Amid inflation, material shortages and worker emergency, wineries’ perspective

The rising cost of raw materials, the difficulties in sourcing fundamental materials for the wine supply chain, such as bottles, corks and labels, but also the labor crisis, which becomes yet another source of concern for producers in Italy. They are all related to macroeconomic dynamics the challenges that companies, after a decidedly encouraging first part of 2022 in terms of sales, both in Italy and abroad, are facing, with few recipes and many hopes.

In the words, to WineNews, of producers and managers of leading Italian wine companies - from Chiara Lungarotti (Lungarotti) to Albiera Antinori (Marchesi Antinori), from Andrea Lonardi (Bertani Domains) to Michele Bernetti (Umani Ronchi), from Raffaele Boscaini (Masi) to Angela Velenosi (Velenosi), from Giampiero Bertolini (Tenuta Greppo) to Stefano Capurso (Dievole), from Celestino Gaspari (Zymè) to Caterina Dei (Dei), from Tiziano Castagnedi (Tenuta Sant’Antonio) to Antonio Michael Zaccheo (Carpineto), from Giampaolo Speri (Speri) to Vittorio Piozzo di Rosignano Rossi di Medelana (Castello del Terriccio) and Francesco Liantonio (Torrevento) - there emerges, first of all, an awareness of a global dimension of the problem.

The inflationary dynamics experienced by Italy are more or less the same as those experienced by all Western countries, and the immediate response, essentially the only one within the capabilities of entrepreneurs in the short term, is one that leads to rising bottle prices. With production costs now out of control, driven by the cost of energy (the sector that is bearing the brunt of Russia’s dastardly invasion of Ukraine more than any other) and all manner of materials, margins continue to thin, and turnovers are in danger of reversing. At the same time, galloping inflation, now at 8%, reduces consumer purchasing power. The widespread sentiment, however, is certainly not defeatism, but hope--which has always accompanied the wine world--for a quick exit from a spiral that has swept over the world economy without warning, and hopefully may have peaked before it begins, finally, to deflate.

“We continue to see the glass half-full”, says Albiera Antinori, because “coming out of the pandemic, sales have done very well indeed. There are long shadows on the horizon, such as inflation and price increases, but these affect the whole world and all sectors, with impacts on costs that will eventually raise the prices of the finished product as well, it’s part of the economic context”. For Chiara Lungarotti, on the other hand, “it’s an explosive mix, but as always we roll up our sleeves and move forward, wine has not stopped even in the face of times far more difficult than this”. As Andrea Lonardi recalls, “galloping inflation, coupled with the rising cost of labor and raw materials, are the big issues of 2022, which will also lead us to do some thinking not so much about list price increases, but about the purchasing potential of consumers”. That of raw material prices “is something that needs to be monitored, there are other sectors, such as construction, where we are starting to see a slowdown in price growth, but also the costs of some equipment used in the vineyard are starting to shrink, hopefully the bubble is at its peak and now we are back to normal”, comments Michele Bernetti.

Regarding concerns related to the cost of raw materials and energy, “as much as wine companies are not energy-intensive”, according to Raffaele Boscaini, “there is not much we can do, because these are dynamics related to speculative behavior of man and industry, and perhaps it is even more worrying because of that”. Definitely more distressed is Angela Velenosi, who speaks of “a worrying situation, because Italian wine had established itself in a very specific price segment, and so we risk becoming less attractive. We will lose the added value represented by value for money, to the advantage of other countries that are not experiencing the same situation as us. Which we hope will turn out to be only temporary, but at the moment we cannot give answers, aware that we are going to lose marginality in 2022. The hope is that a turnaround will come, or at least that inflation will stop here. By now, 2022 is shaping up to be a very difficult year, if it continues like this we are heading for more list price increases”. Rising costs and inflation, according to Giampiero Bertolini, “are immediate problems, there are increases at all levels, inflation is reaching 8 percent in Italy but galloping everywhere, and the greatest difficulties come from the lack of forecasts for tomorrow. We face the moment by trying to review internally all the critical issues related to our purchases, but we will also have to rethink possible price increases for next year, at least to keep profitability in line with what it is now. The unpredictability of the timing of this inflationary dynamic in the medium term is the real problem, as well as understanding how much it weighs in the countries to which we export, starting with the U.S., where inflation was already up to 8 percent three months ago”.

Rising costs, says Stefano Capurso, “generate medium-term dynamics, and lead us to an almost maniacal focus on purchasing and a renounced approach to markets in terms of marginality. As costs rise, it is quite normal for list prices to rise as well, but for certain products, those in the mid-range, the risk is that in many markets they will fall out of the ideal price range, and consequently out of the consumer’s shopping cart. In the U.S., for example, Chianti Classico on the shelves has gone from $21 to $25 if not more, with the risk that the American consumer will turn to alternative types of product”. More fatalistic, but no less critical, on the contrary, is the view of Celestino Gaspari, who recalls how “the economy, between inflation and commodity prices, is showing a curve like we have experienced and seen so many in the past, partly real, partly the child of interests and speculation, but we are fortunate to be in a sector that allows us to move on the same wave, it is just a matter of bringing back the balance we had previously achieved”.

Rising prices, “both on the energy front and for raw materials, from glass to paper, lead to a consequent rise in production costs, which are now very high”, Caterina Dei adds. “We also have to take into account lower quantities produced by the next harvest, which means a further thinning of margins. On the positive side, wines of increasing quality are being produced, something the market is very sensitive to at the moment”. For Tiziano Castagnedi, “the economic situation is heavy: the increases, we don’t know how justified, in raw materials such as glass, corks and paper, are creating difficulties, partly because they caught us off guard, no one was able to foresee them, and the list price increases, to date, are still insufficient to compensate for the cost increases we are facing”.

The current economic picture “is a temporary problem, but we hope it will not last too long”, says Antonio Michael Zaccheo. “Inflation is at 1980s levels, there is a shortage of raw materials due to the war in Ukraine and speculation. Tied to the economic issues is another problem, that of staff shortages at key points in the wine sector: we are struggling to find staff, qualified and unqualified. The situation is complex, but I hope it is temporary”. According to Giampaolo Speri, “from the economic point of view, the pandemic before and the war after had a huge impact. These are two thorny issues, the economic dynamics are the most unexpected, but we are already moving to get out of it, as always”.

Weighing down, in the view of Vittorio Piozzo of Rosignano Rossi di Medelana, “more than cost, is the lack of raw materials, such as glass, cork, but also cellar equipment, which is becoming a problem, because it does not allow work to be planned. These are all changes that will have to be addressed over time to react to these variables that are coming up. Labor is not a problem for us, we can count on historical workers, workers who are the children and grandchildren of our workers, who know the company, the wines and the vineyards, and represent a strong added value”. “Inflation and lack of raw materials are problems that leave us dismayed, because it is an unexpected and strange dynamic, dangerous for the resilience of the economy of Europe and perhaps the whole world”, warns Francesco Liantonio. “Ours, however, is a healthy and mature industry, and even if the 2022 budgets turn out to be a bit “drawn out”, we will still be able to put the problems behind us, focusing on sustainability and financial rebalancing globally, for a more serene future”.