Buyers Could Hit Pause Button on Bulk Wine Purchases

Concerns about pandemic-exacerbated sales softening might encourage buyers to slow or stop bulk wine purchases--but that's nothing new to this market

Reports of how quarantines and shelter-in-place orders are affecting wine sales—on- and off-premise, as well as through the various direct-to-consumer channels—are plentiful. Amid existing concerns about softening sales, the threat of a recession has put into question how sustainable the last decade of premiumization and growth truly is: So what does that mean for an already beleaguered spot market for bulk wine if wineries aren’t looking to bolster programs? 

The strength of the bulk market and sales channels are intertwined: When consumer sales are on an upward trajectory, wineries look to build new brands, increase case productions of existing brands, or experiment with new varieties or blends specifically for wine club and tasting room customers. When sales start to soften, or even decline, many companies pull back and reduce supply to meet the lowered demand. 

So far, it’s too early to tell exactly how the outbreak of COVID-19 will affect wine sales, though many enterprising wineries are improving their digital DTC programs, restaurants are offering pick-up options and retail outlets have seen increased interest as consumers turn to alcohol to get through shelter-in-place guidance. Even though a potential recession could make many Americans tighten their purse strings, the wine industry has adapted to survive recessions, and even Prohibition, before, though that doesn’t lessen the hardships faced. 

This is not exactly welcoming news to a facet of the industry that as recently as early February was talking about oversupplies, grape gluts and astronomically low prices. 

“It is still early in our understanding of exactly how the COVID-19 will affect our markets moving forward,” said Glenn Proctor, partner at Ciatti Co. “We have seen many buyers and sellers acting as if it is business as usual, and we have seen others who have said they are holding off on all buying and selling until they get a better understanding the current situation.” 

Hesitation in this market could become even more common as purchasers hedge their bets, but this isn’t necessarily new. “Discussions about buyers trying to build in supply and pricing flexibility by reducing long-term commitments have been going on for over a year,” said Proctor. “So, to this point, that has not changed. There is potentially a chance that buyers will become even more conservative as things develop, but it’s hard to say we have seen that to-date.” 

At Turrentine Brokerage, president Steve Fredricks saw high demand for wine for value programs over the last few weeks and has been busy finishing those deals. That demand has changed in the last few days, however. 

“Going forward some buyers have indicated plans to delay purchase decisions and some have decided to reduce the amounts they were planning to buy,” he said. “It is too early to assess how much extra wine might come to the market as a result of this. We were still receiving the normal listings of wines we would expect in March.” 

Anthony Bozzano, principal and sales director at Central Coast-focused Bozzano & Co. has seen some “drastic” changes in the business, as large wineries refrain from placing new inventory on the market or making any new purchases and smaller producers back out of on-going contract negotiations. In addition to general uncertainty around operating procedures, Bozzano relayed the story of a distributor that told a producer it didn’t know when, or even if, it could pay its bills.

In addition to sales and sourcing, Bozzano works on custom brand development for national retail chains. Travel bans imposed by many of these corporations have also made it difficult to continue with existing contracts for private label brands.  

“Some national retail customers, who generally taste wines for consideration on a weekly or monthly basis, are postponing tastings indefinitely. Paradoxically, this delay in tasting is concurrent with an increase in volumes of wine ordered on PO's, for which we must scramble to find supplies and time on the bottling line in order to fulfill,” Bozzano said. 

“The above anecdotes do not take into consideration the multiple bulk wine customers/private label decision makers that are choosing or being forced to work from home. As you can imagine, it is difficult to taste and make an offer on an available bulk wine if you are not allowed to go to the winery/office to taste samples and experiment with your tool kit,” he added. 

Fredricks believes retail accounts will be key in the bulk market moving forward—regardless of the challenges COVID-19 poses.  “I would assume that companies that were doing well leading into this are better positioned to adapt to the current dynamic and companies that were having trouble before may have more trouble going forward.  There will be a shift of sales to retail and those companies that have a more retail focus will see the benefit from that,” he said.  

For now, the market can expect to see a continuation of the last year’s trends. While contracts are not being cancelled, they are unlikely to be renewed. Prices are not as high as sellers would expect. An oversupply will force many to think about their plantings. 

Larger brokers remain, if not optimistic, not pessimistic either. 

“We have been in markets of excess before and seen times when it was challenging to sell wine.  The actions sellers and buyers will take are most likely more of the same they were doing this past year: focusing on value wines at all price points and focusing on placing wine in retail which may mean more strategic/private label brands,” said Fredricks.  

“I think issues like this have the potential to affect all businesses – not matter what you do.  Over the last year we have seen more payment terms getting renegotiated or delayed given the market situation and oversupply issues.  But, in general, buyers and sellers have worked together and adjusted deals and have allowed both parties to move forward,” Proctor said. 

This article originally ran on winebusiness.com on March 19, 2020.