How the pandemic could re-shape the on-trade

If major corporations begin to re-think their need for office space, the restaurants and bars of the big cities could be in trouble. Robert Joseph asks what this means for the on-trade wine scene.

Photo by LYCS Architecture on Unsplash
Photo by LYCS Architecture on Unsplash

“Even usually optimistic industry voices are beginning to admit that perhaps three-quarters of current restaurant businesses in the UK won’t survive lockdown and subsequent social distancing.”
    
This stark comment from the journalist and restaurateur Tim Hayward comes from last weekend’s Financial Times (FT) magazine and it should give many in the wine industry pause. For Hayward, the problem goes beyond the basic economics of having to make the same amount of profit from a smaller number of customers. Restaurants, he says are now “funded like Silicon Valley start-ups”. Investors demand “instant returns” from businesses that require “colossal PR and hype”. In other words, many restaurants were based on a model arose that was already unsustainable, even before the pandemic and downturn arrived.

This means that even if, by some magic, a vaccine was developed, manufactured and delivered before the end of the year, many restaurants would still close. Hayward acknowledges that the combination of high rents, investors and hype makes London “enormously different to any other part of the UK” and the same would probably be true of cities like New York and, quite likely, Tokyo. European cities with “more mature restaurant cultures” like Paris, Florence and Barcelona may be less vulnerable. But these are not the main targets for most wine exporters. It is the loss of cities like London and New York that will trouble them.

Viruses and recessions are not the only threat to the sector. In the same magazine, Gillian Tett, chair of the editorial board, quotes Jes Staley, CEO of Barclays, who suggests that “putting 7,000 people in a building may be a thing of the past”. Millions of employees of firms like his have been working at home and enjoying not having to spend several hours a week commuting on crowded buses and trains. And in every major city, financial controllers have been thinking about the savings they could make if they reduced the corporate space they currently occupy.

If fewer employees worked from the office, the cost of rent, heat, lighting and local taxes could be slashed by a third. That means many thousands of the highly paid, sociable diners and drinkers, who head to lunch with colleagues, or to the bar after work, would be removed from the HoReCa pool.

The challenge for at least some parts of the wine industry is clear. While only 20% of consumption by volume takes place in the on-trade in most countries, the value of that segment is far higher. As soon as a producer says they want over $10.00 ex-cellars for a wine, it is almost axiomatic that they will be relying heavily, if not exclusively, on restaurants. These are wines that gain from being sold to people who are not focusing their attention on price.

This is a loss not only for expensive bottles of Bordeaux, Brunello and Burgundy, but for unfamiliar wines. Restaurants are all about handselling, and this is relevant to wines that stand outside the mainstream. If getting a Croatian or Uruguayan or a natural wine onto a supermarket shelf wasn’t difficult enough, persuading enough shoppers to buy it so it holds its listing may be well-nigh impossible. And there aren’t nearly enough specialist stores or online shops to make up for the loss of restaurants.

The problem is not only at the top end, however. Plenty of producers and distributors depend on the sale of inexpensive wine ordered in large volumes by cafes and bars. Hayward predicts that high-turnover, highly automated McDonalds, KFC and Burger King outlets may survive and prosper in the post Covid-19 world. Pizza trattorias could have a tougher time.

In offering a solution, I feel uncomfortably like a doctor instructing a heart disease patient to exercise and lose weight: the same advice they have repeatedly given before but to no avail. First, there’s marketing. Wine producers who continue to follow the tradition of passively delegating the responsibility of building their brand – such as it is – to distributors, wine shop managers, sommeliers and critics are going to zoom up the endangered list. This may be especially true of makers of natural wines who have benefited disproportionally from the support of sommeliers and wine bars that may no longer exist. Second, of course, there’s distribution. Spreading the risk across a number of routes to market makes more sense than ever, but so does building direct relationships with the men and women who ultimately buy and drink the wine.

Maybe Tim Hayward’s ‘usually optimistic voices’ are being overly pessimistic. Maybe an effective vaccine will explode onto the scene, the economy will bounce back and the bankers will decide that the downside of all those rent and utility bills and all those endless commutes is outweighed by the benefits of workplace camaraderie.

But I wouldn’t bet on it.

Robert Joseph

 

For full access...

Please log in or register now»               No subscription?  Try out our free 14 day trial»

Latest Articles