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Are European wine producers set to feel the squeeze in 2023?

Published on: 10/26/2022

The European wine industry continues to be affected by a series of external events which are making it more difficult to operate profitably. With new research from market analysts Plimsoll rating 177 of Europe’s leading wine producers as “Danger”, these external factors could have an outsized impact on profitability and competitiveness in the market in 2023. 

The impact of climate change has affected crop yields across the continent. After the record heatwaves and wild fires of summer 2022, vine heat stress has seen poor grape harvests in 2021 and 2022. With relatively low irrigation rates employed by European producers compared to those from other wine producing countries, is the region in danger of being left behind by “new world wines” ?

Elsewhere, trade barriers and conflict are having a depressing effect across the wine market. The Ukraine conflict has led to collapse of wine imports into the country. Resulting sanctions on both Russia and Belarus have stymied those markets. With the region making up a sizeable export market for major European wines, the hit to the bottom line of producers is likely to be significant.

The continued fallout from Brexit has also seen further pressure placed on the margins and performance of Europe’s leading wine producers. Dan Harman, Britain’s leading wine wholesalers decision to shutter his UK operation and move to France, is the latest reflection of how complicated selling wine across borders has become. Save a return to single market or customs union, the £22.5 billion UK wine market will continue to be a more expensive place for European purveyors to do business in, post Brexit.

Plimsoll’s latest analysis of the European wine market, shows company values are down 1% in the latest year as producers struggle with macroeconomic disruption. Having valued each of Europe’s 600 leading wine producers, the fall in profit margins over the past 18 months has seen company values continue to fall.

Please click here for more information on Plimsoll’s latest analysis of the European Wine market.

Within the industry, there is a growing divide in valuation performance based on size. The largest producers on the continent, those with sales above €50m, saw values rise by more than 4%. Meanwhile, smaller, boutique purveyors saw their values fall by more than 5% in the same period. Clearly, economies of scale provide a significant buffer against disruption.

There is also a growing discrepancy in performance and business value by country. Portuguese producers have seen the largest increase in average values while those from the “big three” producing countries of France, Spain and Italy have all remained positive. Smaller producing countries, particularly Bulgaria have been hardest hit:

Region

Industry Pretax Margin

% Change On Average Value

Bulgaria

1.6

-12

Czech Republic

0.9

-1

Hungary

3.7

-2

Portugal

5.3

12

Romania

3.7

6

Greece

5

2

France

2.8

7

Spain

3.2

8

Italy

1.3

3

 

The European wine market continues to be rocked by external factors. Some, like the change in climate, are likely to persist for a generation. Others, such as conflict and political missteps, could be reversed quickly and unexpectedly. Plimsoll provides a concise analysis of the European market so that business leaders can spot those companies that are navigating the current crises in good health and those in danger of failure.  

Please click here for more information on Plimsoll’s latest analysis of the European Wine market.