Wines and spirits: towards a recovery by the sector after a difficult year?
France, a major player in the sector
France is the world's leading exporter - by value - of wine and brandy. It is the second largest wine producer in the world behind Italy, with 17% of the world's production volume.
With a significant reputation for its wines abroad, French exports are mainly geared towards mid- and high-end wines, mainly destined for the United States and China.
A sector already in trouble for several months
The tensions faced by the wine and spirits sector predate the health crisis. Regarding the situation in the main countries importing French wines and spirits:
- United States: a trade war with serious consequences for the export sector
The United States, the world's largest market for wine consumption, imposed a 25% surcharge on non-sparkling wines with less than 14° alcohol in mid-October, in response to European subsidies to Airbus. These customs sanctions led to a drastic 44% drop in French wine exports in November 2019.
Moreover, in anticipation of the US surcharge and the implementation of France's desired tax on digital giants (the Gafa tax), the United States had built up very large stocks of imported wines as early as the first half of 2019. In addition to wine, cognac - for which the United States accounts for 50% of French shipments - became the subject of such over-export at the end of 2019.
The Federation of Wine and Spirits Exporters considered at the end of last year that the situation in the United States was of the greatest concern for the development of the sector.
- Asia: changing consumption patterns and increased foreign competition
The situation is also complicated in China, where slowing growth is weighing heavy on the wine and spirits sector. As a result of a decline in purchasing power, there has been a noticeable shift in the consumption of premium wines bought in bars, restaurants and wine retailers towards entry-level and mid-range wines, bought in supermarkets or online and consumed at home. This trend penalises French wines, which represent a higher-end niche.
There is also very strong competition, particularly from Australian wines, which has become the premier supplier of wine in China by volume thanks to a free trade agreement between the two countries exempting it from tariffs. Chile, which also enjoys an exemption from customs duties on its bulk wines by agreement, ranks 2nd after Australia. France, on the other hand, is subject to a customs rate of 14%.
In Hong Kong, where the majority of consumption takes place in bars, restaurants and hotels, the 2019 protests have had a significant impact on the sector. The resulting drop in tourists - of around 60% from mainland China - has greatly reduced this financial windfall for Hong Kong with obvious repercussions on the wine and spirits sector.
Difficulties amplified by the health crisis
The main difficulty for the sector lies in the drop in consumption resulting from the closure of bars and restaurants as well as the cancellation of many world events such as trade fairs, tasting events, the Olympic Games in Japan... Airport closures have had a significant downward impact on spirits sales.
In addition, the lockdown has led to the partial shutdown or even closure of some factories. For example, the production stoppages of the top 4 Cognac traders led to a 64% decrease in April 2020 compared to the previous year.
In Asia, France's exports have continued as normal in recent months despite the lockdown, but activity in China has remained very irregular. Take, for example, Hong Kong, which closed bars that are an important sales channel in April. The restaurants that remained open had to observe social distancing rules, preventing them from being able to fill their rooms. So the total volume of sales will not return to normal immediately.
The impact on HAROPA’s traffic
At the port of Le Havre, the impact of the health crisis was very clear in April, when volumes fell, depending on the products, by from 30% to 70% for sparkling wines.
Although large stocks built up in importing countries, particularly in the United States, are slowing the recovery, freight forwarders expect orders to pick up in the coming months.
Is the sector set to recover?
In this turbulent period, France is counting on a gradual but certain recovery in consumption, as well as its position as a leader in wine and spirits exports to boost the sector’s recovery.
The Cognac sector also remains confident for the future, supported by encouraging signs of consumption in China and Asia as well as by the resilience of the US market, especially as regards quality products.