For the past three years, ARENI Global has studied the major shifts affecting fine wine. “Disruption” was the word on everybody’s lips, because it described the state of rapid change that both the global economy and the fine wine business were facing, under the various pressures of regulations, technology, climate change, or generational shifts.
Two months ago, the very nature of disruption itself changed, with Covid-19 ushering in a new era. ARENI spoke to international experts to get a sense of what the world holds for fine wine in the aftermath of Covid-19.
Degraded global trade
While the interconnected trade system has brought stability to markets in recent decades, those same systems are now much more vulnerable. The world was already heading to uncertain geopolitical times before Covid-19, with the risks of both trade and armed wars rising.
“We are seeing a weaponization of economic interdependence by the American administration, and retaliation by both the Chinese and the EU,” said Dr Constanze Stelzenmüller, Senior Fellow at the Washington-based Brookings Institution. “Sanctions and tariffs have indeed been used before, but never in this quantity and quality, nor with such extreme goals.”
The current crisis could lead to a global blame-game, resulting in a strengthening of tariffs and hostile trade measures and an increase in volatility and instability.
“The very concept of fine wine is linked to its capacity to export,” said Pedro Ballesteros MW. “Fine wine relies deeply on international trade not only as a route to market, but as a way to establish its reputation.”
Should the global trade environment deteriorate even more, not only will market access become more difficult, but the ability of fine wine to rely on international markets for its financial and reputational wellbeing will be challenged.
The great economic cessation
Economists and historians have recently published numerous papers on past pandemics, hoping to get a sense of where the current pandemic is taking us.
“This crisis is really unique, in that it is not an economic depression nor a recession, but an almost complete cessation of economic activities, without, so far, a crash of the financial system,” said Richard Portes CBE, Professor of Economics at London Business School and founder of the Centre for Economic Policy Research (CEPR).
Comparisons to war time are not relevant either. During wars, production capacity and equipment are destroyed, and post-conflict re-building bring employment and growth. Also, war time means people can’t spend because of rationing, and they rush to indulge when goods become available once again. “Today we are seeing an opposite situation,” said Professor Portes. “We have no need for physical reconstruction. People will likely remain unemployed after the crisis, and those still with a job will focus on rebuilding precautionary savings rather than increase their spending.”
Given this, the great economic cessation could mean a constriction of the fine wine market. Not only that, but with so much of the on-trade in lockdown or facing restricted trading means fine wine is losing a vital distribution channel, as well as key partners and gatekeepers.
Michael Skurnik, founder of Skurnik Wines in NYC, has a more optimistic view: “People will be drinking, eating and dancing again. Some restaurants won’t reopen of course, but as long as it’s not a financial crisis, there will be a lot of investors out there ready to spend some cash and reopen eateries swiftly.”
Grounded international travel
The restrictions on both domestic and international travel is likely to last longer than first expected. The Atmosphere Research Group, which serves the global travel industry, estimates that the level of air traffic won’t be back to “normal” before 2023 at the earliest.
“The first flying brigade will include business travellers but is expected to be primarily personal and leisure-based trips,” said a spokesperson from Atmosphere. The group also believes the first travellers will be better educated and from higher income groups and describes them as “cabin fever escapees”.
The air downturn will have a knock-on effect on fine wine.
“We are not expecting to host large events at our hotel – a big chunk of our annual turnover – before the last quarter of 2020,” said Marc Almert, the ASI Best Sommelier of the World 2019 and head sommelier at the 5-star Baur au Lac hotel in Zurich. “This will deeply impact our sales of some of our major categories, including Champagne and sparkling wines.”
When both the on-trade and the oenotourism sectors are questioning their current business models, some of the fine wine enthusiasts interviewed by ARENI are wondering what travel restrictions will mean for their wine choices.
“My wine merchant has so far done a fantastic job in opening my interests and constantly selecting new regions or producers for me to discover,” said one respondent. “With them not being able to travel that much and visit wineries, I might have to go back to classics because of a lack of alternatives.”
Vicki Tomiser, global wine director for AMI Group, a company that supplies food and beverages to the travel industry, says there may be a silver lining.
“Companies like United airlines or Delta know that people will travel less for a while,” she said. “So, they are making sure that every flight counts, and is remembered as quality time.”
According to Tomiser, buying trends pre-Covid included a shift towards more quality – including selections from boutique wineries – but also developing video and augmented reality, and rethinking packaging and sustainability. She expects those overall trends to continue, while stressing that “the focus on balancing cost savings while still giving experience will be even more important”.
The shifting meaning of luxury
Drastic economic changes have always altered the definition of luxury. The contemporary luxury landscape is rooted in the economic crisis of 2008, when luxury shifted from “acquiring and showing it” to “experience and focus on yourself”. Bling was out and experiential luxury was in.
“Rather than owning the exclusive, it was the very self that became the target for 'exclusification',” wrote Sara Bernat, brand consultant, in a recent article for American Marketer Health. Education and productivity got aspirational treatment, while brands battled to be the best “self-enabler”.
“This quarantine has changed our access to stars,” said one ARENI participant. “When before we had to go through serious work to ‘meet-the-makers’ and discuss the last vintage with iconic producers, we can now simply log-in to their Instagram stories and get answers for all our questions. Real-life interactions will become the new luxury.”
But in a world where people gather to clap for health workers, is it possible that the next step for luxury could be one that moves from “doing” to “helping”? In this world, the ultimate luxury will be having the opportunity to help other people. Perhaps it’s time for “community” to truly mean something.
ARENI is a global research and action institute dedicated to the future of fine wine. ARENI conducts part of its research and interviews under the Chatham House rules of non-attribution, which is why some quotes in this article are not attributed.