Wine Prices Reset Due to Covid-19 Recession

(Sorry if someone has posted this topic)

Do you think the prices for wine will reset because of this Covid-19 recession (or possible depression)?

Excluding the cults and highly collectible wines like DRC and First Growths, wines like a standard entry level Napa Cabs have steadily jumped from ~$75 to now ~$125 over the years. Any chance it will reset?

One would think property valuations will go down, wages will decrease due to excess supply and suppliers giving up concessions to keep business.

Too early to tell. I doubt that pricing will decrease that the winery level, but distributors have started closing out dead stock inventory and some are offering more discounts on volume purchases. For the near term, retail will be the place to find deals other than the forum here. Auctions have remained pretty strong for the time being. The restaurant situation is going to be the biggest factor. Restaurants aren’t buying right now. If this situation continues for months on end, distributors are going to be in bad shape. Restaurants and their massive margins on wine are what has allowed a lot of the pricing increases that we have seen over the last few years (on imported wine). If a retailer working of small margins whined about price increases, the distributor could just turn to a restaurant to take the stock. Without the restaurant outlet, you will have more of the allocated wines at the retail level. You will see downward pressure on pricing for non-desirable vintages. Tariffs are just adding insult to injury on this entire situation. They need to get rid of the import tariff now.

This is my take anyway. I’m not an expert, but I pay attention.

People are buying alcohol like it’s Christmas every day. Maybe after this is all over there will be a slump, but for now, heck no.

Yeah, as Ryan says restaurants seem like the big issue. If they stop buying – and really if they start selling, as some have – that’s going to screw with supply and demand and depress prices significantly. I doubt it will affect the top auction wines or run-of-the-mill everyday wines, but it’s going to have an effect. As Ryan says, I suspect that will result in wines moving to retail that have traditionally gone to restaurants. It’s anecdotal, but I feel like there has already been material softening in DRC and other pricey-but-not-hard-to-find wines.

All of that said, the big wildcard is what actually happens to the economy. No one knows what’s going on or what the effect of all this is going to be. If you look at employment, the situation is apocalyptic. If you look at the stock markets, the picture is pretty rosy. I personally think it’s going to be a tough road and that the stock markets are lunacy right now, but I’m wrong on these things more often than I’m right.

People are drinking, but …

  1. I’m told that retailers are not buying high-end stuff. This would be consistent with what happened during the financial crisis, when the volume of wine sold stayed constant but the dollar value declined by about 30%.

  2. As others have said, the restaurants are a big factor. They account for a large share of wholesale purchases, and you can assume that’s down to near zero. Are retail purchases making up for all that volume? I don’t think so from what I hear.

  3. Some importers placed big orders when the tariff situation was finally clarified in February, and that wine has now landed or will soon. If sales have slowed, that could mean some unsold inventory.

Both Ryan Cs with great insight.

My guess is that the collector trophy wines only soften modestly, and there is little or no softening of mass produced grocery store type wines.
But in the broad world of wines many of us non-balla WBers buy, drink and discuss, there will be some pretty steep discounting and bargain opportunities. Wineries are going to have a glut of inventory to clear out in the coming year, and probably a pretty severe need for cash flow.

The other factor is that the euro is down to ~$1.09. Two years ago it was around $1.25. And much of Europe was near recession before the virus, so demand will presumably be down sharply there.

Volume is high, but what I’m seeing in the market is similar to 2008-2009: people buying at lower prices; focusing on big brands; and in many cases even trading down in category (cheap 1.5 L bottles instead of 750 mL, lots more bag-in-box being sold, etc.). This is all bad for a great majority of producers and importers (my knowledge here is based in the US, but I’m sure it’s true elsewhere) of wines that are not extremely well known, especially at relatively high price points. Some will find ways to work around that trend, some will not be so successful.

The problem with the Napa Cab example specifically is that there are a lot of very wealthy local (California) buyers of those wines who will continue to buy and maybe even stock up more than they normally do. So, I don’t see this bringing Napa prices back to earth.

I do think there will be an overall impact on pricing, but how broadly and to what extent is a big question. “Reset” strikes me as too strong a word. I suspect there will be a lot more companies going out of business than wines (whose prices have gone up a lot in recent years) returning to the pricing of 10+ years ago.

These are good points that John made while I was writing my previous post (I guess I’m slow). It’s important to think about what an increase in volume (this will probably continue) plus a decrease in value means for the wines and importers that people on this board care about. This article is relevant:

https://www.wine-business-international.com/wine/news/us-wine-sales-surged-march

Right now it’s like Christmas for wine pricing if you know where to look. Grand Marques from good vintages for wholesale, nice burgs for low prices. I’ve bought 100 cases of wine in the last 2 weeks at much lower prices than I paid the last couple years.

[swoon.gif]

Gotta strike when the iron is hot.

The challenge from a small winery’s perspective - if I may add one - is that folks will continue to ‘look for deals’ when this is all over. I have given extra discounts to both my wine club members and non club members - up to 40% off for non club members and 50% off for club members - in hopes of keeping wines moving out the door and keeping cash flowing in to cover grape/production/bottling costs, which simply do not slow down.

The key is customer retention and satisfaction for me - and maintaining contact with folks via emails/social media withOUT being there just to sell is key for me.

As far as the bigger market, I do believe that those talking about ‘trading down’ are dead on here. I think that there will be a ‘shake up’ in the market, with possibly quite a few higher end wineries simply not able to either survive or survive without having to decrease elevated prices.

For consumers that have the cash to buy, the next year is going to be amazing - as wineries need to dump wines in order to keep cash flow moving; as importers need to move through vintages to get to the next ones; and with the sheer amount of bulk juice that is out there . . .

Cheers

True, but there are only three choices:

Bad
Worse
Cataclysmic

I wouldn’t say the stock market is crazy or ignoring reality. Rather, this recession’s defining feature will be its disproportionate impact on the low-income, and to a significantly greater extent than past recessions

I think you’re mostly right. But I do think that the significant disruption in lower-income brackets is going to reverberate far more broadly and severely than many believe. I hope I’m wrong.

And it will last. As John pointed out, during the financial crisis people traded down in a big way. Higher end wines just weren’t selling unless they were selling at the discounts Michael is jumping on. But after the turnaround, things didn’t jump right back to where they were. People had learned that a lot of pricing is fluff and once they found wines that they liked at prices that were far less than they’d been paying, they weren’t in any hurry to start paying inflated prices again.

Add to that the fact that a lot of restaurants are simply going to close permanently, so there will be inventory available to clearance houses as well as fewer customers for the distributors.

I don’t buy very high-end wines, but from the offers I’ve been receiving over the past few weeks, I’m not seeing any major reduction in prices. Maybe that will change over the coming weeks and months? But what I have seen is a huge increase in the number of offers, so maybe that’s a leading indicator.

My totally anecdotal take: I think retailers are trying to ride this out without major public discounting — while offering the steep discounts to private clients or through back channels. I get the sense many are hopeful that this can be weathered without a major disruption. But I think the dam will break at some point and there will be more public fire sales.

They may also be trying to make hay while the sun shines. If I were a retailer, I would be trying to move wine now at existing prices to generate cash, and maybe sell down some inventory, in case the economy deteriorates and sales really drop. The number of e-mails going out seems to have risen.