Wine, inflation emergency and expensive raw materials. But the real risk is “neo-prohibitionism”

The Italian wine sector is healthy, it is all in all solid, it has grown, at least so far, in the markets, and it sees many of its most important realities having solid shoulders to face the future. But it is also a sector, still very fragmented, and one that has perhaps unseen challenges ahead. Not only the emergency and contingent one of rising raw material and energy costs, but also the recession predicted by many in 2023 even in important markets, from the domestic one, which remains the largest, to those of Germany and the Uk, which, with the US (suffering less to date), are worth even more than half of exports. And, above all, a strong push under the wind of what is called a “neo-prohibitionism” that not only jeopardizes important tools and financial resources within the policies of the European Union, but also risks, in the name of an exaggerated healthism and a deresponsibilization of the individual’s behavior, to undermine at the base the very values of wine framed in Mediterranean consumption, which is made up of conviviality, moderation and consumption at meals, with food, by identifying wine, or at least this is the risk that is increasingly being proposed again and again, as a beverage that is bad for health tout court, with the hitherto foiled but repeated and repeated attempt by some to place warnings on bottles like those seen on cigarette packs. Facing the future, then, will not be easy, but there are tools to do so: from greater dialogue between businesses and institutions to greater sharing of efforts and resources among businesses themselves, to the (admittedly increasingly frequent) opening up of business capital to the world of finance, not only to have more resources to grow and invest, but also to graft new, and increasingly important, skills into the often family-run businesses to keep up with the times. This is, in some way, the “Wine Agenda”, which emerged from the round table signed by Federvini, in Milan Wine Week 2022, with market analysts and entrepreneurs and managers of some of the most important Italian realities, from Vittorio Cino, managing director Federvini, to Raffaele Boscaini, marketing director & technical group coordinator Masi, from Umberto Pasqua, president Pasqua Vigneti e Cantine, to Beniamino Garofalo, CEO Santa Margherita Gruppo Vinicolo, from Giancarlo Moretti Polegato, president Villa Sandi, to Ettore Nicoletto, president & CEO Angelini Wines & Estates, among others.
The starting scenario, as mentioned, is not bad: if, according to Nomisma data, in the first half of 2022, sales in large-scale distribution fell by 9% in volume and -7.5% in value over the first half of 2021, exports, against substantially stable volumes (+0.8%), grew by 14% in value (driven mainly by sparkling wines, at +25.5% in value and +10.6% in volume, Prosecco in the lead). Also thanks to the weakness of the euro against the dollar. And also comforting is the recovery in the away-from-home, a sector that, overall (and thus not only for the wine item), is expected to close with a turnover of 87 billion euros in 2022, just above the pre-pandemic 2019 levels, according to Trade Lab, and with forecasts of growth to 93 billion euros in 2023, notwithstanding. But, from here on out, it gets tough. Rising costs of energy and raw materials for packaging, such as paper for labels (up 36%), capsules and especially glass (up 47%), are putting a strain on the production of companies in the industry, and consequently on their growth. In addition to the fact that companies have been hit by soaring production and transportation costs, with energy, in particular, posting price increases of between 150 and 200%. All this against an inflationary backdrop in which 85% of Italians are adopting, or ready to adopt, savings strategies to counteract declining purchasing power. And wine, which is an important but not primary commodity, is obviously among the sectors at risk of being cut. And yet, it is precisely the international projection (also supported by the costs of maritime freight rates that have returned to decline after the surges of recent months) that gives Italian companies more confidence, as emerged in the many speeches moderated by journalist Fernanda Roggero.
Although work needs to be done on this, because as Oriana Romeo (Mediobanca) reminded, making a comparison with French wine exports, Italian wine exports are more concentrated, with the first three markets (USA, Germany and Uk) worth more than 50% of the total for Italy, while “only” 39% for the French, of “proximity”, since in the “Top 10” markets only USA and Canada are those outside the European area, and “poorer”, since the average price is much lower than the French, especially in the first three destination markets. Yet, in the last 10 years, Italy’s wine, in the world, at +39.4%, has grown more than France, at +29.5%. But, looking at some economic performance parameters, added Gabriele Barbaresco (Mediobanca), “Italian wine, often put in competition with French wine, is not that much better performer than that of Spain or France. We need to work on building value, on aggregations, on capital openings, as is happening, but perhaps also on a spin-off, by companies, of the land part from the purely commercial ones, which would make part of the business more streamlined, less “capital intensive”, and more attractive to a finance that, in any case, has started to think in longer time terms than usual, and more in line with the needs of wine businesses”.
