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Allegrini 2018
ANALYSIS

The consequences of rising costs: prices up, but the large-scale retail trade is holding back

The Wine Net: prices up 10%, but not enough to contain the boom in energy and raw materials. Horeca still on its knees
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The Morellino di Scansano territory

Once the storm of the pandemic has passed, perhaps once and for all, the next challenge for the economy - Italian and global, for wine as for every other production sector - is that of the increase in the cost of raw materials and energy, aggravated by the difficulty of supplying many materials, with further repercussions, obviously negative, on the supply chain. According to the estimates of UIV (Unione Italiana Vini), this translates into a hefty bill for wine, amounting to 1.3 billion euros in additional costs, including the electricity bill, for which a surplus of 550 million euros is forecast compared to 2 years ago, and additional expenses for increases in transport, cardboard (+31%), glass (+40%), wood (+61%), plastic (+72%) and so on. In the end, price list increases, which had been avoided for a long time after such a complicated phase for the Italian economy, became inevitable but were almost always insufficient to contain the increase in costs. Increases that, in the end, will weigh on the entire supply chain, from production to the end consumer, with the Horeca sector still in difficulty and the large-scale distribution trying to build a wall and snatch the best price possible, because for many denominations, going out of their price range - below 7 euros per bottle on the shelf - more than an opportunity could prove to be an unsustainable challenge, aggravated by the increase in the price of grapes and bulk wine, after a poor harvest like 2021.

In the background, the battle on international markets, with Italy’s wine competitors having to face the same dynamics, but also the need to consolidate relations between the parties along the supply chain and overcome the wall-to-wall, in the knowledge that no-one saves themselves, and that the Government will also have to do its part to protect a vital and healthy sector of Italian-made products such as wine. These are the issues addressed in the webinar by “The Wine Net”, the network that brings together seven of the most important cooperatives in Italy - Cantina Vignaioli Scansano, La Guardiense, Cantina Pertinace, Cantina Valpolicella Negrar, Colli del Soligo, Cantina Frentana and Cva Canicattì - for a total of 5,821 hectares under vine and 30 million bottles produced each year in some of Italy’s most prestigious territories and regions, a privileged observatory on the economic dynamics of the sector.

The first obstacle to overcome, as mentioned, is on the shelves of large-scale distribution, where even the slightest increase in price has significant repercussions: a few tens of cents can push a product out of the shopping cart, with cascading consequences that are potentially very difficult to contain. “Valpolicella”, says Daniele Accordini, managing director of Cantina Valpolicella Negrar, “works with three different types of wine, Valpolicella Classico, Ripasso and Amarone, in three different price ranges. In addition to increases in the cost of energy, raw materials and materials such as bottles and cardboard, the price of grapes and wine has also risen by up to 50%. In this way, Valpolicella, in order to remain on the market, risks dropping out of its natural price range on the shelf, with a serious strategic impact, because it is the wine that generates volumes and turnover, the declination of Valpolicella that families bring to the table every day. We are asking for two things: for the Government to help us reduce electricity and gas costs, and for the Consorzio Valpolicella to bring the yield per hectare back to 120 quintals, as it has always been, in order to contain prices and keep this product on the shelves. At the moment”, adds Accordini, “the distributors have shown that they are able to maintain a certain grip on the market and the territory, reacting better than the large-scale distribution and the representatives, who are suffering. With large-scale distribution, however, we are closing contracts with price list increases of 8-9% (which become 20% for the end consumer), and from abroad we expect a reduction in consumption (in volume), but we will only know this when the price lists are applied”.

After a brilliant recovery in the summer of 2021, the entire Horeca segment is still suffering badly, as it is paying the price for the collapse in international tourism and the latest wave of the pandemic, which has put millions of people indoors. “Ours is a small cooperative, and we had no intention of raising prices, at least until June 2021, trying to absorb the increases in grape costs with physiological increases of a few cents, aware of the situation we are coming from, which for the restaurant industry has been decidedly critical”, says Cesare Barbero, director of Cantina Pertinace, in Langhe. “After the reopening of activities, and with a certain euphoria, positivity returned, but costs continued to rise month after month, and we were forced, while remaining anchored in the philosophy of making wines accessible to all, to pass these costs on to the new price lists, with increases of around 10%, significant but not enormous. Especially if we think that the price of grapes has increased by 20%. We are trying to help restaurateurs after a difficult period, hoping that the market reaction will be positive, but we will only find out in a few months. On foreign lists, with other margins, the increases have been more limited (5-7%), but in any case they are not unexpected increases, they have been talked about since November, it was a possibility that became more and more evident. The restaurateurs are well aware that the price of wine would have risen, and they too will act accordingly”.

