By the end of 2020 wine exports plummeted by almost 80%, reflecting a particularly tough period for the entire hospitality trade amid the Covid crisis. Most winemakers are ultimately reliant on sales to restaurants around the world – the on-trade consumption of the wine that brings utility and impressive profit margins to those who serve the end user. Unlike the businesses that can easily be conducted by Zoom, the countrywide lockdown has tainted the wine industry – think of sommeliers who occasionally need to flex their wine tasting skills at flashy events.
Some wines that make their way to Kenyan markets are so expensive to produce (like Santorini from the Greek islands) and makes economic sense for their winemakers to export them for direct consumption in restaurants. Sales channels for such wines have less intermediaries unlike the relatively cheap ones.
In retrospect, the wine market represents an upper segment beverage closely connected to the hospitality industry. The 2020 ProWein Business Report revealed that the impact of the Covid-19 crisis on wine producers varied depending on their sales focus – around 60% reported economic losses, but smaller wineries were particularly affected by the closures of restaurants and hotels and the lack of tourists. Larger wineries fared better, but both small wineries and cooperatives expect to see further declines in the future.
Given the context, it’s obvious that the wine market is going to experience a correction. Meanwhile there has been an abrupt change in the purchasing behaviour of consumers, who have become dependent on buying wine at food retailers, specialised tours (e.g. Leleshwa wines) and wine tasting events.
Then there’s special case wines bought by restaurants with a high price is factored in. These bottles have hardly been opened waiting for that special guest and for sure almost no one has been buying. Not only does this tie precious capital by accounting standards but also add to the overall negative sales curve experienced by retailers. In some countries, wine tourism activities plunged by nearly 70% (Spain and Italy : Roberta Garibaldi) with wineries reporting up to 10 to 50% financial losses.
The cancellation of trade shows and other events, especially the biggest wine event worldwide – ProWein, means that any business conducted is now limited to online meetings or private functions with restricted access. Random meetings at events are major when it comes to the wine industry and often lead to the best business deals.
Thinking of the ‘wine’ glass half full, Kenyans are a resilient bunch. Like with many other challenges we have faced as a country, we believe that we will come out of this stronger.
If you liked this article, you may like this one as well: Wine By The Glass is Profitable, If the Price is Right
If you would like to have a go at The 2020 ProWein Business Report, click here.