How to grow further, then? “More than exports”, said Raffaele Boscaini (Masi Agricola), one of the top names in Amarone della Valpolicella and wine from the Veneto region, “we need to talk about internationalization, which does not just mean selling abroad, but equipping ourselves with tools and structures that create brands, interest and a functional and logistical system to take products abroad. For Italy it is difficult, given the great parcelization of our wine industry, a lot of work needs to be done. But, looking to the future, we need to focus on values such as conscious consumption, sustainability, green, wellness. Themes, already present, but whose growth has been accelerated by the pandemic. Themes now sensitive for all generations, but in the future buying “sustainable”, environmentally, but also socially will be the norm, not the possibility. When we buy, especially food and wine, we look more and more at the back label, with attention to health, but also to environmental and social sustainability, and on this wine can respond well. Speaking of aggregations, at least in the distribution part, they would be desirable. In France there is the negociant model, for example, but it would take, in general, a more structured network to take our excellence around the world”.
“To get through times like these”, said Umberto Pasqua, at the top of Pasqua Vigneti e Cantine, another top Veneto business, “you need big shoulders. We are not like Gallo, in California, who also makes glass, but we depend on others. We, as a company, have doubled our inventory, increased the number of suppliers, making the bottling lines more efficient. We also had to make price list increases, reasoned and agreed upon, sacrificing margin, a little bit us and a little bit the distributors, but we invested a lot in human resources, in salespeople around the world, even in markets like Israel, South Korea, UAE, with unimaginable results. And we have invested in young people with visions and ideas that look to tomorrow and bring values. There are many problems, it is undeniable. I, however, am optimistic, I love the wine business, we believe in the premium segment, we invest in it and we believe in it a lot. Since we restructured the company and then made the generational transition, we have doubled turnover through internal ways, without acquisitions, but positioning ourselves higher. If there were Undersecretary Centinaio, who I hope will be Minister of Agriculture”, Pasqua said, “I would ask him to work to strengthen the CMO, to cut VAT and to strongly oppose initiatives such as those of Ireland, which wants to put on the back label “wine is bad for your health””. And it is precisely from this that Federvini’s managing director Vittorio Cino takes his speech, according to whom “this attack on the world of alcoholic beverages in general, and on wine in particular, is the most serious threat for the coming years, because saying or writing on the label that it is bad for health attacks the product’s reputation. Italian wine is culture and territory, if you say that it is bad for you, that it is bad for your health, you attack its values. We have a Mediterranean model made of awareness, nutrition, conviviality, we are among the biggest consumers of wine but among the most virtuous when it comes to abuse, it means there are healthy consumption patterns. We are asking for three things: an interministerial table between Agricultural Policies, Health and Foreign Affairs, to make our voice heard in the international arena. Our voice in WHO (World Health Organization) is not there, or not heard. And the goal launched at the last meeting in Israel, to reduce per capita alcohol consumption by 10% by 2025, brings within its bosom the reduction of production. Not distinguishing between consumption and abuse is wrong, these are extreme measures, the Italian government must speak with a coordinated voice, at international tables we often miss and speak little. In Europe, then, we think that we should not bang our fists on the table; there is no need. We need, rather, clear messages, and coalition with other countries with a Mediterranean tradition. Which, by the way, are few in total. If we do not come together, the Northern European vision will prevail, with all that that entails. We must, however, also be proactive, affirming the Italian and Mediterranean model. But even here”, Cino points out, “an “alcohol council” has been reborn at the Ministry of Health for a few months, but compared to the past, representatives of producers are not present. But if, as it seems, we are part of the problem, we must be part of the solution, and we must be there. In Europe, in the coming months, there will be labeling reform, we fear that Ireland's flight forward (which, since September, has introduced “health warnings” on the label) is an experiment to then impose demonizing messages on the whole category. These days, in Europe, the next promotion plan is being discussed, and there are those who call for excluding wine and red meat. There is talk, for Italy, of 350 million euros per year for wine, overall. That could be lost, partially or totally. And that would have a devastating impact”.