A ray of sunshine, breaking through the clouds that are gathering over the next few months, sheds light on a proactive response, at least in potential, to this crisis, from which certain territories, and certain wineries, could emerge stronger, especially in terms of positioning, making that leap in quality that has been too long and too often postponed, as Sergio Bucci, director of Cantina Vignaioli del Morellino di Scansano, hopes. “In our case, we have also aligned ourselves to a 10% price increase, but it is an increase that does not cover cost increases. Our objective is to recover in the long term, in the next 2-3 years. This is also because Morellino di Scansano has not suffered from the pandemic crisis: sales have shifted to the shelves of wine shops and large-scale distribution, but the numbers have held up. The doubt, then, is that of being positioned at a price that is even too low, lower than its real value. Morellino di Scansano, even in restaurants, is chosen because it is cheap and you can enjoy a good glass, so we believe that in the Horeca sector a limited increase will not have major consequences. However, we are concerned about large-scale distribution, because the price has a great influence on choices, especially at a time like the one we are experiencing. The risk, in this case, is to exceed the 7 euro threshold and reposition ourselves at a higher level. A risk that we want to take anyway because it’s a price range that an important wine like Morellino can occupy. After all, we cannot go to the large-scale retail trade with the same prices as yesterday, we cannot afford it, especially after guaranteeing for so long a good price for the customer by reducing our margins: increases are in the order of things, buyers know this well, but renewing with the large-scale retail trade is not at all easy. We must remember”, adds Sergio Bucci, “that increases are the result of a great many variables, so it is difficult to calculate a generic cost increase that is valid for everyone, but for example Bordeaux has seen an increase of 6 cents per bottle, at least in our case, and then there is the difficulty of finding materials, which slows down work and weighs on the coffers of the cooperative”.

A burden, that of rising costs, which cannot be paid by companies alone, which, as in the case of Cva Canicattì, led by Giovanni Greco, found themselves, “after the recovery of 2021, accompanied by the resumption of bar and restaurant activities, with the pandemic that has forced us to review our attitude towards the market, trying to expand to large-scale distribution and new forms of sales, with investments and dedicated lines, in the face of increases in the costs of energy and raw materials, which have arrived like a blow, and which will lead to increases of 10% in our price list. There are uncontrollable factors, such as the price of energy, others that require state intervention, and then it would take the ability to move as a sector because at the moment everyone is moving individually as they see fit. In the end, the feeling is that at this very complex stage there is no overall view of the problem, no ability to bring together the players in the sector and how to deal with these difficulties. If production costs, on the whole, are +30-40%, and price lists are rising by 10%, it is obvious that companies are paying the rest. In the end, who will be able to resist? I am afraid that the weakest, as in all crises, will pay the price. This is an issue that needs to be discussed seriously, involving associations and consortia as well as distribution”.

In this panorama, there is one territory that is performing almost as if it were in a league of its own, given its long and unstoppable growth trend: Prosecco. “There is no denying the good health of Prosecco, which has been coming off 10 years of truly significant growth in consumption. Prosecco is an accessible, young, fresh and undemanding wine, which lends itself to different types and moments of consumption. Speaking of numbers”, explains Andrea Curtolo, director of Cantina Colli del Soligo, “in 2021 sales of Prosecco Doc reached 625 million bottles (+25%), Conegliano Valdobbiadene 100 million bottles (+14%) and Asolo 20 million bottles (+20%), and the beginning of 2022 marks powerful growth over January 2021. During the pandemic, people started drinking Prosecco at home, buying it in supermarkets or online, in Italy as well as in the USA, Great Britain and Germany. In terms of price lists, there was a significant increase in dry materials (+15% for bottles, capsules and cartons), which accounted for 3-6% of costs, while energy rose by at least 70%, adding a further burden. But the biggest increase is in bulk wine (40%), because demand is much higher than supply, and many bottlers, for fear of running out, have paid more than the quotations. We are working with cooperatives and associations to calm prices and give large buyers a constant price, because fluctuations are not good for the markets. The December price lists have been accepted by the Horeca, with significant but realistic increases. The large-scale retail trade, on the other hand, did not accept the new price lists, making counter-proposals that we did not feel able to accept. We are giving up large-scale distribution to concentrate on the Horeca market, and we hope to be able to conquer new markets soon. Both Horeca and large-scale distribution will let us know in the next 2-3 months how things are going”.

From the point of view of the cooperatives, however, the cost boom must also be tackled ethically, not just economically, “because working in a cooperative”, says Felice Di Biase, head of the Abruzzo-based Cantina Frentana, “means embracing a different philosophy of life, linked to environmental, social and economic sustainability. Those who choose the cooperative need to share, which is the basis for establishing solid relationships throughout the supply chain, from grape production to processing and marketing, and the indiscriminate increase in prices is not the only solution to booming costs. Of course, it is necessary and inevitable, because we have to guarantee the income of our members, but the key is to share this experience at a commercial level: we cannot just think of suffering and imposing increases. The right solution has to be found, but the behavior must be that of a healthy balance between economy and ethics, making it clear to those we are dealing with (Horeca, large-scale distribution) that behind our bottle there is a territory, an economy, hundreds of families. If our interlocutor embraces our philosophy, then the relationship can become shared, and this makes us all willing to make sacrifices, absorbing costs and guaranteeing sustainable price increases. Our most important DOC, that of Montepulciano d’ Abruzzo, is unlikely to remain in the price range in which it is today, but we cannot save ourselves, and the world of cooperation knows this better than anyone”.

Given that these are costs that are almost entirely borne by production, there should be no major differences in price increases between domestic and foreign markets, apart from the margins that each winery decides to guarantee. “What we are going through is a very particular period”, concludes Domizio Pigna, president of La Guardiense in the Sannio region, “which, after the pandemic, has confronted us with rising production and grape costs. We have settled on increases of between 10 and 15%, both on the Italian and foreign price lists. We are maintaining our positions, but 2022 must be a year of progress, through growth in Italy and abroad. The government must do its part because healthy companies must be protected, we need supply chain agreements, but aggregation is a great strength”.

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