5 key issues that the wine industry in Switzerland is currently facing
In 2020, EHL and Changins wine school has launched a study on Swiss wines and the impact of Covid-19. Since a semblance of a return to normal is taking shape, the time seems opportune to summarize this project, taking care to place the Covid-19 crisis in a more general context. The objective is in particular to address the fundamental problems which affect Swiss wines and to try to identify possible solutions. The following analysis is based on interviews conducted with wine producers and key market players during the second half of 2020.
Sales held up well in 2020
The results of a previous poll indicated an increase in private consumption of wines, which particularly favored Swiss wines. A study of the Swiss Wine Market Observatory (OSMV) confirms this trend for wines sold in supermarkets. The feedback from the wine growers questioned is consistent with these observations, but it is only partially and above all to be qualified.
Private consumers have indeed consumed and bought more, but not resellers, and in particular the hotel sector. Some winegrowers speak of a strong rebound and general solidarity during the summer of 2020, but overall restaurateurs and hoteliers simply were not able to place enough orders to fill the shortfall in the spring. It should also be noted the complete collapse of the events sector which represents a significant part of the turnover of some producers.
Overall, the customer mix was therefore decisive. Those who do the best overall are those who have a large private clientele and who have been able to reach them effectively. Several winegrowers stress the importance of a user-friendly website. Likewise, sending emails and being on social media seems to have helped maintain the connection with customers, and therefore support sales.
Next, it should be noted that there are strong nuances at two levels: market segment and geographic location. We can identify two distinct dimensions which combine to create four main segments. The first dimension is the size of the farm. In Switzerland we have “big houses”, small to medium sized domains, and “micro-winegrowers”. The latter are often very dependent on the former, to whom they sell most of their grapes. The second dimension relates to the reputation for quality and the domain’s hold on the production-sales cycle (these two elements generally go hand in hand). Thus, among the medium-sized domains, we can distinguish “Independent winegrowers” who are strongly differentiated by their notoriety and “Intermediate winegrowers” Which need sufficient notoriety and market directly only a limited part of their production.
The segment made up of independent winegrowers is generally the one that has weathered the crisis the best. In some cases, 2020 is even shaping up “the best year ever.” The intermediate winegrower segment had a complicated year, in particular due to a less accessible clientele (and sometimes even inaccessible in the event of events), sluggish demand for grapes and must, and pressure on prices. The big houses have exploited their size by launching communication / marketing actions and reducing their margins. They seem to have been able to limit the damage in this way. Finally, the situation of micro-winegrowers, often already difficult before the crisis, has worsened further. The problems here are structural and are characterized in particular by a strong dependence on a small number of intermediaries and an inability to invest to develop the wine industry.
Successful local initiatives
In order to counter the negative effects of confinement, the winegrowers acted mainly at two levels: prudent management of financial flows (in particular by postponing investments) in order to maintain sufficient liquidity, and marketing / communication strategies (emailing, special offers, free delivery ). The second approach appears to have been well received by customers and has worked well.
Communities have also put in place measures such as reduction of working time (RHT), Covid loans and the possibility of downgrading parts of production. The wine growers questioned consider that these measures have been rather weak overall. This is not necessarily surprising given the limited time available to develop and deploy these measures. This is also consistent with the fact that the Covid-19 has only exacerbated the imbalances already present. Concretely, what is lacking is a real strategy to tackle structural problems.
Some local or regional actions have worked particularly well. For example, the good DireQt (Suisse Romande), WelQome (Vaud), Kariyon (Friborg) and other local initiatives have been very effective. These offers all offered a discount (subsidized by the public authorities or companies in the case of DireQt) to consumers to encourage them to consume locally. Some of these initiatives have focused on the semi-containment period, but most have been active for longer. In addition to being a commercial success, these offers have also been a great opportunity to connect with consumers.
Five key challenges Swiss viticulture must face
The interviews made it possible to identify five issues that already existed before the Covid-19 crisis and which today appear more significant than ever:
- Complexity: In Switzerland, everything is fragmented and subject to regionalism. In addition, we have our own practices (like the AOC system perceived as confusing: “people don’t understand”).
- Production costs: In particular, it is impossible to produce entry-level wines at prices comparable to those of neighboring countries: “we have the most expensive low-end wines in the world”.
- No one-size-fits-all solution: Needs and opinions vary widely across segments, ranging from putting in place mechanisms to protect indigenous production from foreign competition to the anticipated (and sometimes desired) demise of production. “the weakest”, in particular by grubbing up the vines.
- Lack of leadership: Swiss wine production suffers from a lack of support and the absence of sufficiently strong governance at the national level. The multiplicity of actors representing the sector at the regional level makes everything opaque, complex and, ultimately, ineffective.
- Inadequate organization of the sector: The sector operates just in time, which makes it very dependent on economic and climatic hazards. In addition, the drop in the number of intermediaries combined with a frequent deferral of the role of carrying stocks from intermediaries to winegrowers places the latter in a complicated position, both financially and logistically.
A particularly important problem is the lack of support and the absence of sufficiently strong governance at the national level. Several speakers cited the examples of the EU, which actively supports producers with a strategy, or of Austria, where a centralized policy has been put in place in order to modernize the sector and offer it prospects. A winemaker mentioned “EU grants [which] are a kind of unfair competition ”. Stronger support in Switzerland could rebalance the situation. The following sentence sums up the general feeling well: “the Confederation must take a position on the question of the share of Swiss wines that we want in Switzerland”. This share is currently 37.7% according to figures from the Federal Office for Agriculture (FOAG).
Questions for the future and possible solutions
There is no doubt that Swiss wines face significant challenges. But other Swiss industries have skillfully transformed difficulties into opportunities to reinvent themselves in the past. This is consistent with our feelings in contact with respondents and is reflected in the large number of thoughts and solutions they shared with us (see Table 1).
Table 1: Thoughts and Possible Solutions
This report shows a contrasting situation for wine producers in Switzerland. While some players benefit from a favorable situation, others really suffer from it. Covid-19 has somehow exacerbated these imbalances, but it would be wrong to use the term “cyclical crisis” to characterize this episode. Indeed, there are real winners and the measures put in place seem to have worked well overall. In reality, the crisis is structural in nature: Swiss viticulture is facing several challenges which have become increasingly important in recent years.
The interviews helped to identify some of the main problems facing the Swiss wine industry and also to develop possible solutions. Some of these avenues deserve to be analyzed in depth in order to be able to develop a real strategy for Swiss wines. The interviews are generally rather optimistic and above all, it is interesting to note that non-winegrowers are often those who have the most positive vision and the most resolutely oriented towards the long term. A retailer observes that the quality of Swiss wines has increased enormously and that it is more and more recognized, he judges the image of Swiss wine positively and indicates that even outside the borders he observes a positive development. Finally, he underlines that, for his part, the sales of Swiss wines follow a “Very positive dynamic”.
Swiss wines therefore certainly have a future. But we need to tackle the identified problems, resolve them and work on a long-term strategy. It requires strong leadership and more support from government.