In short, the future is as uncertain as ever. But wine, it should be remembered, “is an important asset for our economy”, reiterated Beniamino Garofalo, Ceo Santa Margherita, one of the leading Italian wine companies, with its heart in Veneto but wineries in many top territories in Italy, “it is a key-driver of the Italian tourism industry, and it is a flag for agribusiness. There are arguments we have been repeating for years, we need to speed up. The Italian wine business has done a lot, it has dialogued with institutions, it has champions like Amarone, Prosecco and Pinot Grigio, but we have to figure out what to do from now on. The issue of company size is also related to digitalization. We need more manageriality, we need a study of consumers that requires expertise, because every market is different. E-commerce, for example, has opened up new channels, but digitizing is not just that. Companies need to go from business to business to business to consumer, because in the end the target is the end consumer”, Garofalo said, “but we need structural interventions, competent managers, and the support of institutions”. To face a future that is as uncertain as ever. “We are all worried, 2023 is full of shadows”, stressed Giancarlo Moretti Polegato, at the head of Villa Sandi, among the most important Prosecco producers. “There are raw materials that worry, but there is also the recession, which in countries like Great Britain and Germany has already begun, countries that make more than half of Italian wine with the U.S. And when these countries go into recession you can feel it. We have to be with our feet in so many countries, we are in 130. The commercial part becomes fundamental, because quality is now widespread. But to go to certain countries you also need critical mass, and our industry is fragmented. We are part of a network of big-brand companies (the Italian Signature Wines Academy, together with griffes such as Allegrini, Bellavista, Caprai, Feudi di San Gregorio, Fontanafredda, Frescobaldi, Masciarelli and Planeta, ed.) that got together years ago, and this has given us great satisfaction, in presenting ourselves together at the big fairs, in exchanging information. And it works, respecting each one’s autonomy. Italy is a country ripe for consumption, we have to face the emerging markets, but we need resources to do it. Europe in the coming years will be in trouble, wine is not a commodity, there is already a slowdown, which must be compensated in new markets”.
Drawing the conclusions is Ettore Nicoletto, who heads Angelini Wines & Estates, a wine business that brings together many companies in prime wine territories in Italy. “We should invest in networks in markets abroad, building and developing import and distribution companies, to put our feet on the markets in a lasting way. And one of the proposals we should make to politics is to have the CMO promotion plan include an expenditure item aimed at building lasting things like these, not just doing the advertising or communication that is done from year to year. Looking, on the other hand, at the Italy-France comparison on exports”, Nicoletto added, “it must be said that France is based on four pillars that are Bordeaux, Burgundy, Champagne and Provence, which have enormous dimensions compared to Italian districts, with the exception of Prosecco and Pinot Grigio. So in that sense, we lose 4-2. The courageous turn would be to look for new appellations and types on which to invest and expand the offer of this Italy, which otherwise remains static. But we need to work more and better on narrative: we need to find a language to speak to the consumer of the future. We have spoken well to the Boomers, but they are in decline, deepened the Millenials, who are important today, but we are practically ignoring Generation Z, which is the future. We are flattened, we use models that have been important, but they need to be adapted to the dialogue with the new consumer. It doesn’t mean we have to break free from the man-territory-vine trinomial, but young people care about sustainability, health, and so on, and we can't use sommelier language with them. We have to change the communication model, to speak to consumers who are moreover increasingly “interracial”, because 48% of Generation Z, for example, are black, compared to 28% of Boomers. And that makes you think that some codes need to be changed. Then we need to work on value, which we struggle to unload on the ground compared to France. Also because we do much less pre-competitive activity in international markets than we used to. In 2009, the CMO promotion started with a lot of activities of the consortia, in the markets, to tell types and denominations, to tell their characteristics and prepare a common ground on which then, the companies, played their game. Today this activity has halved, and instead it would be important especially in the new markets. And brand policies of individual companies are not enough, although there are excellent cases. The territory is also a brand, which is a common hat, benefiting everyone. But what is needed is a greater propensity of companies to common factor certain phases of business activity. And a quantum leap is needed on this”.
Complex issues, summed up, to some extent, in Federvini’s proposals to the government that is forming in these hours: “to promote defiscalization interventions to incentivize dimensional growth and internationalization, to give life to a communication plan for Italian wine abroad by recognizing its economic, employment and identity values, to counter the irrational demonization of alcoholic beverages by supranational bodies, to mitigate energy supply costs”. Ideas and issues on which the future of Italian wine and its territories is at stake. Because, as Federvini president Micaela Pallini points out, “it is fundamental and urgent to give life to extraordinary, immediate and medium-term measures to help companies grow, including through acquisitions and aggregations We need larger companies and policies for the promotion of Italian wine on foreign markets. We are asking the new government for concrete interventions, including on the level of protection at the international level, where attempts are being made to demonize alcoholic beverages on a global scale, without wanting to consider the real crux to be addressed: education for responsible consumption”.