More Thoughts About Recession

Imagine that a bank is an elephant and a wine merchant is a mouse. There is a fire in the forest (credit squeeze/recession), the frightened elephant stampedes and squashes the mouse.

Small wine companies might well be more adaptable and imaginative than larger ones, but one blow (a big, bad debt, for example) can bring them to their knees.

The companies that will best survive this recession are structurally sound with low debt exposure, manageable overheads and thus will be able to control the huge risks. Wine merchants, particularly those that deal with the on-trade, have operated for too long giving extended credit terms and generous discounts (analogous to banks giving big mortgages); now they are going to have to tighten up the way they conduct business.

The forthcoming recession will be a storm and there will be plenty of collateral damage. Brilliant strategy will aid survival, but is still no guarantee (a lot of companies will probably have to refinance - if that is an option). Everyone will necessarily sharpen their game, but there will be unpredictable chain reactions. This is not evolution as we know it, but catastrophe theory.

Not all sides of the wine trade will suffer equally. Supermarkets will continue to flourish and online companies who are competitive because of their low overheads should do reasonably well.

And let’s not forget the other variables that affect the wine trade and over which wine companies have no control, specifically the exchange rate.