Life after lockdown? How will Spain’s wine sector emerge from the Coronavirus crisis?

Header image by Gabriele Lässer from Pixabay

With Spain slowly edging its way out of lockdown, we’ve been speaking to some of the wineries we work with to see how they have weathered the crisis and are adapting to the new normal.

Spain has been one of the countries hardest hit by Covid-19. Spiraling infection rates and a terrible list of fatalities led the country into a tight lockdown in mid March. Since then, health sector and other key workers have battled valiantly to save lives and get the country back on its feet. Fingers crossed, the approach seems to be working.

The economy has been hit hard, and Spain’s c. 4,300 wineries left reeling as the hospitality sector shut down pretty much overnight and export channels gradually dried up. Back in March, in the midst of lockdown, we all briefly got excited at the news that drinking wine might actually help fend off Covid-19. The announcement was quickly debunked and joined the (large) pile of Covid “fake news”. Pity, the industry could have done with a shot in the arm. Figures from the FEV showed total Spanish wine sales fell by 35% in the first quarter of 2020, with 96% of wineries saying the Covid-19 crisis affected them “significantly”, “seriously” or “very seriously”. Wineries began to look at the pros and cons of direct sales, putting together tempting “VAT and delivery included” boxes to sustain the faithful and lure in new punters while bemoaning the sudden loss of the national on-trade business (hugely important, especially for Spain’s smaller producers with more limited export capacity).

By May, the lobbyists had sat down with Agriculture Minister Luis Planas to call for the usual array of ¨special measures¨ like emergency distillation, green pruning or storage, all essentially designed to curb the looming wine surplus and protect prices. At the same time, calls grew for demand-side measures such as a swift, early opening of the hospitality sector coupled with targeted marketing campaigns to encourage locked-down, would-be tourists to consume Spanish products at home, and to support wine tourism as a relatively safe option with direct sales potential.

Producers we have spoken to welcome the recognition that the sector needs help, but are quick to caution that realities differ between appellations. In Rioja for example, relatively high fixed costs mean there’s little support for the central government’s distillation proposals (designed to reduce the amount of wine in circulation by subsidising distillation) which many argue are tailor-made for lower-cost producer regions like La Mancha. Instead, Rioja producers are pushing for more generous subsidies for measures such as storage. They also want greater flexibility for producers to decide where and how they reduce output from different plots in a way that makes financial sense for individual wineries (the government’s initial proposal had forced producers to take whole plots out of production).

Vicente Inat, owner and winemaker at Viñedos Verticales

But for lots of Spain’s smaller wineries such conversations can appear academic, and with many of the Regulatory Bodies operating furlough schemes themselves, finding help and advice locally has been a challenge. Innovative distributors can be key allies to help producers adapt to the new reality. Vicente Inat, owner and winemaker at Viñedos Verticales in the Axarquía region to the east of Malaga, welcomes the shift that took place after the 2008 financial crisis which filtered out a lot of the pushier, shiny suit brigade and heralded a new cohort of more knowledgeable, WSET-trained sales people keen to tell the winery’s story and really get behind the wines.

This tighter collaboration between producer and distributor has proved especially important for smaller wineries which often rely on elaborate local networks of micro-viticulturists; relationships built on friendship and trust which can’t be just turned off or put on hold when crisis strikes.

Fernando Leza García and his father, from Bodegas Leza García

A strong network of friends and allies is also important to help reach the final consumer. As Fernando Leza from Bodegas Leza Garcia in Rioja points out, switching to online sales is not some kind of silver bullet and connecting with the end consumer, especially when your brand is not an established name on the retail side, can be a real challenge.

Inate agrees and thinks that government could do more to market wine as a more integral part of consumers’ weekly shop. After all, Spain’s 2003 Wine Act defines wine as a “natural food” – a definition which has allowed a lot of Spain’s independent wine shops to remain open during the crisis – and it’s high time wine recovered some of the ground lost to the better coordinated, better funded and, in marketing terms, more aggressive beer lobby.

Coupled with the brand awareness challenge is the fact that, despite the best efforts of specialists like Bodeboca or Vinissimus, online wine sales in Spain remain pretty small, representing little more than 5% of total sales.  So while Spain’s online wine retailers, as in the UK, have reported Covid-19 sales’ spikes in the 150 – 200% range – ie comparable to a normal Christmas campaign – there’s a long way to go to plug the on-trade gap. As Isidro Fernández, owner/winemaker at Casar de Burbia in Bierzo put it ¨hospitality really is the motor driving wine sales in Spain.¨

Isidro Fernández, owner/winemaker at Casar de Burbia

Fortunately, there are grounds for optimism. This week, Madrid and Barcelona finally caught up with the rest of the country and moved to “Phase 1”. For the hospitality sector this was important news as it allows for a socially-distanced reopening of outside spaces for bars and restaurants. The expectation is that, provided infection rates are kept under control, a countrywide move to “Phase 2” will follow shortly (much of the country is already at that stage), and Spain’s vibrant restaurant and bar scene can reopen, albeit in a socially-distanced fashion, in time to welcome the first tentative tourists at the start of July.

There is light at the end of the tunnel. But for many of Spain´s wine producers it remains fairly faint, and the sector will need all the support in can get over the coming months to get back on track.