The global wine industry is set for a major shake up in the coming years, with COVID-19 predicted to have a "lasting impact" on the sector.
Conditions created by the ongoing pandemic have set the stage for bigger players to benefit at the expense of smaller wineries, according to Rabobank's latest Wine Quarterly report.
"After years of increasing fragmentation in the industry, we see a context forming that will create additional advantages for larger wineries and support industry consolidation," Stephen Rannekleiv, US-based Rabobank Global Strategist Beverages said on Thursday.
The wine industry has faced numerous challenges amid the pandemic. Last year's first COVID-19 lockdown came just in time for harvest, sending winemakers scrambling to figure out how to ensure grapes could be picked without sacrificing workers' health and safety.
Ongoing lockdowns around the world have wreaked havoc on the on-premise wine trade around the world, including in our biggest export markets.
However, despite these difficulties, New Zealand wine exports have actually benefited from the pandemic, with more people drinking at home across the United States, the United Kingdom and Europe, leading to an uptick in retail sales.
A report published late last year by Rabobank found sauvignon blanc exports, which make up the lion's share of the wine we send overseas, were up 131 percent year-on-year to August 2020. Moreover, figures also revealed exports for the 12 months to October 2020 hit a record high of $2 billion.
But although the sector here may have fared alright so far, according to Rabobank's latest report it will be a while yet before the global wine market returns to how it was before COVID-19.
The report predicted on-premise sales would start to recover this year, but the stage is set for tougher times for small wineries in the long run.
"Small, independent restaurants are a critical sales channel for small wineries in most major markets. Sales in this channel will improve dramatically when social-distancing measures are lifted, but it will likely take years before they return to pre-pandemic levels," said Rannekleiv.
"From a structural perspective, we believe that the prolonged recovery of the independent on-premise channel will create challenges for the small wineries that depended on them for access to the market. Larger wineries will have an advantage in the increased share of off-premise sales and will likely also gain share in the on-premise, due to the rising influence of restaurant chains."
Rannekleiv said improving e-commerce capabilities of large wineries would also give them an advantage over smaller competitors.
"Looking forward, we anticipate small wineries will likely find innovative ways to connect with the market, however, they'll find it difficult to compete with large wineries that are investing heavily to improve in this area and building increasingly sophisticated e-commerce teams."
The report also predicted private equity funds "flush with cash" may take advantage of the pandemic by buying up independent restaurants and small local chains struggling in the wake of COVID-19 and "roll them up into larger, better-funded chains". Because many small wineries depend heavily on selling their product to these independent retailers, the result is that it will be harder for small wineries to get their wine on shelves.
Despite the challenges, the report concluded there remains a strong demand for premium wine, "and smaller players will continue to find attractive opportunities in the market if they offer clear value proposition".