What does 2023 hold for the wine industry?
Matthew Grimsdale, a Principal at The CFO Centre has worked extensively within the wine sector (for both wine manufacturers and wine merchants). He has a breadth of knowledge across financial and operational objectives, helping companies with debt and equity fundraising, turnaround of non-profitable businesses, overseas expansion and pre-revenue scalability.
He shares his thoughts for 2023.
The wine industry within the UK has a long and storied history dating back to the Roman Times, fast forward to the present day and the UK is home to a vibrant ecosystem of vineyards, wineries, and wine merchants trading throughout the UK.
With the recent backdrop of Brexit, Logistics disruption and the toughest trading environment for the UK hospitality sector what will 2023 hold?
Middle being squeezed. Job security and cost of living crisis piling on the pressure on the average consumer.
Supply chain disruption and bureaucracy has led to increased stock holdings putting the pressure on wine merchants for cash flow to finance the position.
Foreign exchange volatility of the
£ vs EUR.
Painful for value priced wines, those at the bottom end of the market. Demand remains resilient for premium / ultra premium wines as a result of the premium attached to scarcity & provenance. Near record highs for premium to ultra premium levels.
More of a focus on the key retail price points, merchants squeezing margins.
Feel good factor of the first Christmas being out of COVID restrictions being hampered by strikes on the train and tube network.
Supply chain lead times, transportation and inventory continue to have an impact on working capital cycles.
Consumers are drinking less quantity but drinking better quality which younger age groups drinking less with around 40% of 16 – 24 year olds not drinking alcohol.
Without question the abnormal has become the new normal of all surveyed businesses concern around bureaucracy remains an overriding concern with the corresponding impact on stock levels and order fulfilment times.
There is light at the end of the terms who have now added resourcing to logistics and fulfilment with those that can clear desks of paperwork quickly well placed to take advantage of opportunities within the market whilst those with deep pockets are financing an increased stockholding.
Whilst consumer incomes are being squeezed, interestingly, the average price of purchased bottles in the hospitality sector has increased with customers opting to “drink better not drink more”. Claire Thevenot (Master Sommelier and previous UK sommelier of the year) has taken this opportunity to follow her entrepreneurship dream and set up her own business with a portfolio built on terroir and knowing her clients to build a unique wine last customised to menu offerings.
What trends are you seeing in the wine industry?
Claire notes that “Demand for Burgundy remains strong, but with a low yielding 2021 demand is exceeding supply with wines from the Jura becoming increasingly popular”. With the Jura also a low yield region there is an opportunity of challenging the status quo by committing to allocations of new and aspiring producers but as always this requires careful cash management to finance the commitment and stock position.
What challenges and opportunities is the wine sector facing in 2023?
Whilst the hospitality sector struggles there is a new opportunity for Wine Merchants to build, in partnerships with restaurants, a wine list that offers a unique proposition with great matching to a chefs creations. Claire states that “knowing your client and understanding their needs is key”
With the backdrop of political instability, bureaucracy and fuel surcharges being prepared is key factoring in contingency in pricing with clear communication on delivery timeframe to avoid supply disruption.
For value priced / entry level wines life is painful as margins are squeezed to maintain pricing on wine lists. Demand remains resilient for premium wines with a premium attached to scarcity and provenance. Liv-ex (the global wine marketplace) has reported record prices on many lines.
On your ideal dinner party table, which two winemakers would you love to have dining with you? And what would you ask them?
They will be Didier Dagueneau and Henri Jayer, both sadly passed away a very long time ago. I had diner at Didier’s 20 years ago and the memory is still strong. I would focus the discussion on farming the land using traditional techniques/ organic. Both did not experience the global warming effect we had in the past 10 years so that would be great to have their input on the subject.