, he says. His words are echoed by Gorka Mauleón, of El Mozo Wines. This small producer in Rioja Alavesa also told SWL that they had received similar requests to delay payments. 

Meanwhile, and in terms of turnover at the Coalla store, Barro says that although he has no data, he does not rule out that sales at the Coalla online store may be higher during the lockdown, but only if transport can maintain its activity. 

The lockdown of the hospitality business have been a tremendous blow to merchant and distributor Alma Vinos Unicos, which announced on 16 March that it would have to temporarily lay off its approximately 20 employees. The measure affects both the workers in its warehouse, offices and shop in Burgos and those in Madrid. "Our online store is open and we are preparing initiatives and tastings to do through our social media, but our income has plummeted because 90% of it comes from sales to bars and restaurants," Paco Berciano told SWL.  

Although "we will have to look at the small print", the measures announced by the government are "positive", says Berciano. "It seems that in this sense we are learning from the previous crisis, but the consequences will depend on how long this pandemic lasts. If it's short, I think the sector will recover because we will all have an enormous desire to go out and socialize. Berciano is optimistic and believes that confinement, instead of making people return to known and trusted regions and brands, is generating "a great interest to discover new styles and producers".

Can online sales ease the situation? According to Héctor Pla from online retailer Decántalo, it will depend on whether the logistics work in the event of a lockdown and on people’s purchase choices. “Whether we like it or not, wine is not a necessity, but should there be an interest, the way to access it will certainly be online given the closure of bars and restaurants,” he told SWL. Decántalo recorded a recent rise in sales, although, according to Pla, it is too early to tie the upsurge to the coronavirus since March started with very good figures. One thing is clear, says Pla, based on the numerous calls they are receiving from producers these days. “The industry is beginning to think of us as a business opportunity. We have always been a bit of a sideline, but if this situation helps us to take central stage, it may change the way wineries see us”.

He added: “The question now is whether delivery companies will be able to work in trouble spots and whether producers will be able to supply us with their goods. We are sending wines to Italy at the moment, but we already have been warned by some transport companies that it may be difficult. Yet there is the case of China, where the transit of goods has not ceased". As far as Italy is concerned, it is significant that Winelivery, an application that delivers drinks to people's homes, has registered an increase of 25% in its wine orders and 50% in the cities of northern Italy.

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1 Comment(s)
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Andrés Bonet-Merten wroteMarch 19th, 2020The actual scenario requires a crisis management. Less resources and less oportunities need higher concentration of efforts into the right direction. Optimizing resources and sales need better information and better communication. Marketing & sales need performing at its best! The best information is always the one which deals with higher inputs. Big data may help here obviously. Artificial intelligence will bring further results. The international wine buyer's data is already available. It is upon you if you want to use it or not. Please read further at enolytics.com or in Spanish at enolytics.es. Take care. Andrés
 
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