It’s the perfect Covid-19 storm.
China’s burgeoning wine industry is facing a barrage of problems — due to the enforced closure of catering and pub businesses, that resulted in sales interruptions and payment collection difficulties, the industry faces a liquidity crunch just as it gears up for spring production.
The catering industry is just resuming business while the demand for liquor and alcoholic beverages in the retail market hasn’t recovered yet, so cash flow-back from sales are still stalled, Chen Lizhong, owner of Xinjiang Tiansai Vineyards, told Yicai Global.
“Our firm’s offline sales dropped 80 percent from the same period last year,” Feng Yingzun, general manager of Ningxia Leirenshou Winery, revealed to Yicai Global, noting that the winery’s online sales have also been significantly impacted.
For example, its sales on China’s major e-commerce marketplace Taobao under Alibaba Group Holding declined 20%.
Leirenshou Winery is a representative enterprise of China’s large-scale wineries and can produce over 1 million bottles of wine a year, with a 50-50 split in online and offline sales, the report said.
Feng said that the fourth quarter of each year and the first quarter of the following year is the peak season for wine sales, with 70% of the firm’s annual sales completed during this period, the report said.
The Covid-19 outbreak happened to occur in the first quarter, thus wine which should have been sold out before the Spring Festival is still on the shelves.
The company has 109 employees and pays 300,000 yuan (USE42,282) to 500,000 yuan monthly for their social insurance premium and wages, in addition to fixed expenditures and payment for spring farming and grapes, Feng revealed.
So the winery is facing a 5 million yuan (US$704,711) funding gap before the next peak sales season in the fourth quarter comes.
Shanxi province’s largest winery Grace Vineyard also announced earlier that the company’s financial results for the first quarter are expected to be unsatisfactory due to plummeting wine consumption amid the outbreak, the report said.
Meanwhile, vineyards in Penglai city, Shandong province, which abounds in wine haven’t received any new orders, Shen Guoquan, director of the city’s wine bureau, told Yicai Global.
April to June is the planting season for wineries, which requires a lot of investment. Some wineries also make final payment to grape growers for the previous year during this period, and their loans from banks are generally due at this time, the report said.
In fact, last year was a bad year for China’s wine industry, with sales of wine companies declining to varying degrees, which added to the financial pressure on winery operators.
Huo Xingsan, deputy secretary-general of the wine branch of the China Alcoholic Drinks Association, told Yicai Global that some wineries are indeed facing financial difficulties.
Local governments have unveiled support policies such as low-interest loans, but industry insiders think these policies have provided limited help. Some winery owners told Yicai Global that they cannot apply for low-interest loans because they have no collateral.
Even without the outbreak, financing difficulty has been a long-standing problem plaguing China’s wine industry. Banks are not willing to lend money to wineries, Zhang Yanzhi, owner of Ningxia Xige Estate, complained to Yicai Global.
Wines produced by most wineries need one to two years ageing in oak barrels before they go on the market, which can take up a lot of money, industry insiders said. Banks, however, prefer fixed assets such as land and real estate certificates to raw wine or finished wine as collateral for loans.