Wine in a Time of Crisis

MARKETS 6/08 MEININGER’S WBI 6/08 MEININGER’S WINE IN A TIME OF CRISIS The credit crisis, which began in the US last August, has become a global financial tsunami that threatens to wreak havoc on economies everywhere. Can the world’s wine producers and consumers hold out against the storm? We asked our correspondents. he news is grim: stock markets are While some remain optimistic, it’s clear that side are better placed to meet the crisis than plunging, currencies are in crisis, others are already suffering. Although it’s economies unused to hard times; and con- Tbanks are collapsing and consumer still early, some general conclusions can sumers everywhere are trading down. But confidence is the lowest it has been for already be drawn: producing markets with the real test is yet to come. Ttrading is so far several decades. And there is no end in weaker currencies are in better shape than still buoyant in the run-up to the festive sea- sight. To find out how the crisis is impacting those with strong currencies; countries that son. The first quarter of next year, when the the wine trade, we asked writers in more have experienced severe economic shocks in post-Christmas sales are over, is when the than a dozen markets to gauge the mood. recent memory and have come out the other real shake out will begin. 40 CREDIT CRISIS FRANCE wines, and those who export heavily; namely years and continue to do so even this year, Jane Anson Champagne (which exported a record 150m and they are the engine for growth even in As the world’s second bottles exported in 2007, around 50% 2008, which will be remembered as a year biggest wine producer, of pro duction), Cognac (96% export) and of uncertainties. All in all, we are quite the French wine indus- Bor deaux (around 40% export, although the optimistic that we will achieve a small growth WBI 6/08 MEININGER’S try is undoubtedly classi fied growths are closer to 70%). in 2008.” vulnerable to the global Already to date this year, Cognac sales are Andreas Fürbach, marketing and promo- financial crisis. France down 7.6% in volume and 4.4% in value. tions manager at Ardau, the Spanish and exported €9.43bn Allan Sichel, the president of Bordeaux’s Portuguese specialist, sees insecurity and ($11.7bn) of wines and Negociants’ Union, is being level headed but cautiousness, where “everybody seems to spirits in 2007, up almost 7% on 2006. The realistic. “We are anticipating difficult times, wait to see how the situation will evolve. We UK and US were the leading importers, with yes, but most negociants will be well placed to are later than usual when it comes to the gift a combined value of €2.54bn, according to weather the storm. The bigger problem is for orders [for Christmas]. In the meanwhile, Ubifrance, the French export development smaller winemakers due to the small volume customers simply seem to switch down by agency. However, in the first eight months of crop in the 2008 vintage, which will be one category, from super-premium to premi- of 2008, exports dropped by almost 10% in coupled with low prices. They could sustain um-wines, from mid-price to entry level volume. The value was up 7% over the same the low values of their wines if they had good wines. After Christmas, we will know how period to €4.2bn, largely due to the highly volumes, but this year they don’t have the the financial crisis has really affected wine priced 2005 Bordeaux vintage, but the volumes and they can’t get the backing from consumption.” I positive figures are not expected to last banks – that is going to make life difficult through into 2009 – due not only to the for a lot of small properties.” I financial crisis, but also the strong euro in ITALY relation to other major currencies. Kerin O’Keefe The euro currency is in fact both a weak- GERMANY The slowing global ness and a strength – trading within the Richard Grosche economy, coupled with eurozone can continue without worries The bad news first: the continued weak- about fluctuation, but the strength of the wine imports dropped ness of the US dollar euro against the dollar and the pound is a 7% in volume in the 12- and a flat domestic problem for exporting wine to two of the month to August 2008. market are, unsurpris- world’s biggest fine wine markets. The most dramatic ingly, worrying Italy’s Some things work in the country’s favour. decrease was in August wine producers. But For a start, the French banking system has 2008, when both vol- two of the country’s top exporters say that been less affected than perhaps some ume and value dropped adapting to new lifestyle trends and build- others, due to its inherent conservatism. by over 20%. In the 11 months to August, the ing brand loyalty are helping them keep President Sarkozy injected €10.5bn into the decrease was in volume, with the value of market share, even as consumers world- system, compared to £50bn in the UK, a imported wine actually rising. The majority wide tighten their belts. “In 2008, both in country with approximately the same popu- of the drop was because of rising prices in Italy and abroad, we’ve seen a significant lation, reflecting the relative underlying the bulk wine sector, mainly for table wines shift from on–premise to off-premise sales strength of the French banks. In theory, from Italy, where the small 2007 vintage, as consumers forgo restaurants and wine according to Philippe Casteja, former head especially in southern Italy, led to rising bars, preferring to dine and entertain at of the FEVS, this means that banks may prices: the price rose to €0.75 per litre, from home,” says Alberto Lusini, marketing be able to continue to lend to small business €0.55 per litre. With Italy’s vintage this year manager for Mezzacorona. The Trentino firm such as negociants, who rely on bank showing significantly higher volumes, produces 40m bottles annually and exports advances for their cash flow. He also says prices are expected to fall again, which 70% of total production around the world that the product itself can withstand the would relax the price situation. with principal markets being Italy, the US crisis: “Wines may be less affected than So much for pure statistics. But how does and northern Europe. “People are not con- other products because it is not a heavy the market see the situation? René Sorren - suming less, just differently. And instead of investment item such as a car or a house. tino from wine agency GES Sorren tino, which experimenting with new names and vari- People can still choose to buy wine, but to specialises in premium Italian wineries like eties, they are now staying with brands that trade down the price they spend.” Allegrini, Donnafugata, Michele Chiarlo, Sella offer consistent quality at reasonable Equally, much of France’s production is & Mosca and Berlucchi, sees a slight increase prices.” He says that by focusing almost consumed within the country itself, giving it in sales despite the current financial crisis: exclusively on the off-trade, they’ve seen some protection against a world financial “The volume of the average order has sales grow in Italy, the US and Germany, crisis. The regions that are most at risk, decreased slightly; however, some wineries adding that aggressive in-store promotions inevitably, are those with the highest priced have continuously grown over the last few in the US have helped grow the brand. 41 MAMARKETS Andrea Cecchi, of the Cecchi family firm European markets, as known for its Chianti and Chianti Classicos, well as the domestic “I am confident that has seen a similar shift in consumer market, remain stable. Austrian wine sales attitudes. “Brand loyalty is now crucial, While figures for overall for 2008 will break 6/08 MEININGER’S WBI 6/08 MEININGER’S especially in key markets such as the US the third quarter are all previous records!” and Germany, where sales have remained not available, statistics stable,” he says. The Tuscan producer for January-June show exports 60% of its annual production of over healthy sales overall. 7m bottles and core markets include the US, According to Willi Willi Klinger Germany, the UK, Holland and Canada. Klinger, general man- general manager, Cecchi has recently increased an already ager of the Austrian Austrian Wine Marketing Board, intense schedule of in-depth presentations Wine Marketing Board, to their distributors in these top markets. 31m litres of bottled The company’s recent decision to reduce and bulk Austrian wine with a value of habits. According to Hans Martin Gesell- their range of wines has also been pivotal. €58.5m ($73m) were exported in this period. mann, manager for the country’s largest “Eliminating our IGT cru selections allows This is a 15% increase from the same period retail chain, Wein & Co: “Some customers us to concentrate more on the quality of in 2007, when 29m litres with a value of aren’t buying the very expensive wines like our DOCG and DOC wines and simplifies around €50m were exported. On average, before. They still buy wines from their our offerings for consumers,” declares Austria produces around 2.5m hectolitres of favourite wineries – but maybe not the most Cecchi. He adds that having fewer but wine annually. expensive labels.” I higher quality products has contributed to Austria´s top three export markets, their stable sales in most markets, as has Germany, Switzerland and the US, were an re-designing labels, making Cecchi’s wines important part of the sales rise between this DENMARK easier to identify.

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