Global drinks industry braces itself for escalating fall out from coronavirus
By Richard Siddle
The World Health Organisation may not be convinced enough to call the outbreak of the coronavirus a pandemic but it already feels like that for those parts of the international wine industry that are caught up in the middle of it.
The fall out from coronavirus escalates by the day. This week we have seen the cancellation of the China Food & Drinks Fair in Chengdu, China’s biggest and most important wine fair of the year. The fact this was due to take place at the end of March shows how far reaching the situation is going to be and must now put serious question marks against the viability of other major trade shows, including Vinexpo Hong Kong taking place in May.
The loss of Chengdu, although unavoidable, is doubly bad news for the Chinese wine industry considering the difficult 12 months it has already with falling demand, and a slump in imported wine. The fair attracts an incredible 300,000 visitors and generates business worth RMB20bn to the Chinese wine industry.
The clampdown on people moving in, out and around China means ProWein, Europe’s most pivotal show, will also now be affected if now mainland Chinese visitors are able to attend.
The financial impact has already hit retailers and importers during the usually vibrant and highly profitable Chinese New Year celebrations. Spending in 2019 topped $143 billion, up 8.5% on 2018.
“We can’t even sell one bottle,” is what Yvonne Ma, a wine and spirits distributor in Foshan in the Guangdong, told Bloomberg this week. Before crucially adding: “The most horrible thing is we don’t know when this situation will end.”
It that uncertainty and anxiety that is crippling trade in China, and then having a knock-on effect around the world.
Diageo, which relies heavily on China for sales of its premium spirits brands, particularly Johnnie Walker and Shi Jing Fang, has slashed its expectations for the year ahead with chief executive Ivan Menezes telling the City this week that its expectations for its full year results will be at “the lower end of our 4 to 6% mid-term guidance range”.
Australia faces up to uncertainty
This week we have also seen another set of buoyant and positive results from Wine Australia, which again demonstrates just how important China now is to the country’s overall performance.
Whilst the US is now worth A$419m and its long standing strong position in the UK now at $352m (down 9%), China has jumped in value to A$1.28billion. Australia now holds a 35% value share of total wine imports into China compared with France with 29%.
We are only a few weeks into the coronavirus outback and already Wine Australia’s chief executive, Andreas Clark, is managing expectations about Australia’s likely performance over the next 12 months: “Looking ahead into 2020,” he said, “we anticipate that coronavirus will have an impact on sales, particularly to China, but at this stage it is difficult to predict the degree of that impact.”
Which will put even more pressure on the Australian market as volume figures into China over the last 12 months have also been hit by China’s downturn in wine spending, with a volume decline of 17% to 142 million litres (15.8 million 9-litre case equivalents).
The situation is also having a knock-on effect on the share prices and sales forecasts of all the major drinks players from Diageo to Carlsberg to Concha y Toro to Australian Vintage. Nobody knows what’s going to happen and that’s arguably worse than actually being on top of all the facts.
Time to recover
The only good news is how quickly trade and the situation resolved itself on the back of the breakout of Sars in 2002. But the world’s a more connected and international place since then and sadly the adage about China sneezing resulting in a cold throughout the rest of the world is being played out in front of our eyes.
There’s also hope that following the initial steps being taken to control the virus and limit movement the situation will improve quicker than after Sars due to the fact it’s currently not as dangerous or as life threatening. “We don’t expect it to cause the sort of panic that hit travel and retail sales in affected areas during the Sars epidemic, principally because the mortality rate for this new virus appears to be much lower,” said Paul Ashworth, chief US economist at the London-based research firm Capital Economics.
The Wuhan coronavirus’ mortality rate of less than 3% compares with almost 15% for Sars in 2003 and 6% to 6.9% for flu and pneumonia, according to the Centres for Disease Control and Prevention.
But this being the wine trade, where there are problems for some there are opportunities for others and it’s likely the already powerful online giants, backed by the digitally connected Chinese consumer will benefit as people look to buy online and get wine and sent to their homes. That’s assuming even the mites of Alibaba are able to move around the country to deliver them.