The Coronavirus outbreak in China will decrease wine volumes by at least 20% in 2020, according to two leading members of the wine industry in China
With the cancellation of ProWein this weekend, Coronavirus, or Covid-19, continues to impact the wine industry. Confirmed cases are jumping in many countries – with Italy reporting a 50% increase in confirmed cases last Sunday, and Germany, France, the US and the UK increasing as well. However, Asia remains the most affected market so far, despite China seeing a decline in reported cases.
Last week, Wine Intelligence Director Juan Park spoke with two wine professionals who know the Asian wine scene very well and can give us a view on the current situation in those markets: Alberto Fernandez, General Manager of Asia-Pacific, Middle-East & Africa for Familia Torres and David Pedrol, CEO at Winetobe and former Director of the Chinese online retailer YesMyWine. Between them they amass over 40 years of experience selling wine.
WI: We are all concerned with the situation in Asia and how it will affect the wine market. What is your current situation?
AF: The situation is very precarious, flights are restricted, hotels are not allowing bookings, our clients cannot visit and out of 55 Shanghai employees only 20 are allowed to work at once… I have been in this market for two decades and I can say that this is far worse than SARS epidemic as back then the Chinese economy was much more robust. We expect companies to fail, clients to delay payments and customers to restrict their purchases significantly. At least we are seeing fewer cases confirmed in China outside the most affected areas.
DP: I’m currently in Indonesia but I’m not planning to travel to mainland China at least until the summer – there is no point at the moment. At first, our office there had restrictions and only one employee was allowed to work at once, but now two workers are allowed at the same time. The most shocking realisation for me was walking to an empty Hong Kong airport – very eerie.
WI: What will be the impact for the wine market?
AF: As reported, February we closed at -80% and March will be difficult again as retailers have stock to clear. We expect that the market will be down at least 20% this year, maybe more. Many businesses will close as China is not a market where merges are usual. Lots of importers open and close each year but this year the cull will be more severe.
DP: I agree, and it depends when the whole thing is over. The estimation of 20% is assuming the problem goes away now, but we need to be ready for the problem to linger and therefore for the market to experience a bigger drop.
WI: Will we see a shift towards online wine market?
AF: Online or direct sales represent a smaller percentage of our business and even if that grows, it cannot compensate for other losses. You need to realise that the online market in China is very fragmented and price driven, so you see lots of brands heavily discounted and own label.
DP: It is very hard to build a wine brand online, even if we try to keep the prices stable and provide lots of information… but if it doesn’t sell then discounts are needed to move the product. Online is developing nicely but it also depends on the offline situation. Online purchases are typically for larger events and celebrations. BYOW is very common, so consumers don´t buy online to entertain at home so much. Online will not do well if gatherings and celebrations don’t return to normal. Also, until recently you could only use a few of the most expensive courier companies due to regulations and that had an impact.
WI: These views are supported by our data which suggests that ‘value for money’ is the most important consideration for Chinese online buyers as 65% find it important and rising (Vinitrac® China 2018).
WI: What are your plans for the future?
AF: Torres China has the capacity to plan for the long term as we have done for 23 years now, so we will continue to be an important player in the market. However, this year was tough for all companies and I’m not sure many can cope with many other unexpected crises like this one. We need a period of stability after Coronavirus or not many companies will survive. We are already seeing deep discounts, even below cost for some of the strong brands in the market. But after all this hopefully blows over, there will be some rebound and new optimism. In June, or whenever this happens, people will go back to consuming, although perhaps less than they used to.
DP: I’m moderately optimistic because the Chinese are very resilient. I’m sure they will work together to rebuild the economy and spend more. In Hong Kong, there have already been announcements of giving each resident USD 1,200 to help boost consumption.
As more and more markets are affected by the virus, we will continue to see changes happen in the wine industry. The ProWein 2020 cancellation already affects business development plans for many companies globally, and we expect other markets will follow in the footsteps of Asian markets – consumption will decrease as more and more people are limiting their on- and off-premise n frequency.
But as Alberto and David mention, there is always an end to such an outbreak, so we are sure to return to some sort of normalcy in the coming months – even if the outcome is different than what was expected at the onset of the new decade.