The pandemic is already having a deep impact on Germany’s wine sector, according to a new report. Insolvencies are set to increase, the market for premium wine is likely to decline and there’s a race to sell online.
These are all insights from Geisenheim University’s latest report, the “Impact of Corona on German Wine Producers,” created by a team headed by Professor Dr Simone Loose. The report, based on a survey of 844 wineries across Germany, suggests that worse is to come.
“The overall lockdown measures and closures of restaurants and bars are continuing at the time of publication at the end of April 2020, suggesting the effects will be much stronger in the second quarter,” says the report. “The first quarter is generally much quieter in terms of wine sales.”
Wine estates are already visibly affected after just one month of the pandemic, the report continues, with winery sales declining by 12.7% compared to the same time last year.
The sales data for many wineries is grim, as speciality wine stores and the on-trade closed their doors. Wineries saw sales to these channels plunge by up to 56%, while exports – impacted not only by the pandemic by also by US tariffs – fell by as much as 34%.
Not everybody is suffering, with the pandemic providing winners and losers. The winners sell mainly to supermarkets and other food retailers. The losers rely on the specialty wine stores and HoReCa.
Online sales from the wineries’ own websites are up – by as much as 36.6%. According to the survey, wineries expect exports and HoReCa to keep declining, while online DtC sales provide a ray of hope – even though web sales are not always a blessing, according to some of the survey respondents.
“There is more work through many small orders,” wrote one. “Less turnover but 50% more business transactions.” Other businesses reported higher numbers of phone calls and sales enquiries that need attention, while the cellar and vineyard work continue at the normal pace.
While Professor Loose believes that the trend towards working and selling digitally is accelerating, she cautions that not all wineries have the resources and skills to take advantage of online’s possibilities, noting that it’s not enough to sell to existing clients. “With the small online conversion rate and drop-out, you have to grow your customer base constantly and this is difficult and expensive.”
Germany has a number of economic shock absorbers that swing into action when times are tough, and wineries are taking advantage of some of them.
“There is a large variety of programs – both federal and state-specific ones – and the conditions vary and change constantly,” says Professor Loose. “At the time of our survey, instant liquidity aid for small independent businesses with less than ten employees does not have to be repaid if the business was solvent before the end of 2019.”
A number of the companies surveyed said, however, that they couldn’t access government help, either because the process took too long, or because they didn’t fit the criteria, often because they are too well off – something that drew plenty of complaints. “This is unfair distribution,” said one. Another said, “A good business has to be able to survive a downturn. If you run out of liquidity after two or four weeks, you have already done something wrong beforehand.” Others noted that some aid had to be repaid and saw it as a debt trap.
Nearly 20% of wineries have applied for “Kurzarbeit”, where the company reduces working hours for employees and the government pays some of the payroll; only 6% of the wineries surveyed have made workers redundant.
“We cannot lay employees off or send them on vacation at this time, because the work in the vineyards has to be done anyway,” one respondent explained. Another said, “since we are a small family business, we have no one to lay off.”
In general, wineries are nervous about whether the all-important wine festivals in spring and summer will be cancelled, as these are an important source of revenue.
Not surprisingly, many wineries have stopped or postponed investments, while reducing their expenses. “If necessary, some of the vineyards will not be cultivated during the summer,” said one.
Some light ahead
Overall, the German wine sector is locking down and preparing for bad times ahead, with 86% of survey participants agreeing that the loss of the HoReCa business will mean winery closures and long-term sales declines.
Professor Loose notes that many wineries were already unprofitable before Covid-19 appeared and says she’s already hearing that many wineries are offering deep discounts. On top of that, there’s a lot of wine sloshing around the international market, with Mediterranean countries still sitting on wine from the 2018 vintage, a grape glut in California and a slowdown in China’s wine market.
In this environment, winery closures and consolidation are almost inevitable.
Professor Loose does, however, believe that wineries that are in good financial shape and are able to offer good quality, mid-priced wines, should have a strong market advantage, as will “wine estates with a good direct-to-consumer base”.
The wineries surveyed also believe that once the pandemic is over, that there will be a strong bounce back in wine tourism and visits to the cellar door.
Some are even hoping the pandemic could help correct the flight from rural regions, with 35% of respondents agreeing that the recession will drive a “return to the value of agriculture and viticulture” as “income from viticulture will become more attractive relative to a weaker industry”.
Another possibility is that the pandemic will reverse globalisation, at least to an extent. “There could be a resurgence of local experience and domestic products,” says Professor Loose. “This is good news for Germany, where considerably more wine is drunk than produced.”
But, as Professor Loose says, in the end the situation is so new and unfamiliar, it’s impossible to predict outcomes.
“At the same time, we are forced to keep social distance until we have a vaccine, which some predict might take years,” she says. “This is extremely unnatural to us humans and would be a new trend that will be detrimental to wine, with its strong social connotations.” On the other hand, wine stands to gain from a “resurgence in naturalness and simplicity. The crisis taught many what is really important in life. Wine can benefit from this as a product that’s perceived as natural.”