The world is heading into recession in 2023, and every industry will feel the impact–even the wine industry. Historically, those making and selling wine have fared well during economic uncertainty, with many claiming the wine industry to be nearly recession-proof. But this is about to change for three reasons: high inflation, economic turmoil in China and Russia’s war in Ukraine.
Worldwide inflation
Inflation has hit 40-year highs, and for the first time in decades the concern about price increases has become the leading global concern. A recent survey by Ipsos shows that fears about higher prices have swapped spots with the coronavirus as the No. 1 concern for families as compared to a year earlier.
Dozens of surveys have shown that consumers are changing their spending habits—delaying travel plans, limiting dining out and trading down when it comes to purchases. And wine is not immune. A survey of 500 wine enthusiasts conducted by Bevinars indicated that nearly half were reducing their wine consumption to save money, while others were shifting to cheaper alternatives.
The China debt crisis
Some people believe that China might rescue the wine industry from a worldwide recession. This is highly unlikely. Yes, in the last couple of decades the Chinese have become more interested in wine, but given that they now look to be in their first recession in more than 40 years, their own survival as an economic powerhouse is coming into question.
In recent years, China has become the world’s largest creditor to the developing world. Since 2013, early in the first term of Xi Jinping, funds under what is known as the Belt and Road Initiative have been used to construct bridges, ports, highways, energy and telecom projects across Asia, Latin America, Africa and parts of Europe. The goal was to lend money to these countries to help build infrastructure, while at the same time building close relationships with resource-rich regions of the world. The problem now is that China is tight on money at the exact moment when many of the countries are asking for their debts to be restructured or forgiven due to global inflation and supply chain disruptions brought on by the pandemic and Russia’s war against Ukraine.
Beyond the debt crisis, China also faces an imploding real estate market, new restrictions that limit technology imports from America and Europe, and an out-of-date zero-COVID shutdown strategy. With all these negative economic forces, it is highly unlikely that China is in a position to help the wine industry.
The war in Ukraine
The cruelty and wastefulness of Russia’s unwarranted invasion of Ukraine is echoing around the world.
Some 40 percent of the World Food Program’s wheat supplies come from Ukraine. Today those shipments are drastically reduced, leading to increased food insecurity around the globe. Beyond food, the sanctions against Russia’s energy industry will continue to reverberate around the planet, resulting in higher prices. Uncertainty and ever-increasing prices raise the tension between Russia and the West, as well as with its true allies, Iran and North Korea, and even its reluctant allies–China, India and parts of Africa.
And there is no end in sight. With Russia’s illegal annexation of regions of Ukraine, the likelihood that the war will end anytime soon is improbable. To make matters worse, with the approaching cold weather and increased fatigue of ever-higher energy prices, a growing chorus of voices is likely to call for reduced support for Ukraine. These voices are asking if sending weapons to Ukraine is actually extending the conflict while at the same time reducing the incentive to negotiate with Vladimir Putin.
The problem with such thinking, others argue, is that Putin aspires to annex all of Ukraine, as well as other nearby countries that used to be within the USSR prior to its breakup in 1991. If that happens, then caving to Russia now would lead to even more pain later. These voices also fear what such a move might signal to China, which is intent on bringing Taiwan within its borders.
While these three issues are enough to give pause to anyone in the wine industry, other headwinds also threaten: falling consumer interest in the product, growing health concerns over alcohol consumption and climate concerns affecting the growing, making and selling of wine.
What’s the solution? Retrench, reload and reassess those aspects of your business that matter most. Coddle your best customers and encourage your best employees. If you don’t know who they are, then figuring that out is a great place to start